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of <h1>Debt Dispute Leads to Dismissal of Insolvency Petition</h1> <h3>Varda Spinning & Weaving Mills Pvt. Ltd. Versus Jindal Cotex Ltd.</h3> The Tribunal dismissed the petition under Section 9 of the Insolvency and Bankruptcy Code, citing a substantial dispute raised by the respondent regarding ... Corporate insolvency procedures - existence of dispute - Held that:- It is mandatory requirement for the petitioner as per clause (b) of sub-section (3) of Section 9 of the Code that the Operational Creditor has to furnish along with the application an affidavit to the effect that there is no notice given by the corporate debtor relating to the dispute of unpaid operational debt. The affidavit filed by the petitioner company as at Annexure-9 states about issuing notice under sections 433 and 434 of the Companies Act, 1956 and reply thereto sent by the respondent but it is alleged that the respondent approached the petitioner to settle the issue. It is stated in para-5 of the affidavit dated 14.07.2017 that operational creditor reaffirms that there is no dispute, but the requirement of the affidavit is to state that there is no notice given by the corporate debtor relating to a dispute of unpaid operational debt. So such an affidavit would not fulfil the requirement of the aforesaid mandatory requirement. The present cannot be said to be a case where there is no dispute, which was even raised in reply to the notice under Section 434 of the Companies Act, 1956. The remedy to the petitioner may lie elsewhere and not by invoking insolvency resolution process under the Code. Issues Involved:1. Jurisdiction and territorial competence.2. Existence of debt and default.3. Compliance with procedural requirements under the Insolvency and Bankruptcy Code, 2016.4. Dispute regarding the debt.5. Impact of pending winding-up petition on insolvency proceedings.Issue-wise Detailed Analysis:1. Jurisdiction and Territorial Competence:The respondent is a company incorporated on 18.02.1998 with its registered office in Ludhiana, thus falling within the territorial jurisdiction of the National Company Law Tribunal (NCLT), Chandigarh.2. Existence of Debt and Default:The petitioner supplied Acrylic Fibre and Polyester Staple Fibre to the respondent, for which various bills were issued. The corporate debtor defaulted in payment of 177 bills from 29.04.2014 to 23.07.2014, amounting to Rs. 8,15,97,672/-. Despite several meetings and a demand notice under Section 8 of the Code, the amount remained unpaid.3. Compliance with Procedural Requirements under the Insolvency and Bankruptcy Code, 2016:The petitioner filed the application in Form No. 5 as prescribed under Rule 6(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The petition was supported by an affidavit and included the necessary documents such as bank statements and a certificate from the bank confirming no payment was received from the respondent. The petitioner also proposed the name of Mr. Sumat Kumar Gupta as the Interim Resolution Professional.4. Dispute Regarding the Debt:The respondent raised a dispute claiming that the petitioner is not an operational creditor and highlighted a pending winding-up petition in the High Court of Punjab and Haryana. The respondent argued that the petitioner’s financial statements did not show any outstanding amount and alleged that the petitioner had written off the debt as bad debt. The respondent also claimed that certain goods supplied were defective and had been returned, which the petitioner did not contest for two years. The Tribunal found that the financial statements of the petitioner showed trade receivables as nil for the period exceeding six months and highlighted the bad debt entry, questioning why the petitioner wrote off the debt within six months of the transaction.5. Impact of Pending Winding-up Petition on Insolvency Proceedings:The respondent pointed out that a winding-up petition was pending against it in the High Court, which the petitioner failed to disclose. The Tribunal referred to the order of the Special Bench of NCLT, New Delhi in Union Bank of India v. Era Infra Engg. Ltd., which discussed whether insolvency proceedings can be triggered during the pendency of winding-up petitions. However, the Tribunal decided not to delve into this issue further due to the presence of a dispute regarding the debt.Conclusion:The Tribunal concluded that the dispute raised by the respondent regarding the debt was substantial and not a mere moonshine defense. The petitioner's act of writing off the debt within six months of the transaction and the discrepancies in the financial statements were significant factors. Consequently, the petition was dismissed under clause (ii) of sub-section (5) of Section 9 of the Code, which mandates the rejection of the application if there is a record of dispute. The Tribunal emphasized that the remedy for the petitioner might lie elsewhere and not through the insolvency resolution process under the Code.
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