NCLAT Delhi: Dispute On Contractual Conditions Concerning Place Of Delivery And Obligation Towards Transport Of Goods Qualifies As “Pre-Existing Dispute” Under IBC
The National Company Law Appellate Tribunal ('NCLAT') Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member) held that the dispute between the parties regarding contractual conditions relating to place of delivery and obligation of parties for transport of goods is a “pre-existing dispute”...
The National Company Law Appellate Tribunal ('NCLAT') Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member) held that the dispute between the parties regarding contractual conditions relating to place of delivery and obligation of parties for transport of goods is a “pre-existing dispute” under the Insolvency and Bankruptcy Code, 2016 (“IBC”).
Background Facts:
Sanam Fashion & Design Exchange Ltd. (Appellant) engaged in general trading, paid USD 200,000 in advance to Ktex Nonwovens Pvt. Ltd. (Corporate Debtor) for 10 tonnes of non-woven fabric in March 2020. The fabric was never delivered, and the advance was not refunded despite requests.
On 09.05.2023, the Appellant sent a statutory Demand Notice under Section 8 of the IBC, however no response was received. Subsequently, the Appellant filed a Corporate Insolvency Resolution Process (“CIRP”) petition under Section 9 of the IBC due to default by the Corporate Debtor's failure to refund the advance payment for goods ordered on 19.03.2020.
NCLT Ahmedabad via Order dated 10.08.2023 rejected the CIRP application filed by the Appellant under Section 9 of the IBC.
NCLAT Verdict:
The NCLAT Delhi dismissed the appeal and held that a dispute between the parties concerning contractual conditions relating to the place of delivery and obligation of parties for transport of goods constitutes a “pre-existing dispute” under IBC.
The Appellate Tribunal placing reliance on the Supreme Court decision in Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd. noted that the Appellant had made an advance payment to the Corporate Debtor and as per the above judgment, it does not matter who acts as the supplier or recipient of goods and services when there is a clear connection between payment and supply. Therefore, it held that the above judgment is squarely applicable, establishing a direct link between the payment made and the supply of goods and services.
Thus, it held that the Appellant qualifies as an “Operational Creditor” under IBC since there is existence of operational debt which includes a debt arising from a contract in relation to the supply of goods or services from the Corporate Debtor.
NCLAT observed that the dispute between the parties in relation to contractual conditions relating to the place of delivery and obligation of parties for transport of goods constitutes a “pre-existing dispute” under IBC.
In conclusion, NCLAT dismissed the appeal and observed that NCLT Ahmedabad was correct in rejection of the CIRP application as a CIRP application cannot be allowed during the pre-existence of a dispute.
Case Title: Sanam Fashion & Design Exchange Ltd. vs. Ktex Nonwovens Pvt. Ltd.
Case No.: Company Appeal (AT) (Ins.) No. 1234 of 2023
Counsel for Appellant: Mr. Manu Chaturvedi, Ms. Priyanka Sinha, Zalak Mody, Advocates.
Counsel for Respondent: Mr. Malak Bhatt, Ms. Ananya Kanoria, Mr. Ketan Parikh, Advocates.