National Company Law Appellate Tribunal, New Delhi: While deciding whether there was a pre-existing dispute between the parties justifying the rejection of the Section 9 application, a 3-member bench comprising of Ashok Bhushan, J., Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member), held that a pre-existing dispute existed, as the Corporate Debtor had denied liability even before the demand notice was issued.
In the instant matter, the appellant filed an appeal against the order dated 17-03-2023, wherein the Adjudicating Authority rejected the application filed under Section 9 of the IBC. The Section 9 application was filed based on a Work Order issued by the Corporate Debtor to the Appellant for certain work.
The legal notices were exchanged, including one dated 28-02-2019, demanding a sum of Rs.1,80,81,534/- from the Corporate Debtor. The Corporate Debtor responded, denying the claims and alleging a fictitious and fabricated claim by the Appellant. Despite the denial, the appellant issued a demand notice under Section 8 on 20-05-2019 and subsequently filed the Section 9 application. The Adjudicating Authority, in its impugned order, rejected the Section 9 application on the ground of a pre-existing dispute, noting the termination of the Work Order on 02-01-2019.
Whether there was a pre-existing dispute between the parties justifying the rejection of the Section 9 application?
The appellant contended that the respondent never disputed the claimed amount, as evidenced by emails between the parties. It was argued that since the amount was not disputed, the termination of the Work Order should not be considered a pre-existing dispute, and there was a regular business transaction between the parties.
Key Legal Principles
A pre-existing dispute exists when the respondent denies liability even before the issuance of a demand notice.
The denial of liability by the Corporate Debtor, as evident in their detailed reply, was a crucial factor in determining the existence of a pre-existing dispute.
The NCLAT noted the termination of the Work Order before the notice of demand under Section 8 and emphasised that the Corporate Debtor had promptly disputed the claims made in the legal notices.
The NCLAT agreed with the Adjudicating Authority’s finding that a pre-existing dispute existed since the Corporate Debtor, even before the demand notice, had denied liability.
The NCLAT granted appellant the option to pursue proceedings as per the agreement between the parties before an appropriate forum in accordance with the law. The NCLAT dismissed the appeal, upholding the Adjudicating Authority’s decision to reject the Section 9 application.
[Panjwani Electrical Engineers & Consultants v. Larsen & Toubro Ltd., 2023 SCC OnLine NCLAT 2202, order dated 06-11-2023]
Advocates who appeared in this case :
Mr. Gursat Singh and Mr. Pranav Khann, Counsel for the Appellant
Mr. Anand Shankar Jha, Mr. Sachin Mintri, Mr. Abhilekh Tiwari and Mr. Arpit Gupta, Counsel for the Respondent