2023 (3) TMI 544 - AT - Insolvency and Bankruptcy

Supreme Court affirms dismissal of Section 9 application due to pre-existing dispute

The Supreme Court upheld the decision to dismiss the Section 9 application due to a pre-existing dispute between the parties. The Corporate Debtor had ... Application filed u/s 9 of IBC dismissed - initiation of CIRP - Distributorship Agreement for realisation of its dues - Dismissal on the ground of pre-existing dispute - HELD THAT:- Reply to Section 8 notice has been annexed as Annexure A-10 to this Appeal where the Corporate Debtor has specifically denied the claim of the Appellant and has raised various claims in Para 9 to 14, totalling to Rs.3,45,59,139/-. The reply to the Section 8 notice raises issues pertaining to pre-existing dispute between the parties. The submission of the Appellant that dispute is a moonshine dispute, is not satisfying. Admittedly, Distributorship Agreement between the parties is not disputed and the Appellant has claims against the Corporate Debtor. Appellant is free to take recourse to the mechanism as provided in the Distributorship Agreement for realisation of its dues. But present is not a case, where Section 9 proceedings under I&B Code can be initiated, when dispute is raised in reply to the Section 8 notice. The Adjudicating Authority did not commit any error in dismissing Section 9 application - Appeal dismissed. Issues involved: Dismissal of Section 9 application based on pre-existing dispute between parties.Summary:The appeal was filed against the order dismissing the Section 9 application due to a pre-existing dispute, as per the judgment of the Honorable Supreme Court. The Corporate Debtor had responded to the Section 8 notice disputing the claim and raising various claims against the Operational Creditor. The Adjudicating Authority concluded that there was indeed a pre-existing dispute between the parties.The Appellant's counsel argued that the pre-existing dispute raised by the Corporate Debtor was unfounded, as per the Distributorship Agreement between the parties. The counsel contended that no liability could be imposed based on the agreement, and no claim could be raised under the circumstances.After hearing the arguments, the Tribunal examined the record, including the reply to the Section 8 notice, where the Corporate Debtor denied the claim and raised various counterclaims totaling Rs.3,45,59,139. The issues raised included non-reimbursement of GST claims, unpaid additional discounts, uncredited amounts for stock purchases, defective stocks, and unfulfilled promises regarding stock returns.The Tribunal noted that the reply to the Section 8 notice highlighted a pre-existing dispute between the parties. It was observed that while the Distributorship Agreement was undisputed, the Appellant had claims against the Corporate Debtor. However, the Tribunal found that the dispute raised in response to the notice did not warrant the initiation of Section 9 proceedings under the I&B Code. Therefore, the Adjudicating Authority's decision to dismiss the Section 9 application was upheld, and the appeal was subsequently dismissed.