Pre-Existing Dispute Does Not Bar Operational Creditor From Filing S.9 Application: NCLT Admits CIRP Against Syska LED

The National Company Law Tribunal Mumbai Bench, Court-II, comprising of Justice Kuldip Kumar Kareer (Member Judicial) and Anil Raj Chellan (Member Technical), admitted a Section 9 petition filed by operational creditor (Sunstar Industries) against the Corporate Debtor (Syska LED Lights Pvt. Ltd) stating that initiation of proceedings before the Micro, Small and Medium Enterprise Facilitation Council (MSEFC) in Delhi, and a complaint under Section 138 of the Negotiable Instruments Act, 1881 did not preclude it from filing a Section 9 application under the Insolvency and Bankruptcy Code, 2016

Facts of the Case

Sunstar Industries, a producer of electrical equipment had entered a business contract with the Corporate Debtor (Syska LED Lights Pvt. Ltd) in the year of 2017-18. Both the entities agreed to supply the products and Corporate Debtor would repay with a credit period of 60 days. Besides, Operational Creditor delivered the supplied materials worth Rs 7,19,45,493 to the Corporate Debtor and released 25 invoices between March 2023 and July 2023.

Syska LED despite receiving the goods and acknowledging the receipts have failed to make timely payment to the operational creditor. Syska did acknowledge the outstanding debts through various communications and even issued a post-dated cheque of Rs 7 crore in September 2023. However, upon presentation of these cheques, the same were dishonoured.

In the month of November 2023, Syska also requested Sunstar to delay the presentation for cheques and promised to clear the same soon. They also assured on a later stage in the month of march 2024 to settle the amount by the end of the month. But despite several communications, no payment was made by the Corporate Debtor.

Due to several failures and lack of fulfilment of promises by the corporate debtor, on 28^th December, 2023, Sunstar Industries filed an application under Section 9 of IBC before NCLT to initiate CIRP against SYSKA LED for defaulting on the payment of Rs 7.70 Crores, including interest.

Syska also offered One time Settlement (OTS) in August 2024, which was rejected by the Operational Creditor due to interest dispute in the amount. As a result, on 8^th October, 2024, the NCLT admitted the petition, initiating CIRP against SYSKA LED Lights Pvt. Ltd. to resolve the outstanding debts.

Contention of Parties

Operational Creditor contested that Syska LED despite receiving the goods and acknowledging the receipts have failed to make timely payment to the operational creditor. Syska did acknowledge the outstanding debts through various communications and even issued a post-dated cheque of Rs 7 crore in September 2023. However, upon presentation of these cheques, the same were dishonoured.

Sunstar also contested that there were no pre-existing disputes regarding the quality of the products and that the corporate debtor stated that the operational creditor supplied them with defective goods. But the same was defended by Sunstar stating that the amount of defective goods are not mentioned in the calculation of the pending amount of Corporate Debtor towards Sunstar.

Syska further stated that there was a disputed relationship between both the companies over the products supplied by the operational creditors and that Sunstar had already filed several legal cases against them including a case before the Micro, Small and Medium Enterprise Facilitation Council (MSEFC) in Delhi and a complaint under Section 138 of the Negotiable Instruments Act, 1881, for the dishonoured cheques. The corporate debtor submits that the claims in these proceedings are distinguishable from the claim in the Insolvency and that the same petition was being misused as a means of recovering money, which is not the objective of the Insolvency and Bankruptcy Code.

Tribunal's Decision

The tribunal recognised the operational debt of the corporate debtor and stated that the company had agreed to the liability through various communication channels such as Emails and the promise of paying 7 crores rupees through a post-dated cheque. The tribunal also stated that there was no pre-existing dispute between the companies and it was only a moonshine defence used by the company to delay the proceedings. The tribunal also stated that initiation of proceedings before the Micro, Small and Medium Enterprise Facilitation Council (MSEFC) in Delhi, and a complaint under Section 138 of the Negotiable Instruments Act, 1881 did not preclude operational creditors from filing a Section 9 application under the Insolvency and Bankruptcy Code, 2016 and also stated that the non-acceptance of OTS proposal does not become a ground for the tribunal to dismiss the Section 9 application.

Final Order

1. Company Petition No.96/2024 was admitted and CIRP was initiated against Syska LED Lights Pvt. Ltd.
2. Mr. Debasis Nanda appointed as Interim Resolution Professional (IRP)
3. Moratorium was imposed by the Tribunal.
4. Operational Creditor to deposit Rs 2,00,000 as the initial CIRP cost.

Case Title: Sunstar Industries Vs. Syska Led Lights Pvt. Ltd

Case Number: CP (IB)/96/MB/2024

Tribunal: NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH, COURT - II

Coram: Justice Kuldip Kumar Kareer (Member Judicial) and Anil Raj Chellan (Member Technical)

For the Operational Creditor: Adv. Rohit Gupta a/w Adv. Nipun Gautam

For the Corporate Debtor: Adv. Aman Kacheria a/w Adv. Darshan Suvarna

Date of Judgement: 08.10.2024

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