Operational creditor's insolvency application rejected due to pre-existing genuine disputes under Section 9(5)(ii)(d)

NCLAT Principal Bench set aside the admission of Section 9 application filed by operational creditor against corporate debtor. The tribunal found that pre-existing disputes existed between parties prior to Section 8 demand notice, as evidenced by notices of disputes that were not moonshine or spurious. The adjudicating authority erred in admitting the application while ignoring genuine disputes, making it hit by Section 9(5)(ii)(d). The tribunal distinguished the Naresh Sevantilal Shah precedent as inapplicable since no Section 9 application was filed after the first demand notice in this case. CIRP initiation order dated 30.10.2023 and subsequent orders were set aside, releasing corporate debtor from CIRP proceedings.

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Issues Involved:

1. Whether there was any debt and default on the part of the Corporate Debtor concerning the Operational Creditor.
2. Whether there was any pre-existing dispute surrounding the operational debt.
3. Whether the Adjudicating Authority erred in admitting the Section 9 application despite alleged pre-existing disputes.

Detailed Analysis:

1. Debt and Default:

The Operational Creditor filed a Section 9 application under the Insolvency and Bankruptcy Code, 2016, claiming an outstanding operational debt of Rs 1.67 Cr. from the Corporate Debtor, M/s Print Land Digital Pvt. Ltd. The Corporate Debtor denied any outstanding debt, describing it as a 'created debt' based on allegedly forged documents. The Operational Creditor contended that the Corporate Debtor had admitted an outstanding amount of Rs 1.49 Cr. as of 31.03.2017, evidenced by a letter from the Corporate Debtor's auditor. The Adjudicating Authority noted that the invoices bore the stamp of the Corporate Debtor and were supported by E-way bills, indicating acknowledgment of the debt.

2. Pre-existing Dispute:

The Appellant, a shareholder and ex-director of the Corporate Debtor, argued that there were pre-existing disputes regarding the claimed amount. The Corporate Debtor had responded to earlier demand notices with a consolidated Notice of Dispute on 24.04.2019, raising issues against the claimed amount and reiterating these disputes in a subsequent Notice of Dispute dated 20.01.2020. The Appellant relied on the Supreme Court's judgment in Mobilox Innovations Pvt. Ltd. Vs Kirusa Software Pvt. Ltd., which emphasizes that if a dispute exists before the receipt of a demand notice, the application under Section 9 should be rejected.

3. Adjudicating Authority's Decision:

The Adjudicating Authority admitted the Section 9 application, stating that issues of fabrication and falsification of documents were beyond its jurisdiction due to the summary nature of IBC proceedings. It relied on the judgment of Naresh Sevantilal Shah Vs Malharshanti Enterprises to determine that the cut-off date for the existence of a pre-existing dispute should be the date of the first demand notice. The Authority found no substantial material from the Corporate Debtor to support their claims of dispute.

Conclusion:

The Appellate Tribunal found that the Adjudicating Authority erred in its decision. The Tribunal noted that the Corporate Debtor's Notices of Dispute clearly indicated pre-existing disputes, fulfilling the requirements of Section 8(2)(a) of the IBC. The Tribunal concluded that the application filed by the Operational Creditor under Section 9 was affected by Section 9(5)(ii)(d), as genuine pre-existing disputes existed. Consequently, the Tribunal set aside the Impugned Order dated 30.10.2023, released the Corporate Debtor from the CIRP, and directed that the Resolution Professional's fees and expenses be paid by the Operational Creditor.

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