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2025 (5) TMI 163 - AT - IBCAdmission of Section 9 application - continuation of contract between the parties taking into account validity of the delivery order dated 16.09.2022 being only one year - existence of pre-existing dispute between the parties within the meaning of Sections 8 and 9 of the IBC - sufficiency of material to establish that Corporate debtor never refused to supply coal against the advance received from the Operational Creditor. Whether validity of the delivery order dated 16.09.2022 being only one year the contract between the parties still continues? - HELD THAT - The e-mail dated 13.08.2024 indicate the statement of Corporate Debtor to supply the coal after 20.09.2024 which indicate that parties were acting under the delivery order as if the period of contract has not come to an end. Thus by conduct of the parties the contract was held subsisting and amount advanced by the Operational Creditor supplies were to be made by the Corporate Debtor even after expiry of the validity period of delivery order. Whether there was any pre-existing dispute between the parties within the meaning of Sections 8 and 9 of the IBC and application deserved to be rejected? - Whether the Corporate Debtor has brought sufficient material on the record to indicate that it never refused to supply the coal against advance received from Operational Creditor? - HELD THAT - Section 9(5)(ii)(d) provides that Adjudicating Authority shall reject the application if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility - On looking into the reply to the demand notice the said reply is clearly a notice of dispute sent by the Corporate Debtor to Armaco Infralinks Pvt. Ltd. . Detailed facts as stated in the reply to the demand notice clearly make the said notice as notice of dispute. The Corporate Debtor has also filed a reply to Section 9 application and in the reply the Corporate Debtor has also pleaded that the claim is already disputed in the record of the Information Utility. There are two circumstances under which Section 9 application deserves to be rejected i.e. (i) notice of dispute has been received by operational creditor or (ii) there is record of dispute in the Information Utility. In the present case both the above clauses are fully met since notice of dispute has been received by operational creditor and there is record of dispute in the Information Utility. The record of dispute in the Information Utility as extracted was information which was submitted by Armaco Infralinks Pvt. Ltd. for authentication and authentication made on the same day by the corporate debtor disputing the information which is captured in the Information Utility information. The statutory condition as contained in Section 9(5)(ii)(d) was fully in existence hence Adjudicating Authority had to reject the application. The initiation of insolvency against the Corporate Debtor has a serious consequences and when there are sufficient material to indicate that condition as mentioned in Section 9(5)(ii)(d) are in existence Adjudicating Authority cannot proceed to ignore the same. There can be no dispute to the proposition laid down by the Hon ble Supreme Court in Mobilox Innovations Private Limited vs. Kirusua Software Pvt. Ltd. 2017 (9) TMI 1270 - SUPREME COURT that dispute which is contemplated in Section 8(2)(a) has to be a bonafide dispute. In the present case the Corporate Debtor has expressed its willingness to supply the goods it cannot be said that Corporate Debtor has breached the contract. The observation of the Adjudicating Authority that defence raised by the Corporate Debtor is a moonshine defence to cover up its failure to supply the goods against the advance also cannot be approved. In any view of the matter requirement for rejection of Section 9 application as contemplated in Section 9(5)(ii)(d) being present Adjudicating Authority without adverting to the said provision has admitted Section 9 application which cannot be approved. Conclusion - i) By conduct of the parties the contract was held subsisting and amount advanced by the Operational Creditor supplies were to be made by the Corporate Debtor even after expiry of the validity period of delivery order. ii) The application filed by the Operational Creditor did not deserve admission and was liable to be rejected as required by Section 9(5)(ii)(d) of the IBC. Adjudicating Authority neither adverted to Section 9(5)(ii)(d) nor addressed itself to the said condition and proceeded to admit the application which order cannot be sustained. Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are: (I) Whether the contract between the parties continued to subsist despite the delivery order dated 16.09.2022 having a validity of one year? (II) Whether there existed a pre-existing dispute between the parties within the meaning of Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), thereby warranting rejection of the Section 9 application? (III) Whether the Corporate Debtor demonstrated sufficient material to establish that it never refused to supply coal against the advance received from the Operational Creditor? 2. ISSUE-WISE DETAILED ANALYSIS Issue (I): Continuity of Contract Despite Expiry of Delivery Order Validity Relevant Legal Framework and Precedents: The contract terms, specifically the delivery order dated 16.09.2022, stipulated a validity period of one year. The conduct of parties post-expiry is crucial in determining whether the contract continued. Court's Interpretation and Reasoning: The delivery order's terms and conditions specified a validity period up to 15.09.2023. However, the correspondence and conduct of parties revealed that coal supplies continued until 01.06.2024, well beyond the stated validity. The e-mail dated 08.08.2024 from the Operational Creditor acknowledged receipt of coal until 01.06.2024 and requested refund due to cessation of supply thereafter. The Corporate Debtor's reply dated 13.08.2024 admitted mining operations were temporarily halted due to heavy rains but assured resumption post 20.09.2024. This demonstrated a continuing contractual relationship and willingness to supply coal even after the formal validity period expired. Key Evidence and Findings: The e-mails dated 08.08.2024 and 13.08.2024, alongside the continued supply of coal, were pivotal in establishing the subsistence of the contract. Application of Law to Facts: The parties' conduct indicated that the contract was treated as ongoing, negating the argument that the contract terminated on expiry of the delivery order validity. Treatment of Competing Arguments: The Operational Creditor's acknowledgment of continued supply undermined any claim that the contract had ceased as per the validity clause. Conclusion: The contract between the parties continued despite the delivery order's validity period expiring. Issues (II) and (III): Existence of Pre-Existing Dispute and Alleged Refusal to Supply Coal Relevant Legal Framework and Precedents: Sections 8 and 9 of the IBC govern operational debt disputes and initiation of Corporate Insolvency Resolution Process (CIRP). Section 9(5)(ii)(d) mandates rejection of an application if a notice of dispute has been received or if a record of dispute exists in the Information Utility. The Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) clarified that a bona fide dispute suffices to reject insolvency proceedings. Court's Interpretation and Reasoning: The Corporate Debtor disputed the outstanding amount claimed by the Operational Creditor through a reply to the demand notice dated 11.09.2024, asserting a lower liability and readiness to supply coal worth Rs.16.68 crores. The Corporate Debtor also invoked Section 8(2)(a) of the IBC, asserting existence of a dispute authenticated by the National e-Governance Services Limited (NeSL), the Information Utility. Crucially, the Corporate Debtor withdrew the earlier account confirmation e-mail dated 03.07.2024, stating it was sent by an unauthorized person under misrepresentation. This withdrawal was communicated on 26.08.2024. The Operational Creditor submitted debt information to NeSL on 04.09.2024, which the Corporate Debtor disputed the same day, with NeSL recording the dispute as "Pre-existing Dispute" prior to issuance of the demand notice. Key Evidence and Findings: The NeSL record authenticated the dispute status. The Corporate Debtor's reply to the demand notice explicitly raised a dispute and challenged the claim amount. The timing of the demand notice-issued within 57 minutes of debt submission to NeSL-was criticized as hurried and potentially abusive. Application of Law to Facts: The presence of a bona fide dispute prior to the demand notice and the record of dispute in the Information Utility mandated rejection of the Section 9 application under Section 9(5)(ii)(d) of the IBC. Treatment of Competing Arguments: The Operational Creditor argued that no pre-existing dispute existed before issuance of the demand notice and that the Corporate Debtor's claim of willingness to supply was illusory given mine closure due to statutory dues default. The Court found that the dispute was genuine and arose prior to the demand notice, supported by authenticated NeSL records and correspondence. The Adjudicating Authority's observation that the dispute was a "moonshine defence" was rejected by the Tribunal, which emphasized the seriousness of initiating CIRP and the need to respect statutory safeguards against premature insolvency proceedings. Conclusion: Both the notice of dispute and record of dispute in the Information Utility existed before the demand notice, compelling rejection of the Section 9 application. The Corporate Debtor sufficiently demonstrated no refusal to supply coal but rather a temporary operational halt due to natural causes. 3. SIGNIFICANT HOLDINGS The Tribunal held: "The parties were acting under the delivery order dated 16.09.2022 as if the contract between the parties is continuing. By conduct of the parties, the contract was held subsisting and amount advanced by the Operational Creditor supplies were to be made by the Corporate Debtor even after expiry of the validity period of delivery order." Regarding dispute and rejection of Section 9 application: "Section 9(5)(ii)(d) provides that Adjudicating Authority shall reject the application if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility." "The application filed by the Operational Creditor did not deserve admission and was liable to be rejected as required by Section 9(5)(ii)(d) of the IBC. Adjudicating Authority neither adverted to Section 9(5)(ii)(d) nor addressed itself to the said condition and proceeded to admit the application which order cannot be sustained." The Tribunal reaffirmed the principle from Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. that a bona fide dispute suffices to reject insolvency initiation: "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." Further, the Tribunal observed: "The Corporate Debtor has expressed its willingness to supply the goods, it cannot be said that Corporate Debtor has breached the contract. The observation of the Adjudicating Authority that defence raised by the Corporate Debtor is a moonshine defence to cover up its failure to supply the goods against the advance also cannot be approved." Accordingly, the Tribunal set aside the order admitting the Section 9 application, directing return of amounts as appropriate and emphasizing adherence to statutory safeguards against premature insolvency proceedings.
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