IBC: Time barred appeal against the decree filed after the issuance of demand notice under Section 8 will not amount to a pre-existing dispute: NCLAT

IBC: Time barred appeal against the decree filed after the issuance of demand notice under Section 8 will not amount to a pre-existing dispute: NCLAT

"…the 'Adjudicating Authority' was required to consider that before the Tribunal, there was no pre-existing dispute."

The National Company Law Appellate Tribunal (NCLAT) bench comprising of Justice Rakesh Kumar and Dr. Alok Srivastava held that there will not be a pre-existing dispute in the event of a time barred appeal against the decree filed after the issuance of demand notice under Section 8 of the Insolvency & Bankruptcy Code, 2016 (IBC/Code)

The Kolkata bench of NCLT dismissed the present application filed by the Operational Creditor under Section 9 on the ground that there is a pre-pre-existing dispute between the parties as the appeal against the decree of recovery of amount is pending.

The facts of the case are that the Operational Creditor sold and supplied fire safety materials to the Respondent and raised a bill of INR 1.25 Crores. On non-payment of the same, a recovery suit was filed by the Operational Creditor before the Gurugram District Court in 2014. The Suit was decreed in favor of the Operational Creditor on 07.12.2018.

The Operational Creditor issued a demand notice dated 06.02.2019 under Section 8 of the Code the Respondent, however the same unanswered. Subsequently, the Operational Creditor filed a petition under Section 9 of the Code on 18.04.2019 against the Respondent.

In light of the facts of the case, NCLAT noted that the even after the issuance of the demand notice dated 06.02.2019, the Respondent did not raise any pre-existing dispute and also the notice was not even replied by the Respondent.

It was further held by the bench at the time of issuance of notice dated 15.05.2019 in the Section 9 Petition, no appeal was pending against the decree dated 07.12.2018 and therefore, there was no pre-existing dispute even at the time of filing of the Section 9 petition by the Operational Creditor.

The Appellate Tribunal also observed that if there was any dispute in respect of the decree, the Respondent would have immediately filed the appeal against the same which was not done by the Respondent.

"In the facts and circumstances of the present case, it is evident that on the date of filing of the application under section 9 of the IBC, there was no dispute nor at the stage of notice under Section 8 of the IBC any dispute was raised. In such circumstances, we are of the considered opinion that the Adjudicating Authority has committed error in outrightly rejecting the application under Section 9 of the IBC," as remarked by the bench.

"……. we have no option but to set aside the impugned order and the appeal is remitted back to the Adjudicating Authority to re-examine the same and pass appropriate order in accordance with law."