The NCLAT upheld the dismissal of the Operational Creditor's Section 9 application, citing pre-existing disputes as a bar to initiating the insolvency resolution process.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that the Section 9 application under the IBC must be dismissed if there is credible evidence of a pre-existing dispute between the parties, as such disputes negate the operational debt's undisputed nature, thereby barring the initiation of the corporate insolvency resolution process.
The Operational Creditor, Multiplier Brand Solutions Private Limited, filed an appeal against the NCLT's dismissal of its Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC). The dispute arose from a Master Service Agreement dated 27.01.2020, later amended through a Novation and Substitution Agreement dated 01.04.2021, transferring rights and obligations to the Corporate Debtor, Amazon Wholesale (India) Private Limited. Under the revised Master Service Agreement, effective from 01.05.2021, the Appellant provided services for the Amazon Device Project and raised invoices totalling ₹3,69,57,379/-. Despite the invoices being approved, the Corporate Debtor withheld payments, citing investigations into fraudulent practices related to a separate Vodafone project. The Appellant issued a demand notice under Section 8 of the IBC on 06.11.2023, which was disputed by the Corporate Debtor, leading to the dismissal of the Section 9 application by the NCLT on the grounds of pre-existing disputes.
In its appeal, the Operational Creditor argued that the alleged fraudulent practices pertained to a distinct project involving Amazon Seller Services and bore no relevance to the invoices raised under the Section 9 application. It contended that the services rendered for the Amazon Device Project were duly approved, and the withholding of payments was unjustified. The Corporate Debtor, however, maintained that its obligations under the Novation Agreement included scrutinizing prior transactions under the Master Service Agreement. It argued that unresolved concerns over inflated invoices and fraudulent activities linked to the Vodafone Project undermined the Appellant's claims, presenting communications and meeting records as evidence of pre-existing disputes.
The NCLAT upheld the NCLT's decision, finding that the Corporate Debtor had substantiated its defence with credible evidence of pre-existing disputes predating the demand notice. The tribunal noted the Appellant's acknowledgement of fraudulent practices involving its employees and the initiation of internal investigations, including a police complaint and an Ernst & Young review. It emphasized that the issues raised by the Corporate Debtor regarding fraudulent activities and inflated invoices under the Master Service Agreement were material and bona fide, directly impacting the Appellant’s claims. Consequently, the NCLAT concluded that the existence of a genuine pre-existing dispute rendered the Section 9 application unsustainable under the IBC framework, affirming the dismissal of the corporate insolvency resolution process.
Mr. Neeraj Malhotra, Sr. Advocate with Mr. Lakshmeesh S. Kamath, Mr. Rajesh Khandelwal, Ms. Samriti Ahuja, Ms. Aditi Prakash, Mr. Rohit Patil and Nimish Gupta, Advocates represented the Appellant.
Mr. Krishnendu Datta, Sr. Advocate with Mr. Vijayendra Pratap Singh, Mr. Raghav Seth, Mr. Ankitesh Ojha, Mr. Arnab Ray and Mr. Akhil Nene, Advocates appeared for the Respondent.
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