P.M. Mahendran Vs. Tharuvai Ramachandran Ravichandran and Ors. - (NATIONAL COMPANY LAW APPELLATE TRIBUNAL) (22 Nov 2019)

Where there is an existence of dispute prior to issuance of Demand Notice, Adjudicating Authority must reject the application

MANU/NL/0559/2019

Insolvency

Present appeal is arising out of the impugned order passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench), admitting the application filed by the 2nd Respondent herein under Section 9 read with Rule-6 of Insolvency and Bankruptcy Code, 2016 ('IBC').

Learned Counsel for the Appellant challenged the said order on the ground that, the application filed by the 2nd Respondent herein is not maintainable in view of the reason that there is existence of dispute prior to issuance of Demand Notice by the 2nd Respondent. Learned Counsel for the Respondent submitted that the 2nd Respondent supplied and delivered the materials in pursuance to the Purchase Orders made by the 3rd Respondent and the 3rd Respondent had defaulted in making payments. The only issue is whether there is a pre-existing of dispute prior to issuance of the Demand Notice dated 4th December, 2018 or not?

As per e-mail dated 31st October, 2018, it is clear that the Corporate Debtor raised a dispute prior to issuance of Demand Notice dated 4th December, 2018. The Operational Creditor did not deny the receipt of the mail and its contents. From the reading of Section 8(2)(a) of IBC, it is apparent that, the moment there is existence of a dispute, the Corporate Debtor gets out of the clutches of the rigours of the Code. Further, it is only to be seen that where the dispute raised by the Corporate Debtor qualifies as a dispute as defined under Section 5(6) of IBC.

From all the correspondences between the Corporate Debtor and the Operational Creditor, it is clear that there is a pre-existing dispute raised by the Corporate Debtor prior to issuance of Demand Notice dated 04.12.2018. It is a settled law that where there is an existence of dispute prior to the issuance of Demand Notice, the Adjudicating Authority must reject the application as held by the Hon'ble Supreme Court in "Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited.

From the correspondences, it is clear that there is pre-existence dispute with regard to quality and service prior to issuance of Demand Notice. Hence, the appeal is allowed and order passed by the Adjudicating Authority is quashed and set aside. Steps taken in consequence of Impugned Order and further Orders passed during Corporate Insolvency Resolution Process are all quashed and set aside.

The Corporate Debtor is released from rigour of Corporate Insolvency Resolution Process. The Interim Resolution Professional/Resolution Professional will hand over the assets and records to the Corporate Debtor/Promoter/Board of Directors. Henceforth, the Corporate Debtor will function independently through its Board of Directors.

Operational Creditor is liable to pay the CIRP cost and fees of the Interim Resolution Professional/Resolution Professional. The Interim Resolution Professional/Resolution Professional will file report before the Adjudicating Authority with regard to his fee, CIRP cost and the Adjudicating Authority is requested to pass orders to recover the same from the Operational Creditor. The appeal is disposed of accordingly.

Relevant : Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited - MANU/SC/1196/2017

Tags : DISPUTE EXISTENCE APPLICATION MAINTAINABILITY