National Company Law Appellate Tribunal Upholds Adjudicating Authority’s Decision on Pre-Existing Dispute Issue in Insolvency Case

In a recent judgment, the National Company Law Appellate Tribunal (NCLAT) in New Delhi upheld the decision of the Adjudicating Authority regarding the issue of a pre-existing dispute in an insolvency case. The Division bench, consisting of Ashok Bhushan and Barun Mitra, ruled that a Corporate Debtor cannot raise the issue of a pre-existing dispute without credible evidence to support it.

The case in question involved a dispute between Tarannom Shargh International Transportation Co. (the Operational Creditor) and Lark Logistics Private Ltd. (the Corporate Debtor). The dispute arose when the Operational Creditor refused to transport the Corporate Debtor’s cargo, which consisted of medical supplies for the Indian Embassy personnel in Kyrgyzstan. Following this, the Operational Creditor sent a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC). Subsequently, the Operational Creditor filed an application under Section 9 of the IBC against the Corporate Debtor.

The Adjudicating Authority admitted the application and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The suspended director of the Corporate Debtor appealed this decision before the NCLAT.

During the proceedings, the Corporate Debtor argued that there was no outstanding debt that would warrant the initiation of the CIRP, as the Corporate Debtor had requested an account reconciliation to determine the actual payment due. However, the Operational Creditor maintained that there was an outstanding liability of USD 3,16,217 and that the Corporate Debtor had approved the invoices raised by the Operational Creditor.

In its judgment, the NCLAT referred to the test established by the Supreme Court in the Mobilox Innovative (P) Ltd. v. Kirusa Software (P) Ltd. case. It concluded that the Adjudicating Authority did not err in recognizing the Corporate Debtor’s admission of failing to pay the operating dues and that the stoppage of shipment was a consequence of the unpaid debt. The NCLAT further stated that the alleged disputes claimed by the Corporate Debtor lacked credible evidence and supported the Adjudicating Authority’s decision.

The NCLAT dismissed the appeal, stating that there was no illegality in the Adjudicating Authority’s order to admit the Section 9 application based on the overall facts and circumstances of the case.

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