Important Judgments on IBC by the NCLTs (20-25 September 2021)

  September 29, 2021

Abbreviations Used

  • Code – Insolvency and Bankruptcy Code, 2016
  • CIRP – Corporate Insolvency Resolution Process
  • AA – Adjudicating Authority (NCLT)
  • CD – Corporate Debtor
  • FC – Financial Creditor
  • OC – Operational Creditor
  • CoC – Committee of Creditors
  • IRP – Interim Resolution Professional
  • RP – Resolution Professional
  • RA – Resolution Applicant

NEW DELHI BENCH-III

AA’s power to apply the correct provision of law: Swastik Pipe Ltd. vs. RDC Steels and Allied Service Pvt. Ltd. (21/09/21)

This application was filed by an OC, seeking permission to withdraw its application under Section 9 of the Code against the CD. However, the OC filed this application under the wrong section (Section 9). The AA observed that the law permits it to apply the correct provision of law and treated the application as an application filed under Rule 8 of IBBI (Application to Adjudicating Authority) Rules 2016. Hence, the application was allowed, and the original application to initiate CIRP was dismissed.

 

CHENNAI BENCH

Date of filing imperative in respect of increased pecuniary jurisdiction of the Tribunal: Pama Engineer Services v. Methra Industries India Pvt Ltd. (20.09.2021)

This application was filed by the OC on 18.08.2021 under Section 9 of the Code, in relation to a payable sum of Rs. 32,90,685. The main query arose out of the maintainability of the application, since the pecuniary jurisdiction of the Tribunal had already been increased from Rs. 1 lakh to Rs. 1 crore by the notification dated 24.03.2020. The applicant stated that the Demand Notice under Section 8 was issued to the CD on 04.02.2020, on the basis of which the application gained maintainability.

The application was dismissed for lack of pecuniary jurisdiction, since the aforementioned notification came into effect on 24.03.2020, and the Tribunal explained that the date of filing of the application was of substance in this respect and not the date of issuance of the Demand Notice.

 

MUMBAI BENCH

Application dismissed for demerit after recognition of pre-existing disputes: Crimson Logistics Pvt. Ltd. v. EXM Project Movers Pvt. Ltd. (20.09.2021)

The application was filed by Crimson Logistics (OC) against EXM (CD) in relation to an outstanding principal operational debt of Rs. 18,62,300/-, which was defaulted on 05.05.2018. The OC submitted that the transaction arose out of a hired ‘puller truck’, and the Demand Notice was served to the CD on 25.10.2019.

The puller truck was demobilised on 16.05.2021 as a consequence of the OC’s hired driver losing its control, which made the truck unavailable for use by the CD the following day. The parties entered into a dispute thereafter, with the OC claiming that the supervisor assigned by the CD was at fault, and not the driver. Therefore, the OC demanded that the CD pay all costs involved within the time it would take the truck to return to the OC’s premises. An email submitted before the Bench established that the CD —

  1. refused to accept the OC’s demands,
  2. made it clear that the truck was out of commission from the day it got demolished, and
  3. it would not pay any amount except that of the demobilisation costs, which it paid thereafter. The applicant stressed on the agreed terms and conditions and claimed the amount charged till the date the truck returned which was alleged to be four months late.

The Bench found the OC’s contentions unacceptable, and acknowledged the presence of a pre-existing ‘dispute’ continuing between the two parties since the demobilisation had occurred. The Bench referred to two previous Supreme Court judgments, Mobilox Innovations (P) Ltd. V. Kirusa Software (P) Ltd., – (2018) 1 SCC 353 and Kay Bouvet Engineering Ltd v Overseas Infrastructure Alliance (India) P. Ltd. – 2021 SCC Online Hon’ble Supreme Court 570, to emphasise that, under Section 9(5)(2)(d), the adjudicating authority must reject the application if a notice of dispute has been received by the operational creditor or “there is a record of dispute in the information utility”.

The Tribunal followed in the footsteps of the aforementioned judgments, and expressed that it had not examined the merits of the dispute, so long as a dispute truly existed in fact and was not spurious, hypothetical or illusory, it had to reject the application for having no merit.

The Supreme Court’s previous observation was given credit for explaining that operational debts of amounts smaller than those of financial debts did not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely, or initiate the process for extraneous considerations. It had already been held that it was for this reason that it was enough that a dispute existed between the parties.

 

~ By Sandali Sharma and Ankur Mishra

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