2024 (4) TMI 567 - SCH - Insolvency and Bankruptcy

Supreme Court Upholds Initiation of Insolvency Resolution Process Against Corporate Debtor, Dismissing Appeal.

PALAPARTY ABHISHEK Versus BINJUSARIA ISPAT PVT. LTD. & ANR.

The SC dismissed the appeal against the NCLAT's decision, which upheld the NCLT's admission of the Operational Creditor's application under section 9 of ... Admissibility of section 9 application - initiation of CIRP against the Corporate Debtor - Respondent No. 1 and the Corporate Debtor both filed civil suit for recovery against each other - after the formation of the NCLT, the matter stood transferred in terms of the Notification dated 07.12.2016 of the Ministry of Corporate Affairs, Government of India - HELD THAT:- The judgment of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT], is considered, which is heavily relied upon by the counsel for the appellant to contend that due to pendency of civil suit application u/s 9 of the IBC cannot be admitted, where it was held that So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. After going through the same and considering the findings as recorded by the NCLT and NCLAT, it is concluded that the argument as advanced by the counsel for appellant is of no help to them and the Tribunal has rightly admitted the application filed by the operational creditor for CIRP. Therefore, the order impugned of NCLT and NCLAT need no interference. Appeal dismissed. Issues involved:The appeal against the final judgment of the National Company Law Appellate Tribunal affirming the judgment of the National Company Law Tribunal, Hyderabad Bench, which admitted the application filed by the Operational Creditor under section 9 of the Insolvency and Bankruptcy Code, 2016, initiating Corporate Insolvency Resolution Process against the Corporate Debtor.Factual Matrix and Proceedings:The Corporate Debtor placed an order for Mild Steel Billets with the Operational Creditor, who subsequently raised invoices amounting to INR 1,77,15,636. A Memorandum of Understanding (MOU) was entered into, where the Corporate Debtor agreed to repay the amount by a certain date and provided postdated cheques as security. The cheques were dishonored, leading to legal actions including proceedings under section 138 of the Negotiable Instruments Act, civil suits for recovery, and a Company Petition seeking winding up. The Operational Creditor then issued a demand notice under section 8 of the IBC and filed an application under section 9 of the IBC, which was admitted by the NCLT, initiating CIRP against the Corporate Debtor.Legal Analysis:The counsel for the Appellant heavily relied on the judgment of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, emphasizing that the pendency of a civil suit should prevent the admission of an application under the IBC. The Supreme Court examined the relevant portion of the judgment and concluded that the dispute must be plausible and not a feeble legal argument or unsupported assertion of fact. The Court clarified that it does not need to determine the likelihood of success of the defense at this stage. After reviewing the arguments and findings of the NCLT and NCLAT, the Supreme Court found that the Appellant's argument was not persuasive, and the Tribunal correctly admitted the application for CIRP. Therefore, the Supreme Court declined to interfere with the orders of the NCLT and NCLAT.Judgment:The Supreme Court dismissed the appeal, vacated the interim order, and disposed of any pending interlocutory applications.