NCLAT rejects Corporate Creditor’s demand of payment of outstanding operational debt worth Rs 58 crores, after finding ‘plausible contention’ in debtor’s arguments

National Company Law Appellate Tribunal, New Delhi: The 3-Member Bench of Justice Bansi Lal Bhat (Acting Chairperson), V.P. Singh, Member (Technical) and Shreesha Merla, Member (Technical), rejected the appeal filed by the Operational Creditor against the order of NCLT, after finding a need for ‘further investigation’ in the case.

The Appellant (Operational Creditor) and the Respondent (Corporate Debtor) entered into a Business Transfer Agreement (BTA) dated 7 April 2018 for the transfer of undertaking on a Slump Sale basis under Section 2(42-C) of the Income Tax Act, 1961 at a lump sum amount of Rs 123 Crores. The appellant contended that the Corporate Debtor had only transferred a sum of Rs 65 Crores and the remaining debt of Rs 58 Crores was unpaid.

The Appellant contended that after the satisfaction of ‘condition precedent’ relating to transfer, a compliance notice was submitted to the Corporate Debtor on 4 June 2018, which was acknowledged by the Corporate Debtor. It was further submitted, the sale was consummated and the possession of Undertaking was handed over by the Operational Creditor to the Corporate Debtor. Demand for payment was regularly communicated to the debtor but no payment was made. He also contended that the NCLT erred in deciding the judgement by not appreciating the facts and correct perspective of law.

The Respondent contended that the impugned appeal was premised on the suppression of facts and information, misrepresentation and gross misconstruction of the provision of the business transfer agreement. They further argued that it had replied to the demand notices and the payment of outstanding debt was made into 3 Tranche Payments as more particularly specified in the BTA. They also argued that post slump sale transaction was under the scope of IBC proceedings and in reply to the demand notice the corporate Debtor raised the issue of pre-existing dispute.

The Tribunal relied on the principle of ‘pre-existence’ of dispute as interpreted in the case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353. The Court said that “all that the Adjudicating Authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster”. After examining the documents supplied by both the parties, the Tribunal found that issues had been raised by the corporate debtor before the receipt of demand notices which proved ‘pre-existence’ of dispute and there was a plausible contention in the defence raised by the corporate debtor which required further investigation. Therefore, the appeal was rejected and no substance was found in the appeal. [Allied Silica Limited v. Tata Chemicals Ltd.,  2020 SCC OnLine NCLAT 613, decided on 11-08-2020].

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