Petition u/s 9 of IBC Cannot Be Admitted on Establishment of Pre-Existing Dispute With Regard To Operational Debt: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) held that the petition under Section 9 of the Insolvency Bankruptcy Code (IBC), 2016 cannot be admitted when pre-existing dispute with regard to operational debt was established.

The appeal was filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC') by the Appellant Sandeep Behl arose out of the Order ('Impugned Order') passed by the Adjudicating Authority. By the impugned order, the Adjudicating Authority has admitted the Section 9 application filed by M/s Nirmal Trading CompanyOperational Creditor and admitted M/s Print Land Digital Pvt. Ltd.-Corporate Debtor into the Corporate Insolvency Resolution Process (“CIRP”). Aggrieved by the impugned order, the present appeal has been preferred by the shareholder of the Corporate Debtor.

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The Corporate Debtor was engaged in the digital printing business and had business relationship with M/s Nirmal Trading Company-Operational Creditor. The Corporate Debtor placed purchase orders with the Operational Creditor- Respondent No. 1 from time to time and issued invoices for the purpose.

The Operational Creditor claiming that 70 invoices issued between 31.08.2017 to 22.02.2019 remained unpaid issued a Statutory Demand Notice on 07.01.2020 under Section 8 of the IBC for an outstanding amount of Rs 1.67 Cr. including interest @18% p.a. towards Operational Debt.

The Corporate Debtor sent a reply to the Demand Notice denying any payment as due to the Operational Creditor besides and alleging that they had already disputed the outstanding amount claimed by the Operational Creditor earlier. Thereafter, the Operational Creditor filed the Section 9 application before the Adjudicating Authority which was allowed on 30.10.2023 and the Corporate Debtor admitted into the rigours of Corporate Insolvency Resolution Process.

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The appellant submitted the claim of Rs 1.67 Cr. raised by the Operational Creditor was based on a carry-forward entry in its ledger which was created out of forged documents and should have been disregarded by the Adjudicating Authority.

It was viewed that while passing the impugned order glossed over the issue of pre-existing dispute raised in the Notice of Dispute and that the Corporate Debtor in their reply to the third Demand Notice had squarely denied that any amount was payable by them to the Operational Creditor and that instead they were to receive refund of certain amount from the Operational Creditor for payments made as advance towards the supply of paper.

In view of the pre-existing disputes the Adjudicating Authority ought not to have admitted the Section 9 application. Per contra, the respondents submitted that in the present matter, the Corporate Debtor had unequivocally admitted an outstanding amount of Rs 1.49 Cr. being due to the Operational Creditor as on 31.03.2017.

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The tribunal perused the demand notices sent by the operational creditor to which reply was given by the corporate debtor demonstrating the existence of a pre-existing dispute and observed that the demand of operational debt has been dubbed as “false”, “frivolous” and “baseless”.

A two member bench of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) held that since there was sufficient foundation of genuine pre-existing disputes between the two parties. In the present factual matrix, the defence raised cannot be viewed as moonshine, spurious, hypothetical or illusory.

The tribunal held that the Adjudicating Authority committed serious error in admitting Section 9 application and set aside the Impugned Order.

To Read the full text of the Order CLICK HERE

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