TMI Blog2021 (11) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... municated on 30.01.2019. There is a statutory purpose for requiring a Corporate Debtor to bring into notice of the Operational Creditor about the existence of a dispute in its reply to Section 8(1) notice. The purpose is that if there is a dispute in existence, the same may be immediately communicated to the Operational Creditor so that he may chart his course of action. When no mention of existence of dispute is made by the Corporate Debtor, the Operational Creditor can immediately file Application under Section 9 which has been done in the present case by Operational Creditor. In the present case, no notice of dispute has been received by the Operational Creditor as noted above. There is another expression in clause (d) noted above that there is a record of dispute in the information utility , the present is also not a case where there is record of any dispute in the information utility nor any such pleading or material has been placed before us. The very basis on which the Adjudicating Authority rejected the Application is not in existence. There being no pre-existing dispute between the parties, the Adjudicating Authority ought to have admitted the Application and procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les Contract bearing No. 18BOOMG029 dated 07.03.2018 in pursuance of which supply was made and Appellant raised Invoices bearing Nos. 18BOOMG004 dated 11.02.2018, 18BOOMG028 dated 19.03.2018 and 18BOOMG029 dated 19.03.2018. The Corporate Debtor failed to make payment within the agreed period. The Operational Creditor vide e-mail dated 20.07.2018 demanded the due payment of the unpaid operational debt. After some correspondence, a meeting was scheduled on 27.07.2018 at Shanghai between the parties which ended into an understanding vide minutes dated 27.07.2018 whereby the Corporate Debtor admitted and acknowledged the unpaid operational debt of USD 3,77,392.00 and undertook to make payment thereof by way of three instalments to be paid as under:- (i) first instalment before end of November, 2018; (ii) second instalment before end of December, 2018; and (iii) third before end of January, 2019. The Corporate Debtor failed to adhere to its own undertaking and assurances given under Minutes of Meeting/ MoU dated 27.07.2018 and just before the expiry of the undertaking given by the Corporate Debtor wrote an email dated 30.01.2019 seeking further extension of time. The Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was pre-existing dispute, hence, the Application under Section 9 deserves to be rejected. Learned Counsel submits that in response to Demand Notice under Section 8 issued by the Operational Creditor, as contemplated under Section 8(2) the Corporate Debtor sent its reply admitting the outstanding amount of USD 3,77,392.00 and has no mention about existence of a dispute. It is submitted that in the three replies filed before the Adjudicating Authority, the Corporate Debtor has now trying to create a dispute which was never in existence. Reliance on the email dated 04.05.2018 is also not relevant since in the meeting dated 27.07.2018 between the parties where the Corporate Debtor himself proposed a plan for repayment no such issue was raised or noticed. Further, even if the emails dated 04.05.2018 and 30.07.2018 are read, it does not indicate that there was existence of a dispute. Insofar as four debit notes dated 27.05.2019, 30.06.2019, 07.11.2019 and 10.12.2019 are concerned, the said debit notes were never acknowledged by the Operational Creditor and the debit notes were created by the Corporate Debtor which were all events subsequent to filing Application under Section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Operational Creditor is entitled to seek recovery of the amount of balance USD 2,28,079 out of the total USD 3,77,392.00 as set off by the Corporate Debtor through issuance of Debit Notes, is not for the consideration of this Bench. However, the Applicant has the option to file a Civil suit before the appropriate forum, for the recovery of the same. 8. The issue under consideration in Appeal is as to whether there was a pre-existing dispute when Notice under Section 8 was issued. We may notice Section 8 of the I B Code , is as follows:- 8. Insolvency resolution by operational creditor. - (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor (a) existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore end of December 18. 3. Invoice 18BOOMG029 dt 19-03-2018 to be paid before end of January 18. 11. The above minutes clearly records acknowledgment of debt by the Corporate Debtor and undertaking to make the payment in three instalments. The last instalment to be paid before end of January, 2019. When no payment was made, Demand Notice under Section 8 was issued demanding payment of USD 3,77,392.00. Demand Notice was in Form-3 with all relevant particulars. Reply to the notice was immediately given by the Corporate Debtor vide its letter dated 04.02.2019. For ready reference, it is useful to quote the entire contents of the email which was to the following effect:- Subject- Reply of Notice of under Section 8 of the Insolvency and Bankruptcy Code 2016 read with Rule 8- reg. Ref: Your letter no. 4625/32007/CH/19/01 dated 01.02.2019 This is with reference to above mentioned subject and demand notice received from you in Form no. with respect to demanding of USD 3,77,392.00 on behalf of your client viz. Henan Boom Gelatin Co. Ltd. China, please note as under: 1. That we are surprised and shocked to see the demand notice in Form no.3 from you on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited . In Para 33, the Hon ble Supreme Court laid down: 33. .. 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. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the self-same 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor or send an attested copy of the record that the operational creditor has encashed a cheque or otherwise received payment from the corporate debtor [Section 8(2)(b)]. It is only if, after the expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corporate debtor or notice of dispute, that the operational creditor may trigger the insolvency process by filing an application before the adjudicating authority under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 5, accompanied with documents and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor [Section 9(5)(ii)(c)]. It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility [Section 9(5)(ii)(d)]. Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected [Section 9(5)(ii)(e)] . 15. In para 34, the Hon ble Supreme Court laid down what the Adjudicating Authority has to examine in an Application under Section 9. Para 34 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 ₹ 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 pendency of a suit or arbitration proceeding filed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor has directly through his own personal involvement effected shipments of worth US$4,41,000 to Corporate Debtor which have been adjusted against the alleged disputed Invoices as demonstrated herein below. The table below unequivocally establishes that even after shipment of goods mentioned under disputed Invoices, the Operational Creditor had made direct supply of three shipment and Business Transactions entered post dispute stage amounted to a total value of US$4,41,000/-. This itself establishes That: a) Good, harmonious and continuous business relationship between Operational Creditor and Corporate Debtor. b) Existence of No Dispute to any invoice due to Operational Creditor. 18. In para 13 of the same reply, it was further stated that Operational Creditor failed to disclose that due to repeated delay in supply/ dispatch of gelatine to the Corporate Debtor, the same had consequentially resulted in losses to the Corporate Debtor for which the Corporate Debtor raised two debit notes of US$ 69,600/-. 19. Now coming to the third reply of the Corporate Debtor dated 03.02.2020, another plea has been taken to support the pre-existing dispute on the basis of emai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticles in the 180 Bloom Gelatin bags. May be during the packing the Gelatin there was some contamination or the Gelatin is stored in ply based wooden containers. Please explain this to the supplier to take care of this in the subsequent supplies . 21. When we read the entire email, it is clear that with regard to 250 Bloom and 180 Bloom supplies were found to be good as per parameters. The only observation made was that certain wooden chips/ particles in the 180 Bloom Gelatin bags were found. What was requested in the email was please explain this to the supplier to take care of this in the subsequent supplies . At best, from the above, it is clear that no dispute was raised by the Corporate Debtor with regard to the supply of 250 Bloom and 180 Bloom. There is specific mention that parameters are as per the requirements and the blend is good. With regard to certain wooden chips / particles found in the bags, the observation was that it should be taken care in the subsequent supplies. Thus, the email dated 30.07.2018 also cannot be read to mean that there was any dispute between the parties qua the supply which was made by three invoices for which payment was asked for. 22. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any. (ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if (a) the application made under sub-section (2) is incomplete; (b) there has been [payment] of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under subclause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority. 25. In the present case, no notice of dispute has been received by the Operational Creditor as noted above. There is another expression in clause (d) noted above that there is a record of dispute in the inform ..... X X X X Extracts X X X X X X X X Extracts X X X X
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