Vague Allegations of Defective Goods Not a Pre-Existing Dispute: NCLT Accepts Insolvency Petition and CIRP Initiated [Read Order]

The Mumbai Bench of the National Company LawTribunal (NCLT) admitted a Section 9 application after finding that vague allegations of defective goods did not amount to a pre-existing dispute and the operational debt was clearly established above the statutory threshold.

Rashtriya Polymers & Solvent, the operational creditor, filed the petition under Section 9 of the Insolvency andBankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking initiation of CIRP for recovery of dues arising from supply of solvents and chemicals.

The operational creditor supplied bulk quantities of acetone and iso propyl alcohol under three invoices dated 26 November 2023, 9 January 2024, and 8 June 2024, totaling Rs. 1.30 crore. Interest at 24% per annum was also claimed, bringing the total to Rs. 1.45 crore.

Despite repeated reminders and a demand notice under Section 8 of the Code, the corporate debtor failed to make payment. In its reply to the demand notice, the corporate debtor admitted financial difficulty and sought time to repay but did not raise any quality dispute.

The corporate debtor later argued in reply to the petition that there was a pre-existing dispute over the quality of goods, that the claim was inflated, and that the interest charged at 24% was arbitrary and unenforceable. It also argued that the petition was filed with malafide intent to misuse insolvency proceedings for recovery of a disputed debt.

The two-member bench comprising Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) observed that no material evidence was produced by the corporate debtor to show that disputes on quality were raised before the demand notice. The tribunal explained that the defence raised was an afterthought and amounted to a moonshine dispute.

The tribunal pointed out that the corporate debtor’s own reply admitted financial difficulties and inability to pay which constituted an acknowledgment of debt. The tribunal further observed that the principal default itself was above the threshold of Rs. 1 crore, and issues relating to the quantum of interest could be examined during the CIRP.

Based on these findings, the tribunal admitted the petition and ordered the initiation of CIRP against Pushpak Auxichem Private Limited. It declared a moratorium under Section 14 of the Code and appointed Mr. Sabbani Maruthi as the Interim Resolution Professional (IRP).

The operational creditor was directed to deposit Rs. 2,00,000 towards initial CIRP costs. The Registry was directed to communicate the order to the parties, the IRP, and the Registrar of Companies for compliance.

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