NCLT | ‘The moment a pre-existing dispute is established, IBC disenthralls itself’– Dismisses Application

National Company Law Tribunal

National Company Law Tribunal, New Delhi: The Coram of Abni Ranjan Kumar Sinha, (Judicial Member) and L.N. Gupta (Technical Member) dismissed an application considering the pre-existing dispute and on failure to prove that the operational debt was undisputed.

The instant matter was pertaining to an Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy Rules, 2016 by KK Continental Trade Ltd., to initiate Corporate Insolvency Resolution Process against Diamond Traexim Pvt. Ltd. (Corporate Debtor). The dispute was to release an outstanding balance amount of Rs. 6,29,45,000/- pursuant to the High Seas Sale Agreement for the purchase of 2000 metric tons of Crude Palm Oil in bulk  The Corporate Debtor denied the debt amount so due and further disputed the amount claimed, stating the deteriorated quality of the supplied goods. The counsel for the corporate debtor further submitted that there has been a dispute prior to the service of demand notice, for which the application is not maintainable. And also that the Corporate Debt

What was noted by the Tribunal was that the sole Arbitrator in the Arbitral Award concluded that,

“the claim of the Claimant is premature and can be filed only after the complaint/claim of Rs. 9,06,00,00/- of the Respondent is addressed to by the supplier of the Oil to the Claimant. Accordingly, the Claim is dismissed. The counter Claim of the Respondent also deserves to be dismissed”.

The Tribunal considered the fact that the applicant itself had initiated the Arbitration Proceeding to resolve the dispute relating to its claim, which resulted in dismissal of the claim being pre-mature. It, therefore, concluded that,

“the material on record sufficiently indicates that there has been a pre-existing dispute between the parties prior to issuance of demand notice. Therefore, there being a pre-existing dispute and a situation in which the Applicant itself has referred the dispute to the Arbitration proceeding, which resulted in dismissal of the claim of the Applicant being pre-mature, the applicant has failed to prove that its operational debt is undisputed. In terms of Section 9(5) (ii) (d) of the IBC, the moment it is established that there is a pre-existing dispute, the Corporate Debtor gets out of the clutches of the IBC”.

[KK Continental v. Diamond Traexim Pvt. Ltd., 2021 SCC OnLine NCLT 350, decided on 16-08-2021]


Agatha Shukla, Editorial Assistant has reported this brief.


Counsel for the Parties:

For the Operational Creditor: CS Chauhan, Advocate

For the Corporate Debtor: Mr Abhishek Kumar Dwivedi, Advocate

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