NCLAT Dismisses Union Roadways' Insolvency Appeal, Rejects Section 9 Application Citing Pre-existing Payment Disputes and Uncrystallized Debt [Read Order]
: The Tribunal concluded that the disputes raised by the Corporate Debtor were not "spurious, hypothetical or illusory" but genuine disputes that required adjudication by a competent court.
In a ruling upholding the dismissal of a Section 9 application, the National Company Law Appellate Tribunal (Principal Bench, New Delhi) has confirmed that Union Roadways Limited cannot initiate insolvency proceedings against Ice Steel 1 Private Limited, citing pre-existing payment disputes and uncrystallized debt between the parties.
The appeal was filed by Union Roadways Limited, an operational creditor, against the order dated 04.09.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench-V, which had dismissed their Section 9 application under the Insolvency and Bankruptcy Code, 2016. The operational creditor had claimed an unpaid operational debt of Rs. 3.47 crore plus interest of Rs. 1.24 crore for transportation services provided between 24.06.2019 to 24.02.2020.
The Tribunal identified several significant disputes between the parties, including disagreement over the appropriation of payments totaling Rs. 2.89 crore made by the Corporate Debtor between 25.02.2020 and 30.09.2021. While the operational creditor claimed these payments were appropriated towards "previously pending invoices," the Corporate Debtor contended that these payments were specifically intended for the invoices forming the basis of the Section 9 application. This dispute over payment allocation indicated that the debt amount had not crystallized.
Another substantial dispute related to the interest component of 24% per annum charged on delayed payments. The Tribunal noted that there was no evidence of any mutually acceptable agreement between the parties regarding such interest charges. The Corporate Debtor had never paid interest in the past, and the operational creditor had never issued debit notes or claimed interest payments, suggesting that the interest claim was unilaterally imposed without legal basis.
The Tribunal further observed that the Corporate Debtor had identified discrepancies in 135 invoices, where the amounts shown in the invoices placed before the NCLT differed from the amounts reflected in the invoices sent to the Corporate Debtor. These variations in amounts for the same transactions provided clear evidence that the operational debt was a disputed amount requiring detailed examination beyond the summary jurisdiction of the Adjudicating Authority.
The Tribunal applied the principles laid down by the Supreme Court in Mobilox Innovations Pvt. Ltd. Vs Kirusa Software Pvt. Ltd., which held that the existence of a genuine dispute is sufficient to reject a Section 9 application. The Tribunal emphasized that it is not required to determine the merits of the dispute at this stage, but only to ascertain whether a plausible contention exists that requires further investigation and is not "a patently feeble legal argument or an assertion of fact unsupported by evidence."
The Tribunal concluded that the disputes raised by the Corporate Debtor were not "spurious, hypothetical or illusory" but genuine disputes that required adjudication by a competent court. The Adjudicating Authority had correctly applied the ratio of the Mobilox judgment in dismissing the Section 9 application, as the present was not a case of undisputed debt where insolvency proceedings could be initiated.
Consequently, the Tribunal dismissed the appeal while clarifying that the operational creditor could seek remedy before any other appropriate forum in accordance with law.
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