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Amit Wadhwani v. Global Advertisers And Another
Factual and Procedural Background
This opinion addresses an application for interim stay (IA No. 1641 of 2021) in Company Appeal (AT) (INS) No. 616 of 2021. The matter was taken up for hearing on 24.9.2021 after earlier compliance with the Supreme Court's order dated 31.8.2021, which preponed the hearing date from 07.10.2021 to 07.09.2021 for passing suitable orders on the stay application. On 7.9.2021, the Interim Resolution Professional (IRP) filed a status report and was directed not to take any steps in the Corporate Insolvency Resolution Process (CIRP) until the next hearing on 24.9.2021. The present hearing on 24.9.2021 concerned the issue of granting stay in the CIRP proceedings as prayed by the appellant.
Legal Issues Presented
- Whether a prima facie case exists in favour of the Corporate Debtor (Appellant) to grant an interim stay on the CIRP proceedings initiated under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
- Whether the dispute raised by the Corporate Debtor regarding reconciliation of invoices constitutes a pre-existing dispute within the meaning of the IBC, thereby precluding admission of the insolvency application.
- The applicability of the Supreme Court's judgment in Mobilox Innovations Private Limited v. Kirusa Software Private Limited ((2018) 1 SCC 353) concerning the treatment of disputes in Section 9 applications under the IBC.
Arguments of the Parties
Appellant's Arguments
- The Appellant (Corporate Debtor) asserted that there was a pre-existing dispute concerning the invoices presented by the Operational Creditor, as the Appellant had repeatedly sought reconciliation and work completion reports which were not provided.
- They contended that mere presentation of invoices is insufficient for payment without proper documentation, and this dispute falls within the definition under the IBC, thus barring admission under Section 9.
- Reliance was placed on the Supreme Court's decision in Mobilox Innovations to argue that the insolvency application cannot be admitted where a dispute exists.
- The Appellant claimed a prima facie case in their favour and warned that refusal to grant stay would cause irreparable harm.
- Corporate Debtor's letters dated 20.2.2020, 11.3.2020, and 14.3.2020 were cited as evidence of ongoing requests for reconciliation and dispute over invoices.
Respondent No. 1's Arguments
- The Operational Creditor argued that invoices prior to February 2018 were regularly paid and only those from February 2018 to June 2019 remained unpaid due to the Corporate Debtor's lack of liquidity.
- They maintained that no communication about deficiency in quality or supply was given within the stipulated time after invoice submission.
- The Operational Creditor sent letters dated 2.8.2019 and 6.2.2020 demanding payment and threatening legal action, after which the Corporate Debtor raised the issue of reconciliation to fabricate a dispute.
- They emphasized that the IBC is a beneficial legislation aimed at revival of corporate entities and is not adversarial, and no irreparable harm will occur if stay is denied.
- Reliance was also placed on the Mobilox Innovations judgment to assert that a spurious dispute cannot stall the admission of the Section 9 application.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mobilox Innovations Private Limited v. Kirusa Software Private Limited ((2018) 1 SCC 353) | The principle that if a pre-existing dispute exists that is not false or spurious, the insolvency application under Section 9 of the IBC must be rejected without examining the merits of the dispute. | Both parties relied on this judgment for their respective contentions regarding the existence and nature of the dispute. The Court noted that the applicability of this precedent would be more relevant at the final hearing, and presently found no prima facie case in favour of the Appellant. |
Court's Reasoning and Analysis
The Court examined the submissions and documents presented by both parties, including the Corporate Debtor's multiple requests for reconciliation and the Operational Creditor's proof of completed work. The status report by the Interim Resolution Professional indicated non-cooperation by the Corporate Debtor in handing over charge, necessitating police assistance. The Court noted that the Corporate Debtor had been making regular payments prior to February 2018 and had admitted a payment condition of "payable when able." The Court found that the dispute was raised belatedly, only after the Operational Creditor demanded payment through formal letters, suggesting the dispute was spurious and fabricated to avoid insolvency proceedings. Consequently, the Court held that a prima facie case in favour of the Appellant did not exist at this stage. The Court also clarified that the final applicability of the Mobilox Innovations judgment would be considered during the final hearing. Given the parties' agreement for early final hearing and lack of irreparable harm to the Corporate Debtor, the Court declined to grant an interim stay on the CIRP proceedings.
Holding and Implications
The Court declined to grant an interim stay on the Corporate Insolvency Resolution Process (CIRP) proceedings.
The direct effect of this decision is that the CIRP will continue without interruption pending the final hearing scheduled for 9 November 2021. The Court emphasized that this interim order does not prejudice the final outcome of the appeal and does not set any new legal precedent beyond the application of existing principles. No irreparable harm was found to the Corporate Debtor at this stage to justify a stay.
1. IA No. 1641 of 2021 in Company Appeal (AT) (INS) No. 616 of 2021 was taken up for hearing on 24.9.2021.
2. The matter was last heard on 7.9.2021 in compliance of Hon'ble Supreme Court's order in Civil Appeal No. 4967 of 2021 dated 31.8.2021 wherein the following order was given:—
“31.08.2021 Heard learned counsel for the appellant and perused the record. Considering the fact that the matter relates to non-grant of interim order by the Tribunal for which 07.10.2021 has been fixed and also keeping in view that in the meantime if certain actions are taken, the appellant would suffer irreparably, we direct that the matter be taken up by NCLAT on 07.09.2021 instead of 07.10.2021 for passing suitable orders on stay application of the appellant. We further direct that any action taken in the meanwhile, will be subject to further orders passed by the NCLAT while considering the application for interim order. The appellant is at liberty to inform the other side about the preponement of the date before the NCLAT. Copy of this order be sent by the registry to NCLAT through e-mail within 24 hours.”
3. In compliance, the matter was taken up on 7.9.2021 when the Learned Counsel for R-I sought one week's time to file reply. The request was granted. A Status Report has been filed by the Interim Resolution Professional (Respondent No. 2) vide Diary No. 46484 dated 6.9.2021, which was taken on record and duly noted. The IRP was directed on 7.9.2021 not to take any steps in CIRP till the next date of hearing i.e. 24.9.2021 of IA No. 1641/2021.
4. The Learned Counsels for the Appellant, Respondent No. 1 and Respondent No. 2 (IRP) were heard on 24.9.2021 on the issue of granting stay in the proceedings as prayed in IA No. 1641 of 2021.
5. The Learned Counsel for the Appellant-Corporate Debtor has stated that the Appellant had repeatedly sought reconciliation of the invoices that were presented by the Operational Creditor (Respondent No. 1) since mere invoices are not sufficient to make payment and in the absence of non-production of work completion reports relating to the invoices under question the requisite payments could not be made. His argument is that this constitutes ‘dispute’ as defined in Insolvency and Bankruptcy Code, 2016 (IBC in short) and in accordance with the Hon'ble Apex Court's judgment in Mobilox Innovations Private Limited v. Kirusa Software Private Limited . ((2018) 1 SCC 353) the application for insolvency under Section 9 of IBC cannot be admitted. His contention is there is no need to go into the merits of dispute. He has claimed that there is a prima facie case in favour of the Appellant (Corporate Debtor) and if stay is not granted it would lead to disastrous consequences for the Corporate Debtor. The Ld. Counsel for Appellant has referred to the Corporate Debtor's letters dated 20.2.2020, 11.3.2020 and 14.3.2020 (attached at pp. 144-148 of Appeal Paper Book, Vol. I) to show that the Corporate Debtor has been asking for reconciliation along with work completion reports before he could pass the pending invoices for payment. This amounts to pre-existing dispute regarding the pending invoices, and hence there is no prima facie case in favour of the Appellant.
6. The Learned Counsel for Respondent No. 1 has claimed that invoices raised by the Operational Creditor were regularly paid by the Corporate Debtor, and only invoices from February, 2018 till June, 2019 remained unpaid because the Corporate Debtor did not have requisite liquid cash and he relied on the policy of ‘payable when able’, meaning thereby that he would pay when he is able to pay. He has claimed that while reconciliation is being sought by the Corporate Debtor, there was no communication of any deficiency in quality or supply of services by the Operational Creditor when the invoices were submitted for payment or within 7 days as was mentioned in the footnote of the invoices. Since the Corporate Debtor was not making payment of pending invoices the Operational Creditor sent letter dated 2.8.2019 (attached at pg. 141 of Appeal Paperbook, Vol. I) asking for payment and followed it up with another letter dated 6.2.2020 (attached at pp. 142-143 of Appeal Paperbook, Vol. I) wherein he called upon the Corporate Debtor to make outstanding payment failing which he would take action before NCLT. It was only thereafter that the Corporate Debtor started asking for reconciliation only to make it out as a pre-existing dispute. His contention is that no prima facie case is made out in favour of the Corporate Debtor. He has also stated that the Insolvency and Bankruptcy Code, 2016 is a beneficial legislation which is aimed towards bringing the Corporate Debtor's management and functioning back on track, and it is in no way an adversorial legislation and no irreparable harm will come upon the Corporate Debtor if an interim stay order is not granted to him. He has also cited the judgment of Hon'ble Apex Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited . (supra) claiming that a spurious dispute cannot come in the way of admission of the operational creditor's application u/s 9 of IBC.
7. We have perused the submitted documents and considered oral submissions made by the parties. Both parties have cited the judgment of Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software (P) Ltd. (Civil Appeal no. 9405 of 2017 decided on September 21, 2017, cited in (2018) 1 SCC 353) in support of their respective contentions.
8. As submitted by the Ld. Counsel for Appellant, the Corporate Debtor made multiple requests for reconciliation of invoices by the Corporate Debtor on many occasions. On the other hand, the Operational Creditor claims to have submitted various documents which are proof of the work being completed pertaining to the unpaid invoices. Additionally, the status report submitted by the IRP shows that there was non-cooperation on the part of the Appellant in handing over the charge of the Corporate Debtor to the IRP, and therefore he had to seek police assistance for the same. The public announcement in Form A was published on 7.8.2021 and thereafter the first meeting of the Committee of Creditors took place on 1.9.2021. The IRP has not taken any action in the CIRP after 7.9.2021, when this Tribunal had so directed in compliance of Hon'ble Supreme Court's order dated 31.8. 2021 in Civil Appeal number 4967 of 2021.
9. On the basis of arguments submitted by the parties, we do not think a prima facie case is made out in favour of the Appellant, moreso in the light of the fact that the Corporate Debtor was making regular payments on invoices raised Corporate Debtor on the invoices raised before February 2018. This coupled with the fact that in the Reply on affidavit submitted by the Corporate Debtor in the Application filed by the Operational Creditor u/s 9 of IBC before the Adjudicating Authority (at pg. 171 of the Appeal Paperbook, Vol. I) the Corporate Debtor has stated ‘payable when able’ being his payment condition. We also find substance in the argument of the Ld. Counsel of Respondent No. 1 that it was only after the two letters of the Operational Creditor dated 2.8.2019 and 6.2.2020 (supra) demanding pending payments and threat of legal action before the NCLT that the Corporate Debtor started sending communications for reconciliation and submission of supporting documents. We are, therefore, at this stage persuaded by the argument of the Ld. Counsel of Respondent No. 1 that this alleged dispute has been raised at this late stage only after the Operational Creditor started asking for his pending payments to show that a pre-existing dispute was present even though it is a spurious dispute, to avoid action under IBC. Thus we find that a prima facie case doesn't exist in favour of the Appellant.
10. We have noted Hon'ble Apex Court has held in Mobilox Innovations Judgment (supra) the ratio that if there is a pre-existing dispute that is not false or spurious, then the application u/s 9 has to be rejected without examining the merits of the dispute. We feel that the applicability of this judgment will be more relevant at the final hearing of the appeal.
11. We were ready to hear the appeal finally on 24.9.2021, but the Ld. Counsel for Appellant showed inclination for hearing on the interim stay on 24.9.2021. Both the parties are agreeable for early hearing and finalization of the appeal case on merits. Hence, we don't think that any irreparable harm will be caused to the Corporate Debtor if he is not granted stay at this stage. Therefore, we do not find sufficient and cogent reason to grant an order for staying the CIRP in the case.
12. We make it clear that our not granting stay, and any views expressed in this order, will not have any bearing or effect on the final outcome of this appeal, after hearing it on merits.
13. The matter be fixed for final hearing on 9 Nov. 2021.
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