The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra was hearing an appeal on Friday and advised that claims and disputes should be raised and addressed promptly during commercial transactions to avoid complications in the context of insolvency and bankruptcy proceedings.
In the present case, the appeal revolved around a Section 9 application filed by Aldous Commodities Private Limited, an operational creditor engaged in trading iron and steel products. They supplied semi-finished steel products to a corporate debtor between April 2018 and October 2018. The corporate debtor received these supplies and raised various invoices amounting to Rs. 7,43,94,643, with the last invoice issued on 4th October 2018.
The corporate debtor made partial payments, handed over post-dated cheques, and continued to make on-account payments until January 2019, leaving a balance due of Rs. 2,22,39,863. However, they raised a quality issue in September 2019, alleging that the goods didn't meet the specified quality. On 25th February 2020, the corporate debtor acknowledged an outstanding amount of Rs. 1.40 crores, which would be paid by its sister concern.
The issue of corporate insolvency resolution was initiated against the debtor in February 2020, during which the operational creditor filed a claim of Rs. 2,30,14,436, with Rs. 1,42,49,863 admitted by the resolution professional. When the debtor emerged from insolvency in October 2020, they claimed a financial discount of Rs. 1.75 crores. Still, the operational creditor rejected it, leading to the issuance of a Section 8 notice demanding a total of Rs. 2,56,04,995.
The corporate debtor replied to the notice, stating that the outstanding amount was only Rs. 17,39,863 due to an alleged quality discount. The operational creditor responded that the quality discount claims were not substantiated.
The Adjudicating Authority ultimately admitted the Section 9 application in September 2023.
The NCLAT upheld the decision, emphasizing that the quality dispute raised by the corporate debtor was an afterthought, as no issues had been raised at the time of receipt, consumption, or invoice receipt. Acknowledgement of the debt by the corporate debtor, as well as the admission of claims during insolvency proceedings, reinforced the operational creditor's position. The NCLAT also dismissed the corporate debtor's argument of Section 10A being applicable, as the default had occurred in November 2018, much before the prohibited period specified in Section 10A.
This case serves as a reminder of the importance of genuine disputes and timely communication in insolvency proceedings. The NCLAT's decision reaffirmed the principle that claims and disputes should be raised and addressed promptly during commercial transactions to avoid complications in the context of insolvency and bankruptcy proceedings.