NCLAT DISMISSES INSOLVENCY APPLICATION ON THE GROUND OF PRE-EXISTING DISPUTE BETWEEN THE PARTIES

A three Judge Bench of National Company Law Appellate Tribunal (NCLAT) comprising of Justice Ashok Bhushan and Technical Members Barun Mitra and Arun Baroka passed a judgement dated 06.05.2024 in Royal Manpower Services v. Faridabad Autocomp Systems Pvt. Ltd Comp. App. (AT) (Ins) No. 880 of 2024, wherein the Bench reiterated that corporate insolvency resolution process (CIRP) cannot be initiated against a debtor if there is a pre-existing dispute between the parties.

Facts

An Application was filed on 13.07.2021 by the Royal Manpower Services (Appellant), through its sole proprietor Mr. Vasudev to initiate CIRP under Section 9 of the Insolvency and Bankruptcy Code 2016 (IBC) (Application for initiation of corporate insolvency resolution process by operational creditor) in respect of M/s Faridabad Autocomp System Private Limited (Respondent) for the alleged default on the part of the Respondent in clearing the debt of Rs. 14,15,544/- (Rupees Fourteen Lakhs Fifteen Thousand Five Hundred and Forty-Four only) along with interest of Rs. 3,11,419/- (Rupees Three Lakhs Eleven Thousand Four Hundred and Nineteen only).

That the Appellant provided manpower services to the Respondent in the month of July 2017 and August 2017 and raised four Invoices amounting to Rs. 49,95,331/-. Out of those 4 Invoices, a sum of Rs. 11,04,125/- against Invoices No 0029 and 0030 dated 01.09.2017 was due and payable.

That despite continuous follow-ups and reminder emails sent by the Appellant, for a sum of Rs. 14,15,544/- including interest, after adjusting PF dues paid by the Respondent on behalf of Appellant, still remained outstanding and no payment was made.

That on 12.10.2017, the Owner of the Appellant Company barged into the workplace of the Respondent with his 25-30 men and stopped the functioning of the Respondent Company and also threatened the workers of the Respondent.

The main contention by the Respondent before the National Company Law Tribunal, New Delhi Bench (NCLT) was that there was a pre-existing dispute between the Appellant and the Respondent. The Respondent had filed a Police Complaint against the Appellant for deficiency in services on 12.10.2017. Thus, as per Section 9 of the IBC, CIRP cannot be initiated without giving notices of pre-existing dispute. The Respondent also provided that the Application for CIRP was filed on 13.07.2021 and the minimum amount of default ought to be Rupees 1 Crore as per Section 4 of the IBC (Application of this Part).

The Hon’ble NCLT dismissed the Application of the Appellant, vide Order dated 23.11.2023 on the grounds of a pre-existing dispute between the Parties and also that the claim by the Appellant was less than Rupees 1 Crore and thus, the CIRP cannot be initiated against the Respondent. Hence, an Appeal was filed against the said NCLT Order dated 23.11.2023 before the NCLAT in Comp. App. (AT) (Ins) No. 880 of 2024.

Issues

I) Whether NCLT erred in dismissing the Section 9 IBC Application of the Appellant?

II) Whether there was a pre-existing dispute between the Parties?

III) Whether the Application filed by the Appellant was not maintainable as the debt was less than 1 Crore Rupees?

Decision by NCLAT

The Bench took consideration of the fact that a Police Complaint was filed by the Respondent against the Appellant for deficiency and poor services. Later, the Appellant also barged into the premises of the Respondent and threatened the workers to stop the work of the Respondent.

The Ld. Tribunal also observed that the Demand Notices issued by the Appellant to the Respondent depicted a previous dispute between the Parties.

Subsequently the Bench concluded that the Application for CIRP was filed on 13.07.2021 which was way after the filing of Police Complaint dated 12.10.2017 and thus there existed prior disputes between the Appellant and the Respondent.

Conclusion

The Ld. NCLAT upheld the Order dated 23.11.2023 passed by NCLT and observed that the NCLT did not commit any error in rejecting the Application because the amount of debt was less than 1 Crore Rupees which is a pre-requisite to initiate the CIRP. Thus, the Hon’ble Bench dismissed the Appeal filed by the Appellant.

 

ARJAV JAIN

ASSOCIATE

THE INDIAN LAWYER & ALLIED SERVICES