Sec 9 insolvency plea can’t be rejected when disputed claim is not raised prior to demand notice, NCLAT

The National Company Law Appellate Tribunal has held that existence of a “disputed claim” cannot be a ground to reject an application under Section 9 of the Insolvency and Bankruptcy Code 2016 if the dispute was not raised prior to the issuance of demand notice under Section 8(1)..The Judgment was passed by a three-member Bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice AIS Cheema and Member (Technical) Kanthi Narahari in an appeal by an operational creditor, Ahluwalia Contracts (India) Limited (Appellant)..The Appellant had filed an application under Section 9 IBC against Corporate Debtor, Raheja Developers Limited (Respondent)..The National Company Law Tribunal, New Delhi (Adjudicating Authority) rejected the application on the ground that the claim of the Appellant fell within the ambit of ‘disputed claim’ and arbitration proceedings in respect of the same had been initiated..The Appellant submitted that as on the date of issuance of demand notice under Section 8(1), no arbitration proceeding was initiated or pending and that the arbitration proceeding was filed by the Respondent only after receipt of the demand notice..It was also submitted that the Appellant even sent a letter to the Sole Arbitrator stating that the appointment of the Sole Arbitrator made by the Management Review Committee of the Respondent was not acceptable to it..The Appellant also claimed that there was no pre-existing dispute with regard to the dues as the amount claimed under Section 9 were derived from the Respondent’s own admission in “Comparative Statement of Payment Status between ACIL and RDL”..The Respondent, on the other hand, maintained that the amount claimed was a disputed claim. It was submitted that the Appellant failed to complete the work within a specified time and thereafter, abandoned the work..The work was subsequently completed and rectified by the Respondent, as a result of which it incurred an additional expense. Therefore, it was contended that it was the Appellant who was liable to pay the expenses incurred by the Respondent in terms of the ‘General Conditions of the Contract’..The Appellate Tribunal stated that the claim amount raised by the Appellant was a disputed claim and it was “always open” to the Respondent/Corporate Debtor to point out the pre-existence of such dispute..However, it is to be shown that the dispute was raised prior to the issuance of demand notice under Section 8(1), the Appellate Tribunal said..Relying on the Supreme Court’s decision in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited (2017), the Appellate Tribunal stated,.“..it is clear that the existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the ‘operational debt’ is exceeding Rs. 1 lakh and the application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid ‘operational debt’, the application under Section 9 cannot be rejected and is required to be admitted.”.The Appellate Tribunal also perused the Supreme Court’s decision in Innoventive Industries Ltd. v. ICICI Bank and Anr (2018) and observed that a ‘claim’ means a right to payment even if it is disputed..It thus added,.“Therefore, merely (because) the ‘Corporate Debtor’ has disputed the claim by showing that there is certain counter claim, it cannot be held that there is pre-existence of dispute, in absence of any evidence to suggest that dispute was raised prior to the issuance of demand notice under Section 8(1) or invoice.”.Coming to the facts at hand, the Appellate Tribunal noted that it was not in dispute that the arbitration proceeding was initiated by the Respondent after about one month from the date of issuance of demand notice under Section 8(1)..Hence, the Respondent cannot rely on the arbitration proceeding to suggest a pre-existing dispute, it concluded..“There is nothing on the record to suggest that the ‘Corporate Debtor’ raised any pre-existing dispute relating to quality of work performed by the Appellant. The ground of delay in execution of work cannot be noticed to deny admission of application under Section 9, the ‘Corporate Debtor’ having allowed the Appellant to execute the work and certified all the bills.”.The Appellate Tribunal, therefore, remarked that the NCLT wrongly rejected the Appellant’s claim on the ground that it fell within the ambit of a disputed claim..Since the Respondent had defaulted in payment of more than Rs. 1 Lakh and there was no pre-existing dispute, the Appellate Tribunal held that the application under Section 9 preferred by the Appellant was fit to be admitted..Allowing the appeal, the Appellate Tribunal ordered,.“..we set aside the impugned judgment dated 19th September, 2018 and remit the case to the Adjudicating Authority for admitting the application under Section 9 after notice to the ‘Corporate Debtor’ to enable the ‘Corporate Debtor’ to settle the matter prior to the admission.”.The Appellants were represented by Advocates Shashank Garg, Tariq Khan, and Debojyoti Sengupta..The Respondent was represented by Advocates Jayant Mehta, Saurabh Kalia, Sajal Jain, and Saloni Purohit..Read the Judgment: