Dispute Informed or Raised or Filed After Issuance of Notice U/S 8(1) of Insolvency and Bankruptcy Code, 2016. 

FIRST CASE- NO PRE-EXISTING DISPUTE, IF THE SAME WAS INFORMED AFTER ISSUANCE OF NOTICE U/S 8(1). 

[In the matter of M/s. Next Education India Pvt. Ltd. Vs. M/s. K12 Techno Services Pvt. Ltd. before NCLAT, NEW DELHI, Date of Order- 01.08.2019] 

In this case, the question of law came for the consideration of the Appellate Tribunal was, if correspondence of dispute was given after section 8 notice, then can it be regarded as a pre-existing dispute? 

The Appellant – M/s. Next Education India Pvt. Ltd. (‘Operational Creditor’) filed an application under Section 9 of the ‘Insolvency and Bankruptcy Code, 2016’ against M/s. K12 Techno Services Private Limited (Corporate Debtor), the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench by impugned order dated 20th December, 2018 rejected the application on the ground of ‘existence of dispute’.

The Appellant i.e. M/s. Next Education India Pvt. Ltd. brought on record (Form 5) of ‘debt’ and ‘default’.  It is also brought on record the Demand Notice u/s 8(1) of the ‘I&B Code’ was issued on 8th August, 2017.

However, the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench on the ground that the respondent i.e. M/s. K12 Techno Services Private Limited has filed reply on 8th September, 2017 to the Demand Notice noticed that several disputes had been raised.  They have also annexed several correspondences about the defective services provided by the Appellant.

In view of the above, Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench rejected the application on the ground of ‘existence of dispute’ by order dated 20th December, 2018. 

Later on, the Appellant i.e. M/s. Next Education India Pvt. Ltd. has challenged the above impugned order dated 20th December, 2018 by Company Appeal (AT) (Insolvency) No. 98 of 2019 at National Company Law Appellate Tribunal (NCLAT), New Delhi.

In this case, when NCLAT asked, the learned counsel for the Respondent to show the any correspondence which were prior to Section 8 Notice, then the Respondent (Corporate Debtor) intimated that there were defective services provided by the Appellant.

It also held that it is a settled law that if any dispute is raised prior to the issuance of the invoices or Demand Notice u/s 8(1) of the IBC with regard to quality of service or goods or pendency of the suit or arbitration, in such case one may take the plea that there is an ‘existence of dispute’ but if any dispute is raised after issuance of Demand Notice u/s 8(1) that cannot be termed to be a ‘pre-existing dispute’. Therefore, the NCLAT allowed the appeal and remitted the case back to the NCLT, Bengaluru for its admission u/s 9 of the IBC.

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SECOND CASE- DISPUTES MUST BE PRE-EXISTING TO DEMAND NOTICE UNDER SECTION 8(1) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016. 

[In the matter of Ahluwalia Contracts (India) Limited v. Raheja Developers Limited before NCLAT, NEW DELHI, Date of Order- 23.07.2019] 

In this case, the question of law came for the consideration of the Appellate Tribunal was, “Whether there is 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 in relation to such dispute?” 

The Hon’ble National Company Law Appellate Tribunal, New Delhi, in its aforesaid judgment, held that insolvency plea cannot be rejected if the disputed claim is not raised prior to the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.

The Appellant in the aforesaid case i.e. Ahluwalia Contracts (India) Limited (Operational Creditor), filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 against the Raheja Developers Limited (Respondent).

The Adjudicating Authority (National Company Law Tribunal, New Delhi), by an impugned order dated September 19, 2018, rejected the application on the ground that the claim of the Appellant falls within the ambit of ‘disputed claim’. The Adjudicating Authority further observed that in respect of the same cause of action, arbitration proceedings have already been initiated.

The Appellant preferred an appeal against the above impugned order dated September 19, 2018 before the Hon’ble National Company Law Appellate Tribunal at New Delhi.

The learned counsel appearing on behalf of the Appellant submitted that as on the date of issuance of demand notice under Section 8(1), no arbitration proceeding was initiated or pending. The arbitration proceeding on April 28, 2018 was filed by the Respondent after receipt of demand notice pursuant to Section 8(1) of the Insolvency and Bankruptcy Code.

It was further submitted that the notice invoking arbitration sent by the Respondent to the Appellant was issued on May 24, 2018. The Appellant through its counsel, sent a letter dated June 01, 2018 to the learned sole arbitrator with a copy to the Respondent stating that the appointment of the sole arbitrator made by the Management Review Committee of the Respondent was not acceptable to the Appellant.

The Hon’ble NCLAT rightly placed its reliance on the earlier decision of Innovative Industries Ltd. v. ICICI Bank and Anr., wherein it has been observed that “claim means a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4).”

With regard to the disputed claim, in the light of the entire facts, documents on records and the authorities relied upon by the Hon’ble NCLAT, it is crystal clear that the Adjudicating Authority wrongly rejected the claim of the Appellant on the ground that the claim raised by the Appellant falls within the disputed claim.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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