2023 (5) TMI 248 - AT - Insolvency and Bankruptcy

NCLAT upholds decision to admit Section 9 application under IBC, dismisses appeal by director.

Sharad Chandra Goel Versus Tarannom Shargh International Transportation Company, Lark Logistics Private Limited

The National Company Law Appellate Tribunal (NCLAT) upheld the Adjudicating Authority's decision to admit the Section 9 application under the Insolvency ... Initiation of CIRP - NCLT admitted the application - Operational Creditors - serious pre-existing disputes between the Corporate Debtor and the Operational Creditor on account of discrepancies in invoices, and levy of bogus charges and overcharging - operational debt exceeds the threshold limit and is an undisputed debt or not - HELD THAT:- Issue decided in the case of Hon’ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT] for the Adjudicating Authority while examining an application under Section 9, it was held that the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act. More importantly, the Corporate Debtor cannot absolve himself from the fact that liability has been admitted but payments not made. It is noticed that emails were exchanged between the two parties between 11.11.2019 to 11.01.2020 at pages 182-191 of APB wherein the Corporate Debtor had been given more than one opportunity to clear the outstanding liabilities of more than USD 2,00,000. However, no payment of arrears was forthcoming - the Adjudicating Authority has committed no error in taking cognizance of the Corporate Debtor’s admission of failure to pay the operational dues on account of bad financial position and conditions beyond their control. This admission by the Corporate Debtor to our mind validates the contention of the Operational Creditor that the Corporate Debtor has admitted on several occasions that there was a debt due and payable and that there was also a default in making the payment. Whether there was any pre-existing dispute which was raised prior to the issue of demand notice by the Operational Creditor on 16.12.2020? - HELD THAT:- It is relevant to note at this stage that the demand notice under Section 8 was issued 16.12.2020. As no reply to the demand notice was received within 10 days nor any payment was made by the Corporate Debtor, the Respondent No.1 had filed the Section 9 application before the Adjudicating Authority. It is pertinent to note that the reply to the demand notice was filed by the Corporate Debtor on 06.04.2021 by which time the hearing on Section 9 application had already commenced, the first hearing having taken place on 04.03.2021 - the Operational Creditor conveniently avoided reconciliation of accounts as they knew fully well that there were no dues beyond the threshold limit which could trigger CIRP. It has therefore been stated that the Operational Creditor has been trying to use the IBC for the purpose of recovery of money and the Adjudicating Authority has acted like a debt recovery forum having ignored the presence of long-standing dispute between the parties. It is noticed that no material has been placed on record by the Corporate Debtor to show that they had categorically rejected the outstanding dues claimed by the Operational Creditor prior to issue of demand notice. Present is a case where the accounts were frozen in terms of SoA prepared by the Corporate Debtor and sent to the Operational Creditor by email on 16.07.2018. In such circumstances, when the Corporate Debtor has frozen their liability, subsequent raising the issue of rate differences and attendant reconciliation, to our mind becomes redundant and therefore does not appeal to us to be genuine. When the Corporate Debtor had admittedly prepared the SoA showing an outstanding liability of over USD 2,00,000 and it was frozen after mutual agreement, raising the issue of reconciliation of accounts as a ground of dispute clearly lacks substance and credibility. Illegal stopping of containers/shipments by the Operational Creditor which resulted in their loss of clients and business - HELD THAT:- It was pointed out that these shipments cannot be viewed to be a ground for pre-existing dispute as the Operational Creditor had agreed to move the shipments only after receipt of payment to meet the existing debt of over USD 3,00,000. From the facts available on record, it is convincing that the operational debt had crystallized well ahead of the stoppage of the containers. That being the case, by no logical process, can the stoppage of shipments be held to be a pre-existing dispute, rather it was the outcome of a debt remaining unpaid. There are no illegality in the impugned order of the Adjudicating Authority admitting the Section 9 application. There is no merit in the appeal - appeal dismissed. Issues Involved:1. Admission of Section 9 application under IBC.2. Pre-existing disputes between the Corporate Debtor and Operational Creditor.3. Outstanding liability and default in payment.4. Quality of services and stoppage of shipments.5. Financial position and admission of debt by the Corporate Debtor.Summary:1. Admission of Section 9 application under IBC:The appeal arises from the order dated 20.06.2022 by the Adjudicating Authority (NCLT, New Delhi Bench-IV) admitting the Section 9 application under IBC filed by the Operational Creditor, initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Appellant, a suspended director of the Corporate Debtor, challenged this order.2. Pre-existing disputes between the Corporate Debtor and Operational Creditor:The Appellant contended that there were serious pre-existing disputes regarding discrepancies in invoices, overcharging, and unprofessional behavior by the Operational Creditor, which the Adjudicating Authority overlooked. However, the Respondent No.1 argued that the Corporate Debtor had admitted the debt and that no disputes were raised until mid-2019.3. Outstanding liability and default in payment:Respondent No.1 submitted that there was an outstanding liability of USD 3,16,217 towards operational dues, with 56 out of 304 invoices remaining unpaid. The Corporate Debtor had admitted the debt and failed to clear the dues despite assurances. The Adjudicating Authority noted that the Corporate Debtor had admitted the debt and default, thus justifying the admission of the Section 9 application.4. Quality of services and stoppage of shipments:The Appellant claimed that the Operational Creditor's refusal to move cargo led to loss of clients and revenue. However, the Respondent No.1 argued that the stoppage of shipments was due to the Corporate Debtor's failure to clear the outstanding debt. The Adjudicating Authority found no evidence of disputes regarding the quality of services provided by the Operational Creditor.5. Financial position and admission of debt by the Corporate Debtor:The Corporate Debtor admitted in their reply that there were no disputes until mid-2019 and that payments were withheld due to financial difficulties and market conditions. The Adjudicating Authority concluded that the Corporate Debtor's admission of debt and default validated the Operational Creditor's claims, leading to the initiation of CIRP.Conclusion:The National Company Law Appellate Tribunal (NCLAT) found no merit in the appeal and dismissed it, affirming the Adjudicating Authority's order admitting the Section 9 application and initiating CIRP against the Corporate Debtor. The Tribunal also directed the payment of the Resolution Professional's fees and expenses by the Operational Creditor.