Operational Creditor Can Only Trigger CIRP Process When There Is An Undisputed Debt And Default In Payment: NCLAT

The National Company Law Appellate Tribunal, Principal Bench, New Delhi (NCLAT) comprising of Justice Yogesh Khanna (Member (Judicial) and Mr. Ajai Das Mehrotra (Member (Technical) dismissed appeal filed by the operational creditors due to the presence of a pre-existing dispute between the operational creditor and corporate debtor. Brief Facts The present appeal arises out of an impugned order passed by the National Company Law Tribunal (NCLT), New Delhi allowing M/s Ambassador Logistics Pvt. Ltd (Corporate Debtor) into Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016. The operational creditor had filed the petition for the operational debt amounting to Rs. 6 lakhs along with interest at 24% per annum. The operational creditor was providing management and logistic services to the corporate debtor. Many invoices were raised from time to time. Both the parties had maintained a running account, with the corporate debtor making part payments which were adjusted using the FIFO (First in, First Out) method. Before the NCLT, the CD stated that there was a pre-existing dispute regarding the amount claimed and the claim was also barred by the period of limitation. The operational creditor stated that the dispute came into notice after receiving the Section 8 notice. The NCLT held that the application was within the limitation period and the petition was filed within the period of three years. The NCLT found that the operational creditor sufficiently demonstrated the existence of the debt and while the CD failed to provide any cogent evidence of pre-existing dispute, the tribunal admitted the CD into CIRP under Section 9(5) of the IBC, 2016. Before NCLAT, the corporate debtor stated that a certain amount was due form the operational creditor. The Corporate Debtor provided details of bank payments and disputed invoices to substantiate the claim. Further email correspondences between the parties were provided wherein it was indicated that the Corporate Debtor had repeatedly informed the Operational Creditor that no amount was due. Despite this the operational creditor did not respond to these emails and instead sent the demand notice after a gap of seven months. The appellant also relied on multiple judgements including M/s S.S. Engineers & Ors. v Hindustan Petroleum Corporation Ltd and M/s Laina Power Engineering vs Sokeo Power Private Limited stating that email correspondences were crucial in establishing the existence of pre-existing dispute. NCLAT Judgement The NCLAT considered the submissions of both the parties and found that the email correspondences between both the parties clearly indicated that a dispute existed regarding the claim. The tribunal stated that since the operational creditor had failed to respond to the email where the corporate debtor had denied any liability, the NCLAT determined that the NCLT had erred in admitting the CIRP application. The court stated several judgements in support of its opinion. The court mentioned the case of M/s S.S. Engineers & Ors. v. Hindustan Petroleum Corporation Ltd. in Civil Appeal No. 4583 of 2022 stating that the application under Section 9 was rightly rejected on the grounds of preexisting dispute. The court while quoting the judgement highlighted the important paragraphs wherein the court clearly stated when a operational creditor can raise a operational debt~ 32. There are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor. However, if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed. The tribunal also mentioned the case of the Hon'ble Supreme Court in the case of Sabarmati Gas Limited v. Shah Alloys Limited, (2023) 3 SCC 229 has held that failure of reconciliation of accounts qualifies as a pre-existing dispute. In conclusion the NCLAT set aside the impugned order of the NCLT and allowed the appeal thereby reversing the admission of the corporate debtor into CIRP. Case Title: Rajendra Bisht, Erstwhile promoter of M/s Ambassador Logistics Pvt Ltd. V M/s Satkar Logistics Pvt Ltd Case Number: Company Appeal (AT) (Insolvency) No. 285 of 2022 Tribunal: National Company Law Appellate Tribunal, Principal Bench, New Delhi Coram: Justice Yogesh Khanna (Member (Judicial) and Mr. Ajai Das Mehrotra (Member (Technical ...

Operational Creditor Can Only Trigger CIRP Process When There Is An Undisputed Debt And Default In Payment: NCLAT

Pratham Kapoor

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