IBC: Pendency Of Case U/S 138 & 141 NI Act Amounts To Admission Of Debt, Not Existence Of Dispute: NCLAT

IBC: Pendency Of Case U/S 138 & 141 NI Act Amounts To Admission Of Debt, Not Existence Of Dispute: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has held that pendency of proceedings under Section 138/441 of the Negotiable Instruments Act, 1881 cannot be considered as a dispute pending before a court of law, and hence, cannot be used as a reason for rejection of an application under Section 9 of the Insolvency and Bankruptcy Code.

A bench comprising Justice S.J. Mukhopadhaya (Chairperson) and Justice Bansi Lal Bhat (Member-Judicial) ruled, “The pendency of the case under Section 138/441 of the Negotiable Instruments Act, 1881, even if accepted as recovery proceeding, it cannot be held to be a dispute pending before a court of law. Thereby we hold that the pendency of the case under Section 138/441 of Negotiable Instruments Act, 1881 actually amounts to admission of debt and not an existence of dispute.” 

The Tribunal was hearing an appeal filed by one Sudhi Sachdev, who is a promoter of the corporate debtor, M/s Auto Décor Pvt. Ltd. The NCLT had, on August 2, admitted an application under Section 9 of the Code by the respondent, APPL Industries Ltd. (Operational Creditor), and had also passed an order of moratorium.

The appellant had now asserted that the application should not have been accepted, as a dispute existed in view of the fact that APPL had instituted cases under Section 138/441 of the Negotiable Instruments Act, 1881, which are pending in the court of Metropolitan Magistrate, Gurgaon.

The NCLAT, however, did not agree with this contention, and reiterated the principles propounded in Innoventive Industries Ltd. v. ICICI Bank and Ors., that:

“The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing – i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.”

The tribunal, therefore, found no merit in the appeal and dismissed it.