NCLAT held that an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) should be dismissed if a pre-existing dispute is demonstrated through communications exchanged before the issuance of the demand notice.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that an application under Section 9 of the Insolvency and Bankruptcy Code must be dismissed if a pre-existing dispute is evidenced by communications prior to the demand notice and if procedural deficiencies in filing, such as failure to provide requisite documentation, are not rectified.
The appeal in question was initiated by Armour Security, the Appellant, challenging the order dated 05.03.2024 passed by the Adjudicating Authority, which had dismissed its application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016. The application sought the initiation of insolvency resolution proceedings against Ambience Private Limited, the Respondent, for alleged non-payment of dues related to manpower services. The Appellant's original application, registered as CP IB No. 531/ND/2020, was disposed of on 13.02.2021, following the initiation of a separate insolvency proceeding against the Corporate Debtor under a different case. This initial application was to be filed as a claim with the Resolution Professional, given that another insolvency matter involving Vistra (ITCL) India Private Limited was already in progress.
The situation was further complicated by subsequent appellate proceedings. The Appellate Tribunal quashed the earlier CIRP proceedings on 02.08.2022, which led the Appellant to seek restoration of its application through Restoration Application No. 81/2022. Although the initial restoration request was dismissed for non-prosecution on 10.11.2022, and a further appeal was dismissed on 21.04.2023, the Appellate Authority later allowed the appeal and restored the application on 16.10.2023. Following this, the Adjudicating Authority reinstated the application and scheduled it for a hearing on 18.01.2024. However, on 05.03.2024, the Adjudicating Authority dismissed the application, leading to the current appeal.
In the appeal, the Appellant contended that the dismissal was erroneous, focusing on the contention that the Adjudicating Authority had improperly considered emails that supposedly related to different disputes or different sites, and had allegedly ignored the Appellant’s claims for unpaid dues amounting to approximately Rs. 89 lakhs. The Appellant argued that the cited disputes were only raised after payments became overdue and were thus unfounded.
Conversely, the Respondent argued that substantial issues with the Appellant's performance, such as inadequate security services and manpower shortages, had been documented and communicated prior to the demand notice. These issues included theft and loss at the site, which were significant and predated the demand notice.
The Tribunal upheld the Adjudicating Authority’s decision, agreeing that the application under Section 9 was correctly dismissed based on the pre-existing dispute. It was determined that the pre-existing disputes regarding service deficiencies were well-documented and predated the demand notice. Moreover, procedural deficiencies in the Appellant’s filing, such as failing to submit necessary certificates and proper notices, were also noted. Consequently, the appeal was dismissed, and the decision of the Adjudicating Authority was upheld, with no costs awarded and all pending Interlocutory Applications closed.
Mr. Abhijeet, Mr. Ankur Aggarwal, and Mr. Nitin Sharma, Advocates, represented the Appellant. Mr. V. Anush Raajan, Advocate, appeared for the Respondent.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines Press Release and more.
Click on the Citation/Link to access these resources
Comments