NCLAT allows Section 9 appeal, rules cyber fraud by third parties cannot create dispute with operational creditor

NCLAT allowed the appeal against rejection of Section 9 application for CIRP initiation. The tribunal held that cyber fraud committed by unknown third parties against the corporate debtor could not constitute a pre-existing dispute with the operational creditor. The corporate debtor's attempt to drag the operational creditor into the fraud dispute was deemed a deliberate ploy to evade payment. The tribunal noted that continued payments after the alleged fraud and acknowledgment of Euro 62,222/- debt in reply affidavit proved existence of undisputed operational debt. The adjudicating authority's rejection was found erroneous. Corporate debtor was given 30 days to pay outstanding debt, failing which CIRP would commence.

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Issues Involved:
1. Whether there was an operational debt exceeding Rs. 1 lakh due and payable.
2. Whether there was a pre-existing dispute between the parties.
3. Whether the Adjudicating Authority correctly dismissed the Section 9 application based on the alleged pre-existing dispute.

Summary of Judgment:

1. Operational Debt Exceeding Rs. 1 Lakh:
The Appellant, an Operational Creditor, supplied medical tubing to the Respondent, a Corporate Debtor, with outstanding dues amounting to Euro 320,406/- (Rs. 2.56 cr). Despite reminders and a Demand Notice issued on 20.02.2019, the Respondent did not clear the dues, claiming that Euro 206,024/- had been paid but was subject to a cyber fraud. The Appellant contended that even if this disputed amount was excluded, Euro 111,887/- remained unpaid, which exceeded the threshold for Section 9 of IBC.

2. Pre-Existing Dispute:
The Respondent argued that the cyber fraud constituted a pre-existing dispute, as a police complaint was lodged on 14.01.2019 before the Demand Notice was issued. The Respondent claimed that the fraud could not have occurred without the complicity of the Appellant's employees, thus rendering the amount disputed. The Adjudicating Authority noted that the fraud was under investigation and directed the Operational Creditor to seek redressal through appropriate forums, dismissing the Section 9 application.

3. Adjudicating Authority's Decision:
The Adjudicating Authority dismissed the Section 9 application, citing the pre-existing dispute due to the cyber fraud. The Tribunal examined the Mobilox Innovations Private Limited vs. Kirusa Software Private Limited judgment, which mandates dismissal of a Section 9 application if a pre-existing dispute is found before the issue of the Demand Notice.

Tribunal's Analysis and Decision:
The Tribunal found that the cyber fraud was committed by unknown third parties and not by the Appellant, as evidenced by the police complaint against "unknown individuals." The Tribunal held that attributing culpability to the Appellant without conclusive evidence was premature. The Respondent's negligence in verifying bank account details contributed to the fraud, and the Appellant could not be held responsible for payments made to the wrong account.

The Tribunal concluded that the Adjudicating Authority erroneously dismissed the Section 9 application by treating the cyber fraud as a pre-existing dispute. The Tribunal allowed the appeal, setting aside the impugned order, and directed the Corporate Debtor to release the outstanding operational debt within 30 days, failing which CIRP would commence.

Directions:
1. The Corporate Debtor is to release the outstanding operational debt as per mutually agreed terms within 30 days.
2. Payment to be made by Demand Draft in favor of the Operational Creditor.
3. If payment is not made within 30 days, CIRP will commence.
4. No order as to costs.

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