NCLT Kolkata: Police Complaint Before The Issuance Of The Demand Notice U/S 8 Of IBC Relating To Supply Of Inferior Goods Or Services Constitutes 'Pre-Existing Dispute'

Background Facts:

Abdul Hannan, the Operational Creditor (Applicant) had provided raw jute to Jai Jute and Industries Limited (Corporate Debtor). Before the issuance of a demand notice, on 17.07.2017, a complaint was lodged against the Applicant and others at the Posta Police Station. The complaint alleged forgery, fabrication of false documents, inadequate supply of raw jute, conspiracy with the Corporate Debtor's employees to produce fraudulent inspection reports, and substandard quality of raw jute.

On 20.07.2017, a settlement agreement was reached between the Applicant Hannan and the Corporate Debtor. Both parties agreed that the Corporate Debtor would pay Rs. 66 lakh to Abdul Hannan in instalments over a year from the execution of the settlement agreement, without any interest charges. This settlement agreement was referenced in the complaints filed in 2017. As part of the settlement, the Corporate Debtor possibly issued postdated security cheques to the Applicant.

Consequently, both parties mutually decided that the Corporate Debtor would retract its complaint dated 17.07.2017, against the Applicant, and would not pursue it further. Hence, there were no further actions taken regarding the complaint.

Presently, the Corporate Debtor has an outstanding debt of Rs. 2.16 crores to the Applicant. Aggrieved with this, the Applicant has filed a petition under Section 9 of the IBC to commence the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

NCLT Verdict:

The NCLT Kolkata dismissed the CIRP application and held that a Police Complaint, prior to the issuance of the Demand Notice under Section 8 of IBC prosecuting a dispute regarding the supply of inferior goods and/or service is a pre-existing dispute.

The Tribunal placed reliance on the NCLAT decision in Sherbahadur D. Yadav vs. M/s. Rohan Dyes and Intermediates Ltd. wherein it observed that when complaints existed much prior to the initiation of proceedings u/s 9 of IBC, the Adjudicating Authority was correct to conclude that there was a pre-existing dispute between the parties.

It also referred to the NCLAT decision in Mr. Anil J. Nemaavarkar vs. M/s. Kumar Builders Mumbai Realty Pvt. Ltd. wherein it was held that IBC is not for resolving disputes relating to service, benefits, and the remedy lies elsewhere and the Adjudicating Authority was correct in noticing the pre-existing dispute between the parties.

NCLT noted that presently, on 17.07.2017, a complaint was filed by the Corporate Debtor against the Applicant on the allegation of supply of inferior quality goods. A Settlement Agreement was entered on 20.07.2017 wherein the said dispute was settled and the parties agreed not to proceed any further concerning the said police complaint. However, there was no evidence relating to the withdrawal or closure of the complaint.

In conclusion, NCLT dismissed the CIRP application and noted that since there are pre-existing disputes between the parties in regard to the supply of goods, the defense claimed by the Corporate Debtor cannot be considered moonshine.

Case Title: Abdul Hannan vs. Jai Jute and Industries Ltd.

Case No.: Company Petition (IB) No. 154/KB/2022 and Interlocutory Application (IB) No. 1209/KB/2023

Counsel for Applicant: Mr. Rishav Banerjee, Adv., Mr. Patita Paban Bishwal, Adv., Ms. Suranjana Chatterjee, Adv.

Counsel for Respondent: Mr. D. N. Sharma, Adv., Mr. Nilay Sengupta, Adv., Ms. Urmila Chakraborty, Adv., Mr. Ankon Rai, Adv., Mr. Sujit Banerjee, Adv., Ms. Ananya Barik, Adv.

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