2022 (1) TMI 1133 - AT - Insolvency and Bankruptcy

Tribunal Upholds Dismissal of Creditor's Application Due to Genuine Dispute

The Tribunal upheld the Adjudicating Authority's decision to dismiss the Operational Creditor's application due to a genuine dispute regarding the quality ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - dispute regarding the quality of goods - Time Limitation - HELD THAT:- It is very much clear that though the last invoice was raised on 05.10.2015 but the last payment having been made on 19.06.2017 and there is a running account admittedly towards its outstanding to the Appellant. It would extend the period of limitations as per provision of the Limitation Act. As the Appeal has been filed on 24.06.2019 which is within three years from the last transactions of June 2017. Section 8 & 9 of the Code clearly provides for the requirements of following three criteria’s before admission of a petition under Section 9 of the Code for initiation of CIRP by OC (i) the ‘Debt’ must be due and payable in law (ii)there must be occurrence of default & (iii) the ‘Debt’ must be undisputed. The OC has issued a demand notice of unpaid operational debt to the CD in the requisite format but the CD/Respondent No.1 has raised a dispute which apparently could not be answered by the OC as the OC has neither done the inspection so far nor has taken back the goods so supplied. The OC has factually failed to communicate that there is no existence of dispute. Further the proceeding under the Code is not for chasing payments, the Hon’ble Supreme Court in Transmission Corporation of Andhra Pradesh limited Vs. Equipment Conductors and Cables Limited [2018 (10) TMI 1337 - SUPREME COURT] has already held that IBC is not intended to be a substitute to a recovery forum and also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked. The view of the Adjudicating Authority is upheld. Issues Involved:1. Existence of a dispute regarding the quality of goods.2. Applicability of the Limitation Act.3. Compliance with Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016.4. The role of the Adjudicating Authority in considering disputes under the Code.5. The nature of the Insolvency and Bankruptcy Code as a recovery forum.Issue-wise Detailed Analysis:1. Existence of a Dispute Regarding the Quality of Goods:The Adjudicating Authority observed that the Corporate Debtor (CD) had raised a dispute regarding the quality of goods supplied by the Operational Creditor (OC). The CD provided evidence of two letters dated 09.10.2015 and 16.10.2015, raising issues about the quality of goods. The OC failed to file a rejoinder or provide evidence that the dispute was resolved. Consequently, the Authority concluded that the dispute was genuine and the application by the OC was not maintainable under Section 9(5)(ii)(d) of the Code.2. Applicability of the Limitation Act:The Tribunal clarified that although the last invoice was raised on 05.10.2015, the last payment was made on 19.06.2017. Given the running account between the parties, the period of limitation extended as per the Limitation Act. Therefore, the appeal filed on 24.06.2019 was within the three-year limitation period.3. Compliance with Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016:Sections 8 and 9 of the Code outline the process for an operational creditor to initiate a corporate insolvency resolution process (CIRP). The Tribunal noted that the OC issued a demand notice, but the CD raised a dispute in response. The OC failed to inspect or take back the disputed goods, and thus could not prove the non-existence of a dispute. The Tribunal emphasized that for a petition under Section 9 to be admitted, the debt must be due, there must be a default, and the debt must be undisputed.4. The Role of the Adjudicating Authority in Considering Disputes:The Tribunal referred to the Supreme Court's judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. The Supreme Court held that the Adjudicating Authority must determine if there is a plausible contention requiring further investigation and whether the dispute is not spurious, hypothetical, or illusory. The Tribunal found that the dispute raised by the CD was genuine and supported by evidence, thus requiring the rejection of the OC's application.5. The Nature of the Insolvency and Bankruptcy Code as a Recovery Forum:The Tribunal reiterated that the Code is not intended to be a substitute for a recovery forum. It cited the Supreme Court's judgment in Transmission Corporation of Andhra Pradesh Limited Vs. Equipment Conductors and Cables Limited, which stated that the Code cannot be invoked when there is a real dispute. The Tribunal upheld the Adjudicating Authority's decision, emphasizing that the proceedings under the Code are not for chasing payments but for resolving genuine insolvency issues.Conclusion:The Tribunal upheld the Adjudicating Authority's decision to dismiss the OC's application due to the existence of a genuine dispute regarding the quality of goods. The appeal was found to be within the limitation period, but the OC failed to prove the non-existence of a dispute as required under Sections 8 and 9 of the Code. The Tribunal emphasized that the Code is not a recovery forum and must not be used to chase payments where genuine disputes exist. No order as to costs was made.