Corporate Debtor Not Barred From Raising Pre-Existing Dispute Even When No Reply Was Given To Demand Notice Within 10 Days U/S 8 Of IBC: NCLT Mumbai

The National Company Law Tribunal (NCLT) Mumbai bench of Hon'ble Shri K. R. Saji Kumar (Judicial Member) and Hon'ble Shri Sanjiv Dutt (Technical Member) has held that failure to respond to a demand notice within 10 days under Section 8 of the Insolvency and Bankruptcy Code, 2016 (the Code) does not bar the Corporate Debtor from asserting the existence of a pre-existing dispute especially when such dispute was raised before the issuance of the demand notice. Brief Facts: The default in the present case arises from five unpaid invoices for cotton fibre supplied to the Corporate Debtor during 2021-22. While the date of default is not expressly mentioned in Part 1V of the application, invoices dated 16 December 2021 to 19 January 2022 indicate a 30 day payment due period. As the corporate debtor failed to pay the due amount, the Operational Creditor has filed this application under section 9 of the Code seeking initiation of the Corporate Insolvency Resolution Process (CIRP). Contentions: The Operational Creditor submitted that the invoices are undisputed and the Corporate Debtor never raised any dispute about the quality or quantity of goods before the demand notice. It was further argued that in fact, the corporate debtor's emails dated 3 November 2021 and 10 January 2022 contradict its claim of a pre existing dispute instead indicating an intent to continue contractual relationship for bulk supplies. Therefore, the Corporate debtor's argument is a feeble argument which cannot be accepted. It was further argued that the Corporate Debtor cannot escape from its obligations towards the Operational Creditor after accepting the goods without any demur as per the law laid down by the Appellate Tribunal in Deepak Modi Vs Shalfeyo Industries (2023). Per contra, the Corporate Debtor submitted that the Operational Creditor failed to produce any evidence to show fulfillment of duties as a seller on its part while the veracity of the invoices produced is questionable. It was also argued that the Operational Creditor did not produce the Corporate Debtor's reply to the demand notice. However, the Corporate Debtor by its Additional Affidavit dated 13.06.2023, placed on record its reply notice dated 09.06.2022. The said reply notice as well as copies of invoices and several emails attached to it indicate the existence of dispute between the Operational Creditor and the Corporate Debtor. Observations: The Tribunal noted that the emails of the Corporate Debtor from 10 January 2022 to 21 January 2022 highlighted disputes over inferior goods and delayed payments which were not contested by the Operational Creditor. A meeting conducted on 6 April 2022 was attended by both parties further documented these disputes. It further said that though the minutes of the meeting were not signed, they were emailed to the Operational Creditor on 11 April 2022 which the Operational never challenged. The disputes were further highlighted by the corporate debtor in a reply given to the demand notice issued by Operational Creditor. Therefore, failure to respond to a section 8 notice within 10 days does not preclude the corporate debtor from asserting pre-existing disputes especially when they were raised before the notice was issued. The Appellate Tribunal in Brand Realty Services Ltd. Vs. Sir John Bakeries India Pvt. Ltd. held that mere fact that reply to notice under Section 8(1) had not been given within ten days or no reply to demand notice had been filed by the corporate debtor does not preclude it from bringing relevant materials before the adjudicating authority to establish pre-existing dispute. Based on the above, the Tribunal held that the applications filed by the corporate debtor before various fora and exchanged emails confirms the existence of a pre-existing dispute. Since these disputes arose before the filing of the present petition and the operational creditor's demand notice, the operational debt cannot be considered undisputed. Accordingly, the present petition was dismissed. Case Title: Himatsingka Seide Limited V/S Textile Professional LLP Case Number: CP (IB) No. 886/MB/2022 Judgment Date: 21/03/2025 Operational Creditor: Adv. Ranjit Shetty a/w. Adv. Yuvraj Choksy and Adv. Arjun Amin i/b Argus Partners Corporate Debtor: Adv. Avinash Khanolkar a/w. Adv. Yachika Jain & Adv. Surekha Yadav Click Here To Read/Download The Order

Corporate Debtor Not Barred From Raising Pre-Existing Dispute Even When No Reply Was Given To Demand Notice Within 10 Days U/S 8 Of IBC: NCLT Mumbai

Mohd Malik Chauhan

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