NCLT Rightly Rejected Section 9 Plea Due to Pre-existing Dispute on Debt and Quality of Goods/Services | NCLAT

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NCLT's Dismissal of Section 9

Case Details: East India Udyog Ltd. v. SPML Infra Ltd. - [2024] 163 taxmann.com 426 (NCLAT- New Delhi)

Judiciary and Counsel Details

  • Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
  • Arvind Verma, Arvind Nayar, Aman Vachher & Ashutosh Dubey, Advs. for the Appellant.
  • Udayaditya Banerjee & Siddhant Jaiswal, Advs. for the Respondent.

Facts of the Case

In the instant case, the operational creditor was in a continuous business relationship with the corporate debtor, supplying them with transformers and other items for which the corporate debtor had issued purchase orders.

The operational creditor sent an e-mail to the corporate debtor to clear outstanding dues and requested an early release of payment for goods. However, the corporate debtor refused to make payment.

Since payments were not released, the operational creditor filed an application under section 9 of the IBC against the corporate debtor. The corporate debtor refused to accept their outstanding operational debt and alleged that the operational creditor had defaulted in performing their part of obligations.

The NCLT dismissed the said application filed on grounds of pre-existing dispute. Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT).

It was noted that prior to receipt of the demand notice dated 29.07.2020, the corporate debtor on 18.07.2020 had refused to accept outstanding operational debt, inter-alia, on the ground of reconciliation of accounts and operational creditor in their counter affidavit had also admitted that they had given numerous reminders to the corporate debtor prior to reconciling the account.

NCLAT Held

The NCLAT observed that before the issue of the demand notice, e-mails from the corporate debtor clearly substantiated that the operational creditor had been notified regarding non-supply of goods, delay in supplies and supply of defective goods, which were clear signs of pre-existing disputes.

The NCLAT held that since, the appellant had themselves sent an e-mail to the corporate debtor for reconciliation of accounts, that by itself showed that there existed a dispute between the parties regarding the amount of debt due and the requirement for reconciliation of accounts, as both parties had counterclaims against each other. Therefore, NCLT did not commit any error in rejecting the section 9 application filed by the appellant on the ground of a pre-existing dispute.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied