NCLAT Dismisses Insolvency Plea Against Aussee Oats India Ltd. by Future Consumer Ltd.
Tribunal Upholds Set-Off Claim Supported by Audited Financials and Shareholder Approval
In a significant judgment, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, dismissed the insolvency petition filed by Future Consumer Ltd. against Aussee Oats India Ltd. The appeal, arising from the rejection of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, was adjudicated by Justice Ashok Bhushan and Member (Technical) Barun Mitra.
Future Consumer Ltd., the appellant, had moved the National Company Law Tribunal (NCLT), Mumbai Bench, seeking initiation of insolvency proceedings against Aussee Oats India Ltd., claiming a default on a financial debt of Rs. 1,00,12,157. The claim was based on an inter-corporate deposit of Rs. 2 Crore, of which Rs. 65,00,000 plus interest was allegedly outstanding. However, the NCLT rejected the application, holding that the Corporate Debtor's audited financial statements reflected a NIL debt due to the Financial Creditor, supported by a set-off against receivables.
Future Consumer Ltd. contended that the term sheet disallowed any set-off, asserting that the Corporate Debtor's unilateral set-off claim was impermissible. However, the Respondent, Aussee Oats India Ltd., argued that the financial statements, signed by a nominee director of the Financial Creditor, endorsed the set-off claim, rendering the objections baseless.
The NCLAT bench examined the financial records, which were audited and approved by shareholders, including an associate company of the Financial Creditor. The financial statements reflected no outstanding debt as of March 31, 2021, and accounted for receivables from the Financial Creditor. The tribunal emphasized that the Financial Creditor's associate company, holding a majority share, had approved these statements, negating the claim of outstanding debt.
The tribunal also noted the ongoing dispute between the shareholder groups of both parties, which influenced the decision. It concluded that the Adjudicating Authority rightly dismissed the insolvency application, as the Corporate Debtor owed no debt beyond what was claimed by the Financial Creditor.
The NCLAT further observed that the term sheet's clause on non-set-off did not negate the debtor's right to appropriate receivables against debts, especially when such transactions were duly recorded and audited. The tribunal underscored the importance of maintaining equitable principles, disallowing the initiation of insolvency proceedings based on disputed claims when the debtor's receivables exceeded the alleged default.
Ultimately, the NCLAT upheld the decision of the NCLT, dismissing the appeal and reinforcing the principle that insolvency proceedings cannot be initiated on the basis of disputed or non-existent debts.
Bottom Line:
Insolvency and Bankruptcy Code - Application under Section 7 for initiating insolvency proceedings cannot be maintained when the financial statement of the Corporate Debtor reflects NIL debt due to the Financial Creditor and the claim of set-off by the Corporate Debtor is supported by audited financial records and shareholder approval.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016, Section 7
