When There Is Sufficient Material To Show Dispute U/S 9(5)(ii)(d) Of IBC, Adjudicating Authority Cannot Ignore The Same: NCLAT, New Delhi

The National Company Law Appellate Tribunal, Principal Bench, New Delhi (NCLAT) comprising of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member Technical) admitted appeal filed Suspended Director of the Corporate Debtor challenging the order dated 26.03.2025 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-I, admitting Section 9 application filed by Armaco Infralinks Pvt. Ltd. Background An appeal was filed by Bhawani Prasad Mishra who was a suspended director of the Corporate Debtor, B.S Ispat Pvt. Ltd. which challenged the order dated 26th March, 2025 passed by the NCLT, Mumbai Bench admitting a Section 9 application filed by Armaco Infralinks Pvt. Ltd. under the Insolvency and Bankruptcy Code (IBC). The Corporate Debtor has a business venture of coal mining and the sale of coal. The respondent deposited an advance amount of Rs.1crore for the coal supplies. However, over time, the delivery order was modified and issued on a later date which is 16th September, 2022 for the supply of 60,000 MT of coal which is worth Rs.42crores with a validity of 1 year. Even after the expiry date of the delivery order, the parties continued their dealings until 1st June, 2024. Consequently, the respondents sought a refund of Rs.35.58crores after the non-supply of coal while relying on a confirmation email dated 3rd July, 2024 However, the corporate debtor withdrew the confirmation claiming that it was unauthorized and fraudulently obtained. The respondents as a result issued a demand notice dated 4th September, 2024 and upon the non-payment, they filed a Section 9 application. Appellant's Contentions The appellant, Bhawani Prasad Mishra contended that there was a pre-existing dispute about coal supply and pricing before the demand notice was issued. He further contended that the dispute, Communicated in reply to the Demand Notice within 10 days which satisfied the conditions of Section 8(2) It was formally recorded as a dispute under NeSL on the same day satisfying Section 9(5)(ii)(d). The appellant also emphasized that the debt was disputed through the NeSL (Information Utility) records and via reply to the demand notice satisfied the bar under Section 9(5)(ii)(d) of the IBC. The appellant also argued that the NCLT incorrectly relied on Consolidated Construction Consortium Ltd. by distinguishing the facts since the contract was still ongoing. He also relied on the Supreme Court judgement of Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 asserting that the existence of bona fide dispute is sufficient to reject a Section 9 application. Respondent's Contentions The respondent, Armaco Infralinks Pvt. Ltd argued that the Corporate Debtor admitted its liability of Rs.35.58crore through an email dated 3rd July, 2024 which could not be revoked later. They contended that there was no pre-existing dispute before the issuance of the demand notce on 4th September, 2024 and any disputed raised later were irrelevant under the IBC. It was also pointed out that the Corporate Debtor's mines were shut down by the authorities for non-payment of statutory dues proving their inability to fulfill supply duties. The respondent argued that entries made in the NeSL system were made after submission of Form C and thus was not a proper record to establish dispute under Section 9(5)(ii)(d) of the Act. The respondent relied on the Supreme Court judgement of M/s. Consolidated Construction Consortium Ltd. vs. Hitro Energy Solutions Pvt. Ltd. 2022 SCC OnLine SC 142 to establish that the advance payment for goods, if not given back amount to an operational debt under IBC. NCLAT Judgement The NCLAT allowed the appeal filed by Bhawani Prasad Mishra and set aside the order of NCLT, Mumbai admitting Armaco Infralinks Pvt. Ltd.'s Section 9 application. It held that even though the delivery order had a one-year validity, the fact that the parties continued dealing beyond that showed that the contract was still existing. The Tribunal found a pre-existing dispute between the parties based on emails, withdrawal of balance conformation and the “disputed' status mentioned in NeSL before the demand notice. The Tribunal in its judgement also dealt with the correlation of Section 8 and Section 9 of the code stating that~ 31. Section 8(2)(a) is a provision which provides that the corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute. Section 8(2)(a) does not in any manner dilute the requirement of Section 9(5)(ii)(d). It also observed that the Corporate ...

When There Is Sufficient Material To Show Dispute U/S 9(5)(ii)(d) Of IBC, Adjudicating Authority Cannot Ignore The Same: NCLAT, New Delhi

Pratham Kapoor

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