NCLAT sets side Nike India's insolvency plea against dealer

NCLAT sets side Nike India's insolvency plea against dealer

The National Company Law Appellate Tribunal (NCLAT) dismissed a petition filed by Nike India Pvt. Ltd. to initiate insolvency proceedings against one of its dealers- Enkay Brand Distribution Pvt. Ltd. (Corporate Debtor/Respondent).

The division member bench of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) upheld the orders of Adjudicating Authority- National Company Law Tribunal (NCLT), which on 22 December, 2022 rejected the footwear and apparel maker’s plea to initiate the insolvency proceedings against its distributor on the ground of pre-existing dispute.

The factual matrix of the case is that an appeal was filed by the appellant- Nike India Pvt. Ltd. against the order dated 22 December, 2022 by which under Section 9 Insolvency and Bankruptcy Code, 2016 application filed by the Appellant was dismissed on the ground of pre-existing dispute.

Section 8 notice was issued on 6 November, 2020 for an amount of Rs. 3,15,53,639/-. The Corporate Debtor submitted a reply on 15 November, 2020 to Section 8 notice disputing the claim and raising various claims against the Operational Creditor. Reply to the Section 9 application was also filed.

The Adjudicating Authority after hearing the parties had dismissed the Section 9 application. The Adjudicating Authority after noticing the judgment of Hon’ble Supreme Court in Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., (2018), came to the conclusion that there was pre-existing dispute between the parties.

The counsel for the Appellant challenged the order and submitted that the pre-existing dispute as was raised by the Corporate Debtor in the Reply to the Section 8 notice was a moonshine since in the Distributorship Agreement between the parties there was no liability which could have been fastened on the ground of sale on a lower price by the Corporate Debtor and further under the agreement between the parties, Distributorship Agreement, no claim could have been raised.

The bench after going through the reply, said that it raises issues pertaining to a pre-existing dispute between the parties.

The NCLAT was not satisfied with the submission of the Appellant that dispute is a moonshine dispute. Further, admittedly, Distributorship Agreement between the parties was not disputed and the Appellant had claims against the Corporate Debtor.

Subsequently, the NCLAT stated that the appellant was free to take recourse to the mechanism as provided in the Distributorship Agreement for realization of its dues.

While concluding, the bench was of the considered view that the present matter was not a case, where Section 9 proceedings under Insolvency and Bankruptcy Code, 2016 could be initiated when a dispute is raised in reply to the Section 8 notice.

Thus, the NCLAT upheld the order passed by the Adjudicating Authority and dismissed the appeal.