NCLT Delhi Dismisses Diwan Spirits Insolvency Plea Against Khao Gali Restaurants

The National Company Law Tribunal (NCLT) at New Delhi, has refused to push Khao Gali Restaurants Pvt. Ltd. into insolvency on a plea by liquor wholesaler Diwan Spirits.

It held that the dispute between the parties is not a clear case of non-payment but one that turns on reconciliation of accounts under the now scrapped Delhi Excise Policy 2021–22.

A bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi dismissed Diwan Spirits' application seeking initiation of the corporate insolvency resolution process, observing that the claims raised involved mutual adjustments and required detailed examination, which is beyond the scope of a summary insolvency proceeding.

The tribunal held that the dispute was not a simple case of non-payment. It involved reconciliation of accounts and determination of mutual adjustments, issues that require detailed examination and fall outside the scope of insolvency proceedings.

"From the material placed on record, it is evident that the issue between the parties is not merely one of non-payment but involves reconciliation of accounts and determination of mutual claims and adjustments", it observed.

"Once a genuine dispute regarding the debt or its quantum is shown to exist prior to or in response to the demand notice, the Adjudicating Authority is barred from admitting the application under Section 9 of the Code, irrespective of the amount claimed.", it added.

Diwan Spirits supplied liquor to Khao Gali, which operated retail outlets under the “Alcomart” brand during the subsistence of the Delhi Excise Policy. The wholesaler claimed it raised invoices of about Rs 1.38 crore and received only a little over Rs 6 thousand.

It relied on a balance confirmation letter dated August 22, 2022, acknowledging dues of Rs 1.40 crore as on July 31, 2022.

On this basis, Diwan Spirits sought to initiate CIRP against Khao Gali. It asserted that the liability stood crystallised and unpaid despite invoice terms providing for 18% interest on delayed payments.

Khao Gali disputed the quantum of debt. It admitted liability of Rs 81.38 lakh but said the remaining amount was subject to adjustment towards market schemes, expired stock and breakages. It argued that after such adjustments, the dues would fall below the statutory threshold required to trigger insolvency.

The tribunal noted that email correspondence showed both sides had contemplated reconciliation of accounts even after the statutory demand notice. It also recorded that Diwan Spirits itself agreed, though “without prejudice”, to undertake reconciliation.

“The correspondence exchanged between the parties after issuance of the demand notice shows that reconciliation of accounts was contemplated and discussed. The very fact that the Applicant itself agreed, albeit without prejudice, to undertake reconciliation indicates that the liability was not crystallised and undisputed as on the date of issuance of the demand notice,” the tribunal observed

The tribunal further held that the August 2022 balance confirmation only reflected the position of accounts on that date and did not prevent the corporate debtor from raising bona fide disputes arising from the same commercial relationship.

Referring to the “peculiar backdrop” of the Delhi Excise Policy 2021–22 and the investigations surrounding it, the bench said disputes relating to schemes, expiries and breakages assumed particular significance and reinforced the conclusion that the matter was not suitable for resolution under the IBC.

Holding that Diwan Spirits failed to establish a clear and undisputed operational debt, the tribunal dismissed the insolvency plea. 

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