Petition U/S 9 Of IBC Cannot Be Rejected On Grounds Of Raising Spurious Claim Of Pre-Existing Dispute: NCLAT

The NCLAT New Delhi bench of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) has held that making belated entries in the books of account to show that goods were misappropriated cannot escape the conclusion that the dispute raised by the corporate debtor was merely a moonshine just to avoid the liability. Brief Facts The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 06.12.2023 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority. By the impugned order, the Adjudicating Authority has admitted the Section 9 application filed by the Operational Creditor and admitted the Corporate Debtor into the rigors of Corporate Insolvency Resolution Process (“CIRP” in short). Aggrieved by the impugned order, the present appeal has been filed by the shareholder of the Corporate Debtor. The Corporate Debtor- Sahara Q Shop Unique Products Range Limited had entered into Service Agreement with Sigma Supply Chain Solutions Pvt. Ltd.-Operational Creditor for the purpose of handling, storage, maintenance, administration, distribution and arrangement of the goods of the Corporate Debtor kept in the warehouses at various locations within the country. The Operational Creditor sent e-mails to the Corporate Debtor regarding outstanding amounts due and payable by the Corporate Debtor. The Operational Creditor claiming that the outstanding amount remained unpaid issued a Demand Notice on 25.02.2020 under Section 8 of the IBC to the Corporate Debtor demanding payment of Rs 4.02 Cr including interest. The Corporate Debtor sent a Notice of Dispute on 07.03.2020 denying their liability besides claiming that there were pre-existing disputes between the parties. The Operational Creditor filed a Section 9 application against the Corporate Debtor on 28.12.2021 claiming an amount of Rs 1.75 Cr as due and payable by the Corporate Debtor including interest @18% per annum. Contentions The appellant submitted that the pre-existing disputes stem from the Operational Creditor acting in complete contravention of the terms of the Service Agreement much prior to issue of Section 8 demand notice. Attention was adverted to Clause 4 of the Service Agreement which provided that the ownership of the stocks in the warehouses lied solely and exclusively with the Corporate Debtor and that the Operational Creditor was only a handling/distribution agent of the stock and therefore held the stock in trust on behalf of the Corporate Debtor. However, acting in violation of this clause, the Operational Creditor had denied the access of the warehouse to the Corporate Debtor. That in the Notice of Dispute dated 07.03.2020, the Corporate Debtor had denied the outstanding amount besides notifying the Operational Creditor about the pre-existing dispute. This notice of dispute has also been acknowledged by the Operational Creditor in their affidavit under Section 9 of the IBC. Per contra, the respondents submitted that the ground of pre-existing dispute raised by the Corporate Debtor is simply a ruse to escape their liability of paying the debt owed by them to the Operational Creditor. That the Corporate Debtor had clearly acknowledged their debt in their letter dated 22.04.2015 in which they had requested further time to make payments as they were facing financial difficulty. It was also mentioned that the Corporate Debtor had raised allegations against them of having misappropriated goods and illegally sold the stocks of the Corporate Debtor as an after-thought only after they received various e-mails from the Operational Creditor calling upon them to pay the outstanding dues. That Adjudicating Authority had sought explanation from the Corporate Debtor as to how the alleged misappropriation of goods had been dealt in their books of account. The Appellant had submitted two ledger statements and had changed the entry belatedly in the new detailed ledger which clearly indicates that the Corporate Debtor had manipulated their accounts to match the amount of goods that were allegedly misappropriated. That the Corporate Debtor had made payments to the Operational Creditor till 23.03.2017 which date is after the allegations made by the Corporate Debtor against the Operational Creditor for misappropriation of goods. Issue Before NCLAT Whether payment to the Operational Creditor was due and payable by the Corporate Debtor, and if so, whether any default thereto was committed by the Corporate Debtor and whether the said operational debt exceeds the prescribed threshold level and is undisputed debt. NCLAT's Analysis The tribunal, at the outset, noted that in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018), the Supreme Court has held that the adjudicating authority, when examining...

Petition U/S 9 Of IBC Cannot Be Rejected On Grounds Of Raising Spurious Claim Of Pre-Existing Dispute: NCLAT

Mohd Malik Chauhan

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