IBC: No suit w.r.t. quality of service pending on date of filing application under Section 7 to bring within ambit of dispute under Section 5(6)(b)

IBC: No suit w.r.t. quality of service pending on date of filing application under Section 7 to bring within ambit of dispute under Section 5(6)(b)

It was pointed out by the Appellant Apya Capital Services Private Limited that the Corporate Debtor's letter dated 2 May, 2019 was an afterthought to evade its liability though part payment for services rendered by the Appellant was made which clearly established that there was no pre-existing dispute between the parties

The National Company Law Appellate Tribunal (NCLAT) has directed the Adjudicating Authority(National Company Law Tribunal/NCLT), Mumbai Bench to admit the application of the Appellant(Apya Capital Services Private Limited) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) after providing an opportunity to the Respondent- Corporate Debtor(Guardian Homes Private Limited) to settle the claim of the Appellant, if it so chooses and pass all consequential directions as a sequel thereto.

In this matter, the Appellant was aggrieved of the dismissal of its application filed under Section 9 of the I&B Code by the Adjudicating Authority on grounds that there was a clear deficiency in the service provided by the Appellant and there was no debt as claimed by the Appellant.

The Adjudicating Authority arrived at a conclusion that there was no debt as claimed by the Appellant besides there being deficiency in service provided by the Appellant warranting dismissal of application.

It was pointed out by the Appellant that the Corporate Debtor's letter dated 2 May, 2019 was an afterthought to evade its liability though part payment for services rendered by the Appellant was made which clearly established that there was no pre-existing dispute between the parties. It was stated by the Appellant that no settlement had taken place with respect to reduction in fees payable under the Engagement Letter and even the amount of Rs.75 lakhs admittedly lying outstanding as per the Corporate Debtor's assertion had been withheld to coerce the Appellant into accepting in writing the factum of settlement of dispute at Rs.1,50,00,000/-.

The Appellate Tribunal affirmed that no suit or arbitration proceedings were pending on the date of filing of application under Section 7 in regard to quality of service to bring the same within the ambit of dispute as contemplated under Section 5(6)(b) of the 'I&B Code' to disentitle the Appellant- Financial Creditor from initiating the Corporate Insolvency Resolution Process.

No such dispute was even brought to the notice of the Appellant- Financial Creditor as the demand notice served under Section 8(1) of the 'I&B Code' was not responded to by the Corporate Debtor. Therefore, the Appellate Tribunal held that the Appellant- Financial Creditor was entitled to raise the invoice dated 20 April, 2019 in regard to the unpaid balance amount of Rs. 2,05,00,000/- in respect whereof default was committed by the Corporate Debtor who admittedly paid only Rs.75 Lakhs as part payment.

There was nothing on the record to even suggest that the liability was at all denied by the Corporate Debtor and any agreement or settlement was reached inter se the parties for reduction of amount of fee payable in lieu of services provided for the reason that the timelines were not adhered to by the Appellant in arranging the financer for the Corporate Debtor's project.

The Adjudicating Authority landed in error in observing that there was a clear deficiency in service provided by the Appellant falling within the ambit of Section 5(6)(b) of the 'I&B Code' which cannot be supported.

It was put forth that the Appellant, on its own showing claimed to have already paid 50% of the amount due in respect of the first proforma invoice dated 16 January, 2019 thereby leaving an outstanding amount of Rs.75 lakhs which was due and payable.

By not clearing the liability in respect of the balance Rs.75 lakhs in compliance to the demand notice served upon it by the Appellant- Financial Creditor and in absence of any dispute raised in regard to deficiency in service in response to the demand notice, there appeared to be considerable force in the contention of the Appellant that withholding of the admitted payable amount of Rs.75 Lakhs by the Corporate Debtor emanated out of its design to coerce the Appellant into accepting that the amount of fee payable had been settled at Rs.1,50,00,000/- in terms of a mutual settlement which was not at all forthcoming.

The Appellate Tribunal opined that the Adjudicating Authority landed in error in holding that there was no 'debt' as claimed by the Appellant and there was 'deficiency in service' provided by the Appellant. The findings recorded by the Adjudicating Authority were grossly erroneous and the same could not be supported.

Once the liability in respect of Rs. 75 lakhs was admitted and the same was not discharged by the Corporate Debtor, dispute in regard to quantum of debt would be immaterial at the stage of admission of application under Section 7 unless the debt due and payable falls below the minimum threshold limit prescribed under law.