2025 (7) TMI 1462 - AT - IBC

NCLAT Upholds Rejection of Section 9 Application Due to Genuine Dispute Over Credit Note Discounts

The NCLAT upheld the rejection of the Section 9 application due to a pre-existing dispute between the parties regarding special quantity discounts ... Rejection of section 9 application - amount due on the Corporate Debtor to be paid to the Operational Creditor - existence of pre-existing dispute between the parties as per the principles laid down by the Hon’ble Supreme Court in Mobilox Innovations Private Limited [2017 (9) TMI 1270 - SUPREME COURT]. Whether any amount more than Rs.22,56,833/- is due on the Corporate Debtor to be paid to the Operational Creditor? - HELD THAT:- In Section 9 application, Operational Creditor has denied having any agreement between the parties to give any special quantity discount but when in the reply Corporate Debtor has come up with all credit notes with supporting documents, the Operational Creditor choose to admit 8 credit notes only. Admission of 8 credit notes itself prove the case of the Corporate Debtor that there was arrangement between the parties to give special quantity discount per kg. The admission of the Operational Creditor for 8 credit notes and further case of the Operational Creditor that the said credit notes were duly reflected in the ledger of the Appellant fully proves the case taken by the Corporate Debtor that the benefit of special quantity discounts was extended. It is further relevant to notice that issuance of credit note is not being denied and out of 17 credit notes, only 8 credit notes are being admitted and what is pleaded by the Appellant is that “It is submitted that issuing credit notes was the sole discretion of the Applicant and the same were being issued whenever it was deem fit by the Applicant”. There are substance in the submission of the Respondent that there was business practice of giving special quantity benefit between the parties i.e. Rs.3/- per kg and thereafter Rs.2.5/- per kg on the purchase orders issued by the Corporate Debtor and the fact that 8 credit notes are being admitted fully proves that there was business terms between the parties to extend special quantity benefit to the Corporate Debtor on the orders issued by the Corporate Debtor. The Corporate Debtor after reflecting all credit notes as per the Corporate Debtor has prepared the ledger balance whereas the Appellant is denying issuance of 9 credit notes. Denial of letters dated 28.12.2013 and 16.04.2016 which was claimed by the Corporate Debtor of extending special quantity benefit to the Corporate Debtor becomes meaningless since in spite of the said denial of the letters, Operational Creditor had extended the said special quantity benefit which is admitted by accepting 8 credit notes and reflecting the said benefit in its ledger accounts according to own case of the Operational Creditor. The ledgers which have been maintained and submitted by the Corporate Debtor before the Adjudicating Authority from 2013-14 to 2018-19 are to be relied and the Corporate Debtor is correct in his submission that as per the ledgers maintained by the Respondent, the amount of Rs.22,56,833/- was outstanding. Corporate Debtor having expressed its willingness to pay the said amount and also gave a cheque before the Adjudicating Authority which was not accepted - thus, no amount above Rs.22,56,833/- was due. Whether there was any pre-existing dispute between the parties as per the principles laid down by the Hon’ble Supreme Court in Mobilox Innovations Private Limited? - HELD THAT:- The Hon’ble Supreme Court has categorically laid down that the Adjudicating Authority is to see at this stage as to whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. The present is a case where from the ledgers as claimed by the Operational Creditor and the ledgers claimed by the Corporate Debtor the main dispute between the parties is with regard to issuance of credit notes with regard to special quantity benefit. On the other hand, Corporate Debtor claimed that special quantity benefit was agreed to be given by the Operational Creditor @ Rs.3/- per kg and Rs.2.5/- per kg respectively on purchase orders whereas the Operational Creditor said that issuance of credit notes at the discretion of the Operational Creditor and Operational Creditor out of 17 credit notes has accepted only 8 credit notes leading to difference in the ledger statement maintained by both the parties. The Corporate Debtor in the reply to demand notice issued on 11.01.2019 itself has pleaded that the Operational Creditor has been given special quantity discount as per the agreed business terms between the parties. Categorical case of the Corporate Debtor was that special quantity discount was given as per agreed business terms. When the Operational Creditor denied the issuance of 9 credit notes as claimed by the Corporate Debtor, the Operational Creditor itself is raising dispute with regard to not issuing credit notes on all quantities of sale. When the Corporate Debtor has categorically denied the claim of the Appellant of outstanding of Rs.1,81,45,943/- as claimed in the demand notice and has come with a clear case that the total balance is Rs.22,56,833/- and said outstanding of Rs.22,56,833/- is being supported by special quantity discount as was agreed between the parties, the reply notice dated 11.01.2019 was clearly a notice of dispute issued by the Corporate Debtor and the defence which has been claimed in the reply to legal notice cannot be said to be patently feeble legal argument or an assertion of fact unsupported by evidence. There are no substance in the submission of the Appellant that the Corporate Debtor was required to refer to and rely on all credit notes and file the same along with the reply to demand notice. The reply to demand notice submitted by Corporate Debtor raises a pre-existing dispute and the application filed under Section 9 was required to be rejected on the ground of pre-existing dispute. The Adjudicating Authority while determining Section 9 proceedings have not to embark upon detail enquiry and investigation regarding claims of either of the parties regarding outstanding amount. The Corporate Debtor has supported its case of outstanding amount of Rs.22,56,833/- only which amount was refused to be accepted by Operational Creditor. There are no ground to interfere with the order of the Adjudicating Authority rejecting Section 9 application. Corporate Debtor having offered to pay the said amount, in event the Appellant is ready to accept the said amount on communicating the details of bank account by the Appellant, the Corporate Debtor shall remit the said amount by bank transfer within two weeks thereafter. Appeal dismissed. ISSUES: Whether any amount exceeding Rs.22,56,833/- was due and payable by the Corporate Debtor to the Operational Creditor'Whether there existed a pre-existing dispute between the parties sufficient to reject the Section 9 application under the principles laid down in Mobilox Innovations Private Limited (2018) 1 SCC 353? RULINGS / HOLDINGS: On the quantum of debt, the Tribunal held that 'no amount above Rs.22,56,833/- was due' as per the ledger accounts maintained by the Corporate Debtor, which were supported by admitted credit notes reflecting special quantity discounts; thus, the larger claim of Rs.1,81,45,943/- was not established.Regarding the dispute, the Tribunal found that the reply to the demand notice dated 11.01.2019 constituted a 'notice of dispute' raising a 'plausible contention' supported by evidence, particularly concerning the issuance and denial of credit notes for special quantity discounts; therefore, the Section 9 application was rightly rejected on the ground of pre-existing dispute as per the Mobilox principles. RATIONALE: The Tribunal applied the statutory framework under Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016, and the Supreme Court's guidance in Mobilox Innovations Private Limited, which requires the adjudicating authority to reject a Section 9 application if a 'plausible dispute' exists prior to the receipt of the demand notice.The Tribunal analyzed the ledger accounts, credit notes, and correspondence, noting that the Operational Creditor admitted issuance of eight credit notes for special quantity discounts, thereby acknowledging a business practice contrary to its denial of any agreement on such discounts.The Tribunal gave weight to the Corporate Debtor's ledger accounts and documentary evidence, including credit and debit notes, and found the Operational Creditor's claim of a larger outstanding amount to be inconsistent and unsupported.The Tribunal emphasized that the mere fact that the admitted outstanding amount exceeded Rs.1 Lakh did not mandate admission of the Section 9 application, especially where the Corporate Debtor had offered to pay the admitted amount and a dispute existed over the balance.The Tribunal followed the Supreme Court's direction to assess whether any amount beyond Rs.22,56,833/- was due and to consider the existence of a pre-existing dispute, holding that the dispute was neither spurious nor hypothetical but a genuine commercial disagreement warranting rejection of the application.