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of <h1>NCLAT rejects operational creditor's insolvency petition due to pre-existing contractual dispute over delivery terms under Section 8 IBC</h1> <h3>Sanam Fashion & Design Exchange Ltd. Versus Ktex Nonwovens Pvt. Ltd.</h3> The NCLAT dismissed an operational creditor's appeal seeking to initiate CIRP against a corporate debtor. While the NCLAT held that the appellant ... Rejection of prayer of Operational Creditor to initiate the CIRP against the Corporate Debtor/ Respondent - Respondent did not respond to the demand notice under Section 8 of the IBC - Operational Creditors or not - breach of terms and conditions of the contract leading to pre-existing dispute. Whether the appellant is an Operational Creditor as per IBC? - HELD THAT:- In the present case, the appellant had placed an advance with the respondent for supply of goods, it does not matter who is the supplier or the receiver of goods and services as laid down in the M/s Consolidated Construction Consortium Ltd. [2022 (2) TMI 254 - SUPREME COURT] - The present case is squarely covered by the said judgment, as there is a clear nexus between payment made and supply of goods and services. Accordingly, the appellant is to be treated as Operational Creditor in the instant case. Whether there has been a breach of terms and conditions of the contract leading to pre-existing dispute? - HELD THAT:- It is clear from all the documents on record that the delivery was to be made Ex-plant Rajkot and not at Hong Kong as submitted by the appellant before the Adjudicating Authority. The appellant had tried to mislead both the forums regarding the same - All the events reflect clearly that there was a pre-existing contractual dispute between both the parties, which the appellant is trying to settle through IBC mechanism. In this regard reliance placed on Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. [2017 (9) TMI 1270 - SUPREME COURT], where the Hon’ble Supreme Court explained the process for an operational creditor initiating CIRP in respect of a corporate debtor. The Court held 'Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute [Section 8(2)(a)]. What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be.' In the instant case, there was a pre-existing dispute between the parties regarding contractual conditions relating to place of delivery and obligation of parties for transport of goods and therefore the application for CIRP against Corporate Debtor cannot be allowed. The matter has been correctly decided by the Adjudicating Authority in this regard. Appeal dismissed. Issues Involved:1. Whether the appellant is an Operational Creditor as per IBCRs.2. Whether there has been a breach of terms and conditions of the contract leading to pre-existing disputeRs.Summary:Issue 1: Whether the appellant is an Operational Creditor as per IBCRs.The appellant argued that the advance payment made for the purchase of goods qualifies as an operational debt u/s 5(21) of the Insolvency & Bankruptcy Code (IBC), 2016. They cited the Supreme Court judgment in 'Consolidated Construction Consortium Ltd. Vs. Hitro Energy Solutions Pvt. Ltd.' [(2022) 7 SCC 164], which clarified that operational debt includes amounts paid in advance for goods and services. The Tribunal agreed, stating, 'a debt arising from advance payment made to a corporate debtor for the supply of goods or services qualifies as an operational debt.' Thus, the appellant is to be treated as an Operational Creditor.Issue 2: Whether there has been a breach of terms and conditions of the contract leading to pre-existing disputeRs.The appellant claimed that the goods were to be delivered to Hong Kong and that the respondent failed to deliver them on time. However, the Adjudicating Authority found that the terms of delivery were 'Ex-Plant Rajkot, India,' and that the goods were ready for pickup, as evidenced by emails. The Tribunal noted that the appellant introduced a different purchase order in the appeal, which was not presented before the Adjudicating Authority. The Tribunal concluded that there was a pre-existing dispute regarding the place of delivery and transportation obligations. Citing 'Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.' [(2018) 1 SCC 353] and 'Kay Bouvet Engg. Ltd. v. Overseas Infrastructure Alliance (India) (P) Ltd.' [(2021) 10 SCC 483], the Tribunal emphasized that a pre-existing dispute is sufficient to reject the application for CIRP.Conclusion:The Tribunal held that the appellant is an operational creditor but dismissed the appeal due to the pre-existing dispute between the parties. The application for CIRP against the Corporate Debtor was correctly rejected by the Adjudicating Authority. The appeal was dismissed with no order as to costs.
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