Pre-existing Dispute Bars Section 9 Application Against Corporate Debtor: NCLAT Delhi

Sanam Fashion & Design Exchange Ltd. Vs Ktex Nonwovens Pvt. Ltd. (NCLAT Delhi)

Sanam Fashion & Design Exchange Ltd. initiated Corporate Insolvency Resolution Process (CIRP) against Ktex Nonwovens Pvt. Ltd. (hereinafter referred to as “Corporate Debtor”) under Section 9 of the Insolvency & Bankruptcy Code (IBC), 2016, seeking recovery of a USD 200,000 advance payment made for the purchase of goods that the Corporate Debtor failed to deliver. However, the Adjudicating Authority rejected the application, prompting an appeal from Sanam Fashion & Design Exchange Ltd. (hereinafter referred to as “Appellant”).

The crux of the case revolves around whether the advance payment made by the Appellant to the Corporate Debtor qualifies as “operational debt” under the IBC, and whether there existed a pre-existing dispute between the parties.

The Adjudicating Authority based its decision on the absence of evidence showing that the goods were to be delivered at the specified location, Hong Kong, as claimed by the Appellant. Additionally, it emphasized that the terms of delivery and payment in the relevant documents indicated that the goods were to be picked up from the Corporate Debtor’s plant in Rajkot, India. Furthermore, the Adjudicating Authority highlighted that the Appellant had not provided any goods or services to the Corporate Debtor, but had only made an advance payment, which, in their view, did not constitute “operational debt” under the IBC.