2021 (10) TMI 338 - AT - Insolvency and Bankruptcy

Appeal Dismissed, Order Confirmed Due to Pre-Existing Dispute

Suman Kumar Sharma Versus Central Railside Warehouse Company Limited

The appeal was dismissed, and the order of the Adjudicating Authority was confirmed due to the pre-existence of a dispute, liability clauses in the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - service of demand notice - HELD THAT:- It is seen from the record that last part payment was received on 16.02.2016 and the Section 8 Demand Notice was dispatched on 01.02.2018. Admittedly, the 'Corporate Debtor' received the Demand Notice but did not reply to the same. It is the case of the Appellant that this aspect of 'transit loss' was never raised by the 'Corporate Debtor'. A perusal of the Settlement Agreement entered into between the FCI and the 'Corporate Debtor' dated 13.08.2014 shows that the storage loss between February 2011 till March 2012 was less than 0.5% and hence, was regularized. It was the 'transit loss' which was not waived. As laid down by the Hon'ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT] applying the test of 'Existence of a Dispute', without going into the merits of the case, we are of the view that in this matter, there is a plausible contention which requires further investigation, which is not a patently feeble legal argument or an assertion of fact unsupported by evidence. In the instant case, the Clause Work Description' 'depicts that the Appellant/'Operational Creditor' is responsible for the transit and the handling of all notified commodities'. Apart from the Indemnity Clause VIII of the 'Agreement and Custody and Indemnity Bond', signed by both the parties, which provides for the Service Provider to cover all losses/damages and compensate the CRWC for the same, the communication on record dated 01.11.2012, 10.12.2012, 18.01.2013, show that there was an ongoing dispute regarding shortage of 335MT of boiled rice. A Joint Meeting was held which was attended by the Appellant, the 'Corporate Debtor' and FCI - Settlement Agreement evidences that through storage losses upto 0.5% was regularized, 'Transit Losses' (T/L) of ₹ 81,56,519/- was shared on a 50:50 ratio by FCI & CRWC, both being Central Government Organizations, they bore the losses equally. Keeping in view the Indemnity Clause, the communication between the parties, filed before the Adjudicating Authority read together with the Settlement Agreement, we are of the view that the ratio of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT] is squarely applicable to the facts of this case as there is sufficient material to show that 'Dispute exists between the parties'. There are no illegality or infirmity in the said Impugned Order - appeal dismissed. Issues Involved:1. Pre-existence of dispute between the Operational Creditor and the Corporate Debtor.2. Liability for losses under the Service Agreement and Indemnity Bond.3. Validity of the Section 9 Application under the Insolvency and Bankruptcy Code, 2016.4. Interpretation of the Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. case.Detailed Analysis:1. Pre-existence of Dispute:The Adjudicating Authority had to determine whether there was a pre-existing dispute between the parties before the issuance of the Section 8 demand notice by the Operational Creditor. The existence of such a dispute would render the Section 9 application non-maintainable under the Insolvency and Bankruptcy Code, 2016. The Authority found that there was indeed a pre-existing dispute based on correspondences and agreements between the parties, particularly a letter dated 01.11.2012, which indicated that the Corporate Debtor had detected shortages and held the Operational Creditor responsible.2. Liability for Losses:The Operational Creditor was awarded contracts for handling and transport of goods at the Rail Warehousing Complex (RWC), Hatia. The contracts included clauses that made the Service Provider liable for losses suffered by the Corporate Debtor due to negligence or unworkmanlike performance. The Indemnity Bond further stipulated that the Operational Creditor would be responsible for the safe custody and protection of goods and indemnify the Corporate Debtor against any losses. The Adjudicating Authority concluded that these clauses indicated a pre-existing dispute regarding the liability for losses.3. Validity of Section 9 Application:The Section 9 application was dismissed by the Adjudicating Authority on the grounds of pre-existing dispute. The Operational Creditor argued that the last payment received was on 16.02.2016 and a demand notice was issued on 01.02.2018. However, the Corporate Debtor did not respond to the demand notice. Despite this, the Authority found that the dispute over losses and the indemnity obligations were sufficient to dismiss the application under Section 9 of the Code.4. Interpretation of Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd.:The Authority relied on the Supreme Court's decision in Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., which established that an application under Section 9 must be rejected if there is a notice of dispute or a record of dispute in the information utility. The dispute must be a plausible contention requiring further investigation and not a patently feeble legal argument. The Authority found that the dispute between the Operational Creditor and the Corporate Debtor met this criterion, as it was not spurious, hypothetical, or illusory.Conclusion:The appeal was dismissed, and the order of the Adjudicating Authority was confirmed. The Authority found no illegality or infirmity in the Impugned Order, and the Operational Creditor was advised to seek remedies in an appropriate court if so advised. The dismissal was based on the pre-existence of a dispute, the liability clauses in the service agreement and indemnity bond, and the principles laid down in the Mobilox case.