NCLAT Dismisses Insolvency Plea Over Export Dispute: Cites Pre-Existing Contractual Issues [Read Order]

The appellant, Morex Corporation Ltd., had filed the application seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Jindal Poly Films, alleging non-refund of advance payment totaling ₹3 crores for a consignment of non-woven fabric. The consignment, meant for a Chinese buyer, was governed by Free on Board (FOB) terms and was to be handed over by March 23, 2020.

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Before the scheduled shipment, the Government of India issued a notification on March 19, 2020, banning the export of the contracted material due to the COVID-19 outbreak. While Jindal Poly Films claimed the goods had already been manufactured and were ready for dispatch, Morex Corporation terminated the contract on April 1, 2020, asserting that the seller had failed to produce or deliver the material within the agreed timeline. A demand for refund followed, culminating in the Section 9 application.

The main issue of the dispute revolved around whether the export ban truly frustrated the contract or whether the supplier was already in breach for not having the goods ready before the ban came into effect. Morex alleged that Jindal had not produced the material by March 23, 2020, as agreed, and thus failed to fulfill its contractual obligations.

Jindal, submitted email and WhatsApp exchanges from March 18 and 20, 2020, indicating that the goods had been manufactured and were ready, but shipment was prevented solely due to the government-imposed ban. The Corporate Debtor also claimed the buyer had requested them to hold the shipment and that they had offered alternatives, including local sale or substitution of material, offers which were not accepted by Morex.

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The NCLAT found merit in Jindal’s defense and noted that the termination of contract by Morex on April 1, 2020, was not accepted or acknowledged by Jindal at the time. The tribunal observed that the dispute around the termination was first raised in a demand notice issued by Morex on May 15, 2020, and responded to by Jindal within five days, clearly establishing a pre-existing dispute under Section 8(2) and Section 9(5)(ii)(d) of the IBC.

Citing the Supreme Court’s landmark ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the NCLAT asserted that once a genuine dispute exists, the adjudicating authority is not required to examine the merits of the claim and must reject the application under Section 9.

The bench, led by Justice Ashok Bhushan (Chairperson) and Member (Technical) Barun Mitra, noted that all that is required to be seen is whether the defense taken by the Corporate Debtor raises a dispute which needs further adjudication by the competent court. Given the communications and the government’s ban order, the Adjudicating Authority has not committed any error in holding the contract termination to be a pre-existing dispute.

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Morex had argued that Jindal’s failure to perform on time rendered the advance payment recoverable under Section 65 of the Indian Contract Act, 1872. The NCLAT dismissed this reasoning, stating that IBC proceedings cannot be used for recovery of amounts arising out of disputed contracts and such claims must be pursued before a civil court.

The Tribunal ruled that since Jindal Poly Films was a solvent company and the disagreement stemmed from a commercial dispute over contract performance, insolvency proceedings were unwarranted.

The appeal was found to be devoid of merit and was dismissed. The NCLAT, granted Morex liberty to pursue its claims through appropriate legal forums.

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