Pre‑Existing Disputes on Supply & Assignment: NCLAT upholds NCLT’s Dismissal of K-sure’s S 9 Petition [Read Order]

The principal bench of National Company Law Appellate Tribunal (NCLAT), New Delhi has dismissed the appeal filed by Korea Trade Insurance Corporation (K-Sure), the appellant, against the respondent and upheld the order of the NationalCompany Law Tribunal (NCLT), Mumbai Bench‑IV, which had earlier rejected the appellant’s Section 9 petition on the grounds of a pre‑existing dispute.

Three purchase orders were placed by Amrit Polychem, the respondent, with JT Corporation (JTC) in 2017. While goods under the second and third ProformaInvoices (PIs) were shipped, the first PI, dated 02.01.2017 for the supply of 40 MT of Toluene Diisocyanate, was not honoured.

The respondent claimed that this failure forced them to procure materials from the local market at higher prices, resulting in substantial losses. They sought to adjust these losses against payments due under the third PI.

JT Corporation, being insured by the appellant, was reimbursed by the insurer for unpaid dues. Subsequently, JTC executed a Letter of Assignment (LoA) dated 20.12.2017, transferring its claim against the respondent to the appellant. On this basis, the appellant issued a demand notice in October 2019 and later filed a Section 9 petition in July 2020. The NCLT dismissed the petition, holding that disputes existed prior to the demand notice.

On appeal, appellant argued that each PI was a distinct contract and that respondent could not adjust claims across separate invoices. It contended that respondent had acknowledged liability in an email dated 26.09.2017 and that the LoA validly assigned debt, making appellant an operational creditor under Section 5(20) IBC.

Respondent countered that the LoA was defective, lacking stamping, registration, and their consent. They also pointed to their email of 26.09.2017, which highlighted losses from non‑shipment under the first PI and notified the appellant of ongoing disputes. In their reply to the demand notice dated 01.12.2019, they denied liability under the third PI and challenged the validity of the assignment.

The Tribunal’s reasoning rested on the principle that insolvency proceedings under Section 9 of the IBC cannot be invoked when genuine disputes exist before the demand notice. The tribunal emphasized that the corporate debtor’s reply dated 01.12.2019, though beyond the 10‑day statutory window under Section 8(2), was still prior to the filing of the Section 9 petition in July 2020.

This reply, coupled with the earlier email of 26.09.2017, demonstrated that disputes over supply obligations and debt assignment were already live issues before appellant attempted to trigger CIRP. Relying on the Supreme Court’s ruling in Mobilox Innovations v. Kirusa Software (2018), the appellate bench reiterated that insolvency is not a substitute for debt recovery and must be rejected where disputes are not spurious or illusory.

The two-member bench of Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) further examined the nature of the disputes. It noted that the respondent had consistently raised grievances about non‑shipment under the first Proforma Invoice, claiming losses due to higher procurement costs in the local market.

This issue was directly linked to their refusal to pay under the third PI, as they sought to adjust losses against subsequent invoices. The Tribunal held that such claims, whether ultimately valid or not, constituted a plausible contention requiring adjudication in civil proceedings, not summary insolvency. The tribunal also highlighted that the corporate debtor’s objections to the Letter of Assignment, including lack of stamping, registration, and consent, added another layer of dispute that could not be brushed aside in CIRP.

Accordingly, the Tribunal upheld the NCLT’s dismissal of the Section 9 petition, ruling that pre‑existing disputes on supply and assignment barred initiation of CIRP.

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