Pre-Existing Dispute Over Spurious Goods Bars Section 9 CIRP: NCLAT Delhi

Nilanjana Chakravorty Dutta Vs Debdas Chakraborty & Ors. (NCLAT Delhi)

Summary: NCLAT Delhi allowed the appeal and set aside the NCLT Kolkata Bench order dated 13.06.2022 admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 and initiating CIRP, holding that the Corporate Debtor had established a pre-existing dispute concerning the alleged supply of sub-standard and spurious spices. The Operational Creditor had issued a Section 8 demand notice on 13.09.2018 and subsequently filed the Section 9 application on 25.02.2019 claiming Rs.27,68,141 with interest at 24% for supplies of whole spices. The Corporate Debtor relied upon letters dated 27.06.2018 and 04.08.2018, both predating the demand notice, to show that objections regarding the quality of goods had already been raised.

The letter dated 27.06.2018 specifically referred to Invoice No. IFP/18-19/503 dated 23.06.2018 and alleged that 60 bags of turmeric were blackish and contained insects. NCLT had rejected the pre-existing dispute defence substantially because the letters referred to Shankar Singh while Binod Kumar Choudhary claimed to be the proprietor of Isha Food Products. NCLAT found that approach erroneous. It noted that the letter dated 04.08.2018 was addressed to Isha Food Products at the same address stated in the Section 9 application and that the Operational Creditor itself relied upon this letter as an acknowledgment of liability. Applying the Supreme Court’s principles in Rajratan Babulal Agarwal Vs. Solartex India Pvt. Ltd. & Ors., which in turn referred to Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, NCLAT observed that a pre-existing dispute need not ultimately succeed on merits; what is material is the existence of a plausible dispute that is not spurious, hypothetical or illusory.