NCLAT Set Asides Insolvency Process Against HCL

NCLT Bench-II, New Delhi on 17.01.2022 admitted the insolvency petition filed by an operational under Section 9 of the Insolvency and Bankruptcy Code, 2016 against HCL for a debt of INR 3.54 Crores. Earlier, NCLAT on 19.01.2022 while issuing notice in the appeal filed by suspended director of HCL stayed admission order of NCLT, New Delhi.

Brief Background

HCL entered into an agreement dated 19.11.2015 with Sahaj Bharti Travels for provision of pick up and drop caps for its personnel. The agreement was further extended till 31.12.2018 by HCL. As per the terms of the agreement, invoices were required to be raised by Operational Creditor within 60 days of services delivered or billed.

Schedule A of the Agreement provides that in case cabs do not run for a minimum of 7000 Kilometers, a minimum guarantee amount would be payable to Operational Creditor by HCL.

Operational Creditor vide its email dated 25.05.2018 requested payment of minimum guarantee amount and a meeting dated 28.05.2018 was held between HCL and Operational Creditor concerning the same.

HCL vide its email dated 29.11.2018 informed the Operational Creditor that no amount is due and payable on the account of Minimum Guarantee amount but considering the relationship between the parties, HCL proposed to pay an amount of INR 20.58 Lakhs in good faith for one full and final settlement of all issues. Operational Creditor replied to the same and requested HCL to make payment of INR 81.96 Lakhs which was denied by HCL.

Subsequently, HCL sent a demand notice under Section 8 of the Code for an amount of INR 3.54 Crores and thereafter filed an application under Section 9 of the Code for the same amount which was admitted by NCLT vide its order dated 17.01.2022.

Contentions Of HCL

It was contended on behalf of the HCL before the NCLAT that;

• There is a pre-existing dispute between the parties regarding the minimum guarantee amount and all invoices regarding the actual services provided by Operational Creditor has been duly paid by HCL.
• As per agreement, Operational Creditor was required to raised invoices for the services rendered but no invoice was raised by the Operational Creditor regarding the Minimum Guarantee Amount.
• The proposal of payment of INR 20.58 Lakhs was in good faith and without pre judice to the rights and contentions of HCL regarding pre-existing dispute between the parties.
• The Application filed by the Operational Creditor was nothing but a proceeding for recovery of contractual amount even when there is an arbitration clause in the Agreement.

Contentions Of Operational Creditor

It was contended on behalf of the Operational Creditor before NCLAT that;

• Operational Creditor was entitled for the payment of Minimum Guarantee Amount and thus has the full right to initiate the proceedings under IBC.
• HCL itself admitted the debt of INR 20.58 Lakhs which is more than INR 1 lakh and therefore, the operational debt stands admitted by HCL.

Issues framed by NCLAT

• Whether there was a pre-existing dispute between the parties prior to issuance of Demand Notice under Section 8 dated 08.05.2019?
• Whether there was a debt due of which default was committed by the Corporate Debtor entitling the Operational Creditor to file an Application under Section 9 of the IBC?
• Whether the correspondences between the parties beginning from e-mail dated 26.05.2018 to 03.12.2018 proved admission of debt by the Corporate Debtor of an amount of more than Rs. 1 Lakh which was sufficient to admit Section 9 Application?
• Whether the Application filed by the Operational Creditor was an application as a debt enforcement measures against the solvent company for recovery of a debt and not an Application for any Insolvency Resolution for Corporate Debtor?

Decision/Analysis by NCLAT

Issue I

NCLAT referred to various terms of the agreement between the Operational Creditor and HCL and recorded that no invoice was raised by the Operational Creditor regarding the minimum guarantee amount and the issue regarding the payment of minimum guarantee was raised for the first time on 28.05.2019.

NCLAT further noted that all the invoices raised by the Operational Creditor were duly paid by HCL and offer made by HCL was only in good faith and therefore, concluded that on the basis of the communications between the parties, there exists a pre-existing dispute the parties in terms of the judgement of Supreme Court in the Mobilox Innovations Private Limited v. Kirusa Software Private Limited and therefore, NCLT erred in rejecting the defence of HCL that there is a pre-existing dispute between the parties.

Issue II

NCLAT further held that no invoice was raised by the Operational Creditor regarding the Minimum Guarantee amount and it was not stipulated under the agreement that the HCL on its own will calculate the minimum guarantee amount and in the absence of any invoice, there is no debt due and payable by HCL and thus Section 9 Petition was liable to be rejected on this ground only.

Issue III

The Bench observed that there is no quarrel to the proposition that if the amount of default to the extent of more than 1 lakh is admitted, CIRP can be initiated against the Corporate Debtor. However, NCLAT held that the letter relied upon by the Operational Creditor cannot be read as an admission of any debt and the offer in good faith cannot be termed as the admission of any debt.

Issue IV

NCLAT held that merely having a remedy under Arbitration and Conciliation Act, 1996 is a not a ground to deny relief under IBC but it has to be considered that IBC proceedings should not be converted into debt recovery proceedings.

It was noted by the bench that HCL is a globally renowned business entity providing goods and services to various domestic and international government and private entity. The Balance Sheet of HCL for the financial year ending on 31.03.2018 reflects a turnover of INR 61,786 Crores and a profit of INR 8,772 Crores.

NCLAT ruled that the proceedings under IBC were only initiated by Operational Creditor for virtually establishing its claim of minimum guarantee amount which was never accepted or admitted by HCL and therefore, the present proceedings were initiated as a debt enforcement measure.

Accordingly, NCLAT allowed the appeal filed by suspended director of HCL and set aside the insolvency admission order against HCL.

Case Details: C Vijay Kumar versus Sahaj Bharti Travels dated 26.05.2022

Counsel for Appellants: Mr. Nakul Dewan, Sr. Adv with Sathvik Chandrashekar, Mr. Sameer Jain

Counsel for Respondent: Mr. Mohit Arora, Mr. Pragyan Pradip Sharma and Vinod Chaurasia

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