Dismissal of IBC Section 9 Application Due to Lack of Authorization and Failure to Pursue Arbitration

The Tribunal affirmed the National Company Law Tribunal, Ahmedabad Bench's decision to dismiss the Application under Section 9 of the IBC. The Tribunal found that the Demand Notice and Application were not properly authorized due to lack of a valid Board Resolution. Additionally, the Appellant's failure to pursue arbitration as per the agreement's clause led to the dismissal. The existence of pre-existing disputes further supported the rejection of the Application. The Appeal was dismissed with no costs awarded, and the judgment was directed to be uploaded on the website and sent to the NCLT, Ahmedabad Bench.

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Issues Involved:
1. Validity of the Demand Notice and Application under Section 9 of the IBC without proper Board Resolution.
2. Existence of an arbitration clause in the agreement and its effect on the filing of the Application under Section 9 of the IBC.
3. Pre-existing disputes between the parties regarding the outstanding amount and termination of the agreement.

Issue-wise Detailed Analysis:

1. Validity of the Demand Notice and Application under Section 9 of the IBC without proper Board Resolution:
The Appellant argued that the Ld. Adjudicating Authority dismissed the Application under Section 9 of the IBC on the ground that the Demand Notice was not supported by a Board Resolution, thus making the filing of the Application legally untenable. The Appellant contended that there was a Board Resolution dated 02 July 2019 authorizing Mr. Jatinder Kumar to initiate proceedings under the IBC. However, the Tribunal noted that the Demand Notice under Section 8 of the IBC was sent on 21.08.2019, and the Application under Section 9 was filed on 01.10.2019, both prior to the Board Resolution dated 31.02.2020 authorizing Mr. Naveen Jain. Therefore, the Tribunal upheld the Adjudicating Authority's decision, affirming that the Demand Notice and subsequent Application were not properly authorized.

2. Existence of an arbitration clause in the agreement and its effect on the filing of the Application under Section 9 of the IBC:
The Respondent highlighted that the agreement dated 10.11.2017 contained an arbitration clause (Clause 32), which mandated that any disputes arising should be settled through arbitration as per the Arbitration and Conciliation Act, 1996. The Tribunal found that the Appellant, instead of invoking arbitration, directly filed the Application under Section 9 of the IBC, which was a violation of the agreement. The Tribunal agreed with the Respondent's submission that the Appellant should have pursued arbitration before approaching the NCLT, thus supporting the dismissal of the Application on this ground.

3. Pre-existing disputes between the parties regarding the outstanding amount and termination of the agreement:
The Respondent argued that there were serious disputes regarding the notice of termination and the outstanding amount claimed by the Appellant. The Respondent provided evidence of payments made and stock received, which contradicted the Appellant's claims. The Tribunal noted that the Appellant had continued to receive and sell goods even after the alleged termination notice dated 18.12.2018, which indicated that the agreement was still in force. The Respondent's reply to the Demand Notice also pointed out discrepancies in the Appellant's claims, suggesting a pre-existing dispute. The Tribunal concluded that the existence of such disputes further justified the dismissal of the Application under Section 9 of the IBC.

Order:
The Tribunal affirmed the impugned order dated 18.12.2020 passed by the National Company Law Tribunal, Ahmedabad Bench, dismissing the Application under Section 9 of the IBC. The Tribunal held that there was no illegality in the dismissal, and the Appeal was dismissed with no order as to costs. The Registry was directed to upload the judgment on the website and send a copy to the NCLT, Ahmedabad Bench.

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