IBC - the existence of 'Dispute' must be 'pre-existing'

IBC - the existence of 'Dispute' must be 'pre-existing'

Merely contending that accounts were not reconciled for almost a year could be construed as a 'feeble and spurious argument'

The Appeal preferred by the Managing Director of M/s Global Energy Private Limited (GEPL) under Section 61 of the Insolvency and Bankruptcy Code 2016 (IBC) against the Order passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) by which the Tribunal admitted the Section 9 Application filed by M/s Valuelabs LLP (Operational Creditor) was dismissed on 9 February 2021.

The main point for consideration here was whether there was any 'Existence of a Dispute' and whether the Appellant had raised a plausible contention requiring further investigation which was not a patently feeble legal argument or an assertion of facts unsupported by evidence and whether the Dispute was 'Pre-Existing'.

The appellant contended that the Adjudicating Authority had erred by overlooking the technical nature of the dispute between the parties; that the issue was with respect to interpretation of 'banked energy'; that the Operational Creditor had charged GEPL for normal units and banked units under different rates when the agreed rate was Rs 3.70/kWh; that GEPL was the facilitator for Andhra Pradesh Southern Power Distribution Company Ltd (APSDCL) and that the energy banked was consumed by the consumers of APSDCL which in turn adjusted the same against the electricity bills of the consumers.

Generation Credit Notes (GCN) were issued by APSDCL to the Respondent for the units of energy injected by the Respondent into the grid of APSDCL and therefore, the entire transaction was of banked energy and did not pertain to the sale of energy or actual delivery of electricity generated by the Respondent to the end consumers directly.

The respondent argued that the so-called dispute could not be construed as a 'Pre-Existing Dispute' as it was raised subsequent to the filing of the Petition under Section 9 of IBC; that the Demand Notice under Section 8 of IBC was dated 08.05.2018; the belated Reply was issued only on 01.06.2018 beyond the period envisaged under the IBC and that the Corporate Debtor merely stated that reconciliation of accounts had not been carried out and baldly denied the outstanding dues.

The Tribunal mainly opined that as per the email communication, for almost 10 months, the Corporate Debtor simply stated that there was a software breakdown and loss of financial data because of which he could not reconcile his accounts. There was a bald and bare denial of any amounts due and payable only on the ground of 'pending reconciliation'. It was noted that there was no whisper of any dispute regarding 'rate'.

The email on record evidenced that the dispute with respect to the rate of electricity was raised for the first time in the email dated 31.10.2018 under the notice of invocation of Arbitration. It was stated that the Application under Section 9 of IBC was filed on 06.06.2018 by the Respondent/Operational Creditor before the Adjudicating Authority. Though the Demand Notice under Section 8 of IBC was dated 08.05.2018, the Reply was given only on 01.06.2018 beyond the stipulated period envisaged under the Code.

The NCLAT put forth that the documentary evidence on record substantiated that the Corporate Debtor never raised the aspect of 'rate' or any dispute prior to 01.06.2018 and had not settled the dues of the Operational Creditor, though there were repeated requests being made from 03.08.2017 onwards.

It was noted that in all their replies, the Appellant herein only mentioned non-reconciliation of accounts as the reason but was silent with respect to any other issue regarding payment of amounts and therefore, this Tribunal held that the Appellant had failed the test of proving of any 'Pre-Existing Dispute'.

The Tribunal without going into the merits of the 'Dispute' held that the documentary evidence furnished with the Application read with the email communication showed that the debt was 'due and payable' and had not been paid and there was no plausible contention which required further investigation and that the 'Dispute' raised was only a patently feeble argument unsupported by evidence.

Hence, this Tribunal was of the considered view that the ratio of the Supreme Court in M/s Mobilox Innovations Pvt Ltd squarely applied to the facts of this case as the Apex Court had laid down that the 'Dispute', if any, should be 'Pre-Existing' and also that it cannot be a feeble argument. Merely contending that accounts were not reconciled for almost a year could be construed as a 'feeble and spurious argument'.

The Tribunal was unable to find any 'Dispute'. It was seen from the record that at the earliest point of time, the Corporate Debtor did not raise any dispute that existed between the parties. Hence, no illegality or infirmity in the Order passed by the Adjudicating Authority was found out which warranted interference.