Pre-Existing Dispute Over Defective Supply & Delay Cannot Obstruct CIRP After Admission of Undisputed Operational Debt: NCLAT Upholds Insolvency Admission [Read Order]
NCLAT held that admitted operational debt cannot be masked through illusory disputes over supply delays and defective goods.
The National Company Law Appellate Tribunal (NCLAT) New Delhi has upheld the initiation of Corporate Insolvency Resolution Process (CIRP) against Gemini Engi. Fab. Pvt. Ltd. and held that the Corporate Debtor could not rely on alleged pre existing disputes after admitting an undisputed operational debt through its own consequence sheet and correspondence.
The issue arises from multiple purchase orders issued between December 2021 and June 2022 for supply of forgings and tube sheets. Kisaan Steels claimed an operational debt exceeding ₹6.13 crore towards unpaid invoices. The Corporate Debtor alleged delayed deliveries, defective goods and consequential losses suffered in projects involving end-users contending that genuine disputes existed prior to issuance of the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
The appellant argued that extensive correspondence penalty calculations and a consequence sheet demonstrated unresolved disputes regarding quality defects and delayed supplies. Further, it contended that insolvency proceedings cannot be invoked as a debt recovery mechanism where disputes pre-exist.
However, the Operational Creditor submitted that despite disputes raised on certain invoices the Corporate Debtor had admitted liability of approximately ₹3.97 crore and repeatedly offered payment subject to acceptance of the consequence sheet. It further argued that the Corporate Debtor’s own documents crystallised the undisputed debt amount.
The Appellate Tribunal observed that the consequence sheet itself quantified the balance payable at around ₹3.84 crore and constituted a clear acknowledgment of debt. It held that the Corporate Debtor had already adjusted alleged penalties and damages in its own calculations and could not subsequently rely upon the same issues to create a hypothetical or illusionary dispute.
The three-member bench comprising Justice N. Seshasayee (Judicial Member), Arun Baroka and Indevar Pandey (Technical Member) rejected the plea of pre existing dispute the Tribunal held that the admitted operational debt exceeded the statutory threshold and warranted insolvency admission.
Accordingly, the appeal was dismissed and CIRP proceedings were directed to continue forthwith.
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