NCLAT held that pre-existing disputes regarding rent, possession, and alleged forged invoices bar the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member) reviewed an appeal and observed that the existence of a genuine pre-existing dispute between the parties, evidenced by prior communications and police complaints regarding possession, rent, and forged GST invoices, bars the initiation of CIRP proceedings under Section 9 of the Insolvency and Bankruptcy Code.
The present appeal was filed by the Appellant under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 challenging the order dated 01.03.2024 passed by the National Company Law Tribunal, Chandigarh Bench in CP(IB) No. 203/CHD/CHD/2021. The Adjudicating Authority had dismissed the petition filed under Section 9 of the Code on the grounds of a pre-existing dispute between the Operational Creditor and the Corporate Debtor.
The Appellant, acting as an Operational Creditor, had initiated the petition seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for non-payment of outstanding dues amounting to ₹1,45,77,438, along with interest at 24% per annum. The operational debt was claimed based on lease agreements executed on 20.01.2016 and 11.09.2016, whereby the Operational Creditor leased premises in Chandigarh to the Corporate Debtor. The Operational Creditor contended that after making rental payments until July 2018, the Corporate Debtor defaulted, and from October 2020, no further payments were made. A demand notice under Section 8 of the Code was issued on 10.06.2021, but no payment or dispute was raised by the Corporate Debtor within the stipulated period.
The Corporate Debtor, in response to the petition, alleged that the claim was defective as the rent agreement did not constitute operational debt under the Code. Additionally, the Corporate Debtor argued that the petition did not meet the mandatory threshold of ₹1 crore, contending that the Appellant had artificially aggregated assigned debts to meet this limit. The Corporate Debtor claimed the lease had been terminated in August 2020, and invoices beyond July 2020 were fabricated. Further, it highlighted that advance rent payments and security deposits were not accounted for by the Appellant, and documentary evidence was submitted to show that the Corporate Debtor had no outstanding liability. The Corporate Debtor also produced a letter from the GST authorities confirming that the GST invoices relied upon were forged, as the Operational Creditor's GST registration had been cancelled.
The Appellant disputed these contentions, asserting that the rent agreements were legally binding and rent qualified as operational debt. It claimed the possession of the premises was not handed over until 24.08.2021 before the police, and therefore rent remained payable until that date. The Appellant argued that the Adjudicating Authority failed to consider that no valid dispute existed regarding the debt prior to the issuance of the demand notice, and eviction-related issues could not be considered a pre-existing dispute under the Code.
Upon reviewing the evidence, the Adjudicating Authority concluded that disputes between the parties were ongoing before the issuance of the demand notice, particularly regarding possession, rent, and GST compliance. It noted that the Corporate Debtor had raised legitimate objections through police complaints and communications related to fabricated invoices, advance rent, and possession. Based on these findings, the Adjudicating Authority dismissed the petition, holding that the existence of a pre-existing dispute barred the initiation of CIRP proceedings under Section 9 of the Code.
Aggrieved by the dismissal, the Appellant approached the Appellate Tribunal, seeking reversal of the Impugned Order. However, the Appellate Tribunal, after hearing both parties and considering the evidence on record, upheld the decision of the Adjudicating Authority. It found that the disputes between the parties were genuine and substantial, thereby justifying the dismissal of the petition under Section 9. The appeal was accordingly dismissed.
Mr. Kamal Satija, the Advocate represented the Appellant.
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