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

The National Company Law Appellate Tribunal (NCLAT) upheld the Adjudicating Authority's decision to admit the Section 9 application under the Insolvency and Bankruptcy Code (IBC), initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The appeal by the suspended director of the Corporate Debtor was dismissed, affirming the outstanding liability, admission of debt, and default in payment, leading to the initiation of CIRP. The Tribunal also ordered the Operational Creditor to pay the Resolution Professional's fees and expenses.

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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.

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