Application u/s 9 of IBC must be Rejected on Establishment of Plausibility of Pre-Existing Dispute: NCLAT [Read Order]
It was settled that in a Section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to the existence of dispute between the parties regarding the operational debt
NCLAT – IBC Section 9 – IBC – National Company Law Appellate Tribunal – Section 9 IBC case – TAXSCAN
NCLAT – IBC Section 9 – IBC – National Company Law Appellate Tribunal – Section 9 IBC case – TAXSCAN
In a recent case, the National Company Law Appellate Tribunal ( NCLAT ) held that once the plausibility of a pre-existing dispute is noticed, it is not required of the Adjudicating Authority to make further detailed investigation. It was settled that in a Section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to the existence of dispute between the parties regarding the operational debt.
The appeal has been filed by Kashyap lnfraprojects Pvt. Ltd, the appellant under section 61 of the Code challenging an order passed by the National Company Law Tribunal (NCLT) by which an application under section 9 of the Code was dismissed on the ground of pre-existing dispute.
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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 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.
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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 the 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.
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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.
It was observed that 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.
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The bench of Justice Rakesh Kumar Jain (Judicial Member), Barun Mitra (Technical Member) and Indevar Pandey (Technical Member) observed that the argument was raised by the appellant that third party inspection was conducted before installing the pump-sets therefore no fault was committed by the operational creditor.
The said contention was rejected on the ground that the inspection was only conducted when the pump-sets were sent in boxed condition and not after the pump sets were installed. The pump sets should have been inspected in running condition. On top of that, it was also observed that no evidence was presented to show that any modalities for inspecting the pump-sets were agreed upon by all the parties. It was a unilateral act of the operational creditor.
While dismissing the appeal, the bench observed that in such circumstances, it cannot be said that the defence raised by the Corporate Debtor therefore cannot be held to be moonshine, spurious, hypothetical or illusory. The dispute continued to fester as evident by the fact that a meeting dated 26.01.2021 was held between the parties in which the operational creditor agreed to rectify the defects in the installed pump-sets.
To Read the full text of the Order CLICK HERE
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