NCLAT Delhi Upholds Dismissal Of Insolvency Plea Against Aditya Birla Fashion And Retail Ltd., An Aditya Birla Group Company

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), has declined to initiate insolvency proceedings against Aditya Birla Fashion and Retail Limited under Section 9 of IBC, on the premise that there is pre-existing dispute between Parties which cannot be investigated upon by NCLT or NCLAT. Aditya Birla Fashion and Retail Limited is a part of Aditya Birla Group of companies and runs the Pantaloons showrooms. Background Facts Aditya Birla Fashion and Retail Limited (“Corporate Debtor”) is a part of the Aditya Birla Group of companies which was founded by Late Mr. G.D. Birla and currently being headed by Mr. Kumar Mangalam Birla. The Corporate Debtor is engaged in the business of branded apparel and runs the Pantaloons showrooms. In Style Fashion (“Appellant”) was acting as franchisee and commission agent for running the show room of Corporate Debtor. Agency Agreements were executed for running Planet Fashion and Allen Solly stores, however, the stores closed prior to the expiry of tenure mentioned in the Agreements. The Appellant raised invoices for salvageable and non-salvageable assets on the Corporate Debtor on 18.11.2016. However, the Corporate Debtor made only part payment on 28.04.2017. The Appellant issued a Demand Notice under Section 8 of IBC to the Corporate Debtor on 07.08.2019 demanding payment of Rs. 1.05 crore. The Corporate Debtor responded to the Demand Notice but no further payments were made. In 2019, the Appellant filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. On 11.10.2023, the NCLT dismissed the Section 9 petition for being barred by limitation. The Appellant filed an appeal before the NCLAT against the order dated 11.02.2023. NCLAT Verdict The Bench noted that the petition filed in 2019 was not barred by limitation, since the limitation would stand refreshed from the last payment date which was in 2017. It was observed that there was pre-existing dispute between the Parties and the NCLT or NCLAT is not empowered to investigate contractual disputes. “As we are clear in our mind that neither the Adjudicatory nor the Appellate Tribunal is vested with the competent jurisdiction either to enter into the realm of investigating contractual disputes or to determine the tenability of the claim amount arising out of contractual terms, we cannot subscribe to the finding of the Adjudicating Authority that the claims of the Operational Creditor has fallen flat. Be that as it may, we however do not hesitate from making the observation that in their reply to the Section 8 demand notice, the Corporate Debtor having raised dispute on the amount claimed by the Operational Creditor in the light of the clauses of the Agency Agreements, there was clearly a pre-existing dispute between the parties on the computation of claims.” The Bench upheld the NCLT's decision of dismissing the Section 9 petition and granted liberty to Appellant to seek remedy pertaining to contractual dispute before appropriate forum. “Considering the overall facts and circumstance of the present case, and in view of the foregoing discussion, we are satisfied that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. However, as reasoned out earlier, we do not agree with the finding of the Adjudicating Authority that the Section 9 application was time-barred and hit by limitation. We also make it clear that the Appellant shall have the liberty to seek remedy in respect of inter se contractual disputes, before any other appropriate forum as admissible in law.” The appeal has been dismissed. Case title: In Style Fashion v Aditya Birla Fashion and Retail Limited Case No.: Company Appeal (AT)(Insolvency) No. 1679 of 2023 Counsel for Appellants: Mr. Sanyam Goel, Mr. Deepak Motla and Mr. Mohtashim Kibriya, Advocates Counsel for Respondent: Mr. Divyansh Jain, Mr. Sanjeev Kumar, Mr. Abhishek Kisku, Mr. Anshul Sehgal and Mr. Pranshu Paul, Advocates. Click Here to Read/Download Order

NCLAT Delhi Upholds Dismissal Of Insolvency Plea Against Aditya Birla Fashion And Retail Ltd., An Aditya Birla Group Company

Pallavi Mishra

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