2022 (2) TMI 142 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Rejected: Res Judicata, Identity Questions, Pre-existing Dispute

The Tribunal dismissed the application for initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor, citing the principles ... Res judicata - pre-existing dispute under Section 5(6) of the Insolvency and Bankruptcy Code - identity of applicant and validity of thumb-impression/attestation - Rule 128 NCLT Rules, 2016 and Form No. NCLT 14Res judicata - doctrine of constructive res judicata - Whether the present Section 9 application is barred by res judicata in view of the earlier IBC petition which was withdrawn by the applicant with costs. - HELD THAT: - The Tribunal held that the doctrine of res judicata applies where there has been a conscious adjudication on the merits; however, withdrawal of an earlier IBC petition after service upon the respondent and the subsequent conduct of the applicant demonstrated an intention to avoid an adverse adjudication. The earlier petition CP(IB)/03/KOB/2021 was withdrawn by an interlocutory application which was allowed with costs; the Tribunal construed the withdrawal in the factual matrix as an attempt to evade final adjudication and concluded that the present petition is hit by res judicata. The Tribunal relied on established principles that res judicata attains finality where litigation has been actively pursued and an outcome on merits was avoided by withdrawal coupled with conduct indicating apprehension of an adverse order. [Paras 27, 28, 29, 30, 31]The application is barred by res judicata and cannot be entertained.Identity of applicant and validity of thumb-impression/attestation - Rule 128 NCLT Rules, 2016 and Form No. NCLT 14 - Whether the Section 9 application was validly filed by the named applicant given absence of his signature and absence of the attestation required for affidavits sworn by illiterate persons. - HELD THAT: - On scrutiny the Tribunal found the application was not signed by the applicant and contained only a left thumb impression without any accompanying attestation or the statutory Form No. NCLT 14 which is mandated where an affidavit is sworn by an illiterate or visually challenged person. In absence of Form NCLT 14 or any explanation for non-signature and attestation, the Tribunal drew an adverse inference that the petition may have been filed without the applicant's actual knowledge or authority. The defect as to identity and verification was therefore held to be material. [Paras 32, 33]The application is vitiated by non-compliance in respect of the applicant's identity and verification and cannot be allowed to proceed.Pre-existing dispute under Section 5(6) of the Insolvency and Bankruptcy Code - Whether there existed a pre-existing dispute between the parties which would bar admission of the Section 9 petition. - HELD THAT: - Examining the statutory definition of 'dispute' in Section 5(6) of the Code, which includes disputes as to existence or amount of debt and quality of goods or services, the Tribunal found that a dispute as to quantity/quality of supplied goods had been pleaded and shown on record. The Corporate Debtor had contemporaneous contentions and legal proceedings relating to the High Sea Sale Contract, and the Tribunal accepted that a pre-existing dispute existed which disentitles the operational creditor from invoking the insolvency remedy under Section 9. [Paras 34, 35]A pre-existing dispute exists between the parties and bars admission of the Section 9 application.Final Conclusion: The Section 9 application filed by the operational creditor is dismissed as being without merit: it is hit by res judicata, is vitiated by defective verification/absence of required attestation regarding the applicant's identity, and is barred by a pre-existing dispute; the petition is therefore dismissed without costs. Issues Involved:1. Res judicata2. Identity of the Applicant3. Pre-existing DisputeIssue-wise Detailed Analysis:1. Res judicata:The Corporate Debtor contended that the present application is barred by res judicata, as a previous application (CP(IB)/03/KOB/2021) filed by the same applicant through a Power of Attorney holder was dismissed. The Tribunal noted that the doctrine of res judicata, as codified in Section 11 of the Code of Civil Procedure, 1908, applies to prevent re-litigation of issues that have been adjudicated. However, the doctrine applies only when there has been a conscious adjudication of the issue on merits. The Tribunal found that the previous application was withdrawn with costs, indicating that the Tribunal was prepared to adjudicate the matter. The applicant's withdrawal of the application to avoid an unfavorable decision and subsequent filing of a new application on the same cause of action was deemed to be barred by res judicata.2. Identity of the Applicant:The Corporate Debtor questioned the identity of the applicant, noting that the current application was filed with a Left Thumb Impression instead of a signature, without any explanation or attestation. The Tribunal referenced Rule 128 of the NCLT Rules, 2016, which requires an affidavit for illiterate or visually challenged persons to be certified by an attester. The absence of Form No. NCLT 14, which certifies the affidavit was read, explained, or translated to the deponent, raised doubts about the authenticity and authority of the application. The Tribunal concluded that the application might have been filed without the actual knowledge or authority of the applicant.3. Pre-existing Dispute:The Corporate Debtor argued that there was a pre-existing dispute regarding the High Sea Sale Contract, which should bar the initiation of the Corporate Insolvency Resolution Process (CIRP). The Tribunal examined Section 5(6) of the Insolvency and Bankruptcy Code, 2016, which defines a dispute to include suits or arbitration proceedings related to the existence of the debt, quality of goods or services, or breach of representation or warranty. The Tribunal found that the Corporate Debtor had established a pre-existing dispute regarding the quality of goods supplied under the High Sea Sale Contract. The existence of this dispute was corroborated by multiple legal actions and caveats filed by the Corporate Debtor against the applicant.Conclusion:Based on the findings, the Tribunal dismissed the application for initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor, citing the principles of res judicata, questionable identity of the applicant, and the existence of a pre-existing dispute. The application was deemed to be without merit and dismissed without costs.