TaxTMI 
TaxTMI 
2017 (6) TMI 984
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....he 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 has admitted that the notice of dispute dated 27,'h Decem....
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....d 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. Application for initiation of corporate insolvency resolution process by operational creditor: (1) After the expiry of....
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....nt 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 so far as notice of dispute is concerned. As per sub-section (5)( 1 )(d) of Section 9, the Adjudicating Authority can admit the application in case no notice raising the dispute is received by the operational creditor (as verified by the operational credi....
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....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. "Default" occurs on fulfilment of twin conditions: (a) debt becoming due and payable and (b) non-payment thereof. 17. For the purposes of Part II only of the Code, some terms/words have been defined. Sub Section (6) of Section 5 defines "dispute", to include, unless t....
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....res 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) of Section 8 of the 'I & B Code' cannot be read to mean that a dispute must be pending between the parties prior to the notice of demand and that too in arbitration or a civil court. Once parties are already before any judicial forum/authority for adjudication of disputes, notice becomes irrelevant and such an inte....
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....ly 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 to be avoided. Therefore, if disputes under sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' are confined to a dispute in a pending suit and arbitration in relation to the three classes under subsection (6) of Section 5 of the 'I & B Code', it would violate the definition of oper....
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....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 'corporate debtor. Similarly notice under Section 59 of the Sales and Goods Act if issued by one of the party, a labourer/employee who may claim to be operation creditor for the purpose of Section 9 of I&B Code, 2016 may have raised the dispute with the State Government concerning the subject matter i.e. existence of amount of debit and pending considerati....
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....uch 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 application under Section 9 if the operational creditor otherwise satisfies the adjudicating authority that there is a debt and there is a default on the part of the corporate debtor. 34. The onus to prove that there is no default or debt or that there is a dispute pending consideration before a court of law or adjudicating authority shift from creditor....
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....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 means of seeking to enforce payment of an amount that is bonafide disputed by a party. A disputed sum can neither be termed as 'inability to pay' the same so as to incur the liability under Section 271(2) (e )read with Section 27](1)(a) of the Companies Act, 2013 nor can it be termed as a "default" as defined under section 3(12) of the Code read with other applicable provisions o....