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Narayan Singh Pathania Managing Director Global Energy Private Limited v. Valuelabs Llp And Another
Factual and Procedural Background
This opinion addresses an appeal against the order of admission of a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). The dispute arose from an operational debt claimed by the Operational Creditor against the Corporate Debtor. The Corporate Debtor contested the debt, alleging a dispute regarding reconciliation of accounts and the rate charged for electricity units supplied. The Adjudicating Authority admitted the application under Section 9 of the IBC. The Appellant challenged this admission, contending the existence of a pre-existing dispute. Additionally, an intervenor sought to be impleaded in the appeal, claiming rights as a lessor of premises leased to the Corporate Debtor, which the Appellate Tribunal rejected.
Legal Issues Presented
- Whether a pre-existing dispute existed between the parties prior to the receipt of the demand notice under Section 8 of the IBC, which would preclude admission of the application under Section 9.
- Whether the Appellate Tribunal was correct in affirming the Adjudicating Authority's order admitting the CIRP application in the absence of a plausible pre-existing dispute.
- Whether the intervenor should be permitted to intervene in the appeal for reliefs related to lease rent and possession of premises.
Arguments of the Parties
Appellant's Arguments
- The Appellant contended, relying on the principle laid down in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., that the Tribunal must ascertain whether a dispute truly exists between the parties which may or may not ultimately succeed.
- They argued that there was a dispute regarding reconciliation of accounts and the applicable rates, which was a plausible contention requiring further investigation.
Respondent's and Intervenor's Arguments
- The Respondent/Operational Creditor maintained that the debt was due and payable and that there was no pre-existing dispute regarding the rate or amount before the demand notice was issued.
- The intervenor, owner of leased premises, sought to intervene claiming the Corporate Debtor was neither paying rent nor vacating the premises despite termination of the lease.
- The Appellant opposed the intervention, arguing it was not maintainable as the appeal was limited to challenging the admission of CIRP and the intervenor did not exhaust remedies under Section 60(5) of the IBC. It was also contended that the moratorium under Section 14(1)(d) barred such reliefs.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 | Test for existence of a dispute: the dispute must be pre-existing before receipt of demand notice and not a feeble or spurious argument. | The court applied this test to hold that the dispute raised by the Appellant was not pre-existing and was a feeble argument unsupported by evidence. |
| M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr. (2018) 1 SCC 407 | Clarification of the scheme under Sections 7 and 8 of the IBC regarding operational creditor's demand notice and pre-existing dispute. | The court reiterated that a pre-existing dispute or pending suit/arbitration before receipt of demand notice excludes the application under Section 9. |
| Anshul Vashishtha v. M/s. Jayhind Steel Traders & Anr., Company Appeal (AT) (Insolvency) No. 656 of 2020, 2020 SCC Online NCLAT 673 | Pre-existing dispute reflected by prior communication before demand notice in case of running accounts. | The court distinguished this precedent, holding it did not apply as no prior communication evidencing a dispute on rates was made in the instant case. |
| Ramco Systems Ltd. v. Spicejet Ltd., No. 31 of 2018, 2019 SCC Online NCLAT 354 | Requirement of strict proof of debt and default under Section 9; demand notice must relate to invoices actually forwarded and received. | The court found this precedent inapplicable as there was evidence that invoices were forwarded and received by the Corporate Debtor. |
Court's Reasoning and Analysis
The court analyzed the documentary evidence and email communications between the parties from August 2017 to June 2018. It noted that the Corporate Debtor repeatedly cited non-reconciliation of accounts as the reason for non-payment but did not raise any dispute regarding the rate of electricity until after the Section 9 application was filed. The court emphasized that the dispute must be pre-existing, i.e., existing before receipt of the demand notice or invoice, as held in Mobilox Innovations and Innoventive Industries. Since the Corporate Debtor did not raise any rate-related dispute prior to the demand notice and failed to provide evidence of a genuine dispute, the court held that the Appellant’s contention was a feeble and unsupported argument. Consequently, the Adjudicating Authority's admission of the Section 9 application was upheld.
Regarding the intervention application by the lessor, the court observed that the intervenor was not a party to the original proceedings and that the main appeal could be adjudicated without his participation. The application for intervention was therefore rejected as the intervenor was neither a necessary nor a proper party, and the reliefs sought were barred by the moratorium under the IBC.
Holding and Implications
The appeal is dismissed and the impugned order admitting the CIRP application under Section 9 is affirmed.
The decision confirms that for rejection of a Section 9 application on the ground of dispute, the dispute must be pre-existing and supported by credible evidence. Mere allegations or delayed contentions without substantiation do not suffice. The ruling reinforces the strict threshold for admitting insolvency applications and clarifies that non-reconciliation of accounts alone does not constitute a pre-existing dispute. The rejection of the intervenor’s application underscores the limited scope for third-party interventions in insolvency appeals and the protective effect of the moratorium under the Code. No new precedent was set beyond the application of established principles.
to the specific paragraphs which are detailed as hereunder. Para 56 of Mobilox Innovations Private Limited v. Kirusa Software Private Limited . (2018) 1 SCC 353: Going by the aforesaid test of existence of a dispute, it is clear that without going into the merits of the dispute, the Appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in -16- Company Appeal (AT) (Insolvency) No. 1415 of 2019 characterizing the defense as vague, got-up and motivated to evade liability. Para 29 of M/S. Innoventive Industries Ltd. v. Icici Bank & Anr. S (2018) 1 SCC 407: The scheme of Section 7 stands in contrast with the scheme Under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the Corporate Debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in Sub-section (1), bring to the notice of the Operational Creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing
i.e. before such notice or invoice was received by the Corporate Debtor. The moment there is existence of such a dispute, the Operational Creditor gets out of the clutches of the Code. Para 19 of Anshul Vashishtha v. M/s. Jayhind Steel Traders & Anr. Company Appeal (AT) (Insolvency) No. 656 of 2020, 2020 SCC Online NCLAT 673: In a case of running account where accounts are yet to be reconciled and settled, an email like 05.02.208 sent before Section 8 demand notice dated 13.06.2018 asking Operational Creditor to take back the rejected material reflect pre-existing dispute in such case Adjudicating Authority cannot sit down to settle the account and calculate the Debt dues. Para 10 of Ramco Systems Ltd. v. Spicejet Ltd. .) No. 31 of 2018, 2019 SCC Online NCLAT 354: There is nothing on the record to suggest that the invoices dated 23rd July, 2014 were forwarded or received by the Respondent Spicejet Limited. Therefore, the Demand Notice issued on 24th April, 2017 as relates to invoice dated 23rd July, 2014, though it cannot be held to be barred by limitation, but in absence of specific evidence relating to invoices actually forwarded by the Appellant and there being a doubt, we hold that the Adjudicating Authority has rightly refused to entertain application under Section
9 which requires strict proof of debt and default. -17- Company Appeal (AT) (Insolvency) No. 1415 of 2019
20. In Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited 2017 1 SCC OnLine SC 353, the Honble Supreme Court held that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be and observed:
33. 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 with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. ..
21. In the said case, the Honble Supreme Court held as to what are the facts to be examined by the Adjudicating Authority while examining an Application under Section 9, which is as follows:
34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding Rs.1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and (iii) Whether there is existence of a dispute between the parties or the record of the -18- Company Appeal (AT) (Insolvency) No. 1415 of 2019 pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.
22. From the aforesaid decision, it is clear that the existence of Dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the operational debt is exceeding rupees one lakh and the Application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any existence of a Dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt, the Application under Section 9 cannot be rejected and is required to be admitted.
23. The facts in Anshul Vashishtha V/s. M/s. Jayhind Steel Traders & Anr. Company Appeal (AT) (Insolvency) No. 656 of 2020, 2020 SCC Online NCLAT 673 relied upon by Learned Counsel appearing for the Appellant are different from the facts of the instant case as it can be seen from Anshul Vashishtha (Supra) that though the running account was to be reconciled and settled, there was an email sent prior to issuance of the Demand Notice under Section 8 asking the Operational Creditor to take back the rejected material, clearly reflecting a Pre-Existing Dispute whereas in the instant case there is no communication put forth by the Appellant herein to evidence any kind of dissatisfaction with respect to the rate. Hence, the -19- Company Appeal (AT) (Insolvency) No. 1415 of 2019 ratio of Anshul Vashishtha (Supra) does not apply to the facts of the instant case. The ratio of Ramco Systems Ltd. v. Spicejet Ltd. .) No. 31 of 2018, 2019 SCC Online NCLAT 354 also does not apply to the facts of the instant case as there is specific evidence herein that invoices were actually forwarded by the Operational Creditor and received by the Corporate Debtor.
24. The contention of the Learned Counsel appearing for the Appellant that as per the principal laid down in para 56 of Mobilox Innovations (Supra) that the Tribunal has to ascertain whether a dispute does truly exist in fact between the parties which may or may not ultimately succeed is being addressed to.
25. At this juncture, it is relevant to peruse the email communication between the parties to ascertain whether there is a material dispute, and if the dispute is a Pre-Existing one. Emails dated 03.08.2017 (Annexure R-1/1 [page 15 of Reply]) and 17.03.2018 (Annexure R-1/3 [page 17 of Reply]) addressed by the Corporate Debtor to the Operational Creditor establish that there was a request by the Operational Creditor for payment of balance amounts, but the Corporate Debtor stated that they are unable to confirm any balance amount payable as of now as accounts need to be reconciled.
26. Emails dated 06.04.2018 (page 18 of Reply) and 07.04.2018 (page 19 of Reply) addressed to by the Operational Creditor to the Corporate Debtor evidence that repeated requests have been made by the Operational Creditor seeking for payment of balance amounts. It is significant to mention that in the email dated 06.04.2018, it is categorically stated by the Operational -20- Company Appeal (AT) (Insolvency) No. 1415 of 2019 Creditor that all information sought for by the Corporate Debtor was submitted by them. There is no denial of the same. It is not the case of the Corporate Debtor that on account of non-furnishing of details by Operational Creditor, reconciliation of accounts could not be done. In the 07.04.2018 email communication, Operational Creditor specifically mentioned that the time frame taken by the Corporate Debtor to reconcile their accounts is inordinate and sought for immediate payment. The email dated 17.11.2017 (Annexure R-1/6 [page 63 of Reply]) is of relevance as the price of the banked units was increased from Rs. 3.70/- per unit/kwh to Rs. 4/-.
27. It can be seen from the aforenoted email communication beginning 03.08.2017 onwards even till the Reply to the Demand Notice dated 01.06.2018 (Annexure A-9, [page 77 of Volume I]), that is for almost ten months, the Corporate Debtor has simply stated that there is a software breakdown and loss of financial data because of which he could not reconcile his accounts. There is a bald and bare denial of any amounts due and payable only on the ground of pending reconciliation. It is pertinent to note that there is no whisper of any dispute regarding rate.
28. The email on record evidences that the dispute with respect to rate of electricity was raised for the first time in the email dated 31.10.2018 under notice of invocation of Arbitration. It is significant to mention that the Application under Section 9 of IBC was filed on 06.06.2018 by the Respondent/Operational Creditor before the Adjudicating Authority. Though the Demand Notice under Section 8 of IBC is dated 08.05.2018, the Reply was given only on 01.06.2018 beyond the stipulated period envisaged under -21- Company Appeal (AT) (Insolvency) No. 1415 of 2019 the Code. Be that as it may, the documentary evidence on record substantiates that the Corporate Debtor never raised the aspect of rate or any dispute prior to 01.06.2018 and has not settled the dues of the Operational Creditor though there were repeated requests being made from 03.08.2017 onwards as can be seen from the aforenoted emails. It is pertinent to note that in all their replies, the Appellant herein only mentioned non-reconciliation of accounts as the reason but is silent with respect to any other issue regarding payment of amounts and therefore this Tribunal holds that the Appellant has failed the test of proving of any Pre- Existing Dispute.
29. To reiterate, this Tribunal without going into the merits of the Dispute holds that the documentary evidence furnished with the Application read with the email communication shows that the debt is due and payable and has not been paid and there is no plausible contention which requires further investigation and that the Dispute raised is only a patently feeble argument unsupported by evidence. Hence, this Tribunal is of the considered view that the ratio of the Honble Supreme Court in M/s. Mobilox Innovations Pvt. Ltd., reported in 2008 (1) SCC 353 squarely applies to the facts of this case as the Honble Apex Court has laid down that the Dispute, if any, should be Pre-Existing and also that it cannot be a feeble argument. Merely contending that accounts were not reconciled for almost a year in our considered opinion, can be construed as a feeble and spurious argument.
30. A perusal of the contents of the reply to the Demand Notice, this Tribunal is unable to find any Dispute. It is seen from the record that at the -22- Company Appeal (AT) (Insolvency) No. 1415 of 2019 earliest point of time, the Corporate Debtor did not raise any dispute that existed between the parties. For all the reasons assigned in this instant Appeal, we do not find any illegality or infirmity in the Order passed by the Learned Adjudicating Authority warranting our interference. In fine, this Appeal is dismissed and the Impugned Order dated 02.12.2019 in Company Petition (IB) No. 2520/MB/2019 passed by the Learned Adjudicating Authority is affirmed. No order as to costs.
31. I.A. 46 of 2021 is filed by the intervenor Mr. Pradip Krishan under Rule 31 read with Rule 11 of the NCLAT Rules, 2016 seeking the interim reliefs detailed as hereunder; (a) Allow the present application and permit the Applicant to intervene as a party for the purposes of the reliefs prayed for in the present application; and (b) In the interim, direct the Respondent No. 2 through the interim resolution professional to make payments of the lease rent w.e.f. June 2018 till the use and occupation of the premises; and (c) In the alternative, direct the Respondent No. 2 to vacate the premises in view of expiry of the lease deed; (d) for costs of the present Application; and (e) for such further and other reliefs as the circumstances of the case may require.
32. The Applicant submits that he is the owner of the premises given on lease to the Corporate Debtor in terms of a lease deed, registered on 05.02.2009, between the intervenor and the Corporate Debtor with respect to the said premises. Though the lease has been terminated by the Applicant, the Corporate Debtor, the lessee of the premises, has neither handed over the premises to the Applicant nor was paying rentals and was deliberately procrastinating these proceedings to take benefit of the interim -23- Company Appeal (AT) (Insolvency) No. 1415 of 2019 directions passed by this Tribunal and therefore, seeks intervention to protect his interests.
33. Learned Counsel appearing for the Appellant opposed this intervention on the ground that the IA is not maintainable since the present Appeal was filed with the limited scope of challenging the order of Admission of CIRP against the Corporate Debtor; that the intervenor did not avail his remedy of filing an Application before the Learned Adjudicating Authority under Section 60(5) of the IBC; that the prayer sought for in this IA is clearly hit by the moratorium under Section 14(1)(d) of the Code.
34. Admittedly, the intervenor is not a party in the Original proceedings
i.e. Company Petition (IB) No. 2520/MB/2019 and only before this Appellate Tribunal, is now making an endeavor to get himself impleaded as an intervenor. After hearing the parties, at this juncture, this Tribunal is of the view that in the instant case, even in the absence of the Proposed Intervenor, the main Appeal can be determined based on the available material(s) on record. As such, he is not a Necessary or a Proper Party for adjudication of the controversies centering around this Appeal. Viewed in that perspective, this Tribunal is not inclined to entertain I.A. 46 of 2021 and the same is hereby rejected. [Justice Venugopal M.] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) NEW DELHI Pronounced in terms of Rule 92 (1) of NCLAT Rules, 2016.
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