Existence Of Proceedings Under MSMED Act Or S.138 NI Act Doesn't Amount To Pre-Existing Dispute U/S 9 Of IBC: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Shri Prabhat Kumar (Member- Technical) and Justice V. G. Bisht, has allowed an application filed by an operational creditor under section 9 of the IBC seeking initiation of the CIRP against the Corporate Debtor. The Adjudicating Authority observed that the proceedings under the Micro, Small, and Medium Enterprises Development (MSMED) Act or section 138 of the Negotiable Instruments Act don't constitute a pre-existing dispute under section 9 of the IBC. The tribunal also observed that a partner of a firm is authorized to issue a demand notice and initiate proceedings under section 9 of the IBC in the name of the firm. Background M/s International Electricals is a partnership firm engaged in the trade and sale of electrical goods. Based on the purchase order, the Operational Creditor supplied some goods to the Corporate Debtor. In consideration, the Corporate Debtor issued five post-dated cheques in the name of the Operational Creditor but all of them were dishonoured. The Operational Creditor filed a petition under Section 9 of the IBC to initiate CIRP of the Corporate Debtor i.e. Aryan Electricals Private Limited. The Operational Creditor alleged that an amount of Rs. 4.42 Cr. (including Rs. 87.38 lakh as interest) is due on the Corporate Debtor, which arose from multiple invoices issued between February and May 2022. The Operational Creditor approached the Micro and Small Enterprise Facilitation Council (MSEFC), Gujarat, for the recovery of the due amount, and the MSEFC directed the Corporate Debtor to pay the due amount within 15 days. However, the Corporate Debtor failed to make the payment in the given time; hence, a petition under Section 9 of the IBC was filed before the Adjudicating Authority. Contention of the Parties The Operational Creditor submitted that the goods were supplied to the Corporate Debtor and the same has not been disputed. Out of five checks given by the Corporate Debtor, one was dishonoured due to insufficient funds, and the remaining were dishonoured due to the “check stale.” The Operational Creditor submitted that when the same was communicated with the Corporate Debtor, it asked for some additional time and also requested not to proceed with any legal remedy. The outstanding amount was duly recorded in the books of accounts, and the same can be seen in the Balance Sheet of the applicant. The applicant also highlighted that the MSEFC issued a notice to the Corporate Debtor, to make payment within 15 days, but the Corporate Debtor failed to comply with the same. The Operational Creditor also highlighted its communication with the Corporate Debtor through WhatsApp and email regarding purchase orders, quotations, and acknowledgement of receipt of goods. Per contra, the Corporate Debtor submitted that the Section 8 Demand Notice issued by the applicant is invalid as it claims an interest amount of Rs. 87.38 lakhs without any supporting documents. It also contended that the Demand Notice and the Section 9 petition are invalid, as these have been issued and instituted, respectively, by the partner, who is not authorized by the firm for this purpose. It also contended that there exists a bona fide dispute between the parties, as the products delivered were of inferior quality and they were not supplied as per the purchase orders. It also highlighted that since the applicant commuted to proceedings under the MSMED Act before approaching this tribunal, this leads to the inference that there is a pre-existing dispute. It also submitted that a case under Section 138 of the NI Act has been registered against the Corporate Debtor. Findings of the Adjudicating Authority The Adjudicating Authority observed that neither the purchase orders nor the invoices contemplate interest on the delayed payment, which makes it impermissible to claim the interest. The Adjudicating Authority relied on the judgment of NCLAT in the case of Neeraj Jain Director of M/s Flipkart India Private Limited vs. Cloudwalker Streaming Technologies Private Limited and held that the absence of invoices does not make a Demand Notice defective. The bench also observed that the combined reading of Sections 9, 12(a), 19(1), 19(2), and 22 of the Partnership Act provides that a partner of a firm is authorized to issue the Demand Notice under Section 8 or to initiate proceedings under Section 9 of the IBC in the name of the firm. The bench referred to the judgment of the NCLAT in the case of iValue Advisors Pvt. Ltd. Vs. Srinagar Banihal Expressway Ltd. and held that the proceedings before the MSME Council, does not by itself, establishes the existence of a pre-existing dispute. The bench lastly observed that compliant u/s 138 of the NI Act does not constitute a pre-existing dispute. The bench allowed the Section 9 application. Case Title: M/s International...

Existence Of Proceedings Under MSMED Act Or S.138 NI Act Doesn't Amount To Pre-Existing Dispute U/S 9 Of IBC: NCLT Mumbai

Mohd.Rehan Ali

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