Uncorroborated Allegations Pertaining To Pre-Existing Dispute Cannot Be Entertained: NCLT Admits Petition U/S 9 Of IBC

The National Company law Tribunal (NCLT) Hyderabad Bench of Justices Rajeev Bhardwaj and Sanjay Puri admitted M/s Nandi Irrigation Systems Limited (Corporate Debtor) into Corporate Insolvency Resolution Process (CIRP) on an application made by M/s Rishabh Triexim LLP (Operational Creditor) under section 9 of the Insolvency and Bankruptcy Code (IBC). This case arises due to the default made by the corporate debtor in paying the operational debt amounting to Rs. 11.32 crores which was to be paid on November 30, 2022.Brief FactsThis dispute arises from a series of transactions in which the PVC resin was supplied by the operational creditor to the corporate debtor from April 1, 2022 to November 19,2022. The total supply amount was calculated to be Rs. 45.91 crores and if the opening balance of Rs. 11.91 crores is also added to this, it becomes Rs. 57.82 crores. Out of this total amount, Rs. 46.50 crores was paid while leaving the rest of the amount unpaid.The operational creditor claimed that the amount was admitted by the corporate debtor via whatsapp messages on October 28, 2022 in which it was confirmed that the operational unpaid debt was Rs. 11.82 crores as of September 9, 2022. In a meeting conducted on October 13, 2023, the debt amount was reduced to Rs. 9.50 crores by December 31, 2022 and further to Rs. 8.50 crores by March 31,2023. However, in spite of these agreements and subsequent correspondences the corporate debtor failed to make the payment which compelled the operational creditor to send a demand notice under section 8 of the IBC on November 30, 2022ContentionsThe operational creditor submitted that the corporate debtor had an outstanding liability amounting to Rs. 11.32 crores. This liability was not discharged by the corporate debtor despite acknowledgment and multiple reminders. The last amount of Rs. 25,073 was paid by the corporate debtor and no further amount was paid thereafter. It was further submitted that the delivery of the PVC Resin is confirmed by 175 invoices drawn against the materials supplied, lorry receipts and ledger account which shows the outstanding liability of Rs. 11.32 crores of the corporate debtor. The operational creditor also claimed the interest at the rate of 24% per annum on the overdue amount as stipulated under supply invoices.Per contra, the corporate debtor countered the argument of the operational creditor by saying that there was already a pre-existing dispute existed with respect to quality of materials supplied. It was submitted that once it is established that there is a pre-existing dispute, the application is liable to be rejected. It was further argued that a letter dated December 2, 2022 was sent to the operational creditor in which it was highlighted that the material supplied was defective and unfit for production rendering the corporate debtor for no liability. Lastly, it was argued that total claimed amount did not exceed the threshold limit of Rs. 1 crore under section 4 of the IBC therefore the application is liable to be dismissed on this ground as well.NCLT's AnalysisThe NCLT carefully analysed the arguments and evidence presented by both parties. It noted that the supply of the PVC Resin was supported by 175 invoices drawn which were further confirmed by lorry receipts. Based on this evidence, the tribunal concluded that the materials received were in good condition.The tribunal also rejected the argument of the corporate debtor that the materials supplied were defective and unfit for production as no evidence was presented to prove this fact. The tribunal observed as under:“14. The second argument regarding the "inferior quality" of the material is unsupported by evidence. The CD claims that 1091.9 MT of PVC Resin worth Rs 13,67,37,359 was rejected, but no proof of return or disposal of this large quantity (of 1091.9 MT) of PVC resin has been provided”.The NCLT also dismissed the contention of a pre-existing dispute based on the fact that the corporate debtor acknowledged the factum of its outstanding liability through various communications. The tribunal observed as under:“16.While it is true that this letter was sent before the Demand Notice dated 30.11.2022 was received by the CD, it only conveys a manufactured dispute about the quality of the material supplied by the OC. As discussed in the earlier paras, there is no evidence corroborating the claim of inferior quality of goods supplied by the OC to the CD. Such uncorroborated contention does not require any investigation or enquiry and is liable to be rejected”.The NCLT further observed that the outstanding debt amount of Rs. 11.32 crores had been established by the operational creditor therefore it is entitled to claim interest for overdue payments as mentioned in the supply invoices.ConclusionThe NCLT in this case concluded that the corporate debtor had failed to make the payment against the amount due. It had also failed to prove with clinching evidence that there was a pre-existing ...

Uncorroborated Allegations Pertaining To Pre-Existing Dispute Cannot Be Entertained: NCLT Admits Petition U/S 9 Of IBC

Mohd Malik Chauhan

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