NCLT Mumbai Rules Section 9 Application Requires Strict Proof Of Debt And Default

NCLT Mumbai Rules Section 9 Application Requires Strict Proof Of Debt And Default

The Mumbai Bench of the National Company Law Tribunal (NCLT), comprising of K. R. Saji Kumar (Judicial Member) and Sanjiv Dutt (Technical Member), recently ruled on an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016). The tribunal concluded that a Section 9 application cannot be upheld unless there is clear evidence substantiating both the debt owed and the default thereof.

Mittal Polymers, the operational creditor, claimed that Suvarna Additives Limited, the corporate debtor, defaulted on payments totaling Rs. 2,33,10,961 for invoices issued between 2015 and 2019. These invoices were for goods sold and supplied by the operational creditor. The corporate debtor failed to settle the outstanding dues starting on September 16, 2019, despite a demand notice issued on November 15, 2019, which went unanswered.

Consequently, the operational creditor filed an application seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.

The operational creditor further asserted that Rs. 1,12,17,578 remained unpaid, specifically for raw materials supplied to the corporate debtor. Additionally, they claimed entitlement to interest on the unpaid invoice amounts under Sections 15 and 16 of the MSMED Act.

The corporate debtor contended that the matter was under settlement with the operational creditor. They filed an online reply only after the parties' hearing on December 15, 2023, citing unfamiliarity with the tribunal's online filing system.

However, the corporate debtor did not subsequently file an application to challenge the order dated December 15, 2023, which was reserved for further proceedings. Consequently, the tribunal proceeded to adjudicate the application on its merits based on the submissions presented by both parties.

The tribunal noted that the bank statement presented by the operational creditor merely indicated no payments received from the corporate debtor between December 3, 2019 and December 19, 2019. However, crucial documents such as ledgers or annual financial statements were not provided to substantiate the alleged debt or default by the corporate debtor. The operational creditor relied solely on its own computation of claims and a demand notice dated November 15, 2019, which were deemed insufficient to establish the maintainability of the application.

Referring to the precedent set in M/s. SFO Technologies Pvt. Ltd. v. M/s. Vanu India Pvt. Ltd., the tribunal emphasized that a Section 9 application cannot be sustained without stringent proof of both debt and default.

Moreover, the tribunal highlighted the absence of invoices in the records, making it challenging to verify the operational creditor's claims. It was noted that there was no evidence to indicate whether the corporate debtor had acknowledged the alleged debt. Consequently, the tribunal concluded that "the OC has not succeeded in proving the existence of any operational debt due and payable to it by the CD." Given the serious implications of initiating CIRP, particularly without sufficient proof of debt and default, the tribunal deemed the application unsuitable.

Based on these findings, the application under Section 9 for initiating CIRP was dismissed.