TaxTMI 
TaxTMI 
2021 (5) TMI 271
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....istake. Even otherwise the application has been filed on 29.05.2018, hence, limitation issue would not arise. Submissions of the Operational Creditor (Liquidator) 2. Learned Counsel Mr. Jaimin Dave appeared on behalf of liquidator appeared and contended that last payment was made by the Corporate Debtor on 14.12.2016, hence, the application was maintainable considering all angles. It was also contended that despite repeated requests and even after admitting the debt, the Corporate Debtor failed to make payment. It was also claimed that no pre-existing dispute was involved in the present case. It was also brought to our notice that the application against the Corporate Debtor under IBC, 2016 was admitted and put Applicant into CIRP, hence, Resolution Professional after taking charge of the Corporate Debtor issued Demand Notice under Section 8 of IBC, 2016 on 02.01.2018 which was delivered to the Corporate Debtor. It has also been claimed that no reply had been given by the Corporate Debtor to said Demand Notice. It is further, pointed out that CoC also authorized the Resolution Professional to initiate this proceeding and it was also resolved that liquidator would also pursue this....
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....ew to harass the Corporate Debtor and thus, it amounts to abuse of process of law and for this reason also, the application was liable to be dismissed. It was also claimed that amount claimed in invoices was in variation with the rates agreed upon for the actual work done. Rejoinder of the Operational Creditor (Liquidator) 4. In the rejoinder, it has been categorically stated that when the Operational Creditor company was undergoing CIRP, Resolution Professional addressed several letters/communications to all the Debtors of Corporate Debtors including this Corporate Debtor. However, no response was received from the side of Corporate Debtor. It was also pointed out that Operational Creditor and Corporate Debtor were related parties, hence, all claims made by the Corporate Debtor in the present application had to be examined in the background of this factual position. It was further contended that all these letters, as claimed, had been delivered by hand instead of sending the same through email or post and that too from the location of the Corporate Debtor which was 250 kms away from the place of Operational Creditor. It was strongly argued that such letters had been made in acti....
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....livery of such reply. Thus, in our view, claim of the Corporate Debtor is liable to be rejected that it had replied to the notice of demand under 8 of IBC, 2016. Accordingly, we hold that no reply to Demand Notice has been given by the Corporate Debtor within the statutory period of 10 days from the receipt of such notice and no reasonable cause has been shown even during the course of hearing for not doing so. Hence, in our opinion, this application is liable to be admitted for this reason alone on the principle of parity i.e. whom delivery of notice under Section 8 of IBC, 2016 is mandatory for the Operational Creditor to make an application under Section 9 maintainable, similar obligation is on the Corporate Debtor to avoid itself being admitted into CIRP to give reply to such notice of demand within 10 days. This procedure has been prescribed by the legislature so that time lines prescribed under IBC, 2016 can be maintained and if there is a plausible reason/cause to not to admit Corporate Debtor into CIRP that can be examined at stage only. It is also noteworthy that such reply/notice of dispute by the Corporate Debtor is most critical so that Corporate Debtor is not wrongly p....
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....herefore, corporate debtor on subsequent stage cannot take shelter even of Rule 11 of NCLT Rules, 2016. We are further of the view that if the requirement of reply to notice u/s. 8 within the stipulated time is waived then provisions of Section 9(5)(ii)(c) r.w. Section 8(2) would become redundant. In this regard, we draw strength from the observations of the Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited vs. Kirusa Software Private Limited wherein the Court has held that time lines prescribed under the Act are sacrosanct and must be adhered to. The relevant findings of the Hon'ble Supreme Court in para 24, 25, 26, 27 are reproduced hereunder: 24. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on non-payment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read ....
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....n made under sub-section (2) is incomplete, the adjudicating authority, under the proviso to sub-section 5, may give a notice to the applicant to rectify defects within 7 days of the receipt of the notice from the adjudicating authority to make the application complete. Once this is done, and the adjudicating authority finds that either there is no repayment of the unpaid operational debt after the invoice (Section 9(5)(i)(b)) or the invoice or notice of payment to the corporate debtor has been delivered by the operational creditor (Section 9(5)(i)(c)), or that no notice of dispute has been received by the operational creditor from the corporate debtor or that there is no record of such dispute in the information utility (Section 9(5)(i)(d)), or that there is no disciplinary proceeding pending against any resolution professional proposed by the operational creditor (Section 9(5)(i)(e)), it shall admit the application within 14 days of the receipt of the application, after which the corporate insolvency resolution process gets triggered. On the other hand, the adjudicating authority shall, within 14 days of the receipt of an application by the operational creditor, reject such appli....
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.... Section 61 of the Act within 30 days of the order of the Adjudicating Authority with an extension of 15 further days and no more. 27. Section 64 of the Code mandates that where these timelines are not adhered to, either by the Tribunal or by the Appellate Tribunal, they shall record reasons for not doing so within the period so specified and extend the period so specified for another period not exceeding 10 days. Even in appeals to the Supreme Court from the Appellate Tribunal under Section 62, 45 days time is given from the date of receipt of the order of the Appellate Tribunal in which an appeal to the Supreme Court is to be made, with a further grace period not exceeding 15 days. The strict adherence of these timelines is of essence to both the triggering process and the insolvency resolution process. As we have seen, one of the principal reasons why the Code was enacted was because liquidation proceedings went on interminably, thereby damaging the interests of all stakeholders, except a recalcitrant management which would continue to hold on to the company without paying its debts. Both the Tribunal and the Appellate Tribunal will do well to keep in mind this principal objec....
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....n is filed before the Adjudicating Authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected. Thus, the Hon'ble Supreme Court has reiterated time and again that adherence to the time line of 10 days for reply to demand notice is a must. Thus, any reply beyond the period of 10 days will not save the Corporate Debtor from the consequences as mentioned in Section 9(5)(ii)(c) of IBC, 2016. 6. Now, coming to the aspect of pre-existing dispute raised by the Corporate Debtor on the basis of letters written by the Corporate Debtor and delivered to the Operational Creditor. In this regard, it is noteworthy that both Corporate Debtor as well as Operational Creditor are related parties. It has also to be noted that present application has been filed by the Resolution Professional/liquidator and not by the Operational Creditor. Hence, these facts have also to be considered while examining the validity of such letters. It is also not in dispute that there is a distance of 250 kms between the offices of the Operational Creditor and Corporate Debtor. All th....
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....atter of a suit or arbitration proceedings. Thus, dispute may have various dimensions/aspects which may not related to above three situations only. For example, in case of Mobilox, breach of term relating to non-disclosure agreement was considered as dispute. Further, disputes relating to situations mentioned in clause (a), (b) and (c) of Section 5(6) may not be in the form of suit of arbitration only as such disputes though existing in reality might not have been referred for such process as yet. However, a reference to a suit or arbitration in Section 5 (6) certainly indicates that dispute is something more than a disagreement or difference of opinion or conflict. Even otherwise every disagreement or conflict may also not reach to the stage of dispute necessarily. 17. Before we proceed further, it is considered necessary to reproduce the findings of Hon'ble Supreme Court in the case of Mobilox in Para 40, 45 and 46 as under: 40. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operati....
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....ent case before the axe falls. 18. Thus, the parameter to ascertain as to whether there is a dispute or otherwise can be summarized as under: i) The dispute should have prima facie bona fide and exists naturally in a given fact; ii) The grounds for alleging the existence of a dispute should not be spurious, hypothetical, illusory or misconceived; iii) The existence of a dispute need not require further to be proved; iv) The dispute should be natural and not a made to believe dispute. The extent of ascertainment/examination of such parameters defines the scope of exercise of jurisdiction by Adjudicating Authority. It has been pleaded that Adjudicating Authority has limited jurisdiction as compared to a Trial Court and Civil Court. We do not have any quarrel or dispute with this proposition. However, intensity of the examination would depend upon the facts and documentary evidences produced by each of the parties in support of their claims. Having said so, it would also be an endeavor of the Corporate Debtor to prove that there is pre-existing dispute to avoid its obligation. The Hon'ble Supreme Court has said that such defense should not be feeble legal argument or a....
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....s, and employment conditions. 19.3. The term 'dispute' as per U.S Legal.com is described as under: "Dispute means a controversy. It refers to an allegation of fact by one person denied by another person, both acting with some show of reason." 20. Thus, at a glance itself, it can be said that a threshold or stage is to be crossed to convert a difference/disagreement into dispute. In other words, normally commercial/legal differences per se are not dispute unless such differences are ascertained into a claim on which both the parties have opposite/different views and want to settle the same through some legal process or otherwise. Thus, in our view, routine correspondence in commercial relationship cannot automatically or necessarily be considered and admitted as dispute unless such stage is reached. 21. In the above academic background, we will examine this process in the context of running contracts. In large construction projects spanning over a period of 2, 3 years where milestones are based upon the progressive performance or the completion of units, such type of correspondences generally take place. Such projects also provide significant scope for various disagr....
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....n to work already done by the Operational Creditor only. Further, in the reply to notice of demand, assuming that it was given, slow rate of completion of project as alleged in letters of 15.03.2016 and 01.04.2016 has not been mentioned but issue of variation in rates applied in the invoice has only been mentioned, hence, such reply of Corporate Debtor contradicts nature of its claim as regard to pre-existing dispute. Thus, for this reason also, this claim of Corporate Debtor is rejected. 7. One legal claim has been made by the Corporate Debtor is that complex-issues were initiated and reasons was the motive which required examination by Trial Court and the present proceedings are of summary nature, hence, this Adjudicating Authority does not have jurisdiction to entertain and dispose of this application. In this regard, in the background of our views expressed hereinbefore, we may out-rightly reject these pleas of Corporate Debtor as in our view, no complexities of the nature requiring regular trial by the Civil Court are involved. In other words, the Corporate Debtor has failed to make out a triable case. However, considering the general importance of this issues as this please ....
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....disputes under Code of Civil Procedure, 1908 would be disposed of. In this regard, it is important to keep in mind again that such proceedings are of the nature of recovery proceedings whereas proceedings under Section 9 of IBC, 2016 are not of this nature generally as the object of IBC, 2016 is, amongst others, insolvency resolution of the Corporate Debtor. Having stated so, the question which intrigues us whether in the context of IBC, 2016, is it really so? Apparently, it may appear so but if one goes deep into the sea of provisions of IBC, 2016, one can easily find out that inherent object is realization of outstanding dues of secured financial lenders even at the cost of unsecured Financial Creditor and Operational Creditor through insolvency resolution and before that stage arrives the recovery of money of creditors through settlement of dispute by payment of outstanding amount of Applicant creditor by the Corporate Debtor. First of such provisions is contained in Rule 8 of insolvency and Bankruptcy (application to Adjudicating Authority) Rule, 2016 under which Adjudicating Authority permits withdrawal of the application filed by a Financial Creditor under Section 7 of IBC, 2....
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....of IBC, 2016. Originally, there was no provision in IBC, 2016 or CIRP Regulations, 2016 permitting withdrawal on account of settlement between the parties. In that situation, Rule 11 of NCLT Rules, 2016 was used to permit the withdrawal in such cases or Hon'ble Supreme Court exercised its jurisdiction under Article 142 of the constitution of India and subsequent to the observations of Hon'ble Supreme Court in a case, provisions of Section 12A were brought on statute with effect from 06.06.2018 permitting withdrawal of applications admitted under Section 7, 9 or 10 of IBC, 2016 with the approval of ninety percent vote of CoC. Regulation 30A read with Form FA has been prescribed in CIRP Regulations, 2016 which need to be complied for withdrawal under Section 12A of IBC, 2016. This regulation has come into force w.e.f 03.07.2018. It is interesting to note that section 12A of IBC, 2016 permits withdrawal only with the approval of ninety percent of vote of CoC and originally Regulation 30A was in term of provisions of Section 10A of the IBC, 2016. However, with effect from 25.07.2019, this regulation amended but Regulation 30A also prescribes a situation or stage of withdrawal p....
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....olution plan. Thus, considering from the perspective of both Financial Creditors and Operational Creditors, the primary object is recovery of their money though routed through different mode and format. Thus, to this extent, scope of jurisdiction of Adjudicating Authority and of Civil Court appears to be on same footing. 9. Having stated so, we would further consider the legal framework which governs such applications. Under Section 60 r.w 2 of IBC, 2016, applications of this nature are to be filed before the Adjudicating Authority having requisite territorial jurisdiction. As far as aspect of territorial jurisdiction is concerned that is not in dispute in the present case, hence, no necessity to go into this further. Now, we have to give consideration to the preamble of IBC, 2016 which states many objects but one of the objects to make availability of credit which is also achieved due to settlement between creditors and debtors. IBC, 2016 has also brought in discipline in the manner of conduct of economic activities by reducing prolonged litigation in respect of disputes relating to recovery of money. Further, efficacy of IBC, 2016 is also tackled on the basis of percentage of r....
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....s preliminary legal basis, alone, this claim of the Corporate Debtor is rejected. 12. Now, coming to the plea that proceedings before Adjudicating Authority are of summary nature, hence, we need to understand nature of summary proceedings. In this regard, we state that the term summary proceedings is neither defined under IBC, 2016 nor in the Code of Civil Procedure, 1908. Hence, we have to first look at the dictionary meaning of this term. As per Black's Law Dictionary, definition of Summary proceeding is as follows: (Page 1458 of Black's Law Dictionary 11th Edition). Summary proceeding. (17c). A nonjury proceeding that settles a controversy or disposes of a case in a relatively prompt and simple manner. - Also termed summary trial. Cf. plenary action under ACTION (4). From the definition of the above, it is noted that in case of summary proceeding, the thrust is on the disposal of a case in a simple and prompt manner but that does not mean that due process of law or general principles and practices evolved over time for the disposal need not to be followed at all or controversies involved should be of such nature only which do not require any application of judicial mi....
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....unt, then matters will be considered by a summary trial court under order xxxvii of CPC, 1908 again subject to the limitation that commercial dispute should of the nature eligible to be considered thereunder. In our view, it is nobody's case that the dispute does not fall in the category of dispute specified for summary trial under the Civil Procedure Code, 1908. In any case, first we would look at the mechanism provided through Amendment Act of 2015. This is also so far the reason that the value amount involved is more than the specified value and commercial disputes of all nature are covered therein. 14. The Commercial Courts Act, 2015 has made several amendments to simplify the procedure with a view to a faster resolution of cases. Some of the provisions of this Act are mandatory and override the regular provisions of Code of Civil Procedure, 1908 as amended from time to time. It is also provided that in case of conflict between rules of Civil Procedure Code, 1908, rules of jurisdictional High Courts and any amendment made provisions of Commercial Courts Act, 2015 shall prevail. Now, we shall look at main features of this Act of 2015. Section 12 A provides for mandatory med....
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....d Regular Suit as under: 16. Thus, in summary suit under Code of Civil Procedure, 1908 like IBC, 2016, defendant must make appearance within 10 days of service of plaint. In case, defendant does not do so, his right to defend is lost and judgment/decree can be passed without hearing the defendant. Further, it has been specifically provided under Rule-5 of order XXXVII of Code of Civil Procedure, 1908 that even right to defend depend on leave of the Court and it cannot be unconditional or unlimited as Court has been given powers to examine the aspect whether facts disclosed by the defendants are frivolous or vexatious. If Court, on examination of evidences provided by the defendants, finds that extreme complexities are involved then, in that situation only, matter can be referred for regular trial. 17. Thus, even under Civil Procedure Code, 1908 commercial disputes have to be decided within specified time line both before Commercial Court or in summary manner generally at the first instance as per statutory provisions prescribed therein. Having regard to this legal position, in our considered view, the provisions of IBC, 2016 provide more room to defendant, (Corporate Debt....
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....and Bankruptcy Code, 2016, NCLT is the Adjudicating Authority. It is also seen from the perusal of Rule 10 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 that certain specific rules of NCLT rules, 2016 have been made applicable to application to be filed under Section 7 or 9 or 10 of Insolvency and Bankruptcy Code, 2016. It is also to be noted that in the said rule 10 it has been mentioned that such NCLT rules are applicable till procedure/rules for disposal or proceedings under Insolvency and Bankruptcy Code are prescribed under Insolvency and Bankruptcy Code, 2016. It is also to be noted that in the case of B K Educational Society, the Hon'ble Supreme Court has also held that NCLT rules are applicable to Adjudicating Authority for deciding the matters under Insolvency and Bankruptcy Code, 2016. It is also to be noted that in many cases Rule 11 of NCLT, 2016 has been invoked in case of proceedings filed under Insolvency and Bankruptcy Code, 2016. 19. We have already discussed that the provisions of Section 424 of the Companies Act, 2013 which make NCLT similar to a Court by investing NCLT with the powers of the Court for specific matters and ....
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....ely. Further, acting under Article 226 to the Constitution of India can also taken by jurisdictional High Court. Thus, in our considered view, appeal under 136 to Constitution of India can also be filed directly against the order of NCLT/Adjudicating Authority under exceptional circumstances. In our view, therefore, NCLT as such or as Adjudicating Authority is a judicial forum which exercises judicial powers conferred on it by and under respective statutes. Now, the question arises as to whether there is any significant difference between the "Tribunal" and "Adjudicating Authority" because NCLT functions as Adjudicating Authority under Insolvency and Bankruptcy Code, 2016 and, therefore, whether Adjudicating Authority would have limited jurisdiction or restricted powers as compared to a situation when NCLT functions as Tribunal. For this purpose, we would look into the meaning and purpose of Adjudicating Authority. From a layman's perspective, Adjudicating Authority means an institution constituted for adjudication. The word "Adjudication" has not been defined in both these statutes nor it has been defined in the General Clause Act, 1897. To find the meaning of this term, we ....
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....isdiction over contractual issues which are in relation to or arise out of insolvency of a Corporate Debtor. Again, in the case of P Mohan Raj, very recently, the Hon'ble Supreme Court has held that provisions of Section 14 of Insolvency and Bankruptcy Code, 2016 relating to moratorium during CIRP period would be applicable to proceedings under Section 138 of Negotiable Instrument Act, 1881 which are of quasi-criminal nature, hence, any violation of provisions of Section 14 can be examined by Adjudicating Authority. Further, admission or rejection of an application filed under Section 9 apart from other factors, depends upon the fact whether there is a preexisting dispute or not. The term "dispute" as defined in Section 5(6) of Insolvency and Bankruptcy Code, 2016 covers situations which would require critical appreciation of facts related thereto and material brought on record by the parties to justify their claims. These provisions exist in Code since its inception and if the legislature had any other intent i.e., that matters having any disputes of this nature were not be entertained and discharged of by Adjudicating Authority, then matters relating to Section 7 or Section 1....
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.... 9 of IB Code, 2016. We will appoint the IRP from the list maintained by the IBBI. 24. This matter was heard and reserved for order on 17.03.2021. However, due to pendency of other complicated cases, absence of a staff due to COVID-19, holidays falling in the intervening period and complexity of issues involved in this application, the order could not be passed as per time schedule which is generally followed by this Bench. 25. Considering the facts and applicable legal position, the application filed by the Operational Creditor is admitted. We further order as under: ORDER 1. Corporate Debtor M/s. MBC Agro Industries LLP is admitted in Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016. 2. The moratorium under Section 14 of Insolvency and Bankruptcy Code, 2016 is declared for prohibiting all of the following in terms of Section 14(1) of the Code. (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or dispos....