2024 (5) TMI 625 - AT - Insolvency and Bankruptcy

NCLAT allows Section 9 appeal, rules cyber fraud by third parties cannot create dispute with operational creditor

Optinova AB Versus Bio-Med Health Care Products Private Ltd.

NCLAT allowed the appeal against rejection of Section 9 application for CIRP initiation. The tribunal held that cyber fraud committed by unknown third ... Initiation of CIRP - Rejection of Section 9 application - cyber fraud committed against the Respondent - pre-existing disputes or not - HELD THAT:- Since the fraud was perpetrated by unknown third parties, dragging the Operational Creditor into the dispute was a simple and deliberate ploy on the part of the Corporate Debtor to evade payment of liabilities. The pre-existing dispute was a fictional dispute and more of an after-thought. Moreover, it has been contended that even after having become a victim of cyber fraud, the fact that the Respondent had willing paid further sums of money to the Appellant in their Nordea Bank account shows that there was no dispute between the two parties with respect to the operational debt being due and payable. When the Respondent in their police complaint had expressly admitted that the fraud was committed by an unknown third party and not by the Appellant and did not make the Appellant an accused party in their police complaint, the cyber fraud and the related police complaint cannot constitute evidence of a pre-existing dispute inter se between the Operational Creditor and Corporate Debtor - Since the matter is already under police investigations and there is no finality in the matter, attributing any culpability on the employees of the Operational Creditor based on surmise and conjecture of the Corporate Debtor would be pre-mature and highly presumptuous given the summary jurisdiction of the Adjudicating Authority and this Appellate Tribunal. It is not required to examine the above contention of the Respondent that the perpetrators of the cyber fraud were assisted by employees of the Operational Creditor. There is force in the contention of the Appellant that since the Corporate Debtor and the Operational Creditor were in a long-standing business relationship, had the Corporate Debtor shown professional diligence and due rigour, they would have been able to easily detect the suspicious emails and averted the ensuing cyber fraud. This clearly shows the negligence and carelessness on the part of the Respondent which led to the cyber fraud - the Adjudicating Authority wrongly dismissed the Section 9 application, in complete disregard of evidence on record, by treating the cyber-fraud as a preexisting dispute between the parties while being singularly oblivious of the role of unknown third-party perpetrators which cast serious doubts on the plausibility of dispute inter se between the Appellant and the Respondent. The very fact that much after the issue of the Demand Notice, an amount of Euro 49,664/- has been claimed to have been paid by the Corporate Debtor to the Appellant as stated in their Reply Affidavit as placed at pages 26-27 shows that they have acknowledged that outstanding operational debt qua the Appellant was payable by them. Furthermore, we find that in the said Reply affidavit of the Respondent, the Respondent has accepted and admitted that it owed the Appellant a sum of Euro 62,222/-. This acknowledgement in itself is sufficient to satisfy existence of undisputed operational debt exceeding the threshold level of Rs.1 lakh. The Adjudicating Authority has erroneously rejected the application under Section 9 of IBC - To meet the ends of justice, the Corporate Debtor is given the liberty to release payment of outstanding operational debt as per terms mutually agreed between the two parties - the payment shall be released by the Corporate Debtor by way of Demand Draft in favour of the Operational Creditor within 30 days from the date of uploading of this order failing which the Corporate Debtor would come under the rigours of CIRP on the expiry of said 30 days period. Appeal alowed. Issues Involved:1. Whether there was an operational debt exceeding Rs. 1 lakh due and payable.2. Whether there was a pre-existing dispute between the parties.3. Whether the Adjudicating Authority correctly dismissed the Section 9 application based on the alleged pre-existing dispute.Summary of Judgment:1. Operational Debt Exceeding Rs. 1 Lakh:The Appellant, an Operational Creditor, supplied medical tubing to the Respondent, a Corporate Debtor, with outstanding dues amounting to Euro 320,406/- (Rs. 2.56 cr). Despite reminders and a Demand Notice issued on 20.02.2019, the Respondent did not clear the dues, claiming that Euro 206,024/- had been paid but was subject to a cyber fraud. The Appellant contended that even if this disputed amount was excluded, Euro 111,887/- remained unpaid, which exceeded the threshold for Section 9 of IBC.2. Pre-Existing Dispute:The Respondent argued that the cyber fraud constituted a pre-existing dispute, as a police complaint was lodged on 14.01.2019 before the Demand Notice was issued. The Respondent claimed that the fraud could not have occurred without the complicity of the Appellant's employees, thus rendering the amount disputed. The Adjudicating Authority noted that the fraud was under investigation and directed the Operational Creditor to seek redressal through appropriate forums, dismissing the Section 9 application.3. Adjudicating Authority's Decision:The Adjudicating Authority dismissed the Section 9 application, citing the pre-existing dispute due to the cyber fraud. The Tribunal examined the Mobilox Innovations Private Limited vs. Kirusa Software Private Limited judgment, which mandates dismissal of a Section 9 application if a pre-existing dispute is found before the issue of the Demand Notice.Tribunal's Analysis and Decision:The Tribunal found that the cyber fraud was committed by unknown third parties and not by the Appellant, as evidenced by the police complaint against 'unknown individuals.' The Tribunal held that attributing culpability to the Appellant without conclusive evidence was premature. The Respondent's negligence in verifying bank account details contributed to the fraud, and the Appellant could not be held responsible for payments made to the wrong account.The Tribunal concluded that the Adjudicating Authority erroneously dismissed the Section 9 application by treating the cyber fraud as a pre-existing dispute. The Tribunal allowed the appeal, setting aside the impugned order, and directed the Corporate Debtor to release the outstanding operational debt within 30 days, failing which CIRP would commence.Directions:1. The Corporate Debtor is to release the outstanding operational debt as per mutually agreed terms within 30 days.2. Payment to be made by Demand Draft in favor of the Operational Creditor.3. If payment is not made within 30 days, CIRP will commence.4. No order as to costs.