National Company Law Appellate Tribunal

National Company Law Appellate Tribunal, New Delhi: While affirming the order passed by the Adjudicating Authority, a Division Bench comprising of Rakesh Kumar*, J. and Dr. Alok Srivastava (Technical Member), held that the defence of existence of pre-existing dispute by the appellant was a ‘moonshine defence’, as the same was not raised at the time of inspection but was only raised after the goods were consumed by the Corporate Debtor.

In the instant matter, the Operational Creditor (respondent 2) filed an application under S. 9 of the Insolvency & Bankruptcy Code, 2016 (IBC) read with R. 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 before the Adjudicating Authority. The appellant, who is a suspended director and shareholder of Corporate Debtor objected regarding the pre-existing dispute which was asserted by the Corporate Debtor i.e. dispute regarding the quality of the materials supplied by the Operational Creditor. The Adjudicating Authority vide order dated 16-08-2022, rejected the plea of appellant and admitted S. 9 application and directed the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor(respondent 1). Aggrieved by the impugned order passed by the Adjudicating Authority, the appellant preferred an appeal under S. 61 IBC before the NCLAT challenging the same.

The appellant admitted that there exists pre-existing dispute which was required to be noticed by the Adjudicating Authority and contended that the Adjudicating Authority incorrectly appreciated and rejected the plea of the Corporate Debtor regarding pre-existing dispute. The appellant relied on Rajratan Babulal Agarwal v. Solartex India (P) Ltd., (2023) 1 SCC 115 and submitted that if a pre-existing dispute is established before issuance of notice under S. 8 IBC or before the Adjudicating Authority then the Adjudicating Authority could have rejected S. 9 application filed by the Operational Creditor(respondent 2).

The Operational Creditor(respondent 2) contended that no dispute with regards to quality of goods was raised by the Corporate Debtor as the materials which were supplied by Operational Creditor were accepted by the Corporate Debtor and later utilised entire granite slabs without any dispute. The respondents further contended that objection in respect of pre-existing dispute which was asserted by the Corporate Debtor was thoroughly examined and satisfied by the Adjudicating Authority.

NCLAT observed that it is not disputed that on the date of filing of S. 9 application there was outstanding debt against the Corporate Debtor, and the only objection which is to be asserted is regarding pre-existing dispute. NCLAT observed that if an application filed under S. 9 IBC is rejected then a genuine pre-existing dispute must exist between the parties.

“It is true that under the provisions of Code if Adjudicating Authority is satisfied with pre-existing dispute at the time of entertaining an application filed under Section 9 of the Code there is no reason to initiate the same or admit the application. However, law is settled on the point that there must be pure pre-existing dispute. Meaning thereby that genuine pre-existing dispute must exist in rejecting an application Section 9 of the code.”

NCLAT observed in the light of facts and circumstances of the present case, it is clear that the Corporate Debtor had accepted the delivery of granite slabs made by the Operational Creditor without raising any dispute or objection otherwise the Corporate Debtor had accepted the delivery of granite slabs made by the Operational Creditor without raising any dispute or objection. NCLAT stated that the “plea of Corporate Debtor regarding dispute Corporate Debtor can be termed as moon shine defence”, therefore there is no reason to accept such a plea.

While upholding the Adjudicating Authority’s order of accepting S. 9 application, the NCLAT rejected the appeal on not finding any ground to interfere with the impugned order or any defect in the said impugned order.

[Deepak Modi v. Shalfeyo Industries (P) Ltd., 2023 SCC OnLine NCLAT 169, decided on 31-03-2023]

*Judgment by Justice Rakesh Kumar

Advocates who appeared in this case:

Mr. Abhijeet Sinha and Mr. Naresh Kr Sejvani, Counsel for the Appellant;

Mr. Garvit Thukral and Mr. Pushpendra Singh Bhadoriya, Counsel for the Respondent No. 1;

Mr. Amol Vyas, Mr. Vivek Sinha and Mr. Vivek Malik, Counsel for the Respondent No. 2.

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