Section 9 Application Must Stand The Test Laid Down By SC In M/s S.S. Engineers Vs HPCL: NCLT Jaipur

Background Facts

Narayan Organics Private Limited (“Operational Creditor”) supplied Beta Blue, Alfa Blue pigment to Prayag Polytech Pvt. Limited (“Corporate Debtor”) by way of a purchase order. The Corporate Debtor failed to make payment of outstanding invoices from 29.05.2017 to 27.09.2018 amounting to Rs. 87,13,230 and Debit Note for the Bank Interest of Rs. 3,65,815/- from 02.06.2017 to 25.12.2017. It was submitted that the Corporate Debtor was also liable to pay an interest amount of Rs. 7,31,989 @ 18% p.a. under the terms of the invoices. A Demand Notice was issued by the Operational Creditor on 20.04.2019 via Email. The Corporate Debtor replied to the Demand Notice on 22.04.2019 but did not allegedly raise any substantial objections.

On the Contrary, the Corporate Debtor alleged that the Operational Creditor did not approach the Tribunal with clean hands and has concealed material information. It was submitted that the purchase order does not bear the signatures of the Corporate Debtor and there is neither any proof of delivery of goods nor any acknowledgment of a debt. The Corporate Debtor further alleged that there was a ‘Dispute’ within the meaning Section 5(6)(b) r/w 8(2)(a) of IBC regarding the quality of the goods supplied which were significantly different in quality from the samples tendered at the time of negotiations. The Corporate Debtor also rejected 2 Debit Notes issued by the Operational Creditor on 27.12.2017 on the grounds of the inferior quality of goods supplied. The Corporate Debtor attached E-mail communications to prove the existence of a pre-existing dispute.

The Operational Creditor in its Rejoinder rebutted the claims by submitting that the Corporate Debtor did not raise any issues regarding the quality of goods before the issuance of the Demand Notice. No steps have been taken by the Corporate Debtor to return the goods till date. The emails attached by the Corporate Debtor were from 2015 to 2016 whereas the default was committed between 2017 and 2018.

Observations of the Tribunal

The Tribunal observed that the word ‘Dispute’ under IBC includes a suit or arbitration proceedings relating to the existence of the amount of debt; the quality of goods or services; or the breach of a representation or warranty. The Tribunal relied on the judgment of the Hon’ble Supreme Court in Mobilox Innovative Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353 which states that the ‘Dispute’ must not be a patently feeble argument or an assertion of fact unsupported by evidence.

The Tribunal further held that the ‘Dispute’ must fit within the parameters as defined under IBC, but at the same time, it must stand the test laid down by the Supreme Court in M/S S.S. Engineers Vs Hindustan Petroleum Corporation Ltd. & Ors. in Supreme Court in Civil Appeal No. 4583 OF 2022 whereby it was held that Operational Creditors can only trigger Corporate Insolvency Resolution Process (‘CIRP’) ‘when there is an undisputed debt and a default in payment thereof’

The Tribunal observed that in the present case, multiple emails have been sent which make it clear that there was an existence of pre-existing dispute between the parties. Hence the conditions of Section 9 are not fulfilled.

With the aforesaid observations, the Tribunal dismissed the petition.

Case: Narayan Organics Private Limited Vs Prayag Polytech Private Limited

Case No. CP No. (IB)- 232/9/JPR/2019

Counsels for the Applicants: Adv. Jatin Chawla

Counsel for the Respondent :Sr. Adv. Virendra Ganda, Adv. Karan Pratap Singh, Adv. Ayandeb Mitra

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