2024 (11) TMI 479 - AT - IBC

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 ... Admission of Section 9 application - Corporate Debtor failed to make repayment of its dues - debt and default on the part of the Corporate Debtor qua the Operational Creditor - pre-existing dispute surrounding the operational debt or not - HELD THAT:- The tone and tenor of both the Notice of Disputes clearly manifested existence of dispute prior to the date of the Section 8 demand notice basis which the present Section 9 application has been filed. This constitutes sufficient foundation of genuine pre-existing disputes between the two parties. The reply to demand notice captures the essence of these disputes and therefore the requirements of Section 8(2)(1)(a) stood fulfilled. The application filed by the Operational Creditor under Section 9 has been hit by Section 9(5)(ii)(d). It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. In the present factual matrix, the defence raised cannot be viewed as moonshine, spurious, hypothetical or illusory. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the behest of the Operational Creditor. The Adjudicating Authority therefore clearly fell in error in admitting the Section 9 application while turning a blind eye to the Notice of Disputes which clearly establishes that there were serious differences between them in the nature of real pre-existing disputes. The ratio of Naresh Sevantilal Shah judgment [2021 (1) TMI 759 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI] which has been relied by the Adjudicating Authority to set the cut-off date of the date of issue of first demand notice for taking cognisance of the notice of dispute is not applicable in the present case since in that case, the first Demand Notice had been followed by filing of a Section 9 application before the Adjudicating Authority which was dismissed on technical grounds because Operational Creditor had made an incorrect claim - In the present case, no Section 9 application was filed after issue of first Demand Notice. Hence reliance on Naresh Sevantilal Shah judgment is misplaced because the facts therein are clearly distinguishable. The Adjudicating Authority committed serious error in admitting Section 9 application in the facts of the present case. The Impugned Order dated 30.10.2023 initiating CIRP of the Corporate Debtor and all other orders pursuant to Impugned Order are therefore set aside. The Corporate Debtor is released from the rigours of CIRP with immediate effect - Appeal allowed. 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.