ONE PAGE 30 – Jayhind Steel Traders V Saturn Prefab India Pvt Ltd  

ONE PAGE 30 – Jayhind Steel Traders V Saturn Prefab India Pvt Ltd  
CIRP Admission Order set aside for existence of dispute before demand notice & the running account between parties not being reconciled & settled. OC directed to bear the CIRP costs incurred
Court:  NCLT Indore & NCLAT Delhi Bench AT# 656/2020, 30.09.20

1. Background:

a. Appellant: Director of CD, R1: OC, R2: CD represented by IRP.

b. NCLT admitted the Sec 9 application, CIRP was initiated & COC constituted.

c. Appellant challenged the admission of Sec 9 application on following grounds:

i. Pre-existing dispute exists. OC sent mail to CD asking for payment & in reply CD raised issues on ledgers not matching, claim amount incorrect, PO not mentioned on invoice, rejected materials still lying at CD site etc.

ii. Invoices are fabricated & false & date on which default is imaginary or hypothetical

iii. OC has credit balances from CD’s group Company & Client.

iv. Demand notice u/s 8 is defective as per the invoices annexed.

2. Case Laws:

a. Mobilox Innovations Pvt Ltd V Kirusa Software Pvt Ltd (SC): In this judgment SC has clearly laid down the mechanism to be operated by OCs in terms of Sec 8 & 9 of IBC. IBC is not intended to be a substitute for recovery forum; if there is existence of real dispute, the IBC provisions cannot be invoked.

3. NCLAT Evaluation & Judgment:

a. Ongoing through various submissions made by both parties, NCLAT observed that OC is making all attempts to realize payment & conveniently used IBC for faster realization.

b. That there are multiple dates of default. There is existence of dispute on balance dues and also actual amount due needs to be reconciled and reflected.

c. As per SC in Mobilox case, the undisputed debt is sine qua non for initiating CIRP & also the debt should be due and payable.

d. OC claiming that the debt due is more than Rs.1 lac. In a case of running account, where accounts are yet to be reconciled and settled, an email sent by CD before demand notice asking OC to take back rejected material reflects pre-existing dispute and in such a case Adjudicating Authority cannot sit down to settle and calculate the debt dues.

e. NCLAT allowed the appeal, set aside the admission order by NCLT and consequently appointment of IRP. Freezing of CD’s accounts, paper publication by IRP, constitution of COC etc are declared illegal and set aside. CIRP costs incurred to be recovered from OC. No order as to costs.

MS Mano Ranjani

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