Axykno Capital Services Private ... vs Rattanindia Power Limited
- CitationCompany Appeal (AT) (Insolvency) No. 913 of 2022
Ratio decidendi
The rule this decision rests on
Where a corporate debtor, before the operational creditor's demand notice, has raised in writing a genuine dispute concerning the quality of the services rendered and the deficiency in those services, that dispute is a pre-existing dispute within the meaning of Section 9(5)(ii) of the Insolvency and Bankruptcy Code, 2016, and an application under Section 9 is liable to be rejected on that ground; the existence of a dispute is not negated by the continuation of the contract, by the absence of any express denial of liability, or by the operational creditor's continued pursuit of payment. Disputes arising under contractual matters, such as the adequacy of performance and deficiency of service, are not to be resolved in Section 9 proceedings, which are not a forum for adjudicating disputed questions of fact or for recovery of debts whose existence is contested. Deduction of tax at source does not, by itself, establish an acknowledgment of a debt sufficient to defeat a pre-existing dispute raised on the record, so as to require the admission of an insolvency application.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
a'XYKno Capital Services Pvt. Ltd. ...Appellant
Versus
Rattan India Power Ltd. ...Respondent
Present: For Appellant: Mr. Nikhil Nayyar, Sr. Advocate with Mr. Vikram Hegde, Mr. Naveen Hegde and Mr. Chitwan Sharma, Advocates. For Respondent: Mr. Karan Batura and Mr. Jayant Chawla, Advocates.
ORDER
10.11.2022: Heard learned counsel for the Appellant. This Appeal has
been filed against order dated 27.01.2022 by which order Adjudicating
Authority has rejection Section 9 application filed by the Appellant. The
Appellant was engaged as Consultant for providing consultancy services to
the Corporate Debtor. The invoices were issued by the Appellant in
February, 2015. On 18.02.2015, the Corporate Debtor with regard to the
consultancy services for Coal Block issued a letter raising various issues
pertaining to the quality of service. After the receipt of said letter some
clarification was issued on 09.03.2015 by the Operational Creditor. By email
dated 05.03.2015, Corporate Debtor was communicated that they are
qualified and successful in Tara Block. Appellant's case is that letter dated
18.02.2015 was replied on 09.03.2015 and thereafter no response was
received and correspondence was made in 2016 only. Notice under Section 8
Cont'd.../ 2
was issued on 26.07.2018, which is said to be replied on 02.08.2018.
Learned counsel for the Appellant submit that reply dated 02.08.2018 was
never received by them, it was only filed alongwith the reply to the Section 9
application. The Section 9 application was filed thereafter which was replied
by counter affidavit filed by the Respondent. The Adjudicating Authority
considering the materials on record came to conclusion that there was a pre-
existing dispute, the dispute which was raised in letter dated 18.02.2015
regarding poor quality and deficiency in service reflect the same. The
observations which have been recorded by the Adjudicating Authority in Para
9 of the impugned order are to the following effect:
"9. We have heard the Ld. Counsels for both sides and perused the documents available on the matter. The O.C. has stated that the team of O.C. was called several times between the dates December 2014 to April 2017 for personal discussions and assurances made by the C.D. towards payment and also several telephone calls and communications are available, however, such details have not been provided. Further, the email dated 06.12.2016, which allegedly is an admission of the liability of C.D. has been disputed by the C.D. Though, the alleged reply of the C.D. dated 02.08.2018 to the O.C.'s demand notice has been disputed/claimed to be false by the O.C. But the Operational Creditor has not disputed the letter dated 18/02/2015, page 52 of the petition. Since this letter is filed by the Petitioner, therefore, its genuineness cannot be doubted. And on the basis of this document, it is admitted fact that the
Company Appeal (AT) (Insolvency) No. 913 of 2022 3
Respondent has raised the dispute regarding the quality and deficiency in the service, which comes under the definition of dispute u/s 5(6) of the IBC, 2016. In view of the Section 9(5)(ii) IBC, the moment dispute is established by the Corporate Debtor, the Corporate Insolvency Resolution Process should not be initiated against the Corporate Debtor. So far payment of TDS is concerned, it is not settled that deduction of TDS does not amount to acknowledgement of debt. The Insolvency Proceedings are not meant to be recovery proceedings. This Adjudicating Authority cannot enter into disputed questions of fact which could be resolved only through formal proceedings of a Civil Court, nor is it meant to be a recovery forum."
2. Learned counsel for the Appellant contended that Appellant continued
to render services even after letter dated 18.02.2015 and the contract was
not terminated and there has been no further correspondence in this regard.
The Appellant - Operational Creditor was following for its payment and in
2018 when nothing transpired, notice under Section 8 was issued on
26.07.2018. Present is a case where entitlement of the Appellant was not
denied.
3. We have considered the submissions of the Appellant and perused the
record.
4. The Appellant was engaged for consultancy services and by letter
dated 18.02.2015, which is a detailed letter, Corporate Debtor has informed
the Operational Creditor regarding the poor performance of the consultancy
service and loss of company business. The letter is a details letter where
Company Appeal (AT) (Insolvency) No. 913 of 2022 4
different items/instances were mentioned and the letter further clearly states
that whole process of consultancy was managed in a very chaotic manner
with poor end result. Submission of the Appellant that payment was never
denied and contract continued even after letter dated 18.02.2015 also does
not negate the dispute between the parties, since poor quality of service was
explained by Corporate Debtor by letter dated 18.02.2015, hence, the
dispute was very much there from the said date at least. Section 9
application was also objected by the Respondent and reply was filed raising
dispute and refuting the claim of the Appellant. The Adjudicating Authority
had come to the conclusion that there being pre-existing dispute application
deserves rejection. The disputes pertaining to contractual issues are not to
be resolved in Section 9 proceedings. Present is not a case where there is
undisputed debt for which insolvency can be asked by the Appellant to be
initiated. We are of the view that no error has been committed by the
Adjudicating Authority in rejecting Section 9 application, there being a pre-
existing dispute. There is no merit in the Appeal. Appeal is dismissed.
5. Learned counsel for the Appellant lastly submits that TDS deductions
were made even after 18.02.2015. Be that as it may. It is always open for
the Appellant to seek remedy for its dues, if any, as permissible in law.
[Justice Ashok Bhushan] Chairperson
[Barun Mitra] Member (Technical) Archana/nn
Company Appeal (AT) (Insolvency) No. 913 of 2022
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