When Debt Is Not Unequivocally Admitted By Corporate Debtor, Application U/S 9 Of IBC Must Not Be Entertained: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that the application under section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) cannot be entertained when the debt is not unequivocally admitted by the Corporate Debtor. Brief Facts: The RR Metalmakers India Ltd.(Corporate Debtor) had approached Jaldhi Overseas Pvt Ltd. (Operational Creditor) for chartering of vessel MV Aetolia for carrying cargo from Port Redi to China for delivery to BST (HK) Ltd.- (“BST”) under a Charter Party Agreement dated 15.03.2017. The parties had appointed Bulk Chart as their broker. The Operational Creditor issued a demand notice under section 8 of the code when the Corporate Debtor failed to make the payment with respect to freight and demurrage. The corporate debtor replied to the notice on January 1, 2023 in which the claim of the Operational Creditor was disputed. The Operational Creditor issued a payment reminder on February 2, 2023 followed by an application under section 9 of the Code. On 22.04.2024, the Adjudicating Authority passed the impugned order admitting the Section 9 petition initiating Corporate Insolvency Resolution Process ('CIRP') against the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-Corporate Debtor. Contentions: The Appellant submitted that the Appellant-Corporate Debtor had not executed any charter party agreement with the Operational Creditor. As the entire transaction was negotiated by Samruddha with the Corporate Debtor, BST and Globe Chart, hence payments had been made by the Appellant to Samruddha/BST or to any entity under instructions of Samruddha. It was also argued that Section 9 application could not have been admitted on grounds of outstanding demurrage claimed by the Operational Creditor since demurrage are not operational debt in terms of Section 5(21) of IBC. It was also submitted that the invoice dated 18.04.2017 basis which the Operational Creditor has claimed debt and default as well as the debit note dated 27.12.2017 were time-barred. Per contra, the Respondent submitted that the Charter Party Agreement which is placed on record shows that the same was signed between the authorized signatory of the Corporate Debtor and Operational Creditor with Bulk Chart as the broker. It was also argued that the alleged involvement of Samruddha, BST, and Globe Chart in the transaction are irrelevant since the Charter Party Agreement was between the Corporate Debtor and Operational Creditor with no role of third parties. It was further submitted that demurrage was an integral component of the Charter Party Agreement. Moreover, the Corporate Debtor in their reply to the Section 8 Demand Notice had also agreed to settle the issue relating to demurrage. It was also argued that therefore, the Corporate Debtor had clearly admitted outstanding liability towards both freight charges and demurrage and cannot backtrack and deny their liability to clear the demurrage amount now. It was also argued that a letter issued by the Corporate Debtor on March 9, 2020 constituted an acknowledgement of liability under section 18 of the Limitation Act, 1963 ('Limitation Act'). This admission was made before the three year limitation period expired, which started from the last payment made on August 4, 2017. Observations: The Tribunal noted that a demand notice under section 8 of the code must be issued by the Operational Creditor upon default which can be disputed by the Corporate Debtor within 10 days from the date of receipt of the notice. In the present case, the demand notice was issued on February 2, 2020 which was replied to on March 9, 2020 in which a dispute with regard to the debt was raised. The Tribunal further added that the Operational Creditor can file an application under section 9 of the code if no reply or payment is received from the corporate debtor within 10 days under section 8(2) of the code. In the present case, since the payment was not made, the Operational Creditor filed an application under section 9 of the code. The Tribunal further added that however, if a notice of dispute is received by the Operational Creditor or there is a dispute recorded in the Information Utility as per section 9(5)(ii) of the code, the application must be rejected. The Tribunal noted that in replies sent to the demand notices, the corporate debtor denied having liability towards the outstanding dues in their records. It was stated that the payments had already been made by Samruddha as freight negotiation and vessel payments were handled by them. It also noted that the letter that was issued on November 11, 2022 provided that the outstanding dues would be resolved with the...

When Debt Is Not Unequivocally Admitted By Corporate Debtor, Application U/S 9 Of IBC Must Not Be Entertained: NCLAT

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When Debt Is Not Unequivocally Admitted By Corporate Debtor, Application U/S 9 Of IBC Must Not Be Entertained: NCLAT

Mohd Malik Chauhan

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