Relief to Aditya Birla Fashion & Retail Ltd: NCLAT Upholds Dismissal Of Insolvency Plea

In a recent ruling in favour of Aditya Birla Fashion and Retail Limited, the Principal bench of the National Company Law Appellate Tribunal ( NCLAT ) upheld the order dismissing the Insolvency plea. It was observed that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the grounds of a pre-existing dispute. In Style Fashion, the Appellant filed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 ( “IBC” ) by the Appellant arises out of the Order ( “Impugned Order” ) passed by the Adjudicating Authority (National Company Law Tribunal (NCLT). The Adjudicating Authority has rejected the Section 9 application filed by In Style Fashion Operational Creditor seeking initiation of a Corporate Insolvency Resolution Process ( “CIRP” ) against Aditya Birla Fashion and Retail Ltd. - Corporate Debtor. The Counsel for the Appellant stated that the Operational Creditor was acting as franchisee and commission agent for running the showroom of the Corporate Debtor in terms of Agency Agreements ( “Planet Fashion Agreement” ) and ( “Allen Solly Agreement” ). In pursuance of these Agency Agreements signed and executed between the Appellant/Operational Creditor and Respondent/ Corporate Debtor, showrooms had been opened, which however closed on 02.02.2016, which date was before the tenure specified in the Agency Agreements. On the request made by the Corporate Debtor, the Operational Creditor raised invoices for salvageable and non-salvageable assets on the Corporate Debtor on 18.11.2016. The Corporate Debtor made only part payment. Aggrieved with the meagre, part-payment amount paid by the Corporate Debtor, the Operational Creditor sent a detailed computation sheet showing a total outstanding commission amount of Rs.86.34 lakh and invoices amounting to Rs.15.26 lakhs and Rs.4.28 lakhs towards salvageable and non-salvageable assets respectively. Since payment was not forthcoming, in spite of sending three reminders, a demand notice was sent under Section 8 of the IBC to the Corporate Debtor on 07.08.2019 for operational debt totalling an amount of Rs. 1.05 crore. Admitting that the Section 8 notice was replied to by the Corporate Debtor on 21.08.2019, it was added that as no further payments were received, the Section 9 application was filed before the Adjudicating Authority. The appellant argued that the Adjudicating Authority erroneously held the Section 9 application to be nonmaintainable on grounds of limitation. The Section 9 application having been filed on 01.10.2019, this date fell very much within the limitation period of 3 years. Counsel for the Respondent contended that whereas the date of default mentioned in the demand notice of the Operational Creditor was 27.08.2016, the Section 9 application was filed on 01.10.2019 which was beyond the prescribed three years period of limitation and hence time-barred. It was therefore submitted that the Adjudicating Authority had rightly held that the Section 9 application had been filed beyond three years limitation period and hence not maintainable. It was also pointed out that the Allen Solly Agency Agreement had already been validly terminated by the Corporate Debtor on 02.02.2016. This agreement provided for reconciliation of accounts within 15 days from the date of termination of the agreements. However, the Operational Creditor failed to demonstrate attempts made by it to reconcile its claims/accounts with the Corporate Debtor and is now agitating their time-barred claims. It was strongly contended that no amount was due and payable to the Operational Creditor and this was clearly pointed out in their reply to Section 8 demand notice. It was further submitted that though the Corporate Debtor had cleared all the dues of the Operational Creditor, a self-serving computation statement of dues was furnished by the Operational Creditor basis which a false and frivolous claim has been raised by the Operational Creditor. “We do not countenance the arbitrary conduct and double standards of the Operational Creditor in choosing to rely on documents signed by Nitesh Agrawal when it is to their advantage and discounting the tenability of documents signed by the same person when it does not suit them.”, a Coram of Justice Ashok Bhushan, Chairperson , Barun Mitra, Member ( Technical ) and Arun Baroka, Member ( Technical ) held. The Tribunal held that the Adjudicating Authority has rightly concluded that Shri Nitesh Agrawal had nexus with the business transactions of the Operational Creditor and was also their authorized representative and that the minutes of the meeting signed by him on 28.08.2012 has been the basis of a pre-existing dispute between the two parties. It was viewed that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. Further held that “we do not agree with the finding of the Adjudicating Authority that the Section 9 application was time-barred and hit by limitation. We also make it clear that the Appellant shall have the liberty to seek remedy in respect of inter se contractual disputes, before any other appropriate forum as admissible in law.” Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Relief to Aditya Birla Fashion & Retail Ltd: NCLAT Upholds Dismissal Of Insolvency Plea

Your free access to Taxscan has Expired

To read the article, get a premium account.

Taxscan Premium

Topics