2024 (11) TMI 1051 - AT - IBC

Section 9 application rejected as pre-existing dispute over inflated invoices prevented CIRP initiation

Multiplier Brand Solutions Pvt. Ltd. Versus Amazon Wholesale (India) Pvt. Ltd.

NCLAT Principal Bench dismissed appeal challenging rejection of Section 9 application for initiating CIRP. Court found pre-existing dispute existed before ... Rejection of Section 9 Application filed by the Appellant - pre-existing disputes - dispute existed much before Demand Notice was issued - inflated invoices - HELD THAT:- When the Corporate Debtor is entitled to all rights, interests and has to discharge all liabilities obligations of Transferor under the Principal Agreement, any entitlement or liability of it, which flow from the Master Service Agreement has to be shouldered/claimed by the Corporate Debtor. It cannot be said that inflated invoices which is claimed to have been issued by staff and employees of the Appellant though related to the different Project under the same Master Service Agreement is alien or foreign to claim which has been raised by the Appellant. In the present case, after coming to know about the issue of inflated invoices, Appellant itself has commenced investigation and filed the Police Complaint as well as directed for investigation through Ernst and Young, which is an admitted fact. Appellant in his Appeal has brought on record the Police Complaint which was submitted by Appellant on 24.02.2023. The correspondence between the Parties which relates to the payments which are subject matter of Demand Notice and Section 9 Application is clear communication by Corporate Debtor that payments have been put on hold indicates that there was dispute raised by Corporate Debtor with regard to entitlement and payment of the invoices which are subject matter of Section 9 Application much before issuance of Demand Notice dated 06.11.2023. Thus, it is clear that the claim of Appellant for payment of invoices which are subject matter of Section 9 Application was disputed much before Demand Notice was issued - In facts of the present case, Adjudicating Authority has not committed any error in refusing to initiate CIRP, there being Pre-Existing Dispute which is reflected with the correspondence which took place between the Parties much prior to issuance of Demand Notice. Thus, no error has been committed by the Adjudicating Authority in rejecting Section 9 Application filed by the Appellant. There is no merit in the Appeal - The Appeal is dismissed. Issues Involved:1. Validity of the rejection of the Section 9 Application by the Adjudicating Authority.2. Existence of pre-existing disputes between the parties.3. Impact of the Novation and Substitution Agreement on the liabilities and obligations under the Master Service Agreement.4. Allegations of fake and inflated invoices and their relevance to the Section 9 Application.Detailed Analysis:1. Validity of the Rejection of the Section 9 Application:The appeal challenges the Order dated 05.03.2024, where the Adjudicating Authority rejected the Section 9 Application filed by the Appellant, an Operational Creditor, on the grounds of pre-existing disputes. The Appellant argued that the disputes raised by the Corporate Debtor pertained to a different project and were irrelevant to the invoices in question. However, the Tribunal upheld the rejection, emphasizing that the disputes were sufficiently documented and communicated prior to the issuance of the Demand Notice, thereby justifying the rejection of the Section 9 Application.2. Existence of Pre-Existing Disputes:The core issue was whether there were pre-existing disputes between the parties that could prevent the initiation of the Corporate Insolvency Resolution Process (CIRP). The Corporate Debtor had raised concerns about inflated invoices and alleged fraud in the services provided under the Master Service Agreement. These concerns were communicated through various correspondences, including emails dated 02.06.2023, 12.06.2023, and 16.06.2023, which occurred before the Demand Notice on 06.11.2023. The Tribunal found that these communications demonstrated a clear pre-existing dispute, thereby justifying the rejection of the Section 9 Application.3. Impact of the Novation and Substitution Agreement:The Novation and Substitution Agreement dated 01.04.2021 transferred all rights, interests, liabilities, and obligations from Amazon Seller Services Private Limited to Amazon Wholesale (India) Private Limited, the Corporate Debtor. The Appellant contended that the invoices in question were issued after this novation and were unrelated to the disputes concerning the Vodafone Project. However, the Tribunal noted that the Corporate Debtor, by virtue of the novation, was entitled to review and address any issues arising under the Master Service Agreement, including those related to the alleged fraudulent activities. Therefore, the novation did not absolve the Appellant from addressing the pre-existing disputes.4. Allegations of Fake and Inflated Invoices:The Corporate Debtor alleged that the Appellant had engaged in fraudulent activities by inflating invoices and misrepresenting sales figures, particularly concerning the Vodafone Project. The Appellant argued that these allegations were unrelated to the invoices in question, which pertained to the Amazon Devices Project. Despite this, the Tribunal found that the allegations of fraud were serious and relevant, as they were part of the ongoing investigation and were communicated well before the Demand Notice. The Tribunal concluded that these issues constituted a pre-existing dispute, impacting the Appellant's claim under the Section 9 Application.Conclusion:The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision to reject the Section 9 Application due to the presence of pre-existing disputes. It emphasized that the documented correspondence and ongoing investigations into fraudulent activities justified the conclusion that there was no clear and undisputed debt, thereby precluding the initiation of CIRP. The appeal was found to lack merit, and the decision of the Adjudicating Authority was upheld.