Case Note & Summary
The Supreme Court considered an appeal by M/s. Saraswati Wire and Cable Industries (the firm), an operational creditor, against the judgment of the National Company Law Appellate Tribunal (NCLAT) which had set aside the admission of a corporate insolvency resolution process (CIRP) against Dhanlaxmi Electricals Private Limited (the corporate debtor). The firm had supplied pipes and cables to the corporate debtor under purchase orders, and a running account was maintained. The corporate debtor's own ledger account showed a closing debit balance of ₹1,79,93,690.80 due to the firm. The firm issued a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC) claiming this amount with interest. In response, the corporate debtor's Technical Director sent a reply dated 20.11.2021 raising an issue regarding two invoices mentioned in the demand notice. The NCLT admitted the Section 9 application and initiated CIRP. However, the NCLAT allowed the appeal filed by a suspended director of the corporate debtor, holding that there was a pre-existing dispute between the parties as to the debt prior to the institution of the Section 9 application, based on an email dated 04.08.2021 from the corporate debtor's Accounts Manager pointing out three minor differences in the ledger account. The Supreme Court reversed the NCLAT's decision, holding that the email dated 04.08.2021 did not constitute a pre-existing dispute under Section 8(2)(a) of the IBC. The Court noted that the email merely sought clarification on three minor entries (two debit notes and a voucher) and did not deny the debt or assert any counterclaim. The corporate debtor's own ledger account, which it had communicated to the firm, showed an admitted debit balance, and the corporate debtor had made part payments thereafter. The Court held that the NCLAT erred in concluding that there was a pre-existing dispute, as the dispute must be genuine and not a mere email query. The Supreme Court allowed the appeal, set aside the NCLAT's judgment, and restored the NCLT's order admitting the Section 9 application.
Headnote
A) Insolvency and Bankruptcy Code - Pre-existing Dispute - Section 8(2)(a) IBC - The mere pointing out of minor accounting differences in an email, without any denial of liability or assertion of a counterclaim, does not constitute a 'pre-existing dispute' sufficient to defeat a Section 9 application. The dispute must be genuine and relate to the existence or amount of debt. (Paras 1-10) B) Insolvency and Bankruptcy Code - Operational Creditor - Section 9 IBC - Admission of CIRP - Where the corporate debtor's own ledger account shows an admitted debit balance in favor of the operational creditor, and the debtor makes part payments thereafter, the debt is not disputed. The NCLAT erred in setting aside the NCLT's admission order. (Paras 2-10)
Issue of Consideration
Whether the email dated 04.08.2021 from the corporate debtor to the operational creditor, pointing out three minor differences in the ledger account, constitutes a 'pre-existing dispute' under Section 8(2)(a) of the Insolvency and Bankruptcy Code, 2016, so as to bar the admission of a Section 9 application.
Final Decision
Appeal allowed. NCLAT judgment dated 13.03.2024 set aside. NCLT order dated 06.12.2023 admitting C.P.(IB)No. 398/NCLT/MB/C-IV/2023 under Section 9 IBC and initiating CIRP against Dhanlaxmi Electricals Private Limited restored.
Law Points
- Pre-existing dispute must be genuine and not a mere email query
- Operational creditor's application under Section 9 IBC cannot be defeated by raising a dispute after demand notice
- Corporate debtor's own ledger showing admitted debt negates existence of dispute
