Appeal success releases Corporate Debtor from CIRP, Operational Creditor can pursue other remedies.

The appeal was allowed, setting aside the NCLT's order, and the Corporate Debtor was released from the rigours of CIRP. The Operational Creditor was permitted to seek alternative legal remedies.

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Issues Involved:
1. Admission of Company Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Existence of pre-existing disputes between the parties.
3. Nature of the operational debt and claim for penalties.

Summary of Judgment:

Issue 1: Admission of Company Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016
The appeal was filed by the Appellant, a Director of the Corporate Debtor, against the order dated 23.09.2022 by the National Company Law Tribunal (NCLT), Mumbai Bench, admitting a company petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, filed by Respondent No. 1. The NCLT had initiated the Corporate Insolvency Resolution Process (CIRP) and appointed an Interim Resolution Professional (IRP).

Issue 2: Existence of pre-existing disputes between the parties
The Appellant argued that there was a "pre-existing dispute" between the Corporate Debtor and Respondent No. 1, citing various correspondences from 17.06.2018 to 22.06.2018 where the Corporate Debtor explicitly denied any pending dues. The Appellant contended that the NCLT failed to consider these correspondences, which clearly established the existence of disputes prior to the issuance of the demand notice on 31.12.2018. The Appellant relied on the judgment in 'Om Prakash' Vs. 'Wipro Enterprises Pvt. Ltd.' to argue that a proceeding under Section 9 of the Code cannot be initiated in cases of disputed operational debt.

Issue 3: Nature of the operational debt and claim for penalties
The Appellant asserted that the claim for Rs. 40,00,000/- by Respondent No. 1 was in the nature of a penalty and not an operational debt. The Appellant cited the Supreme Court judgment in 'Kailash Nath Associates' Vs. 'DDA', which states that penalties or liquidated damages do not constitute operational debt until adjudicated by a civil court. The Appellant argued that the NCLT's order was unreasoned and contrary to the settled position of law.

Respondent's Arguments:
Respondent No. 1 argued that the Appellant had approached the tribunal with false and misleading submissions. The Respondent stated that the Corporate Debtor had agreed to make payments under the Non-Disclosure Agreement (NDA) but failed to comply with its terms. The Respondent relied on the Supreme Court judgment in 'Innoventive Industries Ltd.' Vs. 'ICICI Bank and Anr.' to argue that the claims constituted operational debt and there was no pre-existing dispute.

Tribunal's Decision:
The tribunal found merit in the Appellant's submissions that the NCLT failed to consider the correspondences between the parties, which indicated pre-existing disputes. The tribunal referred to its judgment in 'Om Prakash' and concluded that the NCLT's order could not be sustained. The appeal was allowed, and the NCLT's order initiating CIRP was set aside. The Corporate Debtor was released from CIRP and allowed to function independently. The tribunal directed that the Resolution Professional be paid his fees/expenses by the Operational Creditor and allowed the Operational Creditor to seek alternative legal remedies.

Conclusion:
The appeal was allowed, setting aside the NCLT's order, and the Corporate Debtor was released from the rigours of CIRP. The Operational Creditor was permitted to seek alternative legal remedies.

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