Reflection Of Genuine Pre Existing Dispute From Correspondences Between Parties Is Sufficient To Reject Application U/S 9 Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that when a pre-existing dispute regarding the claim exists between the parties, as clearly reflected in their correspondence, an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code), must be rejected. Brief Facts: A Facility Agreement was entered between Sahara Hospitality Limited (Corporate Debtor) and KTR Management Services Private Limited (Operational Creditor) on 01.04.2018 with respect to the supply of manpower for performing various activities at the Hotel. A legal notice was issued by Respondent No.1 claiming an amount of Rs.10,59,78,114/-. The Corporate Debtor on 21.08.2019 sent a reply to the legal notice disputing and denying the claim. Reply further pleaded that there are various deficiencies in services provided by Respondent No.1. On 03.01.2020, a demand notice under Section 8 of the IBC was issued by the Respondent No.1 claiming an amount of Rs.8,22,82,004/-. The demand notice was replied by the corporate debtor by its reply dated 28.01.2020. In reply to the demand notice, corporate debtor referred to the on-going disputes between the parties. Section 9 application was filed thereafter by Operational Creditor. A reply to Section 9 application was filed by the corporate debtor raising various grounds including pre existing dispute between the parties. Adjudicating Authority by its order dated 21.11.2024 admitted Section 9 application, aggrieved by which order this Appeal has been filed. Contentions: The Appellant submitted that even prior to issuance of demand notice by operational creditor, the corporate debtor has communicated the operational creditor about the deficiency in service. Legal notice dated 01.07.2019 issued by the Respondent No.1 was replied disputing the claim and pointing out deficiency in the service. It was also argued that Present was a case where Section 9 application could not have been admitted, notice of dispute having already been issued by the corporate debtor in reply to the demand notice. Per contra, the Respondent submitted that the issues between the parties need to be examined by the Competent Court as per the Facility Agreement dated 01.04.2018 entered between the parties. Observations: The Tribunal noted that the demand notice was issued on January 1, 2020 only after the termination of the Facility Agreement. The Corporate Debtor in its reply issued on January 28, 2020 categorically denied the claim of the Appellant and asserted that the amounts were not due. It was also stated that a bona fide pre existing dispute existed between the parties which was sufficient to reject the application under section 9 of the Code. It further added that there being pre existing dispute which existed much prior to issuance of demand notice which is reflected from correspondences between the parties, legal notice issued by the operational creditor dated 01.07.2019 and reply to the legal notice sent by the corporate debtor on 21.08.2019. It further noted that in the reply submitted by the corporate debtor, relevant materials are brought on the record which clearly reflected a pre-existing dispute between the parties prior to issuance of demand notice. Accordingly, the appeal was allowed and the impugned order was set aside. Case Title: Dilipkumar Lokooram Arora, (Member of Suspended Board of Directors) Sahara Hospitality Ltd. Versus KTR Management Service Pvt. Ltd. & Anr. Case Number:Company Appeal (AT) (Insolvency) No. 2183 of 2024 Judgment Date: 21/03/2025 For Appellant: Shri Krishnendu Datta, Sr. Advocate with Mr. Sandeep Bajaj, Mr. Mayank Biyani, Ms. Alina Marin Mathew, Advocates. For Respondents: Mr. Rahul Chitnis, Ms. Shwetal Shepal, Mr. Preshit Surshe, Advocates for R-1. Mr. Ganesh Ramani, Advocate for IRP. Click Here To Read/Download The Order

Reflection Of Genuine Pre Existing Dispute From Correspondences Between Parties Is Sufficient To Reject Application U/S 9 Of IBC: NCLAT

Mohd Malik Chauhan

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