NCLAT: Application Filed Under Section 9 of IBC Must Fulfil Certain Conditions

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An appeal was filed by the shareholder of the corporate debtor in the National Company Law Appellate Tribunal (NCLAT). The appellant challenged the decision of the National Company Law Tribunal (NCLT) dated 26th February 2020 wherein the tribunal accepted the application under section 9 of IBC by operational creditor.

Facts of the Case

Corporate Debtor was a buyer of aluminium ingots and wire rods and maintained running accounts with the operational creditor. The appellant, however, claimed that the debt claimed by the operational creditor was for the purchase of wire and ingots for the period of 6th December 2017 to 16th April 2018.  

Observations of National Company Law Tribunal 

NCLT, however, observed that there were no averments made by corporate debtor about the notice dated 5th November 2018. Corporate debtor has paid partial payments of Rs 1,95,34,823 on 21st October 2017 and Rs 1,95,79,294 on 10th November 2017 to operational creditor.

The Tribunal stated, “Corporate debtor also failed to provide any documentation regarding the tri-party agreement between the corporate debtor, operational creditor and their sister concerns, authorizing the corporate debtor to make payments to other concerns”.

The Tribunal very clearly stated that the dispute raised by the corporate debtor was illusionary and was only raised to run away from the liability to pay the operational creditor.  

Appellant’s Arguments

The appellant argues that the Tribunal i.e. NCLT ignored all the documents regarding the pre-existing dispute because the respondent failed to disclose that before the demand notice dated 27.10.2018 there was one more demand notice issued by respondents on 17.08.2018 claiming the same amount of Rs 16,18,18,265 to which the appellants responded that due to mutual understanding adjustments of payments were made and there was no amount due. 

The respondent had acknowledged the reconciled accounts of the appellants for the period 1.04.2017 to 31.03.2018 and 1.04.2018 to 31.03.2019 which was duly signed by the directors of the respondents and its sister concerns. This showed that there was no amount due. 

Furthermore, M/s Oyster (a sister concern of respondent) and Iron Pvt. Ltd. (a sister concern of respondent) confirmed the ledgers of the appellants which showed no amount due. Hence, there was no amount due to respondents.

Respondent’s Arguments

The respondent denied that there was any confirmation by them of accounts and also alleged that the letters in which authorized adjustments/entries were forged and fabricated. The rubber stamps also had errors wherein even the name of the operational creditor was wrong.

Additionally, the earlier reply dated 28.08.2018 only claimed settlements of the accounts till 31.03.2018 to which also the respondent disputed.

Furthermore, the respondent stated the case of Mobilox Innovations Pvt. Ltd. vs Kirusa Software Ltd. wherein it was stated that existence must be pre – disputed i.e. the existence of dispute must be pre-existing. Also, it was stated by the apex court in this judgment that 3 conditions must be fulfilled before accepting any application under section 9 of IBC and those are that existence of dispute must be pre-existing, the operational debt must be more than 1 lakh and the debt has not been paid. If all these conditions are fulfilled then the tribunal cannot reject the application.

Court’s Analysis

The NCLAT observed that the journals, ledgers, and letters showed by the appellant had many discrepancies. The argument that sister concerns of the respondent approved the accounts of the appellant inspired no confidence.

There were no substantial reasons as to why only the ledger of the appellant showed the entries and not the respondents. However, both parties agreed to these accounts.

Furthermore, it stated that the defences raised by the appellant were not mutually exclusive and cannot co-exist as debt cannot be disputed and discharged at the same time. 

Court’s Decision

According to NCLAT, there existed no dispute and the principle discussed in Mobilox Innovations Pvt. Ltd. case would be applicable in this case also. They also said that they were of the view that there was no illegality in the order passed by NCLT and hence the appeal was dismissed. 


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