Operational Debt Dispute Leads to Dismissal of Hella Infra Market's Insolvency Application Due to Pre-existing Dispute
In a significant ruling, the National Company Law Tribunal (NCLT) Ahmedabad bench, comprising Sh. Shammi Khan (Member Judicial) and Sh. Sanjeev Sharma (Member Technical), has dismissed the insolvency petition filed by Hella Infra Market Metal Private Limited against SMW ISPAT Private Limited. The petition, filed under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, was aimed at initiating a Corporate Insolvency Resolution Process (CIRP) against SMW ISPAT for an alleged default in payment of operational debt amounting to Rs. 1.52 crore.
Hella Infra Market, acting as the operational creditor, claimed that SMW ISPAT, the corporate debtor, had defaulted on the payment for goods supplied, comprising a principal amount of Rs. 1.34 crore, interest of Rs. 14.96 lakh, and GST of Rs. 2.69 lakh. The operational creditor argued that the debt was undisputed and payable, having arisen from a series of purchase orders for sponge iron lumps and other raw materials.
However, the NCLT found that SMW ISPAT had raised substantial disputes regarding the quality of goods supplied and delays in delivery, which predated the issuance of the statutory demand notice. The corporate debtor contended that the materials supplied were sub-standard, leading to operational disruptions and financial losses, including damage to an induction furnace. These disputes were substantiated with contemporaneous correspondence and internal reports, thereby satisfying the test for a pre-existing dispute as per the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.
The Tribunal observed that under Section 8(2)(a) of the IBC, the existence of a pre-existing dispute precludes the initiation of insolvency proceedings. The NCLT emphasized that its role was not to adjudicate the merits of the dispute but to determine if a plausible contention existed that warranted further investigation.
In light of the evidence presented, the NCLT concluded that the disputes raised by SMW ISPAT were genuine and substantial, thus barring the admission of the insolvency application under Section 9(5)(ii)(d) of the IBC. Consequently, the Tribunal dismissed the petition, ruling that the operational debt claimed was not undisputed and clearly payable.
The decision underscores the importance of demonstrating the absence of a pre-existing dispute when seeking insolvency proceedings under the IBC, reinforcing the protective measures available to corporate debtors against unwarranted insolvency applications.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Operational debt and pre-existing dispute - Petition under Section 9 of IBC dismissed as disputes regarding quality of goods, delayed deliveries, and consequential damages were substantial, supported by evidence, and not illusory defenses.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 5(20), 5(21), 8(2)(a), 9, 9(5)(ii)(d)
