Tribunal Dismisses Appeal, Cites Absence of Genuine Pre-existing Disputes
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed an appeal filed by Raakesh B Kulwal, the suspended director of Jhandewalas Foods Limited, challenging the initiation of Corporate Insolvency Resolution Process (CIRP) against the company. The tribunal upheld the National Company Law Tribunal (NCLT) Jaipur Bench's order, which admitted Param Dairy Limited's application under Section 9 of the Insolvency and Bankruptcy Code (IBC) to initiate CIRP against Jhandewalas Foods Limited.
The core of the dispute arose from unpaid operational debt claimed by Param Dairy Limited amounting to Rs. 3.83 crore, which included a principal amount of Rs. 3.08 crore and compounded interest. Despite multiple reminders and a formal demand notice issued under Section 8 of the IBC, Jhandewalas Foods Limited failed to settle the dues, prompting Param Dairy to file for insolvency proceedings.
Raakesh B Kulwal contended that there were substantial pre-existing disputes regarding the quality of goods supplied, purportedly backed by laboratory test reports. He further argued that the operational debt had not crystallized due to these disputes, and hence, the invocation of Section 9 proceedings was unwarranted. Additionally, Kulwal alleged discrepancies in account adjustments for returned defective goods.
In contrast, Param Dairy Limited maintained that no credible evidence of pre-existing disputes was presented prior to the issuance of the demand notice. The tribunal found that the disputes raised by Jhandewalas Foods were unfounded and constituted a "moonshine defence" aimed at obstructing the CIRP. The tribunal emphasized that disputes must be genuine and supported by credible evidence existing before the receipt of the demand notice to qualify as pre-existing under the IBC.
The NCLAT's decision drew on precedents, notably the Supreme Court's judgment in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which stipulates that only disputes existing prior to the demand notice can prevent the initiation of CIRP. The tribunal observed that the part-payments made by Jhandewalas Foods post-demand notice reinforced the acknowledgment of debt.
Consequently, the tribunal dismissed the appeal, allowing the Interim Resolution Professional (IRP) to proceed with the CIRP as per legal provisions. The ruling underscores the importance of addressing operational debts promptly and the necessity for substantial evidence when claiming pre-existing disputes in insolvency proceedings.
Bottom line:-
Insolvency and Bankruptcy Code (IBC) - Admission of Section 9 application - Existence of pre-existing dispute must be genuine and supported by credible evidence. Disputes raised after receipt of Section 8 Demand Notice are not considered pre-existing disputes under IBC.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 8, 9, 61
Raakesh B Kulwal v. Param Dairy Limited, (NCLAT)(New Delhi) : Law Finder Doc id # 2933857
