2023 (6) TMI 251 - AT - Insolvency and Bankruptcy

Tribunal Upholds CIRP Initiation, Rejects Default Date, Dismisses Pre-existing Dispute Claim

The Tribunal upheld the initiation of Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. It found that the date of default did ... Date of default - pre-existing dispute - autonomy of an irrevocable letter of credit - High Seas Sale Agreement and General Conditions of Sale governing payment terms - suspension of CIRP initiation under section 10-A - genuine dispute test (as enunciated in Mobilox)Date of default - High Seas Sale Agreement and General Conditions of Sale governing payment terms - suspension of CIRP initiation under section 10-A - The 'date of default' for payment was 60 days from the invoice/HSS date and therefore fell outside the period of suspension under section 10-A, permitting admission of the section 9 petition. - HELD THAT: - The parties' documents show a sale order (6.1.2020), purchase order (8.1.2020), LC creation (13.1.2020) and a later-executed HSS Agreement (15.1.2020) which incorporates the General Conditions of Sale (GCS). The GCS and invoice specify payment by LC collectable within 60 days from the invoice/HSS date. Although the LC record contained an entry stating negotiation for 90 days, the last mutually executed contract (HSS Agreement coupled with the invoice) fixed payment terms as LC collectable in 60 days. Counting 60 days from 6.1.2020 made the payment due by 5.3.2020, which is outside the period during which initiation of CIRP was suspended under section 10-A. Consequently, the section 9 application was not barred by section 10-A. [Paras 12, 13, 15, 16]Date of default held to be 60 days from invoice/HSS date; section 9 admission not barred by section 10-A.Pre-existing dispute - genuine dispute test (as enunciated in Mobilox) - High Seas Sale Agreement and General Conditions of Sale governing notice of non-conformity - There was no proved pre-existing dispute about the quality of goods; the asserted arbitration notice was not shown to have been served and the dispute was not established as genuine. - HELD THAT: - The corporate debtor contended that it had invoked the arbitration clause and served a notice under section 21 alleging poor quality. The record, however, contains no evidence that a dispute was raised before the operational creditor issued the section 8 demand notice, and the purported courier AWB evidence was countered by Blue Dart's statement that the consignment did not travel in its network. Applying the Mobilox standard, a pre-existing dispute must be bona fide and supported by evidence that it is real and not illusory. Given absence of service or other proof of a genuine dispute within contractual timelines for notifying non-conformity, the plea of pre-existing dispute failed. [Paras 16, 17, 18, 19]No pre-existing or genuine dispute established; defence of dispute rejected.Autonomy of an irrevocable letter of credit - date of default - The dishonour of the LC discounting occurred because of discrepancies in documents submitted to the discounting bank for which the corporate debtor was responsible; thus the onus for non-payment lay on the corporate debtor. - HELD THAT: - Documents required for discounting were to be furnished to the South Indian Bank. The corporate debtor submitted documents and instructions to the discounting bank, but discrepancies pointed out by the bank were not cured by the corporate debtor, preventing payment to the operational creditor within the 60-day period. Correspondence shows repeated requests from the operational creditor for payment and follow-up emails to the corporate debtor. Where payment could not be effected due to documentary deficiencies, the corporate debtor bore responsibility to rectify them and to make payment when requested; the default therefore commenced after the 60-day period from bill of lading/HSS date. [Paras 21, 22, 23, 24, 25]Dishonour of LC discounting attributable to documentary discrepancies for which the corporate debtor was responsible; default is the corporate debtor's.Final Conclusion: The impugned order admitting the section 9 petition was affirmed: the date of default fell outside the section 10-A suspension period, no genuine pre-existing dispute was established, and the corporate debtor bore responsibility for the LC discounting discrepancies; the appeal is dismissed. Issues Involved:1. Date of Default and Section 10-A of IBC.2. Pre-existing Dispute regarding Quality of Goods.3. Dishonoring of LC Discounting by South Indian Bank.Summary:Issue 1: Date of Default and Section 10-A of IBCThe Tribunal examined whether the 'date of default' in payment fell within the period specified under Section 10-A of the IBC, which suspends the initiation of CIRP. The purchase order dated 8.1.2020 stipulated payment terms as 'LC 60 days from the HSS date'. Despite the LC document created on 13.1.2020 mentioning a 90-day period, the HSS Agreement signed on 15.1.2020 and the sales invoice clearly specified payment through LC within 60 days. Therefore, the payment was due by 5.3.2020, and the date of default was not covered under Section 10-A, allowing the Section 9 application to proceed.Issue 2: Pre-existing Dispute regarding Quality of GoodsThe Tribunal assessed whether a pre-existing dispute regarding the quality of goods existed. The corporate debtor claimed issues with the quality of Isobutanol and invoked arbitration. However, no substantial evidence of a pre-existing dispute was provided. The Tribunal noted that the section 21 notice under the Arbitration and Conciliation Act, 1996, claimed to be sent via Blue Dart courier, did not travel in the Blue Dart network, as confirmed by Blue Dart Express Ltd. Hence, the Tribunal concluded that the dispute was not genuine or real, dismissing the claim of a pre-existing dispute.Issue 3: Dishonoring of LC Discounting by South Indian BankThe Tribunal examined the reasons behind the dishonoring of the LC discounting. It was found that the corporate debtor submitted the documents for LC discounting to South Indian Bank, which pointed out discrepancies. The responsibility to cure these discrepancies lay with the corporate debtor. Despite repeated requests from the operational creditor for payment, the corporate debtor failed to make the payment. The Tribunal held that the corporate debtor was responsible for the non-payment due to discrepancies in document submission, affirming the default after 60 days from the date of the bill of lading.Conclusion:The Tribunal found no infirmity in the Impugned Order and dismissed the appeal, upholding the initiation of CIRP against the corporate debtor. The appeal was dismissed with no order as to costs.