Pendency Of Execution Proceedings No Bar To Section 9 Petition: NCLAT

Brief Factual Background

The Operational Creditor Royal Resinex Pvt Ltd. ("Resinex") supplied poly propylene to the Corporate Debtor Greatech Telecom Technologies Pvt Ltd. ("Greatech")

Resinex filed a civil suit against Greatech before District Court Rohini for recovering a amount of Rs. 16,44,500/-. The suit was decreed in favor of Resinex along with 12% interest per annum. Thereafter, Resinex filed an execution petition no. 425/2019 against Greatech.

Subsequently, Resinex issued a demand notice to Greatech under Section 8 of the insolvency and bankruptcy code, 2016 and the same was not replied by Greatech. Thereafter, Resinex filed a section 9 petition before NCLT Delhi and the same was admitted by NCLT Delhi vide order dated 31.07.2020.

Contentions Of Greatech

It was contended by Greatech that the demand notice was not duly served upon it by Resinex. Greatech further contended that the Section 9 petition was filed by Resinex on the basis of a decree of a court and the same cannot be termed as an operational debt. Lastly, it was further contended by Greatech that since the execution proceedings initiated by Resinex for recovery of decreed amount is pending, Section 9 petition under the code is not maintainable.

Contentions Of Resinex

Resinex contended that the demand notice was duly served upon Greatech. Resinex further contended that Greatech filed its reply to Section 9 petition and there is not a single pleading that demand notice was not served upon Greatech.

Resinex further contended that debt is due and payable from Greatech on the basis of poly propylene supplied by it to Greatech and the same is nothing but an operational debt.

Adjudication By NCLAT

NCLAT observed that the correct address of Greatech is mentioned in the demand notice issued by Resinex under Section 8 of the Code and on the basis of mere typographical error in the postal receipt issued by India Post, it cannot be argued by Greatech that the demand notice was not duly served upon Greatech. NCLAT held that;

"7…The mere fact that receipt, which was issued by India Post mentions address of the Corporate Debtor instead of No.54-A, it is mentioned 24, does not bely the sending of notice…"

NCLAT further held that there is no pleading either in preliminary objections or reply on merits that the demand notice was not served which clearly supports the submission of Resinex that the demand notice was duly served.

So far as the contention of Greatech that the decree is not an operational debt, NCLAT held that it is clear that the transaction on account of which debt fell due is the supply of poly propylene which is in the nature of operational debt as defined under Section 5(21) of the Code. It held that;

"11. Thus, the claim of the Operational Creditor was in respect of provisions of goods, that is, supply of poly propylene. The mere fact that when the Corporate Debtor did not pay the amount, suit for recovery was filed in the year 2016 by the Operational Creditor, which was also Decreed on 08.09.2016, does not in any manner effect the transaction out of which the amount fell due. The fact that amount was adjudicated and a Decree was passed, in no manner take away the nature of 'operational debt…"

NCLAT further held mere fact that the execution application is pending is not an impediment for initiating proceedings under the code and held that;

"14…In the present case, the Application filed by Respondent under Section 9 cannot be said to be filed with malicious intent, when inspite of Decree passed by the Civil Court in favour of the Respondent, no payments were made to it. The Operational Creditor had every right to invoke the provisions of Code. The mere fact that Execution Application filed by Operational Creditor is pending in Civil Court was no impediment for initiating proceedings under the Code."

Lastly NCLAT that the petition filed by the Operational Creditor cannot be said to be non-maintainable on the mere fact that the corporate debtor is a going concern.

In the light of above, NCLAT dismissed the appeal filed by the Greatech.

Case Title: Mukul Agarwal vs Royale Resinex Pvt. Ltd & Anr

Counsel for Appellant: Mr. Arun Srivastava, Advocate

Counsel for Respondent: Mr. Bharat Arora, Advocate for R-1. Mr. R. K. Gupta, Ms. Swarlipi Deb Roy and Ms. Mineesha Dhodi, Advocates for IRP

Click Here To Read/ Download Order