Appellate Tribunal remits case for Section 9 application, emphasizes insolvency vs. default.

The Appellate Tribunal set aside the Adjudicating Authority's decision and remitted the case for admitting the application under Section 9 of the IBC. The Corporate Debtor failed to prove a pre-existing dispute, and the Operational Creditor did not misuse the IBC as a recovery forum. The Tribunal emphasized the distinction between insolvency and default, finding the Corporate Debtor defaulted on payments. The case was sent back for further proceedings with directions for settlement before admission, and the appeal was allowed without costs.

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Issues Involved:
1. Whether the Operational Creditor has not adjusted the amount of Rs. 2,60,594 remitted by the Corporate DebtorRs.
2. Whether there is a pre-existing disputeRs.
3. Whether the Operational Creditor has attempted to use the provisions of IBC as a recovery forumRs.

Issue-wise Detailed Analysis:

Issue No. (i): Whether the Operational Creditor has not adjusted the amount of Rs. 2,60,594 remitted by the Corporate DebtorRs.

The Operational Creditor presented the ledger account maintained for the Corporate Debtor from 01.04.2018 to 31.03.2020, which showed two credit entries: Rs. 1,37,296 on 02.06.2018 and Rs. 1,23,298 on 13.08.2018. These entries matched the bank account statements provided by the Corporate Debtor. Thus, it was concluded that the Operational Creditor did adjust the amount of Rs. 2,60,594 remitted by the Corporate Debtor. The Adjudicating Authority's finding that the Operational Creditor suppressed these payments was erroneous.

Issue No. (ii): Whether there is a pre-existing disputeRs.

The Corporate Debtor received the demand notice under Section 8(1) of the IBC on 28.06.2019 and replied on 15.07.2019, beyond the stipulated 10-day period. The reply did not dispute the debt amount or the quality of goods but mentioned verifying the authenticity of some bills. The Corporate Debtor assured payment for genuine bills after verification. However, no specific bills were identified as inauthentic in subsequent communications or objections filed before the Adjudicating Authority. The Hon'ble Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. emphasized that the existence of a dispute must be plausible and not merely a feeble legal argument. The Corporate Debtor failed to prove any pre-existing dispute, and the Adjudicating Authority's finding of a dispute was superficial and unsustainable.

Issue No. (iii): Whether the Operational Creditor has attempted to use the provisions of IBC as a recovery forumRs.

The Hon'ble Supreme Court in K. Kishan vs. Vijay Nirman Company Pvt. Ltd. highlighted that the IBC should not be used as a substitute for debt enforcement procedures or for extraneous considerations. The Operational Creditor's claim of Rs. 12,75,316 was supported by ledger entries, purchase orders, invoices, emails, and a demand notice. The Corporate Debtor did not provide any material to suggest that the claim was premature or for extraneous considerations. The Adjudicating Authority's conclusion that the Operational Creditor used the IBC as a recovery forum was incorrect.

Additionally, the Adjudicating Authority's observation that no case was made out of the Corporate Debtor's insolvency was countered by the Appellate Tribunal's emphasis that inability to pay debts and committing default are distinct aspects. The Tribunal found that the Corporate Debtor defaulted on paying more than Rs. 1 lakh, and in the absence of a pre-existing dispute, the application under Section 9 of the IBC should have been admitted.

Conclusion:

The Appellate Tribunal set aside the impugned order dated 19.06.2020 and remitted the case to the Adjudicating Authority for admitting the application under Section 9 of the IBC, after providing notice to the Corporate Debtor to enable settlement prior to admission. The appeal was allowed with the above observations and directions, with no costs.

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