2024 (5) TMI 726 - AT - Insolvency and Bankruptcy

Operational creditor's Section 9 application rejected due to pre-existing disputes requiring detailed investigation beyond summary jurisdiction

The NCLAT Principal Bench dismissed an operational creditor's appeal challenging rejection of a Section 9 application for initiating CIRP. The operational ... Rejection of section 9 application - Initiation of CIRP - prior dispute in relation to existence of debt or not - whether there was a pre-existing dispute between the two parties with regard to the operational debt? - HELD THAT:- In the present case, from material on record, it is clear that the demand notice was issued by the Operational Creditor on 12.07.2022 and no notice of dispute was raised by the Corporate Debtor. The argument of the Corporate Debtor is not persuasive that the notice was not effectively served upon him for reasons spelt out by the Adjudicating Authority in para 5.3.1 of the impugned order - The statutory scheme of IBC in such circumstances pretty much entitled the Operational Creditor to file an application under Section 9 and this is exactly the course of action followed by the Operational Creditor and we therefore find nothing wrong in this course of action. It is only at this stage when the Operational Creditor moved an application before the Adjudicating Authority under Section 9 that the Corporate Debtor has endeavoured to protect its interests and raised the issue of pre-existing disputes. In the present case, it is contended by the Corporate Debtor that there is no valid and legal claim to receive payment. The issue of proforma invoice in place of debit note has been voiced by the Corporate Debtor as tantamount to breach of contractual obligations and therefore held by the Adjudicating Authority to be yet another ground of dispute. Where operational creditor seeks to initiate insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two which however is not so borne out by the facts of the present case. That pre-existing dispute was very much there is amply supported by material on the record. Such contractual disputes require further investigation and cannot be considered by the Adjudicating Authority in the exercise of their summary jurisdiction. And for such disputed amounts, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. Keeping in view that the present facts of the case indicates that the operational debt is disputed, the Adjudicating Authority has therefore correctly rejected the Section 9 application. The Adjudicating Authority did not commit any error in rejecting the Section 9 application filed by the Appellant. There is no merit in the Appeal. Appeal is dismissed. Issues Involved:1. Existence of pre-existing dispute regarding operational debt.2. Obligation to pay fees under the Mandate Letter.3. Validity of Demand Notice u/s 8 of IBC.4. Calculation of fees payable.5. Role of the Appellant in securing the loan facility.Summary:1. Existence of Pre-existing Dispute Regarding Operational Debt:The core issue for consideration was whether there was a pre-existing dispute between the parties regarding the operational debt. The Adjudicating Authority found that disputes existed concerning the calculation of fees, the entity responsible for payment, and the role of the Appellant in securing the loan facility. The Tribunal upheld this finding, noting that the disputes required further investigation and could not be resolved in a summary jurisdiction u/s 9 of IBC.2. Obligation to Pay Fees Under the Mandate Letter:The Appellant argued that the Corporate Debtor was obligated to pay fees as per the Mandate Letter dated 14.07.2021 for advisory services rendered. The Adjudicating Authority concluded that the obligation to pay the fees was on the SPV and not on the Corporate Debtor, as the loan was sanctioned to VNMP10PL. This was upheld by the Tribunal, which found ambiguity in the terms of the Mandate Letter regarding the entity responsible for payment.3. Validity of Demand Notice u/s 8 of IBC:The Respondent contended that the Demand Notice was defective as it did not mention the date of default and was not served at the correct address. The Tribunal found that the Demand Notice was effectively served, and the Operational Creditor was entitled to file an application u/s 9 of IBC. However, the existence of pre-existing disputes negated the admission of the Section 9 application.4. Calculation of Fees Payable:There was a dispute over the calculation of fees, with the Appellant claiming 1.5% of the sanctioned amount, while the Corporate Debtor argued it was 1.5% of the processing fee. The Tribunal found that the Adjudicating Authority did not err in holding this as a ground of dispute, noting that the fee percentage claimed by the Appellant was significantly higher than industry standards.5. Role of the Appellant in Securing the Loan Facility:The Appellant claimed to have played a crucial role in securing the loan facility for Package X Project. The Respondent countered that IDBI Capital was engaged for this purpose and had been paid for its services. The Tribunal found that there was a dispute regarding the Appellant's role in securing the loan, which contributed to the pre-existing dispute.Conclusion:The Tribunal concluded that the Adjudicating Authority correctly rejected the Section 9 application on the grounds of pre-existing disputes. The appeal was dismissed, and the Appellant was advised to seek other remedies available under the law.