NCLAT: Application U/S 9 Of IBC Cannot Be Admitted When Debt Is Discharged By Corporate Debtor After Receipt Of Demand Notice
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that insolvency proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be initiated if the corporate debtor has discharged the debt after receiving the demand notice under Section 8 of the Code. The ruling was delivered by a bench comprising Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member), and Mr. Barun Mitra (Technical Member) in Company Appeal (AT) (Insolvency) No. 1783 of 2024, arising out of an order passed by the National Company Law Tribunal (NCLT), Ahmedabad (Court - II).
Background of the Case
Essar Oil & Gas Exploration & Production Limited (the Corporate Debtor) had entered into contracts with Greeka Greens Solution (India) Limited (Operational Creditor) on December 2, 2013, and December 31, 2015, for hiring drilling rig services. The Operational Creditor issued a demand notice on March 5, 2018, claiming unpaid dues amounting to Rs.12,78,73,257/-. The Corporate Debtor responded to the demand notice, leading to a settlement agreement executed on June 24, 2019, which was later revised on July 7, 2020. Under the revised settlement, the parties agreed on a full and final settlement amount of Rs.8,30,31,244/- (equivalent to USD 1,110,489) payable in 21 installments until March 2022.
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The Corporate Debtor made payments towards 20 out of the 21 agreed installments, amounting to Rs.7,40,00,090/-. However, the final installment was delayed due to a calculation dispute. Despite this, the Operational Creditor issued another demand notice on October 17, 2022, seeking Rs.24,38,26,881/- (including interest) and subsequently filed an application under Section 9 of the IBC on December 23, 2022. During the pendency of the proceedings, the Corporate Debtor made the final payment of USD 125,833/- on June 26, 2024. Despite this, the NCLT admitted the Section 9 application, which was then challenged before the NCLAT.
Submissions by the Parties
The Appellant argued that the initiation of insolvency proceedings was unwarranted since the Corporate Debtor had already discharged its liability, with only a minor calculation dispute delaying the final installment. The Appellant contended that the Operational Creditor could not use Section 9 proceedings as a recovery mechanism when a prior settlement agreement had already been implemented in good faith.
On the other hand, the Respondent acknowledged that the entire liability had been discharged but maintained that the proceedings had been initiated based on outstanding dues at the time of filing.
NCLAT’s Observations and Ruling
The Tribunal found that the Corporate Debtor had already settled the debt, barring a minor calculation dispute regarding the final installment. The Tribunal stated: "In facts of the present case, present is not a case for initiation of Section 9 proceeding against the Corporate Debtor who after receipt of the demand notice has entered into settlement and paid 20 instalments out of 21 instalments and non-payment of 21st instalment was due to calculation issues regarding amount of last instalment."
It further observed that Section 9 of the IBC is not meant to serve as a tool for recovering disputed amounts, particularly when a prior settlement agreement has been honored. The Tribunal emphasized: "Present was not a case for initiation of any Section 9 proceeding since the Corporate Debtor has discharged its liability and last instalment could not be paid due to some calculation issues, which amount was also paid during pendency of the Section 9 application."
The NCLAT also took note of the fact that the Respondent had not filed any reply to the appeal despite multiple opportunities. Given that the entire debt had already been discharged, the Tribunal found no justification for continuing the insolvency proceedings. "We are of the view that in facts of the present case initiation of CIRP process under Section 9 against the Corporate Debtor was uncalled for. Sufficient ground has been made out to allow this appeal and set aside order dated 06.09.2024. Appeal is allowed. Impugned order is set aside. Section 9 application filed by the Respondent is rejected."
Appearance
For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Mahesh Agarwal and Mr. Abhinav Garg, Advocates.
For Respondents: Mr. Mrinal Bharat Ram, Mr. Aditya Laroyia and Mr. Ananya Bhardwaj, Advocates for R-1.
Case Title: Mr. Pankaj Kalra (Suspended director of Essar Oil & Gas Exploration & Production Limited) Vs Greeka Greens Solution (India) Limited and Anr.
Case Number: Company Appeal (AT) (Insolvency) No. 1783 of 2024
Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member (Technical)], Arun Baroka [Member (Technical)]
[Read/Download order]
