Monday, 26 October 2020

Aalborg CSP A/S vs. Solar Atria Cleantech Private Limited - AA to determine that "Dispute" is not a patently feeble legal Argument

NCLAT (22.01.2020) in Aalborg CSP A/S vs Solar Atria Cleantech Private Limited [Company Appeal (AT) (Ins) No.167 & 168 of 2019] held that It is the duty of the AA to see whether there is a plausible contention which requires further investigation & that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence.

Excerpts of the order;

# 1. The Appellant - Aalborg CSP A/S (Aalborg /Operational Creditor – in short) filed Application under Section 9 of Insolvency and Bankruptcy Code, 2016 having CP(IB)No.143/BB/2018 before the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench) claiming that there was operational debt outstanding against Respondent - Solar Atria Cleantech Private Limited (Atria /Corporate Debtor – in short). The Application was based on claim of operational debt arising out of contract dated 16.03.2016 executed between the parties (Annexure A-9 - Company Appeal (AT) (Ins) No.167 of 2019). The same refers to what is stated to be ‘Aurum Project’.

 

# 2. The Operational Creditor filed yet another Application under Section 9 of IBC against the Corporate Debtor having CP(IB) No.144/BB/2018 before the same Adjudicating Authority claiming outstanding operational debt and default. This Application was passed on similar Supply Contract executed between the parties (Annexure A-5 – Page 124 – Company Appeal (AT) (Ins) No.168 of 2019). This Agreement may be referred as ‘Karnataka Project’. 


# 11. It is the case of the Appellant – Operational Creditor that in respect of achieving H2 and H3 milestones and raising invoices, the Corporate Debtor did not pay and thus, there was default. It is stated that after exchange of messages on WhatsApp and e-mails, the Appellant sent Notices under Section 8 on 15th March, 2018 in both the transactions which was followed by Replies and Counter Replies exchanged between the parties and ultimately the two Applications were filed claiming operational debts.


# 15 ……… It is clear from the Judgement of the Hon’ble Supreme Court (Mobilox Innovations) that it is the duty of the Adjudicating Authority to see whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. We are not required to be satisfied that the defence would succeed or examine the merits of the dispute. If the dispute truly exists and is not spurious, hypothetical or illusionary, the Application under Section 9 would require to be rejected. Thus, it is necessary to see if the dispute truly exists in fact. On this basis, it would be appropriate to now see if the Respondent is able to show that dispute truly exists. 


# 18. After going through the e-mails available to which we have referred above as well as Para – 16 of the Reply Notice sent by the Corporate Debtor, the positon which is evident from the record itself is that there is no dispute raised that the Operational Creditor had achieved H2 and H3 milestones and raised the invoices. No dispute has been raised that the services assigned were not rendered or that the money did not become due. What is sought to be stated by the Respondent – Corporate Debtor is that the payment made as at the stage of H1 itself was sufficient to cover the expenses incurred by the Operational Creditor and that the same was more than enough. This is reflected from the e-mail dated 13th December, 2017 as well as the Reply Notice given by the Corporate Debtor. The e-mail dated 13th December, 2017 itself mentioned that the Corporate Debtor was facing certain regulatory and technical challenges on the project front and once the same is resolved, they would be happy to provide exclusivity to the Operational Creditor on the said projects. The e-mails show that because Corporate Debtor after entering into the Agreements, had regulatory and other challenges with regard to the project it wanted to mutually terminate the Agreements but the Operational Creditor did not agree to waiving or reducing the dues. Looking to the defence put up, we are not convinced that the Respondent is able to show that dispute truly exists with regard to the Operational Creditor achieving milestones H2 and H3 for which invoices were raised. There is no dispute regarding this. Thus, the defence is patent feeble argument on the basis of e-mails to show that the parties were trying to settle the issues. What appears from the documents is that Corporate Debtor wanted to get out of the Agreement and was trying to get the accounts payable reduced or waived.


# 19. It being an Agreement to design, manufacture and deliver, if the Operational Creditor had taken steps towards designing and manufacturing, the operational debt was due. There is default and there is liability to pay on the part of the Corporate Debtor.

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Disclaimer:

The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.