IBC 2016 empowers operational debtor to file CIRP under provisions of Section 10

This judgement clarifies that an operational debtor can initiate Corporate Insolvency Resolution Process (CIRP) under Section 10 of the Insolvency and Bankruptcy Code, 2016, provided their claim is clear and not disputed. The National Company Law Appellate Tribunal (NCLAT) upheld the Adjudicating Authority's decision to reject an application where the corporate debtor provided evidence of payment and disputed the debt. The NCLAT emphasised that if a corporate debtor can demonstrate with evidence that the claimed debt is not due, the application will not be admitted.

J.P. ENGINEERS PVT. LTD v. MURTI UDYOG LTD
[NCLAT] Company Appeal (AT) (Insolvency) No. 321 of 2017

HELD THAT

When Corporate Debtor disputed the debt and also filed civil suit against the Operational Creditor. This will be considered as existence of dispute.

BRIEF FACTS

1. This appeal has been preferred by the Appellant against the order dated 8th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, New Delhi, whereby and where under the application preferred by the Appellant under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") has been rejected on the ground that the Respondent has raised dispute with sufficient particulars.

2. Appellant issued the demand notice under sub-section (1) of Section 8 on 13th June, 2017. Thereafter, the amount having not paid, the application under Section 9 of the 'I&B Code' was filed on 13th September, 2017.

3. The Respondent thereafter filed suit on 12th December, 2017 i.e. much after filing of the application under Section 9 of the 'I&B Code'. The adjudication authority dismissed the application holding that there is an 'existence of dispute'.

JUDGMENT

4. The Respondents have filed reply and further affidavit and taken plea that the amount as was due was already paid to the Appellant by cheques, the details of which were brought to the notice of the Adjudicating Authority.

5. However, such submission has been disputed by the Appellant. According to the Appellant, the Chartered Accountant has certified that the amount has not been paid.

6. Admittedly, there is no 'existence of dispute' relating to supply of goods or its quality as were supplied by the Appellant. Therefore, it cannot be stated that there is an 'existence of dispute'.

7. However, what we find that the Respondent has disputed the debt as has been claimed by the Appellant. According to them, they have already paid and satisfied the claim amount by making payment through cheques.

8. The scheme of the 'I&B Code' fell for consideration before the Hon'ble Supreme Court in Innovative Industries Ltd v.ICICI Bank &Anr, (2018) 1 SCC 407, wherein the Hon'ble Supreme Court taking into consideration the provisions of the Code held that the 'Corporate Debtor' is entitled to point out that default has not occurred in a sense that the 'debt', which also may include a disputed claim, is not due.

9. In the present case, the Adjudicating Authority having noticed that the Respondent has satisfied with the evidence that there is no default on the part of the Respondent and the 'debt' is not due, we find no ground to interfere with the finding of the Adjudicating Authority.

10. The appeal is accordingly dismissed. No cost.

CONCLUSION

Please note that main objective of IBC,2016 is resolution of insolvency status of a Corporate Debtor through re-organisation and not liquidation. The Code,2016 empowers Operational Debtor to file CIRP under provisions of Section 10 by following due process for their valid claims. Please note that for Operational Debtors the Operational Debt should be clear and not in dispute and if Corporate Debtor disputes with corroborative evidences that operational debts claimed by Operational Creditor is disputable, then petition will not be considered by the authority.

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