NCLAT Dismisses Senior Advocate's Plea Over Non-Payment Of Over ₹6 Crore In Fees By Company, Says Pre-Existing Dispute Bars Initiation Of CIRP
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, consisting of Justice Ashok Bhushan (Chairperson) and Arun Baroka (Member - Technical), dismissed an appeal arising from the final order by the NCLT New Delhi Bench-IV regarding the initiation of CIRP under Section 9 of the Insolvency and Bankruptcy Code (IBC).The appeal was filed by a Senior...
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, consisting of Justice Ashok Bhushan (Chairperson) and Arun Baroka (Member - Technical), dismissed an appeal arising from the final order by the NCLT New Delhi Bench-IV regarding the initiation of CIRP under Section 9 of the Insolvency and Bankruptcy Code (IBC).
The appeal was filed by a Senior Advocate seeking CIRP over non-payment of fees. The NCLAT concurred with the ruling of the Adjudicating Authority, which laid down that the, Section 9 application for CIRP cannot be admitted in a condition when there is a pre-existing dispute. The tribunal laid down that an application for initiating CIRP cannot be entertained if there is a valid dispute regarding the existence or the amount of the debt.
Background
The appellant, a senior advocate, filed an application under section 9 of the IBC, seeking initiation of the CIRP against the respondent, State Trading Corporation of India Ltd. (STC). The appellant claimed that he rendered legal assistance to the corporate debtor over several years, and his fees, amounting to Rs. 6.48 Cr., remained unpaid.
The appellant represented STC in various legal matters between 2006 and 2018, for which he issued invoices seeking payment for his legal services. While the bills of the briefing advocate and the advocate-on-record (AOR) were processed, the appellant's bills were not cleared.
After issuing the section 8 demand notice, the appellant filed an application for the initiation of CIRP under Section 9 of the IBC and also approached the Hon'ble High Court seeking a writ of mandamus for the processing and payment of his outstanding legal fees.
Contention of the Parties
The appellant contended that mere non-processing of the bills on technical grounds does not establish the existence of a pre-existing dispute, and the Adjudicating Authority has erred in its conclusion while holding that the raised dispute qualifies as a 'pre-existing' dispute. The appellant highlighted that the respondent never disputed the validity of the bills but, instead, sought fresh replacement of bills.
The respondent argued that the appellant, while filing the writ petition, has implicitly treated the respondent as a solvent entity. The respondent also contended the accuracy of the invoices and highlighted that the appellant withdrew the initial demand notice and issued a revised one, reducing the claimed debt amount, which highlights a dispute over the debt, in accordance with Section 8(2) of the IBC. The respondent highlighted that the grievances regarding the unpaid invoices were not raised for over a decade, and it was only brought up after the corporate debtor ceased engaging the appellant's services.
NCLAT's Judgment
The NCLAT upheld the decision of the Adjudicating Authority and dismissed the appeal filed by the Senior Advocate seeking initiation of the CIRP over non-payment of fees. The NCLAT observed that a pre-existing dispute had indeed existed before the Section 9 application was filed.
In furtherance of the respondent's objections, the appellant withdrew the initial demand notice and issued revised one, reducing the alleged debt amount to 6.26 Cr. This reduction in the claimed amount itself suggests the existence of a serious dispute regarding the debt. The tribunal found the disputes to be genuine, substantial, rather than being spurious, hypothetical, or illusionary.
Relying on the Hon'ble Supreme Court's judgments in the case of Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. and Sabarmati Gas Ltd. v. Shah Alloys Ltd., the tribunal upheld the Adjudicating Authority's decision that a pre-existing dispute existed between the parties. The rulings emphasized that it is sufficient for a dispute to be plausible and requiring investigation, not necessarily that the dispute is likely to succeed.
The NCLAT concluded that the corporate debtor could not be admitted into insolvency due to the existence of the dispute, and there was no error in the Adjudicating Authority's order.
Case Title: Debarata Ray Choudhuri v. The State Trading Corporation of India Ltd.
Case Number: Company Appeal (AT) (Insolvency) No. 1985 of 2024
Tribunal: National Company Law Appellate Tribunal, Principal Bench, New Delhi
Judge: Justice Ashok Bhushan (Chairperson), and Arun Baroka (Member (Technical))
For Appellant: Ms. Stuti Jain and Mr. Akshu Jain, Advocates Mr. D.R. Choudhuri, Appellant in Person
For Respondent: Mr. Uday Gupta, Sr. Advocate with Ms. Shivani Lal, Mr. Hiren Dasan, Mr. Sanam Singh, Mr. Unmukt Gera and Mr. Ajay Sharma, Advocates.
Date of Judgement: 05.03.2025
