CIRP Admission Set Aside as Operational Creditor Suppressed Payments and Failed to Meet ₹1 Crore Threshold: NCLAT

NCLAT set aside the admission of CIRP against the Corporate Debtor, holding that the Operational Creditor had suppressed material payments and failed to meet the mandatory ₹1 crore threshold under Section 4 of the IBC.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a company appeal, held that a Section 9 application under the IBC is not maintainable if the operational debt—after excluding unsubstantiated interest and accounting for suppressed payments—falls below the statutory threshold of ₹1 crore. The Tribunal further observed that an ex parte admission order passed without affording the corporate debtor a fair opportunity of hearing violates the principles of natural justice and is liable to be set aside.

The National Company Law Appellate Tribunal (NCLAT) allowed an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the admission of a Section 9 application against M/s Aquarius H2O Dynamics Pvt. Ltd. by the Adjudicating Authority, NCLT Ahmedabad Bench-I. The impugned order, dated 29.11.2024, had initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor on the basis of an alleged operational debt of ₹1.16 crore, including ₹15.19 lakhs towards interest, as claimed by the Operational Creditor, M/s Riddhi Siddhi Metals. The Tribunal found that the Adjudicating Authority had erroneously proceeded ex parte and failed to consider material evidence relating to payments that had been allegedly made by or on behalf of the Corporate Debtor prior to the issuance of the Section 8 demand notice.

The Appellant argued that the Operational Creditor had suppressed material facts, including receipt of approximately ₹11 lakhs from the Corporate Debtor, which, if considered, would bring down the admitted liability below the ₹1 crore threshold stipulated under Section 4 of the IBC. The Tribunal examined the bank account statements and ledger entries and found inconsistencies in the records maintained by the Operational Creditor. Payments made by entities and individuals closely associated with the Corporate Debtor—including erstwhile directors and employees—were reflected in the Operational Creditor’s bank account but were omitted from the ledger account of the Corporate Debtor, raising serious doubts about the credibility of the creditor's accounting. Furthermore, the Tribunal noted that the alleged inclusion of ₹15 lakhs as interest lacked any contractual basis or historical practice between the parties, and therefore could not be treated as part of the principal default.

NCLAT held that in the absence of an agreement to pay interest, the unilateral addition of interest to inflate the claim amount and cross the minimum default threshold was impermissible. It concluded that the Operational Creditor failed to establish a valid claim exceeding ₹1 crore after excluding the questionable interest component and accounting for the suppressed payments. The Tribunal also took note of the fact that the order was passed ex parte without affording the Corporate Debtor a fair opportunity to contest the claims, thus violating principles of natural justice.

In view of these findings, NCLAT set aside the impugned order admitting the Section 9 application and initiating CIRP. All consequential actions taken pursuant to the CIRP were also quashed, and the Corporate Debtor was restored to its original status. However, the Tribunal clarified that the Respondent is free to pursue other legal remedies for the recovery of dues in accordance with the law. No costs were imposed.

Ms. Nitu Mittal, Advocate, represented the Appellant.

Mr. Pradhuman Gohi and Mr. Sahithya Krishna A., Advocates, appeared for the Respondent.

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