Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that a corporate debtor’s email acknowledgment of a creditor’s ledger suffices to establish operational debt for the purposes of Section 9 of the IBC, even if invoices were not issued. The tribunal ruled that once such acknowledgment is evident from the correspondence exchanged between the parties, the absence of invoices does not defeat the creditor’s claim or obstruct crystallisation of outstanding dues.

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A Bench of Justice Ashok Bhushan (Chairperson) and Technical Member Barun Mitra set aside the order of the NCLT Mumbai which had refused to admit RMV IT Services Pvt. Ltd.’s Section 9 application against Red Eye Services Pvt. Ltd. RMV had supplied computers and IT equipment under six rental agreements, and the debtor had defaulted in payment from mid-2018. RMV stopped raising invoices after September 2018 to avoid GST liability on unpaid invoices but continued supplying the equipment.

The judgment shows that despite the absence of invoices, Red Eye Services had repeatedly sought a complete ledger and, after receiving the final updated ledger, acknowledged the outstanding rent. On 21 February 2019, the debtor accepted the correctness of the ledger entries except for a variance of ₹27,033 for February. The tribunal extracted the email in which the debtor stated that it had not paid rent from July 2018 to February 2019 and accepted the outstanding amount reflected in the ledger “minus an amount of Rs 27,033/- only.” It held that this email constituted clear acknowledgment of debt.

RMV later demanded return of equipment and issued a demand notice in May 2019. When payment was still not made, it filed a Section 9 application. The NCLT rejected the application on multiple grounds including non-issuance of invoices, alleged need for reconciliation, and questions over rental liability after termination.

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The NCLAT disagreed with these findings. Referring to the terms of the six rental agreements, it held that the obligation to pay monthly rent arose from the agreements themselves and did not depend on issuance of invoices. The tribunal noted that “there is no requirement envisaged therein for raising of invoices” and observed that rent was due every month under the contract. It further accepted RMV’s explanation that invoices were discontinued only to avoid GST liability at a time when the debtor had stopped making payments.

The tribunal examined the email exchanges in detail, holding that the ledger confirmation had crystallised the operational debt well before issuance of the Section 8 notice. It held that the debtor’s later attempt to raise a dispute over reconciliation was an afterthought. The tribunal also found that the NCLT had committed a patent error by engaging in quantification of the debt despite the admitted dues exceeding the statutory threshold applicable in 2019.

On the debtor’s contention that balance rental was not payable post-termination, the tribunal referred to the agreements and the parties’ own emails. It found that Red Eye Services had consciously taken the decision to pre-terminate the agreements and was therefore liable for consequent charges. Even otherwise, the tribunal noted that the admitted pre-termination rental dues alone exceeded the statutory minimum.

The NCLAT also rejected the NCLT’s view that RMV had acted in a pre-meditated manner by depositing Section 9 filing fees prior to issuance of the demand notice. It held that there was no prohibition in the IBC against depositing fees earlier and that such procedural diligence cannot be a ground to reject an otherwise maintainable application. The tribunal further held that the NCLT had misapplied Section 9(3)(b) in view of the Supreme Court’s decision in Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd.

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Holding that Red Eye Services had clearly admitted the outstanding rent through its emails and that the debt had crystallised despite the absence of invoices, the NCLAT reversed the NCLT’s order. The appellate tribunal directed that the Section 9 application be admitted once the order is placed before the NCLT, while granting the parties one month to explore settlement before admission of CIRP proceedings.

Appearance

For Appellant: Advocates Megha Karnwal, Aditya Thorat and Karthikeya Suyag, Advocates.

For Respondent: Advocates Anjali Sharma, S K Sagar, Thanglunkim and Gaikhuanlung

Cause Title: RMV IT Services Pvt. Ltd. v. Red Eye Services Pvt. Ltd.

Case No: Company Appeal (AT) (Insolvency) No. 1374 of 2023 

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Member Technical)