NCLT Upholds CIRP Initiation Against Nik-San Engineering

The National Company Law Tribunal (NCLT), Mumbai Bench-IV, upheld the initiation of Corporate Insolvency Resolution Process (CIRP) against Nik-San Engineering Company Ltd. The Tribunal found the operational debt owed to Sterling Enamelled Wires Pvt. Ltd. as due and payable, dismissing the Corporate Debtor's claim of pre-existing disputes. Additionally, the debt was not barred by Section 10A of the Insolvency and Bankruptcy Code (IBC) as it met the threshold for filing an insolvency application. The appeal was dismissed, affirming the fulfillment of CIRP conditions under Section 9, with no costs awarded.

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Issues Involved:
1. Whether an amount exceeding Rs.1 crore was due for payment to the Operational Creditor and whether such amount was an undisputed debt which had become due and payable.
2. Whether the said operational debt was barred by Section 10A of IBC.

Summary:

Issue 1: Amount Due and Undisputed Debt

The appeal arose from the order dated 03.11.2022 by the National Company Law Tribunal (NCLT), Mumbai Bench-IV, which admitted a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC) and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor, Nik-San Engineering Company Ltd., had a business relationship with Sterling Enamelled Wires Pvt. Ltd., the Operational Creditor, which supplied materials for transformer manufacturing. The Operational Creditor issued a demand notice under Section 8 of IBC on 14.08.2021 for Rs. 2,07,11,209/- and filed a Section 9 application when the amount remained unpaid.

The Corporate Debtor admitted receiving the Section 8 demand notice but claimed pre-existing disputes regarding the quality of goods. The Adjudicating Authority, however, found that the Corporate Debtor had acknowledged the debt in communications dated 23.07.2021 and 13.05.2021, thereby establishing clear debt and default. The Tribunal noted that the Corporate Debtor's acknowledgment of debt and promise to pay negated the existence of any pre-existing disputes.

Issue 2: Bar under Section 10A of IBC

The Corporate Debtor argued that the debt fell within the period barred by Section 10A of IBC, as the default occurred between 25.03.2020 to 24.03.2021. However, the Tribunal found that only two out of four purchase orders referenced a 90-day Letter of Credit (LC) payment term. The invoices under the first two purchase orders, which did not stipulate a 90-day LC, were sufficient to meet the threshold limit of Rs.1 crore for filing an insolvency application. Therefore, the Tribunal concluded that the debt was not barred by Section 10A of IBC.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision, stating that all conditions for triggering CIRP under Section 9 were fulfilled, with the operational debt acknowledged and no real pre-existing disputes. The appeal was dismissed with no order as to costs.

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