Conditional Payment Linked to Consequence Sheet Treated as Acknowledgment of Operational Debt: NCLAT Sustains CIRP Admission [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi has held that a Corporate Debtor cannot avoid insolvency proceedings after expressly quantifying and conditionally agreeing to pay operational dues through a self-prepared consequence sheet treating such conduct as acknowledgment of debt under the Insolvency and Bankruptcy Code, 2016 (IBC).

The dispute arose from multiple purchase orders issued for supply of forgings and tube sheets between 2021 and 2022. Kisaan Steels claimed unpaid operational dues exceeding ₹6.13 crore and issued a demand notice under Section 8 of the IBC. In response, the Corporate Debtor alleged delayed supplies, defective materials and consequential business losses, asserting that pre-existing disputes barred initiation of CIRP.

The Corporate Debtor relied heavily on a consequence sheet prepared internally, wherein deductions towards delay charges, penalties and damages were allegedly computed against the Operational Creditor. It contended that any willingness to release payment was conditional upon acceptance of the said sheet and therefore could not be construed as unequivocal admission of liability.

The appellant argued that the NCLT wrongly isolated portions of the email dated November 1, 2023 and ignored surrounding circumstances showing continuing disputes over quality and reconciliation of accounts. Reliance was placed on the Supreme Court judgments in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. and S.S. Engineers v. Hindustan Petroleum Corporation Ltd. to contend that insolvency proceedings cannot be used as recovery proceedings where disputes genuinely exist.

However, the Operational Creditor argued that even after accounting for all alleged deductions and penalties, the Corporate Debtor itself admitted liability exceeding ₹3.84 crore. It was submitted that the consequence sheet and subsequent correspondence clearly crystallised the undisputed operational debt.

Accepting the contention the Appellate Tribunal observed that the Corporate Debtor had already adjusted alleged damages and quantified the balance payable in its own documents.

The bench comprising Justice N. Seshasayee, Judicial Member, and Arun Baroka and Indevar Pandey, Technical Members, dismissed the appeal filed by Rakesh Dalpatram Panchal, suspended director of Gemini Engi. Fab. Pvt. Ltd. against the admission of CIRP initiated on the application of Operational Creditor.

The Bench held that insisting upon acceptance of the consequence sheet before releasing payment did not erase the admitted liability but instead reinforced the existence of a crystallised operational debt.

The Tribunal further noted that the disputes projected by the Corporate Debtor were hypothetical or illusionary insofar as the admitted amount was concerned. Finding no infirmity in the NCLT’s order, the NCLAT dismissed the appeal and directed continuation of CIRP proceedings against the Corporate Debtor.

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