Monotrone Leasing Private Limited v. PM Cold Storage Private Limited (decided on July 6, 2020): The National Company Law Appellate Tribunal ("NCLAT") held that the inability to pay debts and committing default are different aspects that are required to be adjudicated on equally different parameters, and that ascertaining commission of default is important when assessing applications to initiate Corporate Insolvency Resolution Process ("CIRP").
In the instant case titled Monotrone Leasing Private Limited v. PM Cold Storage Private Limited the issue raised for clarification before the NCLT was:
Is the application made in accordance with Section 7 of the IBC maintainable?
With regard to this issue, Due to the Appellant's failure to submit the paperwork needed to apply for a loan from an NBFC, a negative conclusion was made about them. However, it was also noted that the NCLT is anticipated to accept or deny a request for the start of CIRP based only on criteria established by Sections 7, 9, or 10 of the IBC. The NCLT was found to have overlooked the fact that the issuing of a check also constitutes an unconditional admission of liability on the part of the Respondent for the Appellant's debt. Therefore, it was determined that the NCLT's negative inference for failing to provide any justification for the earlier check dated September 12, 2017, was without foundation.
It was noted that the Supreme Court of India had established the guiding principles to allow or reject an application submitted under Section 7 of the IBC in the case of Innoventive Industries Limited v. ICICI Bank [(2018) 1 SCC 407]. The Supreme Court of India has ruled that the "debt," which can include include a disputed claim, is not due, and that the corporate debtor is entitled to argue that a default has not occurred in the sense that a default has not occurred before the NCLT in order for the NCLT to admit an application. If a debt is not payable in law or in actuality, it might not be due.
The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, in conjunction with Section 7 of the IBC, were used to adjudicate the appellant's application, which was deemed to be complete. Given the facts, it is obvious that the NCLT's observation lacks support.
The NCLT noted that the civil court had imposed an interim prohibitory order prohibiting the appellant and others from recovering the claimed amount. The Respondent has not submitted any such civil court judgement preventing realisation of the specified amount. It should be made clear, though, that the non-obstante provision in Section 238 of the IBC gives the IBC precedence over any laws that are in conflict with it. As a result, the civil court lacked the authority to order an injunction in a matter that was still proceeding under the IBC. It was noted that the NCLT erred in dismissing the application because a civil lawsuit between the parties was still pending.
The NCLT categorically stated that,
"In the circumstances, we are of the opinion that the Appeal deserves to be allowed. We are also satisfied that the Appellant/ Financial Creditor has proved that the Corporate Debtor has committed a default of more than One lakh rupees, Application filed by the Appellant under Section 7 of the Code is complete and no disciplinary proceeding is pending against the proposed Resolution Professional. Therefore, the Application filed under Section 7 by the Appellant / Financial Creditor should have been admitted by the Adjudicating Authority."