Once Pre-Existing Dispute With Regard To Operational Debt Is Established, Petition U/S 9 Of IBC Cannot Be Admitted: NCLAT

The NLCAT New Delhi bench of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) affirmed that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. If the existence of a dispute prior to filing of an insolvency petition is established and the defence raised is not moonshine, spurious, hypothetical or illusory. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the behest of the Operational Creditor.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 30.10.2023 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority. By the impugned order, the Adjudicating Authority has admitted the Section 9 application filed by M/s Nirmal Trading CompanyOperational Creditor and admitted M/s Print Land Digital Pvt. Ltd.-Corporate Debtor into the Corporate Insolvency Resolution Process (“CIRP” in short). Aggrieved by the impugned order, the present appeal has been preferred by the shareholder of the Corporate Debtor.Corporate Debtor was engaged in the digital printing business and had business relationship with M/s Nirmal Trading Company-Operational Creditor. The Corporate Debtor placed purchase orders with the Operational Creditor- Respondent No. 1 from time to time and issued invoices for this purpose. The Operational Creditor claiming that 70 invoices issued between 31.08.2017 to 22.02.2019 remained unpaid issued a Statutory Demand Notice on 07.01.2020 under Section 8 of the IBC for an outstanding amount of Rs 1.67 Cr. including interest @18% p.a. towards Operational Debt. The Corporate Debtor sent a reply to the Demand Notice on 20.01.2020 denying any payment as due to the Operational Creditor besides and alleging that they had already disputed the outstanding amount claimed by the Operational Creditor earlier. Thereafter, the Operational Creditor filed the Section 9 application before the Adjudicating Authority which was allowed on 30.10.2023 and the Corporate Debtor admitted into the rigours of Corporate Insolvency Resolution Process.ContentionsThe appellant submitted that the claim of Rs 1.67 Cr. raised by the Operational Creditor was based on a carry-forward entry in its ledger which was created out of forged documents and should have been disregarded by the Adjudicating Authority.That the Adjudicating Authority while passing the impugned order glossed over the issue of pre-existing dispute raised in the Notice of Dispute and that the Corporate Debtor in their reply to the third Demand Notice had squarely denied that any amount was payable by them to the Operational Creditor and that instead they were to receive refund of certain amount from the Operational Creditor for payments made as advance towards the supply of paper. In view of the pre-existing disputes the Adjudicating Authority ought not to have admitted the Section 9 application.Per contra, the respondents submitted that in the present matter, the Corporate Debtor had unequivocally admitted an outstanding amount of Rs 1.49 Cr. being due to the Operational Creditor as on 31.03.2017That the Corporate Debtor is trying to escape from their legal liability under the IBC by taking recourse to illegal and malafide plea that the invoices had been fabricated by them and that the Corporate Debtor failed to put on record any communication to show that they had ever protested against the invoices raised by the Operational Creditor.That all payments made by the Corporate Debtor were settled by following the FIFO method and thereafter the balance principal amount stood at Rs 1.29 Cr. as on 31.03.2019. This contention of mismatch was a spurious defence raised by the Corporate Debtor and this appeal was an attempt to drag on the CIRP proceedings which is evident from the fact that the RP had filed an application under Section 19 of the IBC for noncooperation by the Appellant.NCLAT's AnalysisThe tribunal, at the outset, discussed the scheme pertaining to insolvency petition filed by the operational creditor and observed that Section 8 of the IBC requires the Operational Creditor on occurrence of a default to deliver a Demand Notice for payment of unpaid Operational Debt. Section 8(2) provides that Corporate Debtor within a period of 10 days of the receipt of the Demand Notice is required to bring to the notice of the Operational Creditor existence of dispute, if any. Thus, the existence of dispute and its communication to the Operational Creditor is statutorily provided for.The tribunal further noted that if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute under Section 8(2), he may file an application under Section 9(1) of the IBC. Further, Section 9(5)(ii) contemplates that Adjudicating Authority shall reject the Section 9 application, ...

Once Pre-Existing Dispute With Regard To Operational Debt Is Established, Petition U/S 9 Of IBC Cannot Be Admitted: NCLAT

Mohd Malik Chauhan

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