2022 (2) TMI 148 - AT - Insolvency and Bankruptcy

Appeals Dismissed in Section 9 Application Rejection Judgment Emphasizes Pre-existing Dispute Resolution

The Appeals were dismissed as no error was found in the rejection of the Section 9 Application. The judgment emphasized the importance of resolving ... Section 9 application under Insolvency and Bankruptcy Code, 2016 - extension of limitation by account confirmation - forgery and pending criminal proceedings affecting evidentiary reliance - pre-existing dispute - notice of dispute under Section 8(2)(a)Extension of limitation by account confirmation - forgery and pending criminal proceedings affecting evidentiary reliance - Whether the Section 9 application was time-barred and whether the account confirmation dated 01.04.2017 could extend the period of limitation. - HELD THAT: - The Adjudicating Authority correctly treated the debt as having fallen due on 10.09.2016 as stated in the Section 8 notice and found the Section 9 application filed in November 2019 to be time-barred absent a valid interruption or extension of limitation. The Operational Creditor relied on an account confirmation dated 01.04.2017 allegedly signed by the Corporate Debtor's accountant to obtain an extension. The Corporate Debtor had, however, disputed that document and lodged a criminal complaint alleging its forgery, with an FIR registered and criminal proceedings pending. When the very basis for extension of limitation is under cloud and disputed by the Corporate Debtor, the Adjudicating Authority was entitled to refuse to place reliance on the account confirmation for the purpose of extending limitation. The Adjudicating Authority's conclusion that no error was committed in not treating the application as within time follows from these facts and the pending criminal proceedings challenging the authenticity of the purported acknowledgment. [Paras 6]Application was barred by limitation and the account confirmation dated 01.04.2017 could not be relied upon in view of the dispute and pending criminal proceedings.Pre-existing dispute - notice of dispute under Section 8(2)(a) - Whether a pre-existing dispute existed between the parties sufficient to bar admission of the Section 9 application. - HELD THAT: - The Corporate Debtor, by its reply dated 24.04.2019 to the demand notice of 20.03.2019, specifically raised a dispute that it had supplied back similar material on 05.03.2017 following a meeting dated 18.02.2017 and pleaded supporting entries and returns. The Operational Creditor replied on 02.07.2019 denying the Corporate Debtor's allegations and asserting that the return of material never occurred and alleging forgery of documents. Those competing contentions formed a clear pre-existing dispute as recorded in the reply to the demand notice. Such factual disputes as to whether material was returned and the authenticity of supporting documents could not be resolved in summary Section 9 proceedings and therefore constituted a valid ground for rejecting the petition. [Paras 7, 8, 9, 10, 11]There was a pre-existing dispute as to return of goods and related facts, and the Section 9 application was rightly rejected on that ground.Final Conclusion: The appeals are dismissed. The Adjudicating Authority did not err in rejecting the Section 9 applications: the petitions were time barred in the absence of a dependable account confirmation (which was disputed and the subject of criminal proceedings), and a pre-existing factual dispute raised in the reply to the demand notice precluded admission under Section 9. Issues:Appeal against rejection of applications under Section 9 of the Insolvency and Bankruptcy Code, 2016 based on time limitation and pre-existing disputes.Analysis:1. The Appellant, an Operational Creditor, supplied Wheat Straws to the Corporate Debtor between 21.04.2016 to 10.09.2016, raising invoices totaling &8377; 60,71,538. A demand notice under Section 8 was issued on 20.03.2019 for outstanding &8377; 35,71,097 plus interest. The Corporate Debtor disputed the claim, mentioning a meeting on 18.02.2017 where it was proposed to supply back similar material, supplied on 05.03.2017. The Appellant filed an Application under Section 9 dated 26.11.2019. The Adjudicating Authority rejected the Application citing time limitation and pre-existing disputes.2. The Adjudicating Authority rejected the Application under Section 9 on grounds of being time-barred and pre-existing disputes. The Appellant argued for an extension of limitation based on an account confirmation dated 01.04.2017, disputed by the Corporate Debtor due to alleged forgery. The Corporate Debtor filed a criminal complaint regarding the alleged forged document, leading to pending criminal proceedings.3. The Respondent contended that the Application was time-barred as per the Appellant's own claim of debt due on 10.09.2016 and the Application filed in November 2019. They argued that the account confirmation dated 01.04.2017 was forged, mentioning discrepancies in the document and filing a criminal complaint. The Respondent also claimed to have supplied back material on 05.03.2017, supported by returns filed in the Sales Tax Act.4. The judgment highlighted the dispute over the debt due date and the alleged supply back of material. The Adjudicating Authority rightly rejected the Application under Section 9 due to the disputed account confirmation document and the existence of pre-existing disputes between the parties. The Respondent's reply notice disputed the outstanding amount and claimed to have supplied back material, which the Appellant denied, leading to a clear pre-existing dispute.5. The Appeals were dismissed as no error was found in the rejection of the Section 9 Application. The dispute over the supply back of material and the time limitation issue were crucial factors leading to the rejection. The judgment emphasized the importance of resolving pre-existing disputes before initiating insolvency proceedings, ensuring fairness and accuracy in legal proceedings.