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Sudhi Sachdev v. Appl Industries Ltd. .
Factual and Procedural Background
This appeal was filed by Sudhi Sachdev, Promoter of M/s. Auto Décor Pvt. Ltd. (Corporate Debtor), challenging the order dated 2 August, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench. The impugned order admitted an application under Section 9 of the Insolvency and Bankruptcy Code (I&B Code) filed by APPL Industries Ltd. (Operational Creditor) and passed an order of moratorium. The appellant contended that there was an existing dispute because the respondent had instituted cases under Section 138/441 of the Negotiable Instruments Act, 1881, pending in the court of Metropolitan Magistrate, Gurgaon. The Corporate Debtor had also made partial payments, reducing the outstanding balance. The last payment was made on 18 March, 2016.
Legal Issues Presented
- Whether the pendency of cases under Section 138/441 of the Negotiable Instruments Act, 1881 constitutes a pre-existing dispute under Section 8(2) of the I&B Code that bars admission of an application under Section 9 of the Code.
- Whether the application under Section 9 of the I&B Code is maintainable in view of the pending proceedings under the Negotiable Instruments Act.
Arguments of the Parties
Appellant's Arguments
- There exists a dispute as the respondent has instituted cases under Section 138/441 of the Negotiable Instruments Act, 1881, which are pending in court.
- The proceedings under Section 138 are essentially civil recovery cases; hence, the application under Section 9 of the I&B Code is not maintainable while such cases are pending.
- The Corporate Debtor had made payments amounting to Rs. 31,85,525/-, reducing the outstanding balance, evidencing an ongoing dispute regarding the debt.
- Relied on the Supreme Court decision in R. Vijayan v. Baby (2012) 1 SCC 260 to support the contention that pending proceedings under Section 138 amount to a dispute.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| R. Vijayan v. Baby, (2012) 1 SCC 260 | Proceedings under Section 138 of the Negotiable Instruments Act are civil recovery suits and may indicate existence of dispute. | The court noted the appellant's reliance on this precedent but did not accept that pendency under Section 138 amounts to a pre-existing dispute under the I&B Code. |
| M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407 | Clarifies the distinction between Section 7 and Section 8 of the I&B Code and the conditions under which a dispute precludes admission of insolvency proceedings. | The court applied this principle to hold that the pendency of cases under Section 138/441 does not constitute a pre-existing dispute under Section 8(2) of the Code. |
Court's Reasoning and Analysis
The court examined the appellant’s contention regarding the pendency of cases under Sections 138/441 of the Negotiable Instruments Act. It acknowledged the appellant’s reliance on the R. Vijayan decision but distinguished the present facts. Referring to the Supreme Court’s ruling in M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr., the court emphasized that for a dispute to be considered pre-existing and bar admission under Section 9, it must be a bona fide dispute existing prior to the demand notice and recognized by the Code. The court found that the pendency of cases under the Negotiable Instruments Act, even if construed as recovery proceedings, does not amount to a dispute under the I&B Code. Instead, such pendency amounts to an admission of debt and default by the Corporate Debtor. Therefore, the application under Section 9 was rightly admitted, and the moratorium order was valid.
Holding and Implications
The appeal is dismissed for lack of merit.
The decision upholds the admission of the Section 9 application and the moratorium order passed by the Adjudicating Authority. The court clarified that pendency of cases under Section 138/441 of the Negotiable Instruments Act does not constitute a pre-existing dispute under the Insolvency and Bankruptcy Code. This ruling directly affects the parties by affirming the operational creditor’s right to initiate insolvency proceedings despite parallel recovery suits. No new precedent beyond the application of existing Supreme Court rulings was established.
1. This appeal has been preferred by ‘Sudhi Sachdev’, Promoter of ‘M/s. Auto Décor Pvt. Ltd.’ (Corporate Debtor) against order dated 2 August, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench whereby application under Section 9 of I&B Code preferred by Respondent - ‘APPL Industries Ltd.’ (Operational Creditor) has been admitted and order of moratorium has been passed.
2. Learned counsel appearing on behalf of the Appellant submits that there was an existence of dispute in view of the fact that the Respondent has instituted cases under Section 138/441 of Negotiable Instruments Act, 1881, which are pending in the court of Metropolitan Magistrate, Gurgaon. During the proceeding, the Corporate Debtor has paid Rs. 31,85,525/-, reducing the outstanding balance to Rs. 34,25,251/-. The last payment was made on 18 March, 2016.
3. Referring to the decision of Hon'ble Supreme Court in ‘R. Vijayan v. Baby’, (2012) 1 SCC 260, learned counsel for the Appellant submitted that the proceeding under Section 138 is really a civil cases of recovery of the money, therefore, in view of the pendency of such case, application under section 9 of I&B Code is not maintainable.
4. Having heard learned counsel for the Appellant and perusal of records, we are not inclined to accept the submission made on behalf of the Appellant.
5. In “M/S. Innoventive Industries Ltd. v. Icici Bank & Anr. S” - (2018) 1 SCC 407, the Hon'ble Supreme Court observed as follows:—
29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.”
6. In the present case, it is not in dispute that there is a debt payable to the Operational Creditor and default on the part of the Corporate Debtor. The pendency of the case under Section 138/441 of the Negotiable Instruments Act, 1881, even if accepted as recovery proceeding, it cannot be held to be a dispute pending before a court of law. Thereby we hold that the pendency of the case under Section 138/441 of Negotiable Instruments Act, 1881 actually amounts to admission of debt and not an existence of dispute. We find no merit in this appeal. It is accordingly dismissed. No Costs.
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