Value Kine Interiors Pvt. Ltd vs Rattan India Power Ltd

Value Kine Interiors Pvt. Ltd. ...Appellant

Versus

Rattan India Power Ltd. ...Respondent

Present:

For Appellant : Shri Manohar Malik, Advocate

ORDER

08.12.2017 The appellant (Operational Creditor) preferred an application

under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as the 'I & B Code') for initiation of 'Corporate Insolvency Resolution

Process' of the respondent - M/s. Rattan India Power Ltd. Having noticed that

there is an 'existence of dispute' between the parties, the Adjudicating Authority

(National Company Law Tribunal) New Delhi Bench by the impugned order dated

23rd October, 2017 rejected the application No. (IB) -367(ND)/2017.

2. Learned counsel appearing on behalf of the appellant submitted that the

defects as were pointed out has already been rectified. After rectification of the

defects, there was no dispute since 30th June, 2016.

3. From the record, we find that the Adjudicating Authority has referred to

the correspondence between the parties on different dates such as 1st October,

2015, 10th February, 2016, 16th May, 2016 etc. By those letters, the Corporate

Company Appeal (AT) (Insolvency) No. 305 of 2017 1 Debtor had specifically alleged that the Operational Creditor did not finish

several items and abandoned the work. In their letter dated 11th March, 2016,

the Corporate Debtor has also taken a plea that due to non-completion of work

it caused loss to the Corporate Debtor. This apart, we also find that pursuant

to demand notice issued by the appellant under sub-section (1) of Section 8, the

respondent disputed the claim by reply dated 11th September, 2017.

4. Similar issue fell for consideration before the Hon'ble Supreme Court in

Mobilox Innovations Private Ltd. vs. Kirusa Software Pvt. Ltd. - 2017 SCC ONLINE

SC 1154 wherein the Hon'ble Supreme Court observed as follows:

"40. It is, thus, clear that so far as an operational creditor is

concerned, a demand notice of an unpaid operational

debt or copy of an invoice demanding payment of the

amount involved must be delivered in the prescribed

form. The corporate debtor is then given a period of 10

days from the receipt of the demand notice or copy of the

invoice to bring to the notice of the operational creditor

the existence of a dispute, if any. We have also seen the

notes on clauses annexed to the Insolvency and

Bankruptcy Bill of 2015, in which "the existence of a

dispute" alone is mentioned. Even otherwise, the word

"and" occurring in Section 8(2)(a) must be read as "or"

keeping in mind the legislative intent and the fact that an

anomalous situation would arise if it is not read as "or".

If read as "and", disputes would only stave off the

Company Appeal (AT) (Insolvency) No. 305 of 2017 2 bankruptcy process if they are already pending in a suit

or arbitration proceedings and not otherwise. This would

lead to great hardship; in that a dispute may arise a few

days before triggering of the insolvency process, in which

case, though a dispute may exist, there is no time to

approach either an arbitral tribunal or a court. Further,

given the fact that long limitation periods are allowed,

where disputes may arise and do not reach an arbitral

tribunal or a court for upto three years, such persons

would be outside the purview of Section 8(2) leading to

bankruptcy proceedings commencing against them. Such

an anomaly cannot possibly have been intended by the

legislature nor has it so been intended. We have also

seen that one of the objects of the Code qua operational

debts is to ensure that the amount of such debts, which

is usually smaller than that of financial debts, does not

enable operational creditors to put the corporate debtor

into the insolvency resolution process prematurely or

initiate the process for extraneous considerations. It is for

this reason that it is enough that a dispute exists

between the parties."

While observing so, the Hon'ble Supreme Court further held

that :

Company Appeal (AT) (Insolvency) No. 305 of 2017 3 "44. This being the case, is it not open to the adjudicating

authority to then go into whether a dispute does or does

not exist?"

The Hon'ble Supreme Court further observed 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 'Operational Creditor' or there is a

record of dispute in the information utility, as quoted below:

"54. 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

operational creditor or there is a record of dispute in the

information utility. It is clear that such notice must bring to the

notice of the operational creditor the "existence" of a dispute

or the fact that a suit or arbitration proceeding relating to a

dispute is pending between the parties. Therefore, all that the

adjudicating authority is to see at this stage is whether there

is a plausible contention which requires further investigation

and that the "dispute" is not a patently feeble legal argument

or an assertion of fact unsupported by evidence. It is

important to separate the grain from the chaff and to reject a

spurious defence which is mere bluster. However, in doing so,

the Court does not need to be satisfied that the defence is

Company Appeal (AT) (Insolvency) No. 305 of 2017 4 likely to succeed. The Court does not at this stage examine

the merits of the dispute except to the extent indicated above.

So long as a dispute truly exists in fact and is not spurious,

hypothetical or illusory, the adjudicating authority has to

reject the application."

5. In the present case, we find that there is an 'existence of dispute' and

a notice of dispute has been received by the 'Operational Creditor'. In the

aforesaid background the Adjudicating Authority rightly rejected the

application filed by the appellant under Section 9 of the I & B Code. In

absence of any merit in the appeal, the appeal is dismissed. However, in the

facts and circumstances of the case, there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] [ Justice A.I.S. Cheema ] Member (Judicial) Member (Judicial)

/ns/uk

Company Appeal (AT) (Insolvency) No. 305 of 2017 5