NCLAT Sets Aside Section 9 Admission, Holds Pre-Existing Dispute Established Through Email Correspondence and Unreconciled Accounts
- REEDLAW
- Aug 29
- 3 min read
Updated: Sep 1
REEDLAW Legal News Network reports: In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) clarified that an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) is not maintainable when prior email correspondence and unreconciled accounts establish the existence of a pre-existing dispute. This judgment reinforces the principle that the insolvency process cannot be invoked as a substitute for resolving genuine contractual disagreements.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), while adjudicating a Company Appeal, held that an application under Section 9 of the IBC is not maintainable when prior email correspondence and unresolved account reconciliation demonstrate a pre-existing dispute between the parties. The Tribunal emphasised that the existence of such disputes negates the operational debt default contemplated under the Code and precludes the initiation of insolvency proceedings.
The National Company Law Appellate Tribunal (NCLAT) allowed the appeal filed by the erstwhile promoter and director of M/s Ambassador Logistics Pvt. Ltd., challenging the order of the Adjudicating Authority dated 11.02.2022, which had admitted the Corporate Debtor into the Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016. The operational creditor (herein Respondent) had filed the petition for an operational debt of Rs. 6,66,667/- along with interest, asserting that logistics and management services were rendered and invoices remained unpaid despite issuance of a demand notice.
Before the NCLT, the Corporate Debtor had raised a defence of pre-existing dispute and limitation; however, the NCLT admitted the application, holding it to be within limitation based on the last payment made on 19.10.2016 and finding no pre-existing dispute. On appeal, the Appellant demonstrated that prior to issuance of the demand notice under Section 8, the Corporate Debtor had exchanged emails with the Operational Creditor, including a final email dated 25.05.2018, explicitly denying any outstanding liability and indicating discrepancies requiring reconciliation. The Operational Creditor failed to respond to this communication before issuing the demand notice.
The Appellate Tribunal, relying on the principles laid down by the Hon’ble Supreme Court in S.S. Engineers v. Hindustan Petroleum Corporation Limited and Others, REEDLAW 2022 NCLAT Del 07549 and Sabarmati Gas Limited v. Shah Alloys Limited, REEDLAW 2023 SC 01537, observed that the existence of email correspondence disputing the claim and seeking reconciliation constituted a pre-existing dispute under the Code. It reiterated that the IBC is not a forum for debt recovery and that an application under Section 9 is maintainable only where the operational debt is undisputed. In view of the admitted exchange of communications and the absence of reconciliation of accounts, the Tribunal held that the NCLT erred in admitting the petition. Accordingly, the impugned order was set aside, and the appeal was allowed, noting that the Section 9 application was liable to be rejected on the ground of a pre-existing dispute.
Mr. Dhruv Gupta, Advocate, represented the Appellant.
Mr. Sukhbir Singh, Advocate, appeared for the Respondents.
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