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2017 (6) TMI 1162

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....m Resolution Professional along with the consent letter for taking immediate possession of the assets of Corporate Debtor, including the bank account (s). 2. Ld. Counsel appearing for the Appellant while assailed the order, submitted that the impugned order dated 3rd April, 2017 has been passed by the Adjudicating Authority in violation of rules of natural justice, without any notice and without giving any opportunity to Corporate Debtor. It is further contended that there is an 'existence of dispute' which the Appellant- Corporate Debtor could have brought to the notice of the Adjudicating Authority, if given an opportunity. 3. On the other hand according to Ld. Counsel for Respondent- Operational Creditor the Appellant- Corporate Debtor was served with a notice under Section 8 of the I&B Code and the copy of the petition under Section 9 was also forwarded to the Appellant. It is further contended that the Appellant failed to reply to the notice given by the Operational Creditor under Section 8 of I&B Code. 4. We have heard Ld. Counsels for the parties and perused the record. 5. From the Order Sheets enclosed with the appeal, we find that the Adjudicating Authority initially t....

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....w the rules of natural justice before passing any order. In "Innoventive Industries Limited vs. ICICI Bank" Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017 this Appellate Tribunal by judgment dated 15th May, 2017, also held that a notice required to be given to the Corporate Debtor before admitting any application for initiation of corporate resolution process under Section 7 and 9 of the I&B Code. 10. In the present case as the Adjudicating Authority has not given any notice to the Corporate Debtor, prior to admitting the application under Section 9 of the I&B Code, the impugned order is fit to be set aside having been passed in violation of rules of natural justice. 11. Ld. Counsel appearing on behalf of the Appellant - Corporate Debtor brought to our notice, letters communicated between the Corporate Debtor and the Operational Creditor, which are not in dispute. 12. From the record we find that in reply to the letter dated 4th November 2016, written by Operational Creditor, the Appellant- Corporate Debtor by reply dated 16th November, 2016 brought the notice of the Operational Creditor that one of the 'Caterpillar Engine' (CAT 6.6) which was repaired and installed by Opera....

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....mated that the Engine was earlier repaired. The Operational Creditor threatened to initiate legal proceeding, including civil and criminal proceedings against the Corporate Debtor, as apparent from the letter aforesaid, relevant portion of which (letter dated 15th December, 2016) reads as under: - "At the outset, we are surprised and shocked to having received your reply letter dated 16th November, 2016 and the contents therein. We would like to state in this regard that such a baseless allegation with respect to some faulty, non-functional machine which was earlier repaired by us on receipt of our legal notice for legitimate outstanding dues is purely after thought, sham and baseless, only to avoid paying our due debts. You will appreciate that Tractors India is a trusted brand in the industry for last 7 decades and such baseless and false allegation written with malicious intent is only to damage the reputation of our organization and only delay the legitimate dues of ours. In this regard, we would like to further state that such baseless allegations which leave us with no option but to instigate legal proceedings against your organization, both civil and criminal, includ....

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....tion 5 of the 'I & B Code', it would violate the definition of operational debt under sub-section (21) of Section 3 of the 'I & B Code' and would become inconsistent thereto, and would bar Operational Creditor from invoking Sections 8 and 9 of the Code. 27. Sub-section (6) of Section 5 read with sub-section (2)(a) of Section 8 also cannot be confined to pending arbitration or a civil suit. It must include disputes pending before every judicial authority including mediation, conciliation etc. as long there are disputes as to existence of debt or default etc., it would satisfy subsection (2) of Section 8 of the 'I & B Code'. 28. Therefore, as per sub-section (2) of the 'I & B Code', there are two ways in which a demand of an Operational Creditor can be disputed: 17 i. By bringing to the notice of an operational creditor, 'existence of a dispute'. In this case, the notice of dispute will bring to the notice of the creditor, an 'existence of a dispute' under the Code. This would mean disputes as to existence of debt or default etc. or ii. By simply bringing to the notice of an operational creditor, record of the pendency of a suit or ....

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....ication and not pending before any competent court of law or authority cannot be relied upon to hold that there is a 'dispute' raised by the corporate debtor. The scope of existence of 'dispute', if any, which includes pending suits and arbitration proceedings cannot be limited and confined to suit and arbitration proceedings only. It includes any other dispute raised prior to Section 8 in this in relation to clause (a) or (b) or (c) of sub-section (6) of Section 5. It must be raised in a court of law or authority and proposed to be moved before the court of law or authority and not any got up or malafide dispute just to stall the insolvency resolution process." 15. In the present case we find that the Corporate Debtor raised dispute about the quality of goods and brought the same to the notice of the Operational Creditor. The Corporate Debtor also claimed damage for inferior quality of goods and its loss much prior to receipt of notice under sub-section (1) of Section 8 of the I&B Code. In this background and in view of decision in "Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd", we hold that a dispute is existing about the quality of goods which....