Sec 9 application cannot be entertained when dispute is pre-existing, expounds NCLAT, Read Judgement

31 Jul 2023

The NCLAT, New Delhi analysed Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) which defines operational debt and opined that the claim must bear some nexus with a provision of goods or services irrespective of who is to be the supplier or receiver.

In the present case, it was noted that the dispute was pre-existing; therefore, the Section 9 application was rightly dismissed.

Brief Facts:

The present appeal has been filed against the order of the NCLT vide which the Section 9 application under the IBC has been rejected.

Brief Background:

The Respondent approached the Appellant for a supply of signalling cables and other electronic items for which the purchase order was issued. The Appellant supplied the goods. However, the Corporate Debtor only paid part amount; the rest was due and outstanding.

Contentions of the Respondent:

It was argued that there was no debt to be paid by the Corporate Debtor. Further, there was a pre-existing dispute between the parties regarding the quality of goods.

Observations of the Tribunal:

The Bench analysed Section 5(21) which defines operational debt and opined that the claim must bear some nexus with a provision of goods or services irrespective of who is to be the supplier or receiver.

Further, this included all forms of contract for the supply of goods or services between the operational creditor and the corporate debtor.

In the present case, the Appellant attached pending invoices and furnished a demand notice. Hence, the same falls under the scope and definition of operational debt. A hypertechnical view cannot be taken.

However, after perusing emails between the parties, it was noted that the dispute was in fact a pre-existing one and therefore, the Section 9 application was rightly dismissed.

The decision of the Tribunal:

Based on the aforementioned reasonings, the Tribunal dismissed the appeal and upheld the order of the NCLT.

Case Title: Manoj Stone Infra Pvt. Ltd. V. Railsys Engineers Pvt. Ltd.

Case No.: Company Appeal (AT)(Ins) No. 763 of 2023

Coram: Justice Ashok. Bhushan, Mr. Barun Mitra (Technical Member)

Advocate for Appellant: Adv. Viplav Acharya

Advocates for Respondent: Advs. Nakul Mohta, Ms. Riya Mukherjee