Tribunal Upholds Adjudicating Authority Decision on Section 9 Application

The Tribunal upheld the Adjudicating Authority's decision to admit the Section 9 application under the Insolvency and Bankruptcy Code, initiating Corporate Insolvency Resolution Process against the Corporate Debtor for defaulting on an operational debt exceeding Rs. 1 lakh, which was deemed due and payable. The Tribunal found no pre-existing dispute and dismissed the appeal, confirming the initiation of CIRP against the Corporate Debtor.

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Issues Involved:
1. Existence and due payment of operational debt.
2. Completion of work as per work orders.
3. Admission of debt and default.
4. Pre-existing dispute.
5. Adjudicating Authority's decision and its correctness.

Issue-wise Detailed Analysis:

1. Existence and Due Payment of Operational Debt:
The appeal arises from an order admitting a Section 9 application under the Insolvency and Bankruptcy Code (IBC), 2016, initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor issued multiple work orders to the Operational Creditor for supplying and installing UPVC profiles of doors and windows. The payment terms included various stages: 30% advance, 50% after delivery, 15% after installation, and 5% retention after six months. The Operational Creditor claimed Rs. 56,38,850 as operational debt. The Corporate Debtor argued that the debt was not due as the work was incomplete and defective. The Adjudicating Authority found a clear indication of an operational debt and default, with no pre-existing dispute, and admitted the application.

2. Completion of Work as per Work Orders:
The Corporate Debtor contended that the Operational Creditor did not complete the installation work entirely, thus payment terms were not triggered. They claimed that 80% of the invoice amount was paid, and the remaining 20% was withheld due to incomplete work. The Operational Creditor argued that 80% of the work was completed and material was delivered, thus payment was due. The Tribunal noted that the Corporate Debtor admitted 62% completion of installation work, entitling the Operational Creditor to pro-rata payment. The Tribunal rejected the argument that payment was due only after full installation in respective towers, as the payment terms did not restrict flat-wise payments.

3. Admission of Debt and Default:
The Corporate Debtor admitted owing Rs. 2,26,258 to the Operational Creditor but claimed it was not demanded as final settlement. The Tribunal found this excuse insufficient to deny payment of an admitted debt. The Tribunal concluded that the operational debt exceeding Rs. 1 lakh had become due and payable, meeting the conditions laid down in the Mobilox judgment.

4. Pre-existing Dispute:
The Tribunal examined whether there was any pre-existing dispute before the issuance of the statutory demand notice. The Corporate Debtor raised issues of defective work and incomplete installation post issuance of the demand notice. The Tribunal found no credible evidence of disputes raised prior to the demand notice, thus failing the third test of the Mobilox judgment. The Tribunal emphasized that disputes raised post demand notice lacked credibility and did not affect the operational debt's status.

5. Adjudicating Authority's Decision and Its Correctness:
The Tribunal upheld the Adjudicating Authority's decision, finding no error in admitting the Section 9 application and initiating CIRP. The Tribunal referred to the Vidarbha Industries Power Limited judgment, highlighting that Section 9 applications by Operational Creditors must be admitted if the debt is undisputed and due. The Tribunal dismissed the appeal, confirming the initiation of CIRP against the Corporate Debtor.

Conclusion:
The Tribunal found that the Corporate Debtor defaulted in paying an operational debt exceeding Rs. 1 lakh, which was due and payable, with no pre-existing dispute. The Adjudicating Authority's decision to admit the Section 9 application and initiate CIRP was upheld. The appeal was dismissed, and the Tribunal advised the applicant in I.A. No. 2585/2022 to file an appropriate application before the Adjudicating Authority.

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