Operational creditor wins appeal after corporate debtor acknowledges debt but fails to pay despite court directions under Section 9

NCLAT Principal Bench allowed the appeal filed by operational creditor against rejection of Section 9 application. Corporate debtor acknowledged debt and showed willingness to pay but failed to remit funds despite repeated assurances and court directions to deposit equivalent amount. NCLAT held that adjudicating authority erred in not admitting the application when debtor failed to comply with payment obligations and court orders, citing regulatory procedures as excuse. The case was deemed fit for admission under insolvency proceedings given debtor's non-compliance despite acknowledgment of debt.

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Issues Involved:

1. Whether the Corporate Debtor committed default in payment of the outstanding debt.
2. Whether the Adjudicating Authority erred in not admitting the Section 9 Application.
3. Whether the inability to obtain RBI permission constitutes a valid reason for non-payment.
4. Whether the Adjudicating Authority has equity jurisdiction to direct the deposit of the amount.

Summary:

1. Default in Payment:
The Corporate Debtor placed multiple purchase orders and received goods from the Operational Creditor but failed to make full payments. Despite issuing a 'Guarantee Letter' and several acknowledgments in 2014 and 2015, the Corporate Debtor did not clear the outstanding debt of USD 1,441,490.78. The Operational Creditor issued a statutory notice under Sections 433, 434, and 439 of the Companies Act, 1956, and later a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, claiming USD 621,348.05. The Corporate Debtor acknowledged the liability but cited the need for RBI permission for remittance.

2. Adjudicating Authority's Decision:
The Adjudicating Authority did not admit the Section 9 Application, concluding that the Corporate Debtor's failure to pay was due to a force majeure situation, specifically the lack of RBI clearance. The Authority directed the Corporate Debtor to deposit the equivalent amount in Indian Rupees in an interest-bearing deposit within 60 days but refused to initiate the Corporate Insolvency Resolution Process (CIRP).

3. RBI Permission:
The Corporate Debtor argued that the inability to obtain RBI permission for remittance was beyond its control. The Adjudicating Authority accepted this argument, noting that the Corporate Debtor had filed a writ petition seeking directions from the Reserve Bank of India and had shown willingness to pay once permission was granted.

4. Equity Jurisdiction:
The Corporate Debtor contended that the Adjudicating Authority lacked equity jurisdiction to direct the deposit of funds. The Adjudicating Authority's orders directing the deposit were challenged as falling outside its scope under the Code. The Tribunal observed that the Corporate Debtor's repeated assurances and failure to comply with the deposit orders indicated a deliberate attempt to avoid payment.

Conclusion:
The Tribunal held that the Corporate Debtor committed default within the meaning of the Code, and the inability to obtain RBI permission could not be a valid reason to hold that no default occurred. The Tribunal found the Adjudicating Authority's view unsustainable and directed the admission of the Section 9 Application. The Corporate Debtor was given 60 days to make the payment to the Operational Creditor, failing which the Adjudicating Authority was to pass an order of admission under Section 9 of the Code.

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