Tribunal sets aside order, releases Corporate Debtor from Insolvency Process. Genuine defense upheld, Section 9 application error.

The Tribunal found in favor of the Corporate Debtor, setting aside the impugned order and releasing them from the Corporate Insolvency Resolution Process. The defense raised was deemed genuine, requiring adjudication by a competent court. The Adjudicating Authority erred in admitting the Section 9 application without fully appreciating the facts. The appeal was allowed with no costs imposed.

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Issues Involved:
1. Existence of an outstanding operational debt.
2. Allegations of pre-existing disputes.
3. Validity and enforceability of the Memorandum of Understanding (MoU).
4. Procedural fairness and natural justice in the adjudication process.

Issue-wise Detailed Analysis:

1. Existence of an Outstanding Operational Debt:
The Operational Creditor claimed an outstanding amount of Rs. 1,34,96,652/- against the Corporate Debtor for the supply of raw materials and additional payments. The Corporate Debtor was supposed to supply Ethyl Acetate in return, but a shortfall led to the claimed outstanding amount. The Corporate Debtor, however, contended that the transaction was quantity-based and not amount-based, and they had fulfilled their obligations by supplying more than the agreed quantity of Ethyl Acetate.

2. Allegations of Pre-existing Disputes:
The Corporate Debtor argued that there was a pre-existing dispute regarding the reconciliation of accounts and the terms of the agreement. They claimed that the Operational Creditor had supplied raw materials at higher rates and purchased the final product at lower rates, leading to a dispute. The Operational Creditor had allegedly evaded requests for account reconciliation. The Tribunal noted that for a pre-existing dispute to nullify a Section 9 application, it must be truly existing at the time of filing the reply to the demand notice or at the time of the Section 9 application. The Corporate Debtor had not furnished any reply to the demand notice, and the Tribunal found that the dispute was not a mere bluster but required further investigation.

3. Validity and Enforceability of the MoU:
The MoU signed on 03.01.2020 indicated the Corporate Debtor's agreement to pay the outstanding amount within 18 months. The Corporate Debtor contended that the MoU was signed under duress and without consideration, making it invalid. The Operational Creditor argued that the MoU was a clear admission of debt and the Corporate Debtor's failure to honor the cheques reinforced the debt and default. The Tribunal found that the Corporate Debtor's defense regarding the MoU was not illusory or a sham and required adjudication by a competent court.

4. Procedural Fairness and Natural Justice in the Adjudication Process:
The Corporate Debtor claimed that the impugned order was passed ex-parte and in violation of the principles of natural justice. They argued that they had missed the hearing due to the late receipt of the notice and the poor health of the appellant. The Tribunal found the reasons for non-appearance and non-receipt of notice on time to be sufficient cause and considered the appeal on merit.

Conclusion:
The Tribunal concluded that the defense raised by the Corporate Debtor was not illusory or a sham and that the nature of the dispute required adjudication by a competent court. The Adjudicating Authority had erred in admitting the Section 9 application without appreciating the facts in their entirety. The impugned order was set aside, and the Corporate Debtor was released from the rigors of the Corporate Insolvency Resolution Process (CIRP) with immediate effect. The appeal was allowed, and no order as to costs was made.

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