The Delhi bench of the National Company Law Appellate Tribunal ( NLCAT ) held that once it is established that the corporate debtor has defaulted in the payment of operational debt, the application under section 9 of the Insolvency Bankruptcy Code ( IBC ), 2016 must be admitted by the authority even if there is no credible or plausible evidence to show the existence of pre-existing dispute.
The Operational Creditor had a business relationship with the Corporate Debtor and supplied Set Top Boxes (STB) on credit to the Corporate Debtor. Since the payments were not forthcoming from the Corporate Debtor and allegedly the latter continued to remain in default, the Operational Creditor sent a Legal Notice dated 07.07.2022.
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Despite the Legal Notice, the Corporate Debtor failed to make payment of the pending amount to the Operational Creditor. The Legal Notice was followed by reminders until filing of statutory demand notice under Section 8 of the IBC on 18.11.2022 demanding an amount of USD 121,47,968 towards principal amount. A notice of dispute to the Demand Notice was issued by the Corporate Debtor to the Operational Creditor on 01.12.2022 disputing the entire operational debt.
The Operational Creditor proceeded to file the Section 9 application on 14.12.2022.The Adjudicating Authority has by the impugned order admitted the Section 9 petition against the Corporate Debtor and ordered initiation of CIRP of the Corporate Debtor.
The appellant submitted that emails were sent in which multiple disputes were raised ranging from grounds of poor quality of goods supplied, reconciliation of accounts, recovery from debtor, settlement of debt notes etc. These emails had also been acknowledged by the Operational Creditor and having been issued prior to the statutory demand notice under Section 8 of IBC, it signified pre-existing disputes which were wrongly overlooked by the Adjudicating Authority.
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Per contra, the respondents submitted that despite making clear admission of their liability towards Operational Creditor, the Corporate Debtor did not pay the entire amount which was due and payable to the Operational Creditor and this amount outstanding being more than the threshold of Rs 1 Cr, debt and default was established.
It was stated that the material on record does not in any way support the case of the Corporate Debtor that the business understanding between the two parties was determined by the agreement dated 21.07.2015 and that this was a spurious defence unsupported by evidence.
The Supreme Court judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) held that once it is established that there is a debt which has become repayable but has not been paid and there is no pre existing dispute pertaining to the debt, application must be admitted.
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The tribunal noted that the debt was also acknowledged in the confirmation email sent by the auditor of the operational creditor. Corporate Debtor had admitted a debt of USD 8.8 million qua the Operational Creditor which amount stood clearly above the threshold level.
The Corporate Debtor had disputed the outstanding debt through emails.These emails were issued subsequent to the balance confirmation sent on 03.03.202.In the same email, the Corporate Debtor has also indicated that certain debit notes were required to be settled but even at this juncture they did not deny the existing outstanding amount to be repaid, the tribunal noted.
Based on the above, the bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) viewed that the aforementioned repeated admissions by the Corporate Debtor amounts to be a clear acknowledgment of debt being due and payable.
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The Appellant had acknowledged that they were liable to pay the outstanding operational debt. The Corporate Debtor never disputed or questioned the offer made by the Operational Creditor to look into the debit notes for making appropriate credit adjustments. This puts a serious question mark on the bona-fide of the bogey of pre-existing disputes being subsequently raised by the Corporate Debtor. The alleged disputes claimed by the Corporate Debtor are feeble and not supported by credible evidence, the tribunal noted.
The tribunal concluded that since the Appellant has defaulted in the payment of operational debt which amount had clearly become due and payable above the threshold limit, and further in the absence of any credible or plausible pre-existing dispute,there is no error by the Adjudicating Authority in admitting the application under Section 9 of IBC and initiating CIRP.
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