In Absence Of Pre-Existing Dispute, Petition U/S 9 Of IBC Must Be Admitted If Debt And Default Are Proved: NCLAT

The NLCAT New Delhi bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) affirmed that once it is established that the corporate debtor has defaulted in the payment of operational debt which amount had clearly become due and payable above the threshold limit, and further if there is no credible or plausible evidence to show the existence of pre-existing dispute, application under section 9 must be admitted by the Adjudicating Authority.Brief FactsThe present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 19.12.2023 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority. By the impugned order, the Adjudicating Authority has admitted the Section 9 petition against the Corporate Debtor and ordered initiation of Corporate Insolvency Resolution Process (“CIRP” in short) of the Corporate Debtor.The Operational Creditor had a business relationship with the Corporate Debtor and supplied Set Top Boxes (“STB” in short) on credit to the Corporate Debtor. Since the payments were not forthcoming from the Corporate Debtor and allegedly the latter continued to remain in default, the Operational Creditor sent a Legal Notice dated 07.07.2022.Despite the Legal Notice, the Corporate Debtor failed to make payment of the pending amount to the Operational Creditor. The Legal Notice was followed by reminders until filing of statutory demand notice under Section 8 of the IBC on 18.11.2022 demanding an amount of USD 121,47,968 towards principal amount. A notice of dispute to the Demand Notice was issued by the Corporate Debtor to the Operational Creditor on 01.12.2022 disputing the entire operational debt. The Operational Creditor proceeded to file the Section 9 application on 14.12.2022.The Adjudicating Authority has by the impugned order admitted the Section 9 petition against the Corporate Debtor and ordered initiation of CIRP of the Corporate Debtor.ContentionsThe appellant submitted that emails were sent in which multiple disputes were raised ranging from grounds of poor quality of goods supplied, reconciliation of accounts, recovery from debtor, settlement of debt notes etc. These emails had also been acknowledged by the Operational Creditor and having been issued prior to the statutory demand notice under Section 8 of IBC, it signified pre-existing disputes which were wrongly overlooked by the Adjudicating Authority. That the Adjudicating Authority had wrongly bifurcated the operational debt into disputed operational debt and undisputed operational debt and admitted the Corporate Debtor into CIRP on the ground that the undisputed debt was above the threshold limit.Per contra, the respondents submitted that despite making clear admission of their liability towards Operational Creditor, the Corporate Debtor did not pay the entire amount which was due and payable to the Operational Creditor and this amount outstanding being more than the threshold of Rs 1 Cr, debt and default was established. That the material on record does not in any way support the case of the Corporate Debtor that the business understanding between the two parties was determined by the agreement dated 21.07.2015 and that this was a spurious defence unsupported by evidence.NCLAT's AnalysisThe tribunal, at the outset, referred to the Supreme Court judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) wherein the test for admitting or rejecting section 9 application was laid down. The Apex Court in this case has held that once it is established that there is a debt which has become repayable but has not been paid and there is no pre existing dispute pertaining to the debt, application must be admitted.The tribunal while referring to content of the email in which the debt was acknowledged noted that the Corporate Debtor had admitted the operational debt and held adverse cash-flow to be the cause for non-payment of the operational debt and as such no dispute with the Operational Creditor was attributed for non-payment of the same. The tribunal further noted that in the same email the corporate debtor welcomed the operational creditor to invest in the market so that indian market could be blossomed. Based on the above, the tribunal observed that tone and tenor of the above email demonstrated that there was no dispute between the Operational Creditor and Corporate Debtor at this stage when debt was acknowledged by the Corporate Debtor.The tribunal further noted that the debt was also acknowledged in the confirmation email sent by the auditor of the operational creditor. Corporate Debtor had admitted a debt of USD 8.8 million qua the Operational Creditor which amount stood clearly above the threshold level.It is the case of the Corporate Debtor that in their subsequent emails of 02.06.2021 and 03.06.2021, they had disputed the outstanding debt.These emails were issued subsequent to the balance...

In Absence Of Pre-Existing Dispute, Petition U/S 9 Of IBC Must Be Admitted If Debt And Default Are Proved: NCLAT

Mohd Malik Chauhan

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In Absence Of Pre-Existing Dispute, Petition U/S 9 Of IBC Must Be Admitted If Debt And Default Are Proved: NCLAT

Mohd Malik Chauhan

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