Once Plausibility Of Pre-Existing Dispute Is Established, Application U/S 9 Of IBC Must Be Rejected: NCLAT

The NCLAT New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Barun Mitra (Technical Member) and Indevar Pandey (Technical Member) has held that IBC bestows only summary jurisdiction upon the Adjudicating Authority. Once plausibility of a pre-existing dispute is noticed, it is not required of the Adjudicating Authority to make further detailed investigation. It is well settled that in a Section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. Brief Facts This appeal has been filed under section 61 of the Code challenging an order passed by the NCLT by which an application under section 9 of the Code was dismissed on the ground of pre-existing dispute. The corporate debtor entered into a contract with the government of Bihar under which it undertook to set up pump sets at various locations in Bihar. In pursuance of the contract, the corporate debtor placed purchase orders on the operational creditor for pump sets. The pump-sets were issued by the operational creditor against which invoices were raised. The corporate debtor defaulted in making the payment. Thereafter, the operational creditor sent a demand notice and when no reply was given to the notice, an application under section 9 of the IBC was filed which was rejected by the NCLT. The Impugned order has been assailed in this appeal. Contentions The Appellant submitted that the pump sets were supplied after a verification done by a third party. The delivery of the sets were taken without raising any objection. Even the bills raised against supply of the said material were also accepted by the corporate debtor. It was further submitted that there is no genuine foundation of pre-existing dispute since all the pump sets were supplied after third party inspection which agency had certified the goods at the time of dispatch therefore the Adjudicating Authority committed error in rejecting the application on the basis of an email of 07.01.2020 and minutes of a meeting held on 26.01.2021. Per contra, the Respondent submitted that the Corporate Debtor had sent their reply to the Section 8 demand notice on 18.09.2020 and this Notice of Dispute clearly articulated the aspect of delayed supply of goods and supply of defective goods by the Appellant and the consequential adverse impact on the goodwill and reputation of the Corporate Debtor. It was further submitted that operational creditor was duly informed via an email dated 07.01.2020 that the solar pump- systems supplied by them were not working and were asked to take necessary corrective action. However, the Operational Creditor failed to redress the defects which in turn led to a backlash from the Government of Bihar leading to termination of the contract and blacklisting of the Corporate Debtor. It was further submitted that WhatsApp messages and email of 07.01.2020 by the Corporate Debtor highlighting the ongoing dispute preceded the Section 8 demand notice clearly demonstrated pre-existing disputes. It was also submitted that a meeting was conducted between the parties in which the operational creditor undertook to replace the defective pump sets and also promised to withdraw the section 9 application. However the operational creditor later refused to withdraw the application for which an application under section 65 was filed for fraudulent initiation of CIRP. Issue Before NCLAT Whether there is any infirmity in the impugned order passed by the Adjudicating Authority dismissing the Section 9 application on the ground that the operational debt claimed by the Appellant was embedded with pre-existing disputes. NCLAT's Analysis The tribunal, at the outset, discussed the scheme of the IBC when an insolvency application is filed by the operational creditor. Section 8 of the code provides that a demand notice requires to be sent to the corporate debtor once it becomes clear that the a default has been committed. A reply to the said notice has to be given within 10 days in which a dispute as to the claim can be raised. Section 9 of the code further provides that if neither the payment nor notice of dispute is received from the corporate debtor, insolvency application under this section can be filed. However, if a notice of dispute is received by the Operational Creditor or there is a record of dispute in the Information Utility, the application is liable to be rejected by the Adjudicating Authority. In Mobilox Innovations Private Limited v. Kirusa Software Private Limited, 2017 the Supreme Court has laid down the test for rejecting or accepting the application was under section 9 of the code. The court has held that “all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the ...

Once Plausibility Of Pre-Existing Dispute Is Established, Application U/S 9 Of IBC Must Be Rejected: NCLAT

Mohd Malik Chauhan

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