Section 9 Petition Dismissed Due to Pre-existing Dispute Arising from Interlinked Commercial Transactions and Promoter-Level Litigations
- REEDLAW
- 6 days ago
- 3 min read
NCLAT dismissed the Section 9 petition, holding that a pre-existing dispute existed arising from interlinked commercial transactions and ongoing litigations between the Promoters of the Corporate Debtor and the Operational Creditor.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while addressing an appeal, observed that the existence of a genuine pre-existing dispute—arising from complex and interlinked transactions between the Corporate Debtor, the Operational Creditor, and their Promoters, including rental adjustments and personal litigations—renders a Section 9 application under the IBC non-maintainable, as such disputes require adjudication and fall within the ambit of Section 9(5)(ii)(d), as interpreted in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545.
In a recent decision, the National Company Law Appellate Tribunal (NCLAT) set aside the admission of a Section 9 petition under the Insolvency and Bankruptcy Code, 2016, originally allowed by the National Company Law Tribunal (NCLT), Delhi Bench. The appeal was filed under Section 61 of the Code by Mr. Jagdish Prasad Sharma, the Suspended Director of M/s India Offset Printers Private Limited, against the order dated 11.09.2024 in CP(IB) No.598/ND/2023. The NCLT had admitted the petition filed by M/s Silverline Graphics Private Limited, claiming an operational debt arising out of transactions alleged to have occurred between 2016 and 2021. The Appellant contested the maintainability of the petition on several grounds, including limitation, lack of acknowledgment of debt, absence of delivery proof, and existence of pre-existing disputes, particularly among the Promoters of both parties, involving litigation pending before the Delhi High Court concerning rental property.
The Operational Creditor, in response, argued that the invoices were part of a running account sustained by periodic payments, with the last payment made on 02.03.2022, thereby extending the limitation period under Section 19 of the Limitation Act, 1963. It further contended that the disputes raised by the Appellant were not between the legal entities themselves but between individual Promoters, and hence did not qualify as pre-existing disputes under Section 9 of the Code. The Operational Creditor also claimed that the outstanding debt, even after excluding the amounts falling under the protection of Section 10A, crossed the minimum threshold of one crore rupees.
After examining the submissions and material on record, the NCLAT found merit in the Appellant’s contentions. The Tribunal observed that the Adjudicating Authority had failed to adequately evaluate the real nature of transactions between the parties, which went beyond mere supply of goods. It took note of a transcript revealing that the Promoter of the Operational Creditor had paid Rs. 4.75 lakhs towards rent, which was proposed to be adjusted against the claimed operational debt—an adjustment that would bring the amount of default below the statutory threshold of Rs. 1 crore. Moreover, the Tribunal pointed out that the default was recorded in the information utility not by the Operational Creditor itself, but by its Promoter, and that too was disputed by the Corporate Debtor.
The Appellate Tribunal held that the transactions between the parties were intricately linked, involving not only the Corporate Debtor and Operational Creditor but also their respective Promoters. In such a situation, it held that the disputes could not be brushed aside, and the corporate veil had to be pierced to understand the actual nature of dealings. Referring to the Supreme Court’s ruling in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545, the NCLAT reiterated that where a plausible contention or real dispute existed, a Section 9 petition must be rejected under Section 9(5)(ii)(d) of the Code. Concluding that a genuine and pre-existing dispute did exist, which warranted adjudication, the Tribunal allowed the appeal and set aside the order of admission passed by the Adjudicating Authority.
Mr. Atul Sharma, Advocate, represented the Appellant.
Mr. Rachit Mittal, Mr. Parish Mishra, Mr. Kanishk Raj, Mr. Adarsh Srivastava and Mr. Abhishek Sinha, Advocates, appeared for the Resolution Professional.
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