If ‘debt’ has been ‘disputed’, question of default doesn’t arise; orders under Section 9 I&B Code quashed: NCLAT

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S. Cheema, Member (Judicial), allowed an appeal filed against the order of National Company Law Tribunal, Mumbai whereby an application preferred by the respondent (Operational Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 was admitted; order of moratorium was passed; and Insolvency Resolution Professional was appointed.

The appellant (Corporate Debtor), referring to the emails exchanged between the parties, submitted that there was an existence of dispute prior to issuing of demand notice under Section 8(1). The dispute as alleged was regarding the quantum of payment, which was subsequently settled and the agreed amount plus GST had already been paid to the respondent. It is pertinent to note that originally, as submitted by the respondent, the appellant agreed to pay a fee of Rs 1 crore as brokerage towards the TATA-Neptune deal. However, the respondent accepted that the same was settled at Rs 75 lakhs plus GST, part payment of which was already done. The appellant submitted that though there was an existence of dispute, inspite of the same the NCLT admitted respondent’s application under Section 9 and passed the order impugned.

For settling the issue at hand, the Appellate Tribunal made a reference to the Supreme Court decision in Innoventive Industries Ltd. v. ICICI Bank(2018) 1 SCC 407 and perused Section 7 (when it comes to financial creditor triggering the process, this section becomes relevant) and Section 9 of the Code. It was observed that the Supreme Court, in the case mentioned herein, held that in a petition under Section 9, the Corporate Debtor has a right to show that there is an existence of dispute  about the quality of goods and services provided, as well as a right to dispute the debt including the quantum of payment. In view of the Appellate Tribunal, the emails exchanged between the parties clearly show that negotiations were going on relating to the quantum of payment. Originally, the payment to be made was Rs 1 crore which was finally settled at Rs 75 lakh. In such circumstances, it could be accepted that there was an existence of dispute about the payment of the debt. The Appellate Tribunal held, if the debt has been disputed, the question of default does not arise. Accordingly, the appeal filed by the Corporate Debtor was allowed; the order impugned passed by the National Company Law Tribunal, Mumbai was set aside, and the application preferred by Operational Creditor was dismissed. [Nayan Shah v. Viral Rajarashi Mehta, 2018 SCC OnLine NCLAT 411, dated 29-06-2018]

Join the discussion

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.