2023 (1) TMI 194 - AT - Insolvency and Bankruptcy

Tribunal affirms dismissal of Section 9 application citing pre-existing disputes and need for further investigation.

Parimal Vakharia Couture Versus Kiaasa Retail LLP

The Appellate Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 9 application due to pre-existing disputes and the requirement ... Initiation of CIRP - existence of debt and dispute or not - Settlement of dispute between the parties or not - NCLT rejected the application - HELD THAT:- The alleged settlement deed which is a bone of contention between the two parties is in the nature of pre-existing dispute which needs thorough investigation and therefore beyond the scope of the Adjudicating Authority in terms of the judgement of the Hon’ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT]. It is well settled that in a Section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court. From the available material on record in the APB and after hearing the rival contentions of both the parties as noted in the preceding paragraphs, we are of the view that the Adjudicating Authority has correctly recorded the finding that there exist disputes between the two parties even prior to the date of demand notice both in respect of the terms and conditions of their business transactions and outstanding dues payable to the operational creditor. It is clear that the defence was raised by the Corporate Debtor both in their reply to demand notice as well as in their detailed reply filed in Section 9 application and the nature of dispute raised was such that it required adjudication by competent court. The Adjudicating Authority has therefore correctly applied the ratio of the Mobilox judgement and rejected the Section 9 application on the ground of pre-existing disputes between the parties and that the matter requires thorough investigation. The Adjudicating Authority has rightly rejected the application of the Appellant filed under Section 9 of IBC - appeal dismissed. Issues Involved:1. Whether the Corporate Debtor acknowledged the debt owed to the Operational Creditor.2. Whether the goods were supplied on a Sale or Return basis.3. Whether there was a pre-existing dispute between the parties before the issuance of the demand notice.4. Validity and implications of the alleged settlement agreement dated 01.05.2019.Issue-wise Detailed Analysis:1. Acknowledgment of Debt:The Appellant argued that the Corporate Debtor acknowledged the debt through signed invoices and confirmation of accounts, including acknowledgment in the audited balance sheet for the year ending March 2020. The Adjudicating Authority, however, found that the ledger account signed by the Corporate Debtor did not constitute a specific admission of liability. The absence of dates and specific words admitting the liability, along with the possibility of the signature being obtained before the alleged settlement, led the Authority to disregard the ledger as an acknowledgment of debt.2. Sale or Return Basis:The Corporate Debtor contended that the goods were supplied on a Sale or Return basis as per a draft Memorandum of Understanding (MoU) exchanged via email. The Appellant denied any such arrangement, claiming no signed agreement existed. The Adjudicating Authority noted the email evidence indicating a draft MoU but did not make a definitive finding on this issue, stating that the matter required further investigation beyond its scope.3. Pre-existing Dispute:The Adjudicating Authority found that there were disputes between the parties prior to the issuance of the demand notice. The Corporate Debtor's defense, based on the alleged Sale or Return arrangement and the subsequent settlement agreement, indicated a pre-existing dispute. The Authority referenced the Supreme Court's decision in Mobilox Innovations Pvt Ltd vs Kirusa Software Pvt Ltd, which mandates that any plausible contention requiring further investigation constitutes a pre-existing dispute, warranting the rejection of a Section 9 application.4. Settlement Agreement:The Appellant argued that the alleged settlement dated 01.05.2019, based on an unsigned calculation sheet, should not be considered valid. The Corporate Debtor maintained that the settlement was agreed upon in the presence of police personnel and that the amount mentioned was for unsold stock under the Sale or Return arrangement. The Adjudicating Authority noted the existence of this settlement and concluded that the dispute over its validity and terms required thorough investigation, thus falling outside the scope of the Section 9 proceedings.Conclusion:The Adjudicating Authority dismissed the Section 9 application on the grounds of pre-existing disputes and the need for further investigation into the nature of the business arrangement and the settlement agreement. The Appellate Tribunal upheld this decision, finding no merit in the appeal and confirming that the impugned order did not warrant interference. The appeal was dismissed with no order as to costs.