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REJECTION OF APPLICATION OF INSOLVENCY RESOLUTION PROCESS BY OPERATIONAL CREDITOR FOR EXISTENCE OF DISPUTE

Corporate Laws / Banking / SEBI - By: - Mr. M. GOVINDARAJAN - Dated:- 14-2-2018 - Insolvency and Bankruptcy Code Insolvency and Bankruptcy Code, 2016 ( Code for short) is an act enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons to promote entrepreneurship, availability of credit and balance the interests of all the stakeho .....

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ay initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided in Chapter II. Section 7 provides the procedure for initiation of corporate insolvency resolution process by financial creditor. Section 8 and 9 provides the procedure for initiation of corporate insolvency resolution process by an operational creditor. Section 10 provides the procedure for initiation of corporate insolvency resolution process by the corporate applicant. Corporate de .....

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he case may be. Demand notice The expression demand note is defined by the explanation to section 8 as a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. Dispute Section 5(6) defines the term dispute as including a suit or arbitration proceedings relating to- (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty. Insol .....

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demand notice in Form 3; or a copy of an invoice attached with a notice in Form 4. The demand notice or the copy of the invoice demanding payment may be delivered to the corporate debtor- at the registered office by hand, registered post or speed post with acknowledgement due; or by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor. A copy of the demand notice or invoice demanding payment served by an operational c .....

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aid operational debt- by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or by sending an attested copy of the record that the operational creditor has encashed a cheque issued by the corporate debtor. Application by operational creditor Section 9 of the Code provides that after the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment, if the operational creditor doe .....

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btor; an affidavit to the effect that there is no notice given by the corporate debtor relatingto a dispute of the unpaid operational debt; a copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and such other information as detailed below- Particulars of the applicant; Particulars of corporate debtor; Particulars of the proposed interim resolution profess .....

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(5) provides that the Adjudicating Authority shall, within 14 days of the receipt of the application, by an order- (i) Admit the application and communicate the decision to the operational creditor and the corporate debtor, if- (a) the application is complete; (b) there is no repayment of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor .....

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been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceedings is pending against any proposed resolution professional. The Adjudicating Authority shall before rejecting an application give a notice to the applicant to rectify the defect in his application within seven days of the receipt of such notice from the Adjudicating Authority. Commencement of corporate insolvency resolution process Section 9(6) of the Code provid .....

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e Coat Plaster and another V. Shivam Construction Company and another - 2017 (3) TMI 1554 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI the Adjudicating Authority held that section 9 clearly discloses that the Adjudicating Authority has the power, inter alia, also to reject the application of the operational creditor under section 9(5)(ii)(d) of the Code in case the notice of dispute has been received by the operational creditor or there is a record of dispute with information utility. Where disput .....

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on 5(6), if any, as mentioned under section 8(2), the order passed by the Adjudicating Authority admitting the application of the operational creditor to set in motion the corporate insolvency resolution process is to be set aside. Dispute - inclusive definition Section 5(6) defines the term dispute . The term dispute is not actually defined. It is inclusive definition. The word includes should always be read as a word of extension without reference to the context as held by Supreme Court in NDP .....

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ted - 2017 (6) TMI 984 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, MUMBAI the appellant, an operational creditor filed petition under Section 9 of the Code before the Tribunal to initiate corporate insolvency resolution process. The corporate debtor replied that there is a dispute since the appellant breached the Non Disclosure Agreement by which the payment was withheld. The Tribunal rejected the application on the contention that there is a dispute between the operational debtor and the corpora .....

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itiated or pending before the Consumer Court, tribunal, labor court or mediation, conciliation etc., The Appellate Tribunal further held in the present case the adjudicating authority has acted mechanically and rejected the application under sub-section (5)(ii)(d) of Section 9 without examining and discussing the aforesaid issue. If the adjudicating authority would have noticed the provisions as discussed above and what constitute and as to what constitute 'dispute' in relation to servic .....

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vate Limited V. Kirusa Software (P) Limited - 2017 (9) TMI 1270 - SUPREME COURT OF INDIA. Kirusa Software (P) Limited, the respondent in this case, contended that the definition of dispute would indicate that since the NDA does not fall within any of the three sub clauses of section 5(6), no dispute is there on the facts of the case. The Supreme Court did not accede to such a contention. First and foremost the definition is an inclusive one. Secondly the present case is not a case of a suit or a .....

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of the NDA between the parties. They were further told that all amounts that were due to the respondents were withheld till the time the matter is resolved. The Supreme Court observed that 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 characterizing the defence as vague, got-up and motivated to evade liability. The Supreme Court allowed the appeal and set aside the order of the Appellate Tribuna .....

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ilips India Limited V. Goodwill Hospital & Research Centre Limited - 2017 (7) TMI 1 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI the Appellate Tribunal held that there where corporate debtor, much prior to issuance of notice under section 8 had raised a dispute relating to the quality of service/maintenance pursuant to notice under section 433 (3) and 434(1)(a) of Companies Act, 1956, it can be safely stated that there is existence of dispute about the claim of debt. Such objections .....

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that where the respondent has disputed the existence of operational debt on the ground that the arbitration proceedings have not come to an end as the appeal and also execution proceedings for enforcement of award are pending and claimed that the default within the meaning of Section 8(1) read with section 2(12) is deemed to have occurred, admission of application for passing an order for initiating corporate insolvency process is not warranted. In MCL Global Steel (P) Limited and another V. Ess .....

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rticulars. Mere raising a dispute for the sake of evading the repayment of debt will not suffice. In Macquarise Bank Limited V. Uttam Galva Metallics Limited - 2017 (7) TMI 505 - NATIONAL COMPANY LAW TRIBUNAL, CHANDIGARH the Tribunal held that the true meaning of section 8(2)(a) of the Code read with section 5(6) of the code clearly brings out the intent of the Code, namely the corporate debtor must raise a dispute with sufficient particulars. Mere raising a dispute for the sake of dispute, unre .....

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Authority that there is a debt and there is a default on the part of the corporate debtor. The onus to prove that there is no default of debt or that there is a dispute pending consideration before a Court of law or Adjudicating Authority from the creditor to debtor and operational creditor to corporate debtor. The Tribunal held that the respondent having raise the dispute of quality of the goods to the statutory notice sent in terms of section 433 and 434 of Companies Act, 1956, i.e., much bef .....

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