TaxTMI 
TaxTMI 
2017 (6) TMI 984
X X X X Extracts X X X X
X X X X Extracts X X X X
....titioner filed the Notice of dispute raised by the Corporate Debtor disclosing the Corporate Debtor disputing the claim made by the Petitioner. Though the petitioner filed all the invoices raised on the Debtor Company aggregating debt to Rs. 20,08,202, details of transaction on account of which debt fell due, default thereof and demand notice served upon the Debtor, for this Bench having noticed that notice of dispute raised by Respondent side has not been annexed to the CP, this Bench hereby directed to furnish the documents as prescribed u/s 9 of the I&BP Code. In compliance of it, the Petitioner filed the notice of dispute issued by the Corporate Debtor disclosing the corporate debtor disputing the claim made by the Petitioner. On perusal of this sub-section (5) of Section 9 of this Code, it is evident that notice of dispute has been received by the Operational Creditor. On perusal of this notice dated 27.12.2016 disputing the debt allegedly owed to the petitioner, this Bench, looking at the Corporate Debtor disputing the claim raised by the Petitioner in this CP, hereby holds that the default payment being disputed by the Corporate Debtor, for the petitioner h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;Operational Creditor,' on occurrence of a default, is required to deliver a notice of demand of unpaid debt or get copy of the invoice demanding payment of the defaulted amount served on the corporate debtor. This is the condition precedent under Section 8 and 9 of the 'I & B Code', before making an application to the Adjudicating Authority. 7. Under sub-section (2) of Section 8 of the 'I & B Code', once the demand notice is served on the corporate debtor by the 'operational creditor', the corporate debtor has to bring to the notice of the operational creditor the payment of debt or dispute if any, with respect to such operational debt within 10 days of the receipt of demand notice/invoice. 8. Under Section 9 of the Code, as quoted below, a right to file an application accrues after expiry often days from the date of delivery of the demand notice or copy of invoice as the case may be, demanding payment under sub-section (1) of Section 8 of the 'I & B Code'. The 'operational creditor' would receive either the payment or a 'notice of dispute' in terms of sub-section (2) of Section 8 of the 'I & B Code': "9....
X X X X Extracts X X X X
X X X X Extracts X X X X
....debtor, if. (a) the application made under sub-section (2) is incomplete; (b) there has been repayment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record ofdispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section" 9. Thus it is evident from Section 9 of the 'I& B Code' that the Adjudicating Authority has to, within fourteen days of the receipt of the application under subsection (2), either admit or reject the application. 10. Section 9 has two-fold situations in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the notice of dispute lacks in particulars or does not raise a dispute, it may admit the application but in either case, there is neither an ascertainment of the dispute, nor satisfaction of the Adjudicating Authority. The role of Adjudicating Authority may become easier once the information utility starts functioning for it is a record of dispute that would then be sufficient to reject the application of the operational creditor. 16. The terms "Claim", "Debt" and "Default" are define under Part I of the Code. Section 3(6) of the Code defines "claim" to mean a right to payment and included within its ambit disputed and undisputed, legal, equitable, secured, including arising out of breach of contract. Therefore, "right to payment" is the foundation for making a claim under the Code. Section 3(l 1) defines "debt" to mean, the liability or obligation in respect of a claim which is due from any person. Thus, claim transforms into a debt, financial & operational, once liability or obligation to pay gets attached to the claim. Section 3(12) defines "default" to mean "non-payment of the debt" once it has become due and payable and the same is not repaid by the debtor. "De....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h V Gough: Punjab Land Development and Reclamation Corpn. Ltd Vs. Presiding Officer, Labour Court.) The word 'includes ' when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include." 21. Admittedly in sub-section (6) of Section 5 of the 'I & B Code', the Legislature used the words 'dispute includes a suit or arbitration proceedings'. If this is harmoniously read with Section (2) of Section 8 of the 'I & B Code', where words used are 'existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings, 'the result is disputes, if any, applies to all kinds of disputes, in relation to debt and default. The expression used in subsection (2) of Section 8 of the 'I & B Code' 'existence of a dispute, if any,' is disjunctive from the expression 'record of the pendency of the suit or arbitration proceedings'. Otherwise, the words 'dispute, if any'. in sub-section (2) of Section 8 would become surplus usage. 22. Sub-section (2)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) of Section 8 of the 'I & B Code'. 25. The true meaning of sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' clearly brings out the intent of the Code, namely the Corporate Debtor must raise a dispute with sufficient particulars. And in case a dispute is being raised by simply showing a record of dispute in a pending arbitration or suit, the dispute must also be relatable to the three conditions provided under sub-section (6) of Section 5 (a)-(c) only. The words 'and record of the pendency of the suit or arbitration proceedings' under sub-section (2)(a) of Section 8 also make the intent of the Legislature clear that disputes in a pending suit or arbitration proceeding are such disputes which satisfy the test of subsection (6) of Section 5 of the 'I & B Code' and that such disputes are within the ambit of the expression, 'dispute, if any'. The record of suit or arbitration proceeding is required to demonstrate the same, being pending prior to the notice of demand under sub-section 8 of the 'I & B Code'. 26. It is a fundamental principle of law that multiplicity of proceedings is required....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eing in force and payable to the Central Government, any State Government or any local authority;" Thus the definition of 'dispute', 'operational debt' is read together for the purpose of Section 9 is clear that the intention of legislature to lay down the nature of 'dispute' has not been limited to suit or arbitration proceedings pending but includes other proceedings "if any". 30. Therefore, it is clear that for the purpose of sub-section (2) of Section 8 and Section 9 a 'dispute' must be capable of being discerned from notice of corporate debtor and the meaning of "existence" a "dispute, if any", must be understood in the context. 31. The dispute under I&B Code, 2016 must relate to specified nature in clause (a), (b) or (c) i.e. existence of amount of debt or quality of goods or service or breach of representation or warranty. However, it is capable of being discerned not only from in a suit or arbitration from any document related to it. For example, the 'operational creditor' has issued notice under Code of Civil Procedure Code, 1908 prior to initiation of the suit against the operational creditor which is disputed by 'corpo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the question will arise whether a petition under Section 9 will be maintainable particularly when it was a suit or arbitration proceeding is not pending, but stand decided? Though one may argue that Insolvency resolution process cannot be misused for execution of a judgement and decree passed in a suit or award passed by an arbitration Tribunal, but such submission cannot be accepted in view of Form 5 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules 2016 wherein a decree in suit and award has been shown to be a debt for the purpose of default on non-payment. 33. Thus it is clear that while sub-section (2) of Section 8 deals with "existence of a dispute", sub-section (5) of Section 9 does not confer any discretion on adjudicating authority to verify adequacy of the dispute. It prohibits the adjudicating authority from proceeding further if there is a genuine dispute raised before any court of law or authority or pending in a court of law or authority including suit and arbitration proceedings. Mere a dispute giving a colour of genuine dispute or illusory, raised for the first time while replying to the notice under Section 8 cannot be a tool to reject an ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....after contained, are in the alternative and/or without prejudice to one another. 2. At the further outset, it is respectfully submitted that the Notices are liable to be disregarded at the threshold and does not deserve to be entertained as the same are not maintainable in law. 3. It is stated that the claim on behalf ofyour Client as stated in the Notices are not contractually due and payable to your client, as there exist serious and bonafide dispute between your client and our client; and neither a winding up notice is maintainable nor any application before the Adjudicating Authority (as defined in the Code) for initiating a corporate insolvency resolution process under the Code. 4. The Notices are not only misconceived but also mala fide in nature and has been colourable issued as a "pressureinducing tactic" to realise a purported debt which is not due and payable to your client by our client. The purported debt is seriously and bonafide disputed by our client and the same is not liable to be paid for reasons more specifically mentioned herein. It is well settled that neither winding up notice nor any insolvency resolution process is a legitimate mea....