NCLAT upholds CIRP initiation under Section 9 despite appellant's claims of pre-existing dispute over debt amount

NCLAT dismissed appeal challenging CIRP initiation under Section 9. Appellant contended pre-existing dispute regarding outstanding amount and work quality rendered by operational creditor should bar proceedings. NCLAT upheld Adjudicating Authority's finding that debt exceeded Rs. 1,00,000, was due and unpaid, constituting default in payment for services rendered. Court concluded no error in allowing CIRP proceedings despite claimed dispute, affirming that operational creditor met statutory requirements for insolvency initiation.

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Issues Involved:

1. Jurisdiction and Limitation Period
2. Existence of Operational Debt
3. Pre-existing Dispute
4. Invocation of Arbitration Clause
5. Adherence to Sub-contractor Agreement
6. Demand Notice and Reply
7. Interest Rate Dispute

Summary:

Jurisdiction and Limitation Period:
The Adjudicating Authority confirmed its jurisdiction over the matter as the registered office of the Corporate Debtor (CD) is situated in Jaipur, Rajasthan. The application was filed within the prescribed period of limitation, as the debt became due on 22.01.2018 and the application was filed on 03.01.2020.

Existence of Operational Debt:
The Adjudicating Authority examined various invoices and concluded that an operational debt of Rs. 2,23,06,363/- was due. The Appellant did not raise any issues regarding these invoices when they were delivered, and no payments were made apart from Rs. 11,00,000/- as mobilisation advance. The conditions of debt as in Innoventive Industries Ltd. were satisfied, supporting the case of the Operational Creditor (OC).

Pre-existing Dispute:
The Appellant claimed a pre-existing dispute regarding the outstanding amount and quality of work rendered by the OC. However, the Adjudicating Authority found no authentic communication to substantiate this claim. The Appellant invoked the arbitration clause on 24.01.2020, after the IBC proceedings were initiated on 03.01.2020, indicating an afterthought. The pre-existing dispute could not be established, and the Mobilox Innovations Private Limited case did not support the Appellant's claim.

Invocation of Arbitration Clause:
The Appellant issued a notice on 24.01.2020 to invoke the arbitration clause, but this was deemed an afterthought and a futile exercise as it was issued after the IBC Petition and demand notice.

Adherence to Sub-contractor Agreement:
The Appellant argued that the OC failed to complete the work within the stipulated time and abandoned the project. However, the Adjudicating Authority noted that the Appellant had not provided any correspondence to substantiate this claim. The OC submitted that the work could not be completed within 15 months due to irregular payments and lack of drawings from the CD.

Demand Notice and Reply:
The demand notice in Form-3 dated 04.11.2019 was served on the Respondent, and no reply was issued by the Appellant. The lack of response to the demand notice and the subsequent invocation of the arbitration clause after the IBC proceedings indicated no pre-existing dispute.

Interest Rate Dispute:
The Appellant contested the interest rate of 18%, claiming it was never agreed upon. However, this issue was raised belatedly and did not affect the conclusion of the Adjudicating Authority.

Conclusion:
The Adjudicating Authority found that the conditions under Section 9 of the IBC were satisfied, and there was no merit in the Appellant's arguments. The Corporate Debtor had defaulted in making full payments against the services rendered by the Operational Creditor. Therefore, the CIRP proceedings under Section 9 of the Code were rightly initiated, and the appeal was dismissed.

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