Tribunal Finds No Unpaid Operational Debt, Citing Full Settlement of Outstanding Liabilities
The Ahmedabad bench of the National Company Law Tribunal (NCLT) has dismissed an insolvency petition filed by Dhyaneshwar Shankar Unde, proprietor of Swadarshan Dairy Products, against Shukla Dairy Private Limited. The petition sought initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016, alleging default in payment of an operational debt amounting to Rs. 1,78,81,022.90.
The Tribunal, comprising Member (Judicial) Sh. Shammi Khan and Member (Technical) Sh. Sanjeev Sharma, concluded that there was no operational debt remaining unpaid by Shukla Dairy. The decision was based on the evidence provided by the respondent, demonstrating full payment of the settlement amount agreed upon between the parties.
During the proceedings, it was revealed that an initial settlement had been reached through a Memorandum of Understanding (MoU) dated November 6, 2020. The MoU stipulated that the outstanding liability of Rs. 1,49,62,721.63 was to be discharged in installments. Shukla Dairy furnished ledger accounts and bank statements as proof that the full amount had been paid, a contention that remained uncontroverted by the applicant.
The Tribunal highlighted that under Section 9 of the Insolvency and Bankruptcy Code, the burden of proof lies with the operational creditor to substantiate claims of unpaid debts. In this case, the applicant failed to provide contemporaneous evidence demonstrating non-payment post-settlement. The Tribunal emphasized that the proceedings are summary in nature and limited to determining the existence of an operational debt and default at the time of the application.
The NCLT referenced the Supreme Court's ruling in the Mobilox case, underscoring that mere allegations unsupported by documentary proof cannot lead to the admission of a CIRP petition. In its judgment, the Tribunal clarified that disputes over appropriation of payments or subsequent transactions fall outside the ambit of the Code, advising that such matters be pursued through alternative legal remedies.
This decision reinforces the principle that insolvency proceedings cannot be used as a tool for debt recovery in the absence of clear evidence of default. The Tribunal's dismissal of the petition effectively ends the insolvency action against Shukla Dairy Private Limited, allowing it to continue its business operations without further legal encumbrance.
Bottom Line:
Section 9 of the Insolvency and Bankruptcy Code, 2016 does not permit initiation of Corporate Insolvency Resolution Process (CIRP) in cases where the operational debt has been fully discharged, and disputes over appropriation or subsequent transactions are beyond the scope of IBC proceedings.
Statutory provision(s): Section 9 of the Insolvency and Bankruptcy Code, 2016
