NCLT Dismisses Insolvency Petition Against Filatex Fashions Limited
Investment Dispute Ruled Out of Scope for IBC Proceedings, Tribunal Directs Parties to Civil Court
In a significant ruling, the National Company Law Tribunal (NCLT), Hyderabad Bench, dismissed an insolvency petition filed by Mrs. Neeta Zanvar against M/s. Filatex Fashions Limited. The tribunal clarified that claims arising out of equity investment and share subscriptions do not qualify as "operational debt" under the Insolvency and Bankruptcy Code, 2016 (IBC).
The petition, filed under Section 9 of the IBC, sought to initiate a Corporate Insolvency Resolution Process (CIRP) against Filatex Fashions Limited for an alleged operational debt of Rs. 2,75,56,134. The petitioner, Mrs. Neeta Zanvar, had entered into a Memorandum of Understanding (MoU) with the respondent company in 2017, which involved financial assistance through investment and share allotment. However, the company failed to adhere to the terms of the MoU, leading Mrs. Zanvar to seek legal recourse.
The NCLT, presided over by Shri. Rajeev Bhardwaj and Shri. Sanjay Puri, examined the nature of the transaction and determined that it was a commercial investment rather than an operational debt. The tribunal emphasized that the IBC is not designed for recovery of investment losses or enforcement of commercial contracts, which are more appropriately handled by civil courts or arbitral tribunals.
The judgment also highlighted procedural defects in the petition, notably the invalidity of the demand notice issued under Section 8 of the IBC. The notice was found defective as it lacked proper authorization, following precedents set by the National Company Law Appellate Tribunal (NCLAT).
Furthermore, the tribunal noted that a subsequent MoU in 2023 had replaced the earlier agreement, constituting a novation of the original contract. This fresh agreement, which included revised terms for settlement, superseded previous obligations and did not support an operational debt claim.
The ruling underscores the tribunal's stance that the IBC should not be misused as a tool for debt recovery in commercial disputes, reaffirming that the code is intended for genuine operational debts involving the supply of goods or services.
Bottom Line:
Insolvency and Bankruptcy Code - Claim arising out of equity investment and share subscription does not qualify as "operational debt" under Section 5(21) of the IBC.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 5(21), 3(12), 8, 9, Indian Contract Act, 1872 Section 62
