2022 (12) TMI 615 - AT - Insolvency and Bankruptcy

Tribunal Upholds Adjudicating Authority's Decision on Insolvency Application

Mr. V Venkata Satyanarayana Versus M/s Pattabi Enterprise, Mayur Rajendrakumar Popat, Interim Resolution Professional

The Tribunal affirmed the Adjudicating Authority's decision to admit the application filed by the Operational Creditor under Section 9 of the Insolvency ... Initiation of CIRP - pre-existence of dispute or not - admission of debt or not - supply of poor quality of material - impact of case pending for dishonor of cheque u/s 138 of NI Act - NCLT admitted the application - HELD THAT:- The very fact that a ‘criminal complaint’ before the Hon’ble Judicial Magistrate of First Class Court No.V, Mysuru, is filed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ against the ‘Corporate Debtor’, that itself, will clearly, unerringly points out to the ‘Admission of Debt’, and that will not point out an ‘existence of dispute’ As regards the ‘quality of materials’, that was ‘supplied’ and the ‘supplied goods were lying in the Godown’, without any use, etc., this ‘Tribunal’, pertinently points out, that only in the ‘Reply’ of the ‘Corporate Debtor’ to the issuance of ‘Statutory Demand Notice’, the ‘quality’ aspect of ‘Goods’ was taken and on an earlier occasion there was ‘no correspondence’, that was ‘exchanged’ / ‘communicated’ between the parties or that was not placed before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad), to support the ‘Claim’ of the ‘Corporate Debtor’. Under the Insolvency & Bankruptcy Code, 2016, the aspect of existence of ‘Default’, takes a ‘prime seat’, and the reason supposed to be projected by the ‘concerned Party’ viz., ‘inability to pay’, is of ‘no avail. Appeal dismssed. Issues Involved:1. Admission of the application by the Adjudicating Authority.2. Alleged fictitious invoices and non-supply of goods.3. Quality of goods supplied.4. Pre-existing dispute and Section 138 of the Negotiable Instruments Act.5. Maintainability of the Section 9 application under the Insolvency and Bankruptcy Code, 2016.Detailed Analysis:1. Admission of the Application by the Adjudicating Authority:The Appellant, a Suspended Board of Director of the Corporate Debtor, contested the impugned order dated 30.06.2022 by the Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench, Hyderabad) which admitted the application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Appellant argued that the Adjudicating Authority committed an error in admitting the application without appreciating the real facts and circumstances of the case.2. Alleged Fictitious Invoices and Non-Supply of Goods:The Adjudicating Authority observed that the ledger account of the Corporate Debtor in the books of the Operational Creditor showed an amount of Rs.2,36,39,065/- due, and a payment of Rs.50,00,000/- was recorded. The Corporate Debtor claimed that the Petitioner raised fictitious invoices without supplying goods. However, the invoices listed by the Corporate Debtor matched those filed by the Petitioner. The Corporate Debtor failed to provide details of purported invoices under which supply was made and payment effected.3. Quality of Goods Supplied:The Corporate Debtor contended that the goods supplied were of poor quality and not useful for export packaging. However, there was no record suggesting that this complaint was communicated to the Petitioner before the issuance of the demand notice. The Adjudicating Authority noted that such a complaint appeared to be a facade to avoid making payments due to the Petitioner. Additionally, the Corporate Debtor claimed that the material was lying unused in its godowns and had asked the Petitioner to lift the goods, but no prior correspondence to substantiate this claim was provided.4. Pre-Existing Dispute and Section 138 of the Negotiable Instruments Act:The Corporate Debtor cited the filing of a complaint under Section 138 of the Negotiable Instruments Act as a defense. The Adjudicating Authority held that proceedings under Section 138 do not amount to a pre-existing dispute and are not an impediment to proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Tribunal supported this view by referencing the ruling in Sudhi Sachdev v. Appl Industries, where it was held that the pendency of a case under Section 138 amounts to an admission of debt and not an existence of dispute.5. Maintainability of the Section 9 Application:The Tribunal pointed out that the existence of default takes a prime seat under the Insolvency and Bankruptcy Code, 2016. The inability to pay is of no avail if the debt is disputed yet the amount is more than the threshold limit. The Tribunal emphasized that the proceedings under the Insolvency and Bankruptcy Code are summary in nature and not adversarial. The defense by the Corporate Debtor cannot be weak or unsupported by satisfactory material. The Tribunal concluded that the Adjudicating Authority's decision to admit the application was free from any legal flaws.Conclusion:The Tribunal dismissed the appeal, affirming the Adjudicating Authority's order to admit the application filed by the Operational Creditor. The connected pending applications for urgent listing and stay were also closed.