NCLAT New Delhi: Disputes Surrounding Claims And Counter-Claims Cannot Be Adjudicated Or Determined By The Adjudicating Authority Given Their Summary Jurisdiction

The Appellate Tribunal held that disputes surrounding claims and counter-claims cannot be adjudicated or determined by the Adjudicating Authority given their summary jurisdiction. There is no ground to establish any real and substantial pre-existing dispute that can thwart the admission of CIRP against the Corporate Debtor

Background Facts:

Goods were supplied by Flourish Paper & Chemicals Ltd. (Operational Creditor) to the Corporate Debtor against the invoices from 08.10.2016 to 17.12.2016. The Operational Creditor issued a Demand Notice under Section 8 of the Code as the debt stood at Rs. 20.91 Lakhs including interest of Rs.7.49 Lakhs on 02.01.2020. The Corporate Debtor replied to the notice demanding payment of Rs 25 Lakhs as compensation for loss and damages suffered due to poor quality of goods supplied. As per this, the Operational Creditor filed CIRP against the Corporate Debtor which was admitted by the NCLT.

NCLT had allowed the Corporate Debtor to deposit Rs.13.42 Lakhs in its name without prejudice to its rights and contentions. Further, the Interim Resolution Professional (“IRP”) was directed not to take further steps under the CIRP and no Committee of Creditors (“CoC”) has been constituted. A subsequent offer was also made to the Operational Creditor for Rs.24.50 Lakh but was not accepted by it as it demanded reasonable interest on the said debt.

Contentions of Appellant

The Appellant submitted that there were pre-existing disputes between the parties as the Operational Creditor had supplied goods with inferior quality. Further, debit notes were issued by the Corporate Debtor for defective supplies in FY 2016-17. The Corporate Debtor even supplied some material with advance payments to the Operational Creditor and after adjusting these amounts there was no due amount. Instead, the Operational Creditor had received an excess payment of Rs.16.08 Lakhs which was due to the Corporate Debtor. Further, the interest amount in the Demand Notice was never agreed upon. Thus, it argued that a viable company operating as a going concern with a large number of employees has been wrongly pushed into CIRP.

NCLAT Verdict:

The NCLAT dismissed the appeal and upheld that disputes surrounding claims and counter-claims cannot be adjudicated or determined by the Adjudicating Authority given their summary jurisdiction.

The Appellate Tribunal observed that the NCLT New Delhi relied on Mobilox Innovations Private Ltd. vs. Kirusa Software Private Ltd. has rightly arrived at the position that on no occasion the Corporate Debtor had raised complaints with regard to poor quality of goods with the Operational Creditor after the issue of the two credit notes aggregating Rs.35.91 Lakhs. Neither any invoices have been furnished for the same. Moreover, there is communication by the Corporate Debtor on the reminders sent to the Operational Creditor to meet the outstanding payments.

The NCLAT concluded that there is no ground to establish any real and substantial pre-existing dispute that can thwart the admission of CIRP against the Corporate Debtor. It directed that the IRP may take necessary action to constitute the CoC forthwith and to take up the matter of CIRP costs including their fees with the CoC in accordance with the law.

Case Title: Rakesh Kumar (Suspended Director of Suchi Paper Mills Ltd.) vs. Flourish Paper & Chemicals Ltd.

Case No.: Company Appeal (AT)(Insolvency) No. 1161 of 2022

Counsel for Appellant: Mr. Nilesh Sharma, Mr. Hemant Sharma, Mr. Karan Valecha, Ms. Aditi Sharma, Advocates.

Counsel for Respondent: Mr. Vinod Chaurasia, Advocate Mr. Anuj P Agarwala, Mr. Aayush Agarwala, Mr. Siddhen Nahata, Advocates for IRP. Mr. Abhijeet Sinha, Mr. Ashish Verma, and Mr. Salonee Keshwani, Advocates for Bank of Baroda.

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