NCLAT Sets Aside NCLT Order Dismissing Section 9 Insolvency Plea Against BGM Telecommunications: Remands Matter for Fresh Hearing [Read Order]

The Principal Bench, of the National CompanyLaw Appellate Tribunal (NCLAT), New Delhi, has set aside an order passed by the National Company Law Tribunal (NCLT), which had dismissed a Section 9 application filed by Drive India Enterprise Solutions Ltd., against BGM Telecommunications Pvt. Ltd. The appellate tribunal held that the adjudicating authority had failed to consider the specific facts of the case and erroneously relied upon decisions rendered in unrelated matters involving different corporate debtors.

The matter related to an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, filed by Drive India Enterprise Solutions Ltd. who is an operational creditor, seeking initiation of the CorporateInsolvency Resolution Process (CIRP) against BGM Telecommunications Pvt. Ltd. The total amount claimed was ₹35.57 crore, allegedly unpaid between August 2017 and August 2020.

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According to the operational creditor, the parties had entered into a High Sea Sale Agreement, under which telecommunication equipment in Semi Knocked Down (SKD) form and batteries were delivered to BGM Telecommunications. It was the appellant’s case that the corporate debtor or its authorised entities had received the goods under this agreement, but had failed to make payment for the same, thereby triggering a default under the IBC.

The NCLT, however, dismissed the application, holding that the case was covered by two earlier orders passed by different Benches of the Tribunal in proceedings initiated by the same operational creditor against other entities, namely, Essline Engineers & Consultants Pvt. Ltd. and BTM Exports Ltd. The NCLT reasoned that since the earlier Section 9 petitions based on similar High Sea Sale Agreements had been dismissed, the present case did not merit separate consideration.

Aggrieved by this dismissal, Drive India Enterprise Solutions Ltd. approached the NCLAT, contending that the NCLT had failed to deliver a speaking order. The appellant argued that each Section 9 application must be evaluated independently based on its own facts, evidence, and legal issues. The Tribunal’s reliance on decisions in matters involving different parties and factual backgrounds, without considering the specific merits of the present case, was contrary to settled legal principles.

BGM Telecommunications Pvt. Ltd. also filed a cross-appeal before the NCLAT, challenging the NCLT’s rejection of its interlocutory application under Sections 65 and 76 of the IBC. In that application, the corporate debtor had sought punitive action against the operational creditor for allegedly initiating insolvency proceedings with a fraudulent and malicious intent. The NCLT had dismissed this application solely on the ground that the main Section 9 petition had itself been dismissed.

The NCLAT, after hearing both sides, found merit in the appellant’s contention that the NCLT had not applied a judicial mind to the specifics of the current dispute. The appellate tribunal observed that while precedents could guide adjudication, mechanical reliance on earlier judgments without comparative analysis of facts is impermissible, particularly in insolvency matters, where the existence or otherwise of a default must be independently established.

The NCLAT pointed out that in the earlier dismissed cases, there were documented instances of pre-existing disputes, including exchange of emails and allegations of fraud and forgery. The Tribunal asserted that such circumstances were not proven to be present in the current case. Therefore, dismissing the application without examining whether a genuine dispute existed between the parties amounted to a failure to exercise jurisdiction properly.

The NCLAT comprising of Justice Rakesh Kumar Jain (Judicial Member), Naresh Salecha (Technical Member) and Indevar Pandey (Technical Member), held that even if the earlier petitions were found to be unmeritorious, that in itself did not justify the dismissal of a fresh petition involving different transactions, different corporate debtors, and possibly different facts. Each insolvency application must be adjudicated on its own merits.

As a result, the NCLAT set aside the impugned order and remanded the matter back to the NCLT for fresh adjudication. The Tribunal directed the NCLT to pass a reasoned and speaking order after hearing both parties on all issues, without being bound by findings recorded in unrelated cases.

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