While rejecting a petition filed under section 9 of the Insolvency & Bankruptcy Code, 2016 (the code), the New Delhi bench of the National Company Law Tribunal (NCLT) held that when a payment is made by the Corporate Debtor against a specific invoice raised by the Operational Creditor, it can’t be adjusted against back-dated invoices.
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Manufacturing pharmaceutical packaging materials for the pharmaceutical industry, including PVC, Alu, and Triplex films, is the business of Uniwoth Enterprises LLP (“Operational Creditor”). The company M/s Straco Metaplast Private Limited, often known as the “Corporate Debtor,” is based in Delhi and supplies a range of PVC films.
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In 2019, the Corporate Debtor ordered 2,21,573 kg of pharmaceutical packaging materials from the Operational Creditor, totaling Rs. 4,07,63,236. Nevertheless, only 1,35,567 kg of commodities of Rs. 2,53,88620/-were given by the operational creditor, and invoices were raised appropriately. In response, the Corporate Debtor issued debit notes of Rs. 40,84,275 for 85,250 kg of unsupplied material.
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Following a meeting to settle the accounts, the parties agreed that the operational creditor would issue a credit note for Rs. 40,84,725 for the non-supply of materials, provided the corporate debtor paid the remaining balance for the supplies or issued postdated checks. The Operational Creditor sent out a demand notice in accordance with Section 8 of the code after not hearing back. The Operational Creditor then filed a petition under Section 9 to begin bankruptcy proceedings as the Corporate Debtor failed to reply to the notification.
The Corporate Debtor argued that, in relation to the invoices being reclaimed, it had already paid the Operational Creditor ₹1.98 crore. It said that although the payments were made in relation to particular invoices, the operational creditor had incorrectly applied such adjustments to earlier invoices. According to the conventional accounting procedure known as the First-in-First-Out basis, which adjusts payments against the outstanding invoices first, the Operational Creditor responded that the payments were made against previous purchase orders.
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The bench of Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member),noted that the Corporate Debtor had paid for the particular invoices, which the Operational Creditor had correctly acknowledged, and that the Operational Creditor had raised payment due against some invoices.
It further stated that as the payments were made by the Corporate Debtor against invoices with precise dates, the Operational Creditor’s claim that these payments were adjusted against back-dated invoices using the First-In-First-Out technique is rejected. Therefore, once payment for a particular invoice has been paid, it cannot be applied to any other outstanding invoices.
Hence, the amount remaining unpaid, after excluding the payments already made, fell below the minimum threshold limit of Rs. 1 crore for initiating Insolvency under Section 9 of the Code. Consequently, the Tribunal dismissed the petition.
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