Valley Iron And Steel Company Limited And Another v. Good Luck Traders .

1. In this appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (hereafter referred to as “IBC”), the grievance of the appellants is that the National Company Law Appellate Tribunal (for short “Nclat”) allowed 2019 SCC OnLine NCLAT 953 the respondents' appeal and directed its application for initiation of the insolvency process to be proceeded with.

2. The brief facts necessary for deciding this dispute are that the respondent applied under Section 9 IBC contending that Rs 95 lakhs was due and payable to it, in its capacity as an operational debtor. The substratum of this claim is based upon about 10 invoices issued on 17-10-2012 and 18-10-2012. The respondent-claimant had demanded the amount. The appellants prepaid the principal due (which is to the tune of Rs 54,46,440.26) and contended that the balance was disputed given that the operational creditor i.e. the respondent-claimant had claimed 24% interest. The application under Section 9 was rejected 2018 SCC OnLine NCLT 32026 by the National Company Law Tribunal (for short “NCLT”, also known as adjudicating authority) on the ground that the demand had been complied with and that the claim also was disputed and time-barred. The respondent, therefore, appealed to Nclat which set aside the adjudicating authority's determination and directed the application be proceeded with.

3. At the outset, the learned counsel for the appellants submitted that after the decision in Innoventive Industries Ltd. v. Icici Bank (2018) 1 SCC 407, (2018) 1 SCC (Civ) 356, this Court has clarified in subsequent decisions that mere issuing of a demand is not sufficient and that the adjudicating authority should be satisfied that a genuine dispute exists. The appellants relied upon a decision of this Court in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353, (2018) 1 SCC (Civ) 311 This aspect has been clarified in Mobilox Innovations (2018) 1 SCC 353, (2018) 1 SCC (Civ) 311 in the following terms : (Mobilox Innovations case (2018) 1 SCC 353, (2018) 1 SCC (Civ) 311, SCC p. 403, para 51)

“51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(ii)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.”

4. In the present case, this Court is of the opinion that the facts which justified the appellants to contend that the amounts claimed by the respondent, were disputed did exist thus justifying the adjudicating authority's decision to decline the application. Nclat in this Court's opinion, fell into error in holding otherwise. For the above reasons, the appeal is allowed. The application i.e. CA No. IB 870(ND)/2018 is, therefore, dismissed.

5. It is clarified that it is open to the respondent to claim the disputed sum, in accordance with law.