NCLAT Delhi: Contractual Dispute Over Delivery And Transport Obligations Deemed 'Pre-Existing' Under IBC

NCLAT Delhi: Contractual Dispute Over Delivery And Transport Obligations Deemed 'Pre-Existing' Under IBC

The National Company Law Appellate Tribunal (NCLAT) Delhi bench, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), determined that the disagreement between the involved parties concerning contractual terms regarding the delivery location and the responsibilities of the parties for transporting goods qualifies as a pre-existing dispute under the Insolvency and Bankruptcy Code, 2016 (IBC).

Sanam Fashion & Design Exchange Ltd. (Appellant), a company involved in general trading, made an upfront payment of USD 200,000 to Ktex Nonwovens Pvt. Ltd. (Corporate Debtor) in March 2020 for the purchase of 10 tons of non-woven fabric. However, the fabric was never delivered, and despite multiple requests, the advance payment was not refunded.

On May 9, 2023, the appellant dispatched a statutory demand notice pursuant to Section 8 of the IBC. However, no response was forthcoming. Consequently, the appellant initiated a Corporate Insolvency Resolution Process (CIRP) petition under Section 9 of the IBC, citing the corporate debtor's default in refunding the advance payment for goods ordered on March 19, 2020.

The NCLT Ahmedabad, through an order dated August 10, 2023, dismissed the CIRP application submitted by the appellant under Section 9 of the IBC.

The NCLAT Delhi dismissed the appeal, affirming that a dispute between the parties regarding contractual terms concerning the delivery location and the parties' obligations for transporting goods constitutes a pre-existing dispute under the IBC.

The Appellate Tribunal, citing the Supreme Court decision in Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., observed that the appellant's advance payment to the corporate debtor established a clear connection between payment and supply. It emphasized that, according to the aforementioned judgment, the identity of the supplier or recipient of goods and services is irrelevant when such a direct link exists between payment and supply. Hence, the Tribunal deemed the judgment directly applicable in establishing the relationship between the payment made and the provision of goods and services.

Therefore, the Tribunal concluded that the appellant meets the criteria for classification as an operational creditor under the IBC, as there exists an operational debt stemming from a contract concerning the supply of goods or services by the corporate debtor.

The NCLAT noted that the disagreement between the parties regarding contractual terms concerning the delivery location and the obligations of the parties for transporting goods constitutes a pre-existing dispute under the IBC.

In conclusion, the NCLAT dismissed the appeal and affirmed that the NCLT Ahmedabad was correct in rejecting the CIRP application. It was noted that a CIRP application cannot be entertained during the pre-existence of a dispute.