Pre-existing Dispute over Payment Terms in Endorsement Agreement Bars Insolvency Proceedings Under IBC
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has affirmed the decision of the Adjudicating Authority to dismiss the insolvency petition filed by actor Akshay Kumar Bhatia against Cue Learn Private Limited. The appeal was rooted in a contractual dispute regarding an Endorsement Agreement dated March 8, 2021, between the parties, which allegedly entitled Mr. Bhatia to unpaid consideration under the agreement terms.
The NCLAT, comprising Justice N. Seshasayee and Mr. Indevar Pandey, concluded that the dispute concerning the interpretation of payment terms in the contract constituted a "pre-existing dispute." This finding barred the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The contract stipulated that Mr. Bhatia was to be paid a total of Rs. 8.10 crores for making himself available for two days to render services to Cue Learn Pvt. Ltd. The payment was divided into two installments: Rs. 4.05 crores on or before March 8, 2021, and another Rs. 4.05 crores on or before April 15, 2022, or seven days prior to utilizing the second day of service, whichever was earlier.
The crux of the dispute revolved around whether the second installment was due irrespective of the appellant's service on the second day. Cue Learn Pvt. Ltd. argued that since Mr. Bhatia had not rendered services on the second day, the condition precedent for the second payment had not arisen, thus negating any operational debt under the IBC.
The NCLAT emphasized that the existence of a debt and default must be unequivocal and devoid of any pre-existing dispute to initiate CIRP. The tribunal found that the dispute over the contractual terms was genuine and had been raised even before the statutory demand notice was issued, satisfying the "Mobilox test" for a pre-existing dispute.
The judgment reinforced the principle that IBC is not a mechanism for debt recovery but a tool for resolving insolvency. It highlighted that contractual disputes concerning payment terms are to be resolved through civil courts, not insolvency proceedings.
The tribunal's decision underscores the importance of clear contractual terms and the necessity of resolving ambiguities through proper legal channels. The ruling also serves as a reminder of the stringent requirements under the IBC for proving the existence of an operational debt and default.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Pre-existing dispute regarding interpretation of contractual terms between appellant (actor) and respondent (corporate debtor) - Adjudicating Authority rightly dismissed initiation of CIRP under Section 9 IBC.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 3(6), 5(21), 8, 9
