2021 (11) TMI 476 - AT - Insolvency and Bankruptcy

Tribunal upholds dismissal of Section 9 application under Insolvency Code, citing pre-existing dispute

The Tribunal affirmed the rejection of the Section 9 application under the Insolvency and Bankruptcy Code, 2016 by the Ld. Adjudicating Authority, citing ... Existence of dispute - operational debt - application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - rejection of Section 9 application - application of the Mobilox principle - adjustment against liquidated damagesExistence of dispute - operational debt - application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - application of the Mobilox principle - rejection of Section 9 application - Whether the Adjudicating Authority was justified in rejecting the appellant's Section 9 application on the ground of a pre existing dispute - HELD THAT: - The Tribunal recorded and accepted several admitted facts including issuance and amendment of work orders, completion of work, invoices raised and part payments made, and that additional bills were raised for extra work. The Respondent consistently pleaded that the additional bills related to work not agreed under the contract and that liquidated damages/ set off were claimable under the contract terms. The Adjudicating Authority found, applying the law in Mobilox Innovations (as relied upon by the Respondent), that there was a pre existing dispute reflected in exchanges between the parties and correspondence concerning quantification of additional work and liquidated damages. The Tribunal noted those findings and observed that the Adjudicating Authority had rightly concluded that the existence of a dispute disentitled the appellant to relief under Section 9. The appellant's contention that part of the claimed operational debt was undisputed was considered but not accepted as a ground to sustain the Section 9 petition in view of the admitted set off/liquidated damages and the established pre existing dispute. Having found no illegality in the Adjudicating Authority's application of the Mobilox principle to the admitted facts, the Tribunal declined to interfere with the rejection of the Section 9 application. [Paras 18, 19]The rejection of the Section 9 application by the Adjudicating Authority on account of a pre existing dispute is affirmed and the appeal is dismissed.Final Conclusion: The Appellate Tribunal affirmed the National Company Law Tribunal's order rejecting the Section 9 petition, holding that a pre existing dispute (including issues as to additional work and adjustment by liquidated damages) existed and consequently there was no illegality in the Adjudicating Authority's refusal to admit the insolvency petition. Issues Involved:1. Rejection of Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC).2. Existence of pre-existing dispute.3. Admissibility of debt and additional work claims.4. Opportunity to file a Rejoinder.5. Liquidated damages and right to set off.Issue-wise Detailed Analysis:1. Rejection of Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC):The Appellant, a Sole Proprietor construction firm, filed an application under Section 9 of the IBC for the initiation of Corporate Insolvency Resolution Process against the Respondent. The Ld. Adjudicating Authority (NCLT, Principal Bench, New Delhi) rejected this application on 24.10.2019. The Appellant was aggrieved by this order and preferred an appeal.2. Existence of pre-existing dispute:The Respondent argued that there was a pre-existing dispute regarding the additional work and the quantum of payment. The Respondent had communicated this dispute through various correspondences and meetings. The Ld. Adjudicating Authority found that there was indeed a pre-existing dispute, as evidenced by the communications and the Respondent's Reply Affidavit. The Hon’ble Supreme Court's judgment in 'Mobilox Innovations Private Ltd. Vs Kirusa Software Private Ltd.' was cited, which expanded the definition of 'dispute' to include correspondences showing a dispute relating to payment of the debt.3. Admissibility of debt and additional work claims:The Appellant claimed a total debt of Rs. 9,22,22,917/-, out of which Rs. 7,76,50,619/- was paid, leaving a balance of Rs. 1,33,40,071/-. Additionally, the Appellant raised bills amounting to Rs. 1,42,72,787/- for additional work. The Respondent disputed the additional work claims, arguing that these were not agreed upon and were unilaterally raised by the Appellant. The Respondent also asserted their right to set off liquidated damages against the claimed amount.4. Opportunity to file a Rejoinder:The Appellant contended that the Ld. Adjudicating Authority erred by not providing an opportunity to file a Rejoinder to the Respondent's Reply. However, the Ld. Adjudicating Authority recorded that the Appellant chose not to file a Rejoinder, which was contested by the Appellant.5. Liquidated damages and right to set off:The Respondent argued that they were entitled to liquidated damages due to the delay in project completion, as per the terms of the work orders. The liquidated damages amounted to Rs. 1,58,02,918/-, which was set off against the Appellant's claim. The Respondent's right to set off was supported by the terms and conditions of the work orders and the deductions made by Gujarat State Electricity Corporation Limited (GSECL) from the Respondent's account.Findings:The Tribunal found that the facts admitted included the issuance of work orders, amendments, completion of work, and the raising of invoices. The Tribunal agreed with the Ld. Adjudicating Authority's finding of a pre-existing dispute and upheld the rejection of the Section 9 application based on the Supreme Court's judgment in 'Mobilox Innovations Private Ltd. Vs Kirusa Software Private Ltd.'Order:The Tribunal affirmed the impugned order dated 24.10.2019, passed by the Ld. Adjudicating Authority (NCLT, Principal Bench, New Delhi), and dismissed the appeal, finding no merit in the Appellant's claims. The Registry was directed to upload the judgment on the website and send a copy to the Ld. Adjudicating Authority.