NCLT Rules, Payment Made Against Specific Invoice Can't Be Adjusted Against Back-Dated Invoices
Pranav B Prem
The National Company Law Tribunal, New Delhi Bench-IV, comprising Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by Uniwoth Enterprises LLP against M/s Starco Metaplast Pvt. Ltd., holding that payments made by the corporate debtor towards specific invoices could not be unilaterally adjusted by the operational creditor against earlier back-dated invoices.
The dispute arose when Uniwoth Enterprises LLP, engaged in manufacturing pharma packaging materials, filed a petition to initiate Corporate Insolvency Resolution Process against Starco Metaplast Pvt. Ltd., a supplier of PVC films, alleging default in payment of Rs. 2,83,84,205/-, which included a principal amount of Rs. 2,32,60,608/- and interest of Rs. 51,23,597/- at 18% per annum. The supplies were made against purchase orders placed in 2021 for a total of 2,21,573 kgs of material, of which only 1,35,567 kgs were supplied.
The operational creditor claimed that despite multiple communications and a meeting in November 2022, where it was agreed to issue a credit note of Rs. 40,84,275/- for non-supplied materials on the condition that the balance Rs. 1,91,80,733/- would be paid or covered through post-dated cheques, the corporate debtor neither made the payment nor issued the cheques. Consequently, a demand notice under Section 8 was served on 23.01.2023, followed by the filing of the Section 9 petition.
Opposing the petition, the corporate debtor submitted that payments totaling Rs. 2.24 crore had already been made during the relevant period, including Rs. 1.98 crore paid specifically against the invoices cited by the operational creditor in the petition. It argued that the operational creditor had misappropriated these payments by adjusting them against earlier dues using the First-In-First-Out (FIFO) method, despite the fact that the payments were clearly made with reference to specific invoices. The respondent also highlighted the existence of a pre-existing dispute due to short supply and delays, leading to debit notes and claims for damages.
The tribunal analyzed the documents, including instruction letters from the corporate debtor to its financier, Oxyzo Financial Services Pvt. Ltd., directing payments against identified invoices. It noted that these payments were indeed made against specific invoices listed in the petition and that the operational creditor had acknowledged receipt of these amounts. The tribunal held that once payment is made against specific invoices, it cannot be appropriated against other older dues. It further stated that the operational creditor’s attempt to reassign the payments retrospectively under FIFO accounting was not sustainable in law.
Additionally, the tribunal observed that the dispute regarding supply shortfall and invoice-specific payments existed prior to the issuance of the Section 8 demand notice. Relying on the principles laid down by the Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd [Civil Appeal No. 9405 Of 2017] and Sabarmati Gas Ltd. v. Shah Alloys Ltd [Civil Appeal No. 1669 of 2020], the tribunal reiterated that the existence of a plausible pre-existing dispute, even if not conclusively proven, is sufficient ground to reject a petition under Section 9.
Lastly, the tribunal held that after accounting for the acknowledged payments, the remaining amount due, if any, fell below the statutory threshold of Rs. 1 crore as required under Section 4 of the IBC. Since the petition failed to meet the minimum threshold requirement and was filed despite the existence of a pre-existing dispute, the Tribunal dismissed the application.
The National Company Law Tribunal, New Delhi, dismissed the Section 9 application filed by Uniwoth Enterprises LLP, holding that the corporate debtor had made payments against specific invoices, which could not be adjusted against older dues. Consequently, as the remaining unpaid amount did not meet the Rs. 1 crore threshold and there existed a pre-existing dispute, the petition was held to be not maintainable and was dismissed.
Appearance
For the Applicant: Mr. Prutha Bhasvar, Ms. Natasha Dhruman, Advs.
For the Respondent: Mr. Mukesh Jain, Mr. S. B. Chaturvedi, Advs.
Cause Title: Uniwoth Enterprises LLP V/s Starco Metaplast Pvt. Ltd.
Case No: CP (IB) No. 176 (ND)/ 2023
Coram: Sh. Manni Sankariah Shanmuga Sundaram [Hon’ble Member (Judicial)] , Dr. Sanjeev Ranjan [Hon’ble Member (Technical)]
[Read/Download order]
