NCLAT dismissed the appeal, holding that the admission of debt and the lack of a credible dispute justified the initiation of CIRP.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, led by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra, reviewed an appeal on Tuesday and held that the Corporate Debtor’s admission of debt in earlier communications, combined with the absence of credible evidence to establish a pre-existing dispute, justified the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). Consequently, the appeal was dismissed.
In this appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), the Appellant, a shareholder of Sahara Q Shop Unique Products Range Limited (the Corporate Debtor), challenged the Order passed by the National Company Law Tribunal (NCLT), Mumbai Bench-IV, admitting the Section 9 application filed by Sigma Supply Chain Solutions Pvt. Ltd. (the Operational Creditor) and initiating the Corporate Insolvency Resolution Process (CIRP). The dispute stemmed from a Service Agreement between the parties concerning the handling, storage, and distribution of goods, with the Operational Creditor claiming outstanding dues of Rs. 4.02 Crore. Despite issuing a Demand Notice under Section 8 of the IBC, the Corporate Debtor disputed the claim, citing pre-existing disputes related to breaches of the agreement, such as the withholding of goods and denial of access to warehouses.
The Appellant argued that the NCLT failed to consider these pre-existing disputes, including allegations of the Operational Creditor’s illegal sale of goods and improper withholding of stock, which were substantiated by the Corporate Debtor’s internal records. However, the Respondent contended that these disputes were raised only to avoid payment of the debt, pointing to earlier acknowledgements of the debt by the Corporate Debtor, including email correspondences from 2015 and 2016. The NCLAT noted that these acknowledgements, coupled with partial payments made by the Corporate Debtor, undermined their claim of a genuine pre-existing dispute, emphasizing that the existence of such a dispute could not be established at this stage.
The NCLAT reviewed the Corporate Debtor’s financial records, finding discrepancies and unreliable entries, particularly regarding the alleged misappropriation of stock. Given the lack of credible evidence and the acknowledgement of the debt by the Corporate Debtor, the NCLAT upheld the NCLT's decision, dismissing the appeal and allowing the CIRP to proceed. The NCLAT concluded that the Corporate Debtor failed to establish a valid pre-existing dispute, and therefore, the initiation of the CIRP under Section 9 of the IBC was justified. Consequently, the appeal was dismissed, and the CIRP proceedings were permitted to continue as per the provisions of the IBC.
Mr. Sandeep Bajaj, Mr. Devansh Jain, Ms. Vasudha Chadha, Advocates represented the Appellant.
Mr. Chinmoy Pradip Sharma, Sr. Advocate with Mr. Bipul Kedia, Mr. Anupam Prakash and Mr. Kumar Anurag, Advocates appeared for Respondent No. 1.
Mr. Akshay Petkar, Mr. Pranav Shah, and Mr. Vishesh Kalra, Advocates appeared for Respondent No. 2 (RP).
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