Corporate Debtor's appeal dismissed as USD 13 million operational debt default admitted under Section 9 IBC

NCLAT dismissed the appeal challenging admission of Section 9 petition for initiating CIRP against the Corporate Debtor. The Corporate Debtor had admitted operational debt of USD 70 million with payment of only USD 57 million, acknowledging default due to adverse cash-flow. The Tribunal found no pre-existing dispute as the Corporate Debtor's admissions were clear and the outstanding amount exceeded the prescribed threshold limit of Rs 1 crore. The Corporate Debtor failed to categorically reject the dues or establish any substantial dispute that could prevent CIRP initiation. The Adjudicating Authority correctly fulfilled all requisite conditions under Section 9 of IBC.

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Issues Involved:
1. Whether the payment to the Operational Creditor was due from the Corporate Debtor, giving rise to an operational debt.
2. Whether a default has been committed by the Corporate Debtor in respect of payment of such operational debt.
3. Whether the operational debt exceeds the threshold level and is an undisputed debt.
4. Whether there is an existence of a pre-existing dispute between the parties.

Detailed Analysis:

1. Payment Due and Operational Debt:
The tribunal examined whether the payment to the Operational Creditor was due from the Corporate Debtor, thereby constituting an operational debt. The Operational Creditor had supplied goods to the Corporate Debtor, who acknowledged owing USD 88,81,595 in an email dated 03.03.2021. The Corporate Debtor admitted to having financial difficulties due to the COVID-19 pandemic, which affected cash flow and delayed payments. The tribunal found that the Corporate Debtor had acknowledged the operational debt and attributed non-payment to adverse cash flow rather than any dispute with the Operational Creditor, thus establishing the existence of an operational debt.

2. Default in Payment:
The tribunal assessed whether a default had been committed by the Corporate Debtor in the payment of the operational debt. The Corporate Debtor had admitted the debt multiple times but failed to make full payment, despite partial payments being made. The tribunal noted that the Corporate Debtor had confirmed the outstanding amount in their books and had made payments post-confirmation, indicating an admission of debt and default. The tribunal concluded that the Corporate Debtor defaulted in payment as the debt exceeded the threshold of Rs 1 Cr, thereby establishing default.

3. Threshold Level and Undisputed Debt:
The tribunal evaluated whether the operational debt exceeded the threshold level and was undisputed. The Corporate Debtor admitted a debt of USD 8.8 million, which was above the threshold limit. The tribunal found no outright denial of the debt by the Corporate Debtor before the demand notice, and the debt was acknowledged in various communications. The tribunal held that the admitted debt was undisputed and above the threshold, supporting the initiation of CIRP.

4. Existence of Pre-existing Dispute:
The tribunal examined whether there was a pre-existing dispute between the parties. The Corporate Debtor claimed disputes regarding the quality of goods and an agreement dated 21.06.2015, which was denied by the Operational Creditor as a forged document. The tribunal found no credible evidence supporting the existence of this agreement or any pre-existing dispute. The tribunal noted that the Corporate Debtor's claims of disputes were raised only after the demand notice and were inconsistent with prior acknowledgments of debt. The tribunal concluded that the alleged disputes were not genuine and dismissed them as moonshine defenses.

Conclusion:
The tribunal concluded that the Appellant defaulted in the payment of the operational debt, which was due and payable above the threshold limit. In the absence of any credible pre-existing dispute, the tribunal found no error in the Adjudicating Authority's decision to admit the Section 9 application and initiate CIRP. The appeal was dismissed with no costs.

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