NCLAT Quashes Section 9 CIRP Admission for Ignoring Clear Pre-Existing Dispute Raised in Section 8 Reply
- REEDLAW
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REEDLAW Legal News Network reports: In a significant appellate intervention, the National Company Law Appellate Tribunal set aside the admission of a Section 9 application after finding that the Adjudicating Authority had overlooked a clear pre-existing dispute evident from the corporate debtor’s Section 8 reply and contemporaneous email correspondence. The ruling reiterates that the summary nature of the insolvency regime does not permit admission of a petition where a real and substantial dispute is apparent on the record.
The National Company Law Appellate Tribunal, New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while deciding a Company Appeal, held that the debtor had demonstrated a plausible pre-existing dispute through its Section 8 reply and the accompanying email exchanges. The Tribunal observed that the Adjudicating Authority erred in mechanically admitting the Section 9 application without examining these materials, and emphasised that the existence of a genuine dispute necessarily defeats a claim for initiation of CIRP under Section 9 of the IBC.
The Appellant challenged the order of the Adjudicating Authority admitting a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 and initiating CIRP against the Corporate Debtor. The dispute arose from a transaction in which the Corporate Debtor had placed an order for a digital textile printer supplied by the Operational Creditor. The Operational Creditor had issued an invoice and delivered the machine, after which the Corporate Debtor neither released the payment nor raised any contemporaneous objections regarding the delivery or performance of the machine. Apart from a payment of Rs. 5 lakhs, which the Corporate Debtor claimed was made toward printer cartridges, no further amount was paid. The Operational Creditor issued a demand notice, to which the Corporate Debtor replied, alleging defective supply and asserting that the payment made was for a separate transaction, thereby disputing the debt.
The Appellant argued that the printer was defective from inception and had been previously supplied to another entity before being delivered to the Corporate Debtor. It was submitted that the delivery of the printer within a short period, without insistence on advance payment, contrary to the terms of the MoU, indicated that an already rejected machine had been supplied. The Appellant asserted that the printer never became operational, that trial operations never commenced or concluded, and therefore no payment ever became due. It was further argued that the Section 9 application was time-barred since the invoice dated 21.11.2019 triggered the three-year limitation, whereas the application filed in June 2023 was beyond time. The Corporate Debtor maintained that the part payment of Rs. 5 lakhs could not be treated as an acknowledgement of liability as it pertained to cartridges supplied under a separate understanding.
The Respondent countered that the printer had been delivered and commissioned without protest, and that no dispute regarding performance was raised at the time of installation or during the warranty period. It was submitted that the e-mails relied upon by the Appellant had been selectively read, whereas those communications clearly showed repeated follow-ups for payment. The Respondent further submitted that the Corporate Debtor’s belated allegations of defect were an afterthought intended to evade liability. The Respondent emphasised that the part payment made by the Corporate Debtor constituted an acknowledgement of debt and that the Adjudicating Authority had rightly held the application within limitation. It was further contended that the Corporate Debtor failed to produce any contemporaneous record substantiating its allegation of non-functionality.
The Appellate Tribunal examined the notice of dispute issued by the Corporate Debtor and noted that several grounds were raised alleging non-performance of the printer, including categorical denial of liability and an explanation regarding the purpose of the payment of Rs. 5 lakhs. The Tribunal observed that while the dispute was raised beyond the ten-day statutory period, the Adjudicating Authority was still required to examine whether a genuine pre-existing dispute existed, as the reply had been sent prior to the filing of the Section 9 application. The Tribunal noted the Appellant’s assertions regarding the defective printer but declined to rely on allegations concerning supply to a third party, since such entity was not part of the proceedings.
Upon evaluation of the e-mails sent by the Operational Creditor and the circumstances surrounding delivery, commissioning, and correspondence, the Tribunal proceeded to determine whether the dispute raised was real and substantial. It considered the relevance of the reply to the Section 8 notice and the explanation given regarding the part payment. The Tribunal emphasised that the Adjudicating Authority, in a summary proceeding under Section 9, was required to assess if there existed a plausible dispute requiring further investigation. The Appellate Tribunal then assessed whether the Corporate Debtor had raised a genuine pre-existing dispute sufficient to negate admission of the petition.
Mr. S.C. Mishra, Sr. Advocate, with Mr. Shashank Pathak, Mr. Karan Grover and Mr. Lalit Kumar, Advocates, represented the Appellant.
For the Respondent/ Defendant: Mr. Dhrubajit Saikia, Advocate, appeared for the Respondent No. 1.
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