NCLAT Quashes CIRP: Pre-Existing Disputes Override Section 9 IBC Admission Against the Corporate Debtor

NCLAT quashed the initiation of CIRP against the Corporate Debtor, holding that pre-existing disputes barred the admission of a Section 9 IBC application.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench—comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka held that a Section 9 application under the IBC cannot be admitted where a genuine pre-existing dispute exists regarding the operational debt, including disputes over liability, quantum, or privity of contract, as such issues lie beyond the scope of summary insolvency proceedings. The Tribunal reaffirmed that demurrage, being unliquidated and disputed, does not qualify as an undisputed operational debt unless adjudicated by a competent forum.

In the matter of RR Metalmakers India Ltd. v. Jaldhi Overseas Pvt. Ltd., the National Company Law Appellate Tribunal (NCLAT) was called upon to decide whether the initiation of a Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) was legally sustainable in light of the factual and legal disputes raised by the Corporate Debtor. The case arose from a Charter Party Agreement dated 15.03.2017, under which the Operational Creditor, Jaldhi Overseas Pvt. Ltd., claimed unpaid freight and demurrage charges. The National Company Law Tribunal (NCLT), Mumbai Bench-V, had admitted the application, leading to the present appeal under Section 61 of the IBC.

The Corporate Debtor strongly contested the application, asserting that it had no direct privity of contract with Jaldhi Overseas and that all relevant transactions had been handled by intermediaries such as Samruddha Resources Ltd. and BST. It also challenged the demurrage claim as unliquidated and unconfirmed, raised issues of limitation, and alleged discrepancies in the documentary evidence relied upon by the Operational Creditor. Central to its defence was the claim that payments had already been made through Globe Chart and Bothra Shipping and that no debt remained outstanding.

While the NCLT found that a partial payment had been made and inferred acknowledgement of debt from the Corporate Debtor’s communication dated 09.03.2020—thereby applying Section 18 of the Limitation Act to extend the limitation period—the NCLAT took a divergent view on critical factual and legal points. The Appellate Tribunal, after examining the same correspondence, concluded that there was no categorical or unequivocal admission of debt or default by the Corporate Debtor. It observed that the letter in question merely stated that freight was payable subject to receipt of compliant debit notes and denied confirmation of demurrage liability. Additionally, subsequent communications in 2022 and 2023 consistently denied any outstanding debt and highlighted the need to reconcile records with third parties, particularly Samruddha.

The NCLAT emphasised that the existence of a real and substantial dispute regarding the operational debt was evident from the very beginning, and that such disputes must preclude admission of a Section 9 application. In line with the Supreme Court’s ruling in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545, the Tribunal reiterated that the IBC is not a substitute for a debt recovery forum and should not be used to initiate insolvency proceedings in the presence of a genuine dispute. The claim for demurrage, being unliquidated and not admitted, was found to be particularly unfit for adjudication under the summary jurisdiction of the NCLT.

In conclusion, the NCLAT held that the Adjudicating Authority erred in admitting the Section 9 application and initiating CIRP against the Corporate Debtor. The appeal was accordingly allowed, and the impugned order was set aside. However, the Tribunal clarified that the Operational Creditor remained at liberty to explore remedies under other applicable laws. No costs were awarded.

Mr. Abhijeet Sinha, Sr. Advocate with Mr. Anuj Tiwari, Mr. Bijish Balan, Mr. Aditya Shukla and Mr. Ashwini Gawdi, Advocates, represented the Appellant.

For the Respondent/ Defendant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Ashwin Shanker, Mr. Rishi Murarka, Ms. Isha Sawant, Mr. Raj Surana and Ms. Alina Mathew, Advocates, appeared for the Respondent No. 1.

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