Pre-existing disputes must be resolved before insolvency proceedings

The Tribunal found a pre-existing dispute between the parties, with inadequate invoices and incomplete reconciliation efforts. The return of post-dated cheques without legal action indicated a need for reconciliation. The Adjudicating Authority's decision under Section 9 of the IBC was set aside, emphasizing the necessity to address genuine disputes before initiating insolvency proceedings.

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Issues Involved:
1. Pre-existing dispute between the parties.
2. Validity of the invoices and supporting documents.
3. Reconciliation and verification of accounts.
4. Return and dishonor of post-dated cheques.
5. Adjudicating Authority's decision under Section 9 of the IBC.

Analysis of Judgment:

1. Pre-existing dispute between the parties:
The Appellant argued that there was a pre-existing dispute regarding the outstanding dues claimed by the Respondent. The Appellant highlighted several documents, including letters dated 20th February 2020 and 14th March 2020, which indicated that the Respondent had agreed to a reconciliation exercise. The Appellant contended that the Adjudicating Authority overlooked these documents and the pre-existing dispute, thus incorrectly initiating the Corporate Insolvency Resolution Process (CIRP). The Tribunal found that there were indeed pre-existing disputes between the parties, as evidenced by the correspondence and the agreed reconciliation date, which was never completed.

2. Validity of the invoices and supporting documents:
The Appellant claimed that the invoices raised by the Respondent were vague and lacked basic particulars such as the period, specifications, locations, and rates of the services provided. The Appellant also noted that some invoices were raised long after the alleged provision of services. The Tribunal observed that several invoices bore endorsements indicating they were received for verification, further substantiating the need for reconciliation. The Respondent's failure to provide adequate supporting documents for the invoices was a significant factor in establishing the pre-existing dispute.

3. Reconciliation and verification of accounts:
The Appellant emphasized that the reconciliation and verification of accounts were critical due to the nature of the services provided. The Respondent had agreed to a reconciliation exercise on 14th March 2020, but this was never carried out. The Tribunal noted that reconciliation is essential for ensuring that two sets of records are in agreement. The absence of reconciliation indicated that the demand raised by the Respondent was not undisputed, supporting the Appellant's claim of a pre-existing dispute.

4. Return and dishonor of post-dated cheques:
The Appellant argued that the return of post-dated cheques by the Respondent without initiating legal proceedings indicated an acknowledgment that the amounts due required reconciliation. The Respondent countered that the cheques were returned based on an assurance of payment through other means. The Tribunal found the Appellant's argument credible, noting that the return of cheques without reservation suggested an acknowledgment of the need for reconciliation.

5. Adjudicating Authority's decision under Section 9 of the IBC:
The Tribunal concluded that the Adjudicating Authority had incorrectly allowed the application under Section 9 of the IBC, as there was a clear pre-existing dispute between the parties. The Tribunal referred to the Supreme Court's judgment in Mobilox Innovations Pvt Ltd v. Kirusa Software Pvt Ltd, which mandates rejecting an application under Section 9 if there is a plausible contention requiring further investigation and the dispute is not spurious, hypothetical, or illusory. The Tribunal set aside the Adjudicating Authority's order, allowing the appeal and emphasizing that the setting aside of the order does not preclude the Respondent from taking other legal actions if necessary.

Conclusion:
The Tribunal found that there was a pre-existing dispute between the parties, which the Adjudicating Authority failed to consider. The invoices raised by the Respondent lacked sufficient details, and the agreed reconciliation exercise was never completed. The return of post-dated cheques without initiating legal proceedings further indicated the need for reconciliation. Consequently, the Tribunal set aside the order initiating CIRP, allowing the appeal and reinforcing the requirement for a thorough examination of disputes before proceeding under Section 9 of the IBC.

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