Pre-Existing Dispute Reflected In Ledgers Bars Insolvency Proceedings: NCLAT Dismisses Drive India Appeal Against Essline
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, dismissed an appeal filed by Drive India Enterprise Solutions Ltd. challenging the rejection of its insolvency application against Essline Engineers and Consultants Pvt. Ltd., holding that a genuine pre-existing dispute existed between the parties. The Bench comprising Justice Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member) held that the materials on record, including ledger accounts and correspondence, clearly established the existence of a dispute prior to issuance of the demand notice under Section 8 of the Insolvency and Bankruptcy Code.
The appeal arose from the order of the National Company Law Tribunal rejecting the operational creditor’s application filed under Section 9 of the Insolvency and Bankruptcy Code. Drive India Enterprise Solutions Ltd. had claimed an amount of ₹7,41,39,165 towards alleged dues arising from supplies of mobile parts and batteries made to Essline Engineers and Consultants Pvt. Ltd. under High Sea Sale Agreements executed between February 2017 and March 2018. A demand notice was issued on 11 December 2019 seeking payment of the claimed amount.
Essline Engineers and Consultants Pvt. Ltd. responded on 19 December 2019 disputing the claim and asserting that no amount was payable after taking into account earlier account adjustments involving BTM Exports Ltd., its holding company. The corporate debtor contended that the accounts between the parties had already been reconciled and that the alleged outstanding amount was incorrect.
Before the Appellate Tribunal, the operational creditor argued that the adjustment of ₹3,99,47,076.92 shown in a letter dated 4 October 2018 was unilateral and had never been accepted by it. It was submitted that the alleged adjustment could not be relied upon to claim that the liability stood discharged.
The Tribunal examined the correspondence exchanged between the parties and found that the adjustment letter had been communicated to the appellant, which had responded by requesting the ledger details in Excel format. The corporate debtor thereafter provided the ledger statements. The Tribunal held that this exchange of correspondence showed that the adjustment was communicated and discussed between the parties and could not be treated as a unilateral act.
The Tribunal noted that several exchanges had taken place between the parties regarding balance confirmations, ledger entries and account adjustments well before issuance of the demand notice. The material on record demonstrated that the liability itself was disputed and that the dispute was not raised as an afterthought. The Bench observed: “The present is a case where notice of dispute was issued by the Corporate Debtor immediately after receiving of the demand notice and materials brought in reply to Section 9 application clearly proves that the plea raised by the Corporate Debtor that it does not owe any amount to the Appellant was supported by its ledgers. In any view of the matter, there were correspondences between the parties as noted above which clearly reflect the pre-existing dispute between the parties.”
Relying on the principles laid down by the Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the Tribunal reiterated that at the stage of admission of a Section 9 application, the Adjudicating Authority is only required to examine whether a plausible dispute exists and is not expected to conduct a detailed adjudication on merits. The Tribunal held that the defence raised by the corporate debtor was supported by documentary evidence and could not be treated as illusory or spurious. Holding that a genuine pre-existing dispute existed between the parties, the Tribunal affirmed the order rejecting the Section 9 application and dismissed the appeal.
Cause Title: Drive India Enterprise Solutions Ltd. Through Its Authorized Representative Vs. Essline Engineers and Consultants Pvt. Ltd.
Case Number: Company Appeal (AT) (Insolvency) No. 197 of 2022
Coram: Justice Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member)
