Section 9 Application Is Not Maintainable In Absence Of Strict Proof Of Debt And Default: NCLT Mumbai

Background Facts

Mittal Polymers (“Operational Creditor”) alleged a default of Rs.2,33,10,961/- against Suvarna Additives Limited (“Corporate Debtor”). This was based on several unpaid invoices issued by the Operational Creditor during the period between 2015 and 2019 for selling and supplying goods to the Corporate Debtor. The Corporate Debtor defaulted in the payment of outstanding dues from 16.09.2019. A demand notice dated 15.11.2019 was issued to the Corporate Debtor, however no reply was received and the payment for settling the outstanding dues was not made. Thus, an application was filed by Operational Creditor for initiating Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor.

It was contended by the Operational Creditor that the amount of Rs. 1,12,17,578/- was still left unpaid towards the supply of raw materials to the Corporate Debtor. It was submitted that the Operational Creditor is also entitled to claim interest upon the amount raised through unpaid invoices as per Section 15 and 16 of the MSMED Act.

It was argued by the Corporate Debtor that the matter was being settled with the Operational Creditor. The online reply was filed by the Corporate Debtor only after the hearing of the parties was conducted on 15.12.2023 on the ground of lack of acquaintance with the online filing system of the tribunal.

However, the Corporate Debtor did not file any application to recall the order dated 15.12.2023 which was reserved for order. As a result, the tribunal did not consider the reply and went on to deal with the application on merits based on the submissions made by the parties.

NCLT Verdict

It was observed by the tribunal that the bank statement produced by the Operational Creditor only suggests that it has not received any payment from the Corporate Debtor from 03.12.2019 to 19.12.2019. Further, no ledger or annual financial statement was produced which could have helped in proving the alleged debt or default committed by the Corporate Debtor. The only documents produced by the Operational Creditor in order to prove debt and default is its own computation of claims and the demand notice dated 15.11.2019 which are insufficient to determine the maintainability of the present Application.

It relied on M/s. SFO Technologies Pvt. Ltd. Vs. M/s. Vanu India Pvt. Ltd., [IA No. 1106/2022 in Company Appeal (AT) (CH) (Ins.) No. 436/2022] which held that Section 9 Application is not maintainable in the absence of strict proof of debt and default.

It was also observed that since no invoices were produced on record it is difficult to ascertain the veracity of its claims. It was stated that there is no evidence to suggest whether the alleged debt has been acknowledged by the Corporate Debtor. It was held that “the OC has not succeeded in proving existence of any operational debt due and payable to it by the CD. Initiation of CIRP is a serious matter and it has severe consequences on a corporate entity. It is not to be allowed in a case which lacks any proof of debt and default committed by the CD”.

With the aforesaid observation, the application under Section 9 for initiating CIRP was rejected.

Case:MITTAL POLYMERS vs SUVARNA ADDITIVES PRIVATE LIMITED

Case No.CP (IB) No. 95/MB/2022

Order Dated 12.06.2024