22 March, 2018
Recently, the National Company Law Tribunal, New Delhi Principal Bench (NCLT) while deciding the application filed by a creditor against an operational debtor under section 9 of the Insolvency and Bankruptcy Code (the “Code”) in Sky RMC Plants Private Limited vs. Ahluwalia Contracts (India) Limited [(IB) – 103 (PB)/2018], passed an order dated February 1, 2018, wherein, it has held that filing of a suit by the operational creditor itself against the corporate debtor, prior to initiating corporate insolvency resolution process under the Code, amounts to “existence of dispute” for the purposes of Section 8(2)(a) of the Code. Accordingly, the NCLT dismissed the application filed by the operational creditor against the corporate debtor under Section 9(5)(ii)(d) of the Code.
The facts leading to the present application reflect that an application was filed under Section 9 of the Code to trigger corporate insolvency resolution process. A statutory notice was issued to the corporate debtor on September 15, 2017 under Section 8 of the Code which was objected by the operational debtor on September 26, 2017 on the grounds that the applicant had already filed a commercial summary suit in the Hon’ble Bombay High Court on February 22, 2017 in the same matter, which was at first rejected by the Hon’ble High Court on June 19, 2017 on the grounds of non-removal of defects, and was subsequently restored on August 4, 2017. It is pertinent to mention here that the suit was restored prior to the issuance of the statutory notice issued by the Applicant.
After hearing the parties, the NCLT observed that the Code has debarred the entertainment of any application of an operational creditor where a dispute in the form of suit or arbitration is pending. Further, after perusing Section 8 (2) (a) of the Code, the NCLT observed that it has not been disputed that a suit has been filed and is pending before the Hon’ble Bombay High Court in which various orders have been passed. The notice has been duly responded within ten days and the objections have been raised with regard to the dispute pending in the form of suit before the Hon’ble Bombay High Court.
Accordingly, the NCLT dismissed the application under Section 9(5)(ii)(d) of the Code, by holding that if a notice of dispute has been received by the operational creditor or if there is a record of dispute in the information utility in the form of a pending suit filed by the operational creditor against the corporate debtor prior to the issuance of statutory notice, the operational creditor cannot pursue the corporate insolvency resolution process against the debtor.
Although this judgment upholds the provisions of the Code, it certainly clarifies that the words used in Section 8 of the Code, i.e. “existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute” also includes the suit filed by the operational creditor itself, and as such, an operational creditor cannot pursue both the legal remedies against the corporate debtor, which is again contrary to the settled erstwhile law in relation to winding up of companies under the Companies Act, 1956, where a suit and a winding up proceeding could be pursued simultaneously.
For further information, please contact:
Mustafa Motiwala, Partner, Clasis Law
mustafa.motiwala@clasislaw.com
