Tribunal Cites Pre-Existing Disputes and Jurisdictional Errors in Dual Insolvency Processes
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has quashed two separate orders admitting insolvency proceedings against Manpasand Beverages Ltd. The appellate tribunal found substantial pre-existing disputes and jurisdictional lapses in the orders issued by the National Company Law Tribunal (NCLT), Ahmedabad Bench.
The appeals, filed by Manpasand Beverages Ltd, challenged the NCLT's decisions to admit petitions under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, which were filed by operational creditors Rajaram Foods Products India Ltd. and Tetra-Pak India Pvt. Ltd.
In the first appeal, the NCLAT noted that the NCLT erred in admitting the insolvency petition despite the existence of genuine disputes over the operational debt. The tribunal emphasized the importance of the precedent set by the Supreme Court in the Mobilox Innovations Pvt. Ltd. v. Kirusa Software Private Limited case, which mandates the rejection of Section 9 petitions if plausible disputes are evident. The NCLAT found that disputes concerning the quality, quantity, and supply of goods were well-documented through emails, GST findings, and CBI investigations, thereby failing the test for insolvency admission.
Additionally, the NCLAT observed that the corporate debtor had already been under the moratorium of a prior Corporate Insolvency Resolution Process (CIRP), rendering the admission of a second Section 9 petition jurisdictionally impermissible. The tribunal criticized the NCLT for overlooking the statutory bar under Section 14 of the IBC, which prohibits parallel insolvency proceedings.
The tribunal's ruling also addressed the operational creditor's claim regarding the write-off of debts in the books of accounts, citing it as an acknowledgment of irrecoverability, further undermining the basis for insolvency proceedings.
In the second appeal concerning Tetra-Pak India Pvt. Ltd., the NCLAT reiterated the principle that overlapping CIRPs against the same corporate debtor are not permissible, especially when a moratorium is in effect. The tribunal underscored the procedural error in admitting a fresh insolvency petition while an earlier CIRP was stayed but not vacated.
The NCLAT's decision is seen as a reinforcement of procedural integrity and the necessity for adjudicating authorities to conduct thorough checks for pre-existing disputes before admitting insolvency proceedings. The ruling also highlights the NCLAT's commitment to ensuring that the IBC's framework is not misused as a coercive recovery tool but is reserved for genuine insolvency resolutions.
Bottom line:-
Insolvency proceedings under Section 9 of the Insolvency and Bankruptcy Code (IBC) cannot be admitted if pre-existing disputes are evident or if the Corporate Debtor is already under CIRP and protected by a moratorium under Section 14.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 8, 9, 14
