Introduction
In the recent case of Khimji Poonja Freight Forwarders Pvt. Ltd. v. M/s Ingram Micro India Pvt. Ltd.[i] the National Company Law Appellate Tribunal, New Delhi (‘NCLAT’) dismissed the appeal of Khimji Poonja Freight Forwarders (‘Appellant’) and upheld the National Company Law Tribunal’s (‘NCLT’) decision. The NCLT had rejected the application under s. 9 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The dismissal was predicated on the finding that the dispute between parties pre-existed the issuance of a demand notice. M/s Ingram Micro India Pvt. Ltd (‘Respondent’) being the corporate debtor (‘CD’) consistently denied their obligation to pay.
Brief Facts
The Appellant had entered into two agreements with the Respondent for rendering certain services. The first was a customs clearance agreement for clearing and forwarding goods of the Respondent. The second was an agency agreement for claiming and obtaining a refund of special additional duty on behalf of the Respondent. As the operational creditor (‘OC’), the Appellant raised invoices for these services.
Despite several email reminders the Respondent failed to settle the outstanding dues. Hence, the Appellant issued a demand notice under s. 8 of the IBC seeking repayment of the outstanding principal amount along with compound interest at the rate of 21%. However, the Respondent disputed the claim, arguing a breach of the agency agreement which was terminated and thus denied the payment of outstanding operational debt. Consequently, the Appellant filed an application under s. 9 of the IBC before the NCLT.
The Appellant contended that even after the termination of the agency agreement, it continued to provide services and the Respondent continued to avail them without any objections. It was also argued that there was a mutual agreement in which the Respondent acknowledged the debt and agreed to settle the outstanding dues, validating the claim under s. 9 of the IBC.
The NCLT dismissed the application, citing the existence of a pre-existing dispute due to the termination of the agency agreement between the parties.
Aggrieved by the order, the Appellant filed an application before the NCLAT contending that the NCLT erred in finding a breach in the agency agreement.
Held
The NCLAT dismissed the appeal filed by the Appellant and upheld the NCLT’s order and observed as under:
An application under s. 9 of the IBC is not maintainable if there is a pre-existing dispute. In the present case, since the dispute over the payment of operational debt claimed by the Appellant predated the issuance of the demand notice, the NCLT was not required to conduct further investigation.
Further, the NCLAT referred to the decision of the Hon’ble Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited[ii] which was also relied upon by the NCLT, wherein it was observed that an application under s. 9 of the IBC is not maintainable as per s. 9(5)(2)(d) of the IBC if the OC has received a notice of dispute or if there is a record of such dispute. Thus, no further investigation is necessary when the plausibility of a pre-existing dispute is established.
Therefore, the application under s. 9 of the IBC was correctly rejected due to the presence of a pre-existing dispute, affirming the NCLT’s findings.
Our Analysis
This judgment establishes a clear precedent for handling frivolous applications under s. 9 of the IBC, emphasizing that such claims should be dismissed when a pre-existing dispute is plausible. It reaffirms the principle that the insolvency process is not a mere tool for debt recovery and should not be misused where disputes are evident. This decision clarifies that applications under Section 9 are contestable and not maintainable if there is a presence of a pre-existing dispute, thereby guiding operational creditors on the proper use of insolvency proceedings. This contributes significantly to maintaining the sanctity and intended purpose of the IBC.
End Notes
[i] [2024] 160 taxmann.com 505 (NCLAT- New Delhi) [12-03-2024].
[ii] (2018) 1 SCC 353.
Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.