2022 (11) TMI 932 - AT - Insolvency and Bankruptcy

Tribunal upholds dismissal order due to pre-existing dispute, deems Appellant's claim not maintainable.

The Tribunal upheld the impugned dismissal order dated 23.06.2022, finding a pre-existing dispute between the parties that rendered the application filed ... Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational creditors - scope of pre-existing dispute - stand of the Appellant is that the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench, Bengaluru) had failed to take into account the consideration of the fact that the Case filed by the Respondent before the Hon’ble Commercial Court, was filed after the receipt of the Demand Notice, thus falling clearly outside the ambit of a pre-existing dispute as per Section 8 (2) of the Insolvency & Bankruptcy Code, 2016 - violation of principles of natural justice. HELD THAT:- The Appellant/ Petitioner / Operational Creditor, after coming to know that the Demand Notice dated 04.09.2020 was not in conformity with the facts and transactions that had taken place between them, had issued an another Fresh Notice dated 05.03.2021, as per the ingredients of Section 8 of the Insolvency & Bankruptcy Code, 2016. In this connection, this Tribunal, pertinently points out that in the Fresh Notice dated 05.03.2021, the Appellant / Operational Creditor had brushed aside the prior Demand Notice dated 04.09.2020. It transpires that the disputes pertaining to the existence and extent of alleged Debt, the Liabilities / Claims / Counter Claims and issues pertaining to the violation of the contentions and warranties under the Agreement, executed between the parties are a subject matter of conclusion and trial in the Commercial Suit, pending before the Hon’ble Commercial Court, Bangalore. It is crystalline clear, that there was a pre-existing Dispute(s) between the Appellant / Petitioner / Operational Creditor, and the Respondent / Corporate Debtor, and in such circumstances, filing of the petition is, per se, not maintainable in the eye of Law. Viewed in that perspective, the conclusion arrived at, by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench, Bengaluru) in petition, in dismissing the Application, is free from any Legal errors. Appeal dismissed. Issues Involved:1. Validity of the dismissal order dated 23.06.2022 by the Adjudicating Authority.2. Determination of pre-existing disputes between the parties.3. Compliance with Sections 8 and 9 of the Insolvency & Bankruptcy Code, 2016.4. Examination of the demand notices and responses.5. Analysis of the operational debt and default.6. Applicability of Section 10A of the Insolvency & Bankruptcy Code, 2016.7. Consideration of the Commercial Suit filed by the Respondent.Detailed Analysis:1. Validity of the Dismissal Order:The Appellant challenged the impugned order dated 23.06.2022 passed by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench, Bengaluru) in CP (IB) No.67/BB/2021. The Appellant contended that the order was incorrect and based on an erroneous reliance on the Respondent's reply to the first demand notice dated 03.10.2021.2. Determination of Pre-Existing Disputes:The Adjudicating Authority observed that the relevant date for determining the existence of a dispute is the date of the demand notice issued under Section 8 of the IBC, 2016. It noted that the Respondent had shown the existence of disputes between the parties prior to the issuance of the valid demand notice dated 05.03.2021. The Tribunal emphasized that the existence of a dispute prior to the relevant date precludes the initiation of insolvency proceedings.3. Compliance with Sections 8 and 9 of the Insolvency & Bankruptcy Code, 2016:The Appellant argued that the application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016, satisfied the requirements of Sections 8 and 9. However, the Tribunal pointed out that an application under Section 9 requires strict proof of debt and default. The existence of a pre-existing dispute, as indicated by the Respondent's communications, was a significant factor in the dismissal of the application.4. Examination of the Demand Notices and Responses:The Appellant issued a final demand notice on 05.03.2021, to which the Respondent did not reply within the statutory period of 10 days. The Tribunal noted that the Respondent had previously issued a reply to an earlier demand notice on 03.10.2020, indicating disputes between the parties. The Tribunal emphasized that the existence of a pre-existing dispute prior to the issuance of the valid demand notice was crucial in determining the maintainability of the application.5. Analysis of the Operational Debt and Default:The Appellant claimed that the Respondent owed a principal sum of Rs.1,75,73,690/- for services rendered. The Tribunal highlighted that the Respondent had acknowledged the debt through written communications dated 19.03.2020 and 27.03.2020. However, the Respondent disputed the claim, citing deficiencies in the services provided by the Appellant.6. Applicability of Section 10A of the Insolvency & Bankruptcy Code, 2016:The Respondent argued that the initiation of the Corporate Debtor Insolvency Resolution Process (CIRP) was suspended for defaults arising on or after 25th March, as per Section 10A of the Insolvency & Bankruptcy Code, 2016. The Tribunal noted that the Appellant had issued a fresh demand notice on 05.03.2021, discarding the earlier notice dated 04.09.2020, to comply with the requirements of the Code.7. Consideration of the Commercial Suit Filed by the Respondent:The Appellant contended that the Commercial Suit filed by the Respondent before the Hon'ble Commercial Court, Bengaluru, was a malafide attempt to escape liability under the Insolvency & Bankruptcy Code, 2016. The Tribunal noted that the disputes between the parties, including the existence and extent of the alleged debt, were subject to trial in the Commercial Suit. The Tribunal emphasized that the proceedings under the Insolvency & Bankruptcy Code, 2016, are summary in nature and cannot delve into the veracity and authenticity of disputed documents in detail.Disposition:The Tribunal concluded that the Appellant's claim was not free from disputes and controversies, and there was a pre-existing dispute between the parties. Consequently, the application filed by the Appellant was not maintainable, and the impugned order dated 23.06.2022 was upheld. The appeal was dismissed without costs.