CIRP Plea Of Operational Creditor Fails If Debt Is Recorded As Disputed With Information Utility: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently reiterated that once a debt is recorded as “disputed” with an Information Utility, insolvency courts have no discretion to examine the merits of the dispute and must reject a Section 9-CIRP plea under the Insolvency and Bankruptcy Code .

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra of the dismissed an appeal filed by Accurate Transheat Pvt. Ltd., upholding the order of the National Company Law Tribunal, Ahmedabad.

The tribunal observed, “Section 9 proceeding is not a proceeding for deciding various contractual dispute between the parties and insolvency proceeding against the Corporate Debtor can proceed only in accordance with the statutory scheme under Section 9 and the statutory scheme under Section 9 itself contemplate that when there is a record of dispute in the information utility, the Adjudicating Authority had to reject the application.”

The proceedings stem from a commercial supply arrangement between Accurate Transheat Pvt. Ltd. and Sufi International Pvt. Ltd. under which goods were supplied during the financial year 2020-21. Accurate Transheat claimed that about Rs 2.08 crore remained unpaid and issued a demand notice in March 2023 for the same.

Sufi International rejected the claim. It denied any outstanding liability, disputed the purchase order and invoices relied upon by Accurate. It said the cheques referred to by the creditor were issued only as security and that criminal cases relating to cheque dishonour are pending between the parties.

When Accurate Transheat filed a plea under Section 9 of the Insolvency and Bankruptcy Code seeking to initiate insolvency, the National Company Law Tribunal declined to admit it after noting that the alleged debt was recorded as “disputed” in the records of the Information Utility. The operational creditor then approached the appellate tribunal.

Before the appellate forum, Accurate Transheat relied on the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. to argue that the defence raised by the corporate debtor was illusory and that the insolvency court was required to examine whether the dispute was genuine.

The appellate tribunal rejected the argument. It held that Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code leaves no room for such an exercise once a dispute is recorded with the Information Utility.

Taking note of the NeSL certificate, the tribunal observed that the corporate debtor had expressly denied the liability and there existed a pre-existing dispute between the parties.

Reiterating the limited authority of NCLT in the matter, the bench observed that it is nota forum to resolve contractual disputes. It clarified that insolvency proceedings cannot be used to resolve contested contractual claims.

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