Objections Raised By Corporate Debtor To Oppose Section 9 Petition Not To Be A Moonshine Defence: NCLAT Delhi

Background Facts

Krishna Hi-Tech Infrastructure Pvt. Ltd. ("Operational Creditor") was awarded work contract by Bengal Shelter Housing Development Ltd. ("Corporate Debtor") and the work was proceeded with. When payments were not received by the Operational Creditor, it issued a Demand Notice under Section 8 of Insolvency and Bankruptcy Code, 2016 ("IBC") to the Corporate Debtor on 13.07.2019.

Thereafter, the Operational Creditor had filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Corporate Debtor. On 22.09.2022 the Adjudicating Authority rejected the Section 9 petition, while observing that dispute existed between the parties way before the demand notice was sent by the Operational Creditor. The Corporate Debtor had raised disputes through emails in respect to deficiency in work, slow progress in work and defective materials and the defences were not spurious or frivolous or vexatious.

The Operational Creditor filed an appeal before NCLAT against the Order dated 22.09.2022.

Decision Of NCLAT

The Bench observed that contracts provide for dispute resolution mechanism for contractual disputes arising between the Parties during the contract period. The dispute between the parties are not supposed to be decided, examined and adjudicated in IBC proceeding. The only question to be looked in Section 9 petition is whether the objection raised by the Corporate Debtor opposing claim of the Operational Creditor is not a moonshine defense.

It was further observed that the issues raised in the emails sent by Corporate Debtor to the Operational Creditor were not moonshine defense. The issues regarding quality of work were raised by the Corporate Debtor much prior to the issuance of Section 8 notice. Further, the Operational Creditor had contended that its emails were not considered by the Adjudicating Authority. The Adjudicating Authority had to examine the defence of the Corporate Debtor to find out if there is pre-existing dispute. If the Adjudicating Authority is satisfied on those emails, it is not necessary to refer to explanations given by the Operational Creditor.

The Bench upheld the Adjudicating Authority's decision and dismissed the appeal.

Case Title: Krishna Hi-Tech Infrastructure Pvt. Ltd. v Bengal Shelter Housing Development Ltd.

Case No.: Company Appeal (AT) (Insolvency) No.1375 of 2022

Counsel For Appellants: Mr. A. K. Shrivastava and Mr. Akash Sharma, Advocates.

Counsel for Respondent: Mr. Praveen Chaturvedi, Ms. Jayati Chowdhury and Ms. Jyoti Chaturvedi, Advocates.

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