Insolvency Plea Cannot Be Admitted When Information Utility Records Dispute: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT) held that a record of dispute in an Information Utility obligates the tribunal to reject an insolvency application filed by an operational creditor.

A bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra set aside the order initiating insolvency against OFB Tech Pvt. Ltd. on an appeal filed by the company's suspended director.

The appellate tribunal held that “When there is record of dispute in the Information Utility, the Adjudicating Authority is obliged to reject the application. The legislative scheme of Section 9 is not for resolving any dispute between the Operational Creditor and the CD and when the record of Information Utility contains mention of dispute, the Adjudicating Authority is obliged to reject the application..”

The case arose from purchase orders issued by Maverick Developers and Colonisers Pvt. Ltd. for the supply of HDPE pipes. The supplies were arranged by OFB Tech Pvt. Ltd., which sourced the pipes from Giga Pipe Systems. OFB Tech had separate financing arrangements with Giga Pipe Systems under memoranda of understanding executed in September 2020 and May 2021.

Maverick claimed that it had paid Rs 35.44 crore against supplies worth Rs 32.38 crore, resulting in an excess payment of about Rs 3.05 crore, which it alleged was unauthorisedly adjusted against dues owed by Giga Pipe Systems.

After Maverick issued a demand notice, OFB Tech disputed the claim through a detailed reply and shared its ledger showing adjustments of Rs 50 lakh and Rs 2.55 crore against Giga Pipe Systems' dues. Maverick denied any dealings with Giga Pipe Systems and disputed the ledger entries, following which it filed an insolvency application before the NCLT at Ahmedabad. The NCLT admitted the plea, holding that there was no pre-existing dispute and that the debt crossed the statutory threshold.

Setting aside that order, the appellate tribunal noted that Maverick itself had placed on record the Information Utility report from NeSL, which showed the alleged default amount of Rs 3.84 crore as disputed. Relying on its own rulings the tribunal held that the NCLT could not ignore a recorded dispute in the Information Utility.

It further observed that OFB Tech's detailed reply to the demand notice, including disputed ledger entries and allegations of collusion, constituted a clear notice of dispute.

The tribunal also noted that Maverick had remained silent for more than two years after its last payment in August 2021 and raised objections to the ledger entries only in October 2023.

Such issues, it said, could not be decided in summary insolvency proceedings.

“The dispute between the parties with regard to set-off in the leger entry as communicated by the CD to the Operational Creditor is not a dispute, which can be examined and determined in Section 9 proceedings.… Even the reconciliation of the ledger dispute between the parties is a dispute, which cannot be gone into and examined in Section 9 proceedings,” the tribunal said while allowing the appeal and dismissing the insolvency application