NCLT Allahabad: Operational Debt, Out Of Non Delivery Of Goods Due To Export Ban, Not Maintainable

The National Company Law Tribunal ('NCLT'), Allahabad Bench, comprising Shri. Praveen Gupta (Judicial Member) and Ashish Verma (Technical Member) held that a Corporate Insolvency Resolution Process ('CIRP') application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ('IBC') is not maintainable for any claim arising on account of non-delivery of goods for export by the Corporate Debtor due to a ban imposed by the Government of India. Background Facts: Morex Corporation Ltd. ('Applicant') is the Operational Creditor engaged in the business of import and export in Hong Kong. It made a purchase order with Jindal Poly Films Ltd. ('Corporate Debtor') and was assured of timely delivery of the goods on or before 15.03.2020. The advance payment of the entire amount of Rs. 3 crores was made by the Operational Creditor in line with the said condition. On 12.03.2020, an Order for 50,000 Kg of non-woven fabric was also placed by the Operational Creditor specifying the terms of delivery as being on or before 23.03.2020. The Applicant had through email reminded Corporate Debtor to handover the goods over by or before 23.03.2020 according to the Contract. However, it was intimated by the Corporate Debtor, that the production has been delayed due to some production issues and the contracted goods can be dispatched only by 24th or 25th March 2020. An objection was raised by the Applicant immediately and it provided that it will suffer huge losses if the goods are not delivered on 23.03.2020, further, the delivery is scheduled for 23.03.2020 as per the Original Contract and no other date can be agreed upon for delivery. The commitment was not fulfilled by the Corporate Debtor on time. Further, due to the COVID-19 pandemic, the Indian Government imposed a nationwide lockdown from 25.03.2020, and even then, the Corporate Debtor did not update on anything to the Applicant. A refund of the advance amount paid by the Applicant was requested and a Legal Demand Notice demanding payment under section 8 of the IBC was served upon the Corporate Debtor. The Applicant has filed a Corporate Insolvency Resolution Process ('CIRP') application under Section 9 of IBC against the Corporate Debtor for default of the Operational Debt of Rs.3.42 crores with Rs. 3 crores as the principal amount, Rs. 33.6 Lakhs as the interest and Rs. 9 Lakhs as the Air freight charges. NCLT Verdict: The NCLT Hyderabad dismissed the CIRP application and held that a CIRP application under Section 9 of the IBC is not maintainable for any claim arising on account of non-delivery of goods for export by the Corporate Debtor due to a ban imposed by the Government of India. The Tribunal observed that the Corporate Debtor was ready to deliver the goods for local sale during the ban period and for export post the ban was lifted, however, it could not deliver the goods for export on the contracted date due to the ban imposed by the Indian Government. It noted that there is a pre-existing dispute between the parties as there was a unilateral cancellation of the contract by the Applicant demanding the refund of advance money. Further, there was no default on the part of the Corporate Debtor in meeting the terms of the contract as it could not fulfill the terms of delivery for export due to reasons beyond its control due to the imposition of nationwide lockdown and bank by the Indian Government. Moreover, the termination was done without any notice or consultation with the Corporate Debtor. Thus, any claim arising out of such dispute by the Applicant is not covered in Section 9 of the Code. NCLT also pointed out that the Corporate Debtor is a listed company of Jindal Group is one of the largest manufacturers in the packaging industry and is profitable. No evidence exists by the Applicant proving the Corporate Debtor to be an insolvent company except for non-payment of its refund of advances. The Tribunal concluded that presently the Operational Debt of Rs. 3.42 crores is a disputed claim due to the unilateral cancellation of the contract by the Applicant and the dispute has arisen much before the Demand Notice under Section 8 of IBC was issued and thus, CIRP application under Section 9 of IBC is not maintainable as per Section 9(5)(ii)(d). Case Title: Morex Corporation Ltd. v. Jindal Poly Films Ltd. Case No.: CP (IB) No.12/ALD/2021 Counsel for the Creditor: Ms. Sonali D Pawar, Adv. Counsel for the Corporate Debtor: Sh. Alok Dhir, Ms. Mahima Ahuja, Ms. Varsha Banerjee & Sh. Shishir Dwivedi proxy for Sh. Manu Khare, Advs. Click Here to Read/Download Order

NCLT Allahabad: Operational Debt, Out Of Non Delivery Of Goods Due To Export Ban, Not Maintainable

Sachika Vij

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