NCLAT upholds rejection of Section 9 application due to pre-existing disputes over loading charges and account settlements

The NCLAT dismissed an appeal challenging rejection of a Section 9 application under CIRP. The Corporate Debtor had raised pre-existing disputes regarding settlement of accounts for under-loading, overloading, and demurrage charges spanning five years, as evidenced in correspondence dated 11.02.2021 and 13.06.2021, which preceded the demand notice dated 09.08.2021. The Appellant's argument that TDS deduction under Section 194(C) of Income Tax Act constituted acknowledgment of liability was rejected, as the Corporate Debtor's reply clearly indicated pending adjustments and unsettled accounts. The NCLAT upheld the Adjudicating Authority's decision, finding no error in rejecting the application on grounds of pre-existing dispute.

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Issues Involved:
The judgment involves the challenge of an order passed by the Adjudicating Authority rejecting a Section 9 Application due to a pre-existing dispute between the Operational Creditor and the Corporate Debtor.

Issue 1: Pre-existing dispute regarding outstanding dues

The Appellant entered into an Agreement with the Corporate Debtor for handling CCL Coal. Disputes arose regarding non-payment of full invoices, with the Corporate Debtor claiming deductions due to demurrage charges imposed by the Principal Contractor. The Appellant issued a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, which was refuted by the Corporate Debtor. Subsequently, the Appellant filed a Section 9 Application for the outstanding amount, which was also refuted by the Corporate Debtor. The Adjudicating Authority dismissed the Section 9 Application citing the Corporate Debtor's prior communication of disputes to the Operational Creditor before the Demand Notice was issued.

Issue 2: Existence of pre-existing dispute

The Adjudicating Authority found evidence of a pre-existing dispute based on communications between the Operational Creditor and the Corporate Debtor before the issuance of the Demand Notice. The Corporate Debtor had clearly disputed the claims made by the Operational Creditor, indicating a disagreement over the outstanding dues. The Adjudicating Authority referenced specific letters and replies exchanged between the parties, highlighting the Corporate Debtor's refusal to acknowledge the full payment due to demurrage charges and penalties imposed by the Principal Contractor.

Issue 3: Rejection of Section 9 Application

The Adjudicating Authority's decision to dismiss the Section 9 Application was upheld, as it was determined that there was a clear pre-existing dispute between the parties regarding the outstanding amount. The Corporate Debtor had raised objections and disputed the claims made by the Operational Creditor before the Demand Notice was issued, indicating a lack of acknowledgment of the full payment due. The deduction made under Section 194(C) by the Corporate Debtor did not imply acceptance of liability, as the Corporate Debtor had explicitly raised disputes and issues regarding the outstanding dues prior to the Demand Notice.

Conclusion:
The Adjudicating Authority's rejection of the Section 9 Application was upheld due to the existence of a pre-existing dispute between the Operational Creditor and the Corporate Debtor. The communication and disputes raised by the Corporate Debtor before the issuance of the Demand Notice indicated a lack of agreement on the outstanding dues, leading to the dismissal of the Appeal.

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