Ahluwalia Contracts (India) Limited vs. Raheja Developers Limited - In Absence of Pre-existing Dispute, Section 9 Application is fit to be admitted.

 NCLAT (23.07.2019) in Ahluwalia Contracts (India) Limited vs. Raheja Developers Limited [Company Appeal (AT) (Insolvency) No. 703 of 2018] held that in absence of pre-existing dispute the application under Section 9 preferred by the Appellant was fit to be admitted.

Excerpts of the order;

# 15. In an application under Section 9, it is always open to the ‘Corporate Debtor’ to point out pre-existence of dispute. It is to be shown that the dispute was raised prior to the issuance of demand notice under Section 8(1).

 

# 16. In “Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited− 2017 1 SCC OnLine SC 353”, the Hon’ble Supreme Court held 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 and observed: …….. 

 

# 18. From the aforesaid decision, it is clear that the existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the ‘operational debt’ is exceeding Rs. 1 lakh and the application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any 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’, the application under Section 9 cannot be rejected and is required to be admitted.

 

# 21. In the present case, it is not in dispute that the arbitration proceeding was initiated by the Respondent vide notice dated 24th May, 2018 i.e. after about one month from the date of issuance of demand notice under Section 8(1) which was issued on 28th April, 2018. Therefore, the ‘Corporate Debtor’ cannot rely on arbitration proceeding to suggest a pre-existing dispute. There is nothing on the record to suggest that the ‘Corporate Debtor’ raised any pre-existing dispute relating to quality of work performed by Appellant. The ground of delay in execution of work cannot be noticed to deny admission of application under Section 9, the ‘Corporate Debtor’ having allowed the Appellant to execute the work and certified all the bills.

 

# 22. The Adjudicating Authority wrongly rejected the claim on the ground that the claim raised by the Appellant falls within the ambit of disputed claim. Merely disputing a claim cannot be a ground, as held by Hon’ble Supreme Court in “Innoventive Industries Ltd. v. ICICI Bank and Anr.” wherein it is 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).”

 

# 23. The Adjudicating Authority also failed to appreciate that the arbitration proceeding was initiated on 24th May, 2018 i.e. much after the issuance of the demand notice under Section 8(1) on 28th April, 2018 thereby wrongly held that an arbitration proceeding is pending.

 

# 24. From the record as we find that the Respondent has defaulted to pay more than Rs. 1 Lakh and in absence of any pre-existing dispute, and the record being complete, we hold that the application under Section 9 preferred by the Appellant was fit to be admitted.

 

# 25. For the reasons aforesaid, we set aside the impugned judgment dated 19th September, 2018 and remit the case to the Adjudicating Authority for admitting the application under Section 9 after notice to the ‘Corporate Debtor’ to enable the ‘Corporate Debtor’ to settle the matter prior to the admission.

 

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