NCLAT upholds NCLT decision on Section 9 application, citing lack of authorized demand notices and genuine dispute

The National Company Law Appellate Tribunal (NCLAT) upheld the decision of the National Company Law Tribunal (NCLT), dismissing the appeal regarding the maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The NCLAT affirmed that the demand notices were not authorized as required by the Code and that a genuine pre-existing dispute existed between the parties regarding the quality of goods supplied. Consequently, the application was correctly dismissed, and the appeal was rejected.

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Issues Involved:
1. Maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Authorization for issuing demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
3. Pre-existing dispute between the parties regarding the quality of goods supplied.

Detailed Analysis:

Issue 1: Maintainability of the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016
The application under Section 9 was dismissed by the National Company Law Tribunal (NCLT), Ahmedabad Bench, primarily on the ground of maintainability. The Appellant, an operational creditor, filed the application seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Respondent, a corporate debtor, due to non-payment of Rs. 78,79,452/- for the supply of goods. The NCLT found that the demand notices issued under Section 8 were not authorized, and there existed a pre-existing dispute between the parties regarding the quality of goods supplied.

Issue 2: Authorization for Issuing Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016
The NCLT noted that the demand notices dated 29.11.2018 and 10.10.2019, which are prerequisites for initiating CIRP, were issued by Mr. Surendra Prasad Shukla, who claimed to be the Whole-time Director and authorized signatory of the operational creditor company. However, the authorization for Mr. Shukla was not valid at the time of issuing the demand notices. The resolution authorizing Mr. Shukla was passed on 24.10.2019, much after the issuance of the demand notices. Therefore, the demand notices were deemed invalid in the eye of law.

Issue 3: Pre-existing Dispute Between the Parties Regarding the Quality of Goods Supplied
The Respondent raised several objections, including the claim that the goods supplied were of low quality and that there was a pre-existing dispute regarding the quality of the coal supplied. The Respondent provided evidence of an inspection report dated 06.08.2018, conducted at their plant, which indicated that the quality of the coal did not meet the agreed specifications. The Appellant argued that the inspection should have been conducted at the discharge port as per the agreement. However, the NCLT found that there was indeed a pre-existing dispute regarding the quality of goods, which was not a fabricated issue to avoid payment.

Conclusion:
The National Company Law Appellate Tribunal (NCLAT) upheld the decision of the NCLT, dismissing the appeal on the grounds that:
1. The demand notices issued under Section 8 were not authorized as per the requirements of the Insolvency and Bankruptcy Code, 2016.
2. There was a pre-existing dispute between the parties regarding the quality of goods supplied, which was sufficient to reject the application under Section 9.

The NCLAT concluded that the application filed under Section 9 was correctly dismissed by the Adjudicating Authority due to the lack of proper authorization for the demand notice and the existence of a pre-existing dispute. The appeal was dismissed, and the order of the Adjudicating Authority was approved.

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