Cannot reject insolvency plea over claims disputed after demand notice: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has asked the NCLT to decide over an insolvency plea filed against leading real estate firm Raheja Developers by one of its operational creditors.

Setting aside the earlier order passed by the National Company Law Tribunal (NCLT), the NCLAT said existence of any "disputed claim" cannot be a ground to reject an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) to initiate insolvency proceedings, if it is not raised before issuance of a demand notice.

A three-member Bench, headed by Chairman S J Mukhopadhaya, observed that "existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice".

Allowing the appeal of Ahluwalia Contracts (India) Ltd, an operational creditor of Raheja Developers, NCLAT said no arbitration proceeding was initiated or pending before demand notice under Section 8(1) of IBC and has remitted the matter back to the NCLT for fresh hearing.

"We set aside the impugned judgment dated September 19, 2018, and remit the case to the Adjudicating Authority (NCLT) for admitting the application under Section 9 after notice to the 'Corporate Debtor' (Raheja) to enable the 'Corporate Debtor' to settle the matter prior to the admission," said NCLAT in its order passed on Tuesday.

The Delhi bench of the NCLT had on September 19 dismissed an application filed by Ahluwalia Contracts (India) Ltd under Section 9 on grounds that the claim was disputed and arbitration proceedings has already been initiated over it.

Section 9 of IBC gives power to the operational creditors of a company to initiate corporate insolvency resolution process after default.

Before that, he has to send a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default under Section 8(1) of IBC.

This was challenged by Ahluwalia Contracts before the appellate tribunal NCLAT.

NCLT had observed that claims of Ahluwalia Contracts falls within the ambit of 'disputed claim' and arbitration in the matter has already been initiated.

However, Ahluwalia Contracts, which was represented by his counsel Shashank Garg contended that when the demand notice was issued by it under Section 8(1) of the IBC, no arbitration proceeding was initiated or pending and it was initiated after that.

Consenting to it, NCLAT said "existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice".

It further observed that the arbitration proceeding was initiated by Raheja Developer on May 24, 2018, which is after about one month from the date of issuance of demand notice under Section 8(1) issued on April 28, 2018.

Ahluwalia Contracts had received work order for plumbing and civil work from Raheja Developers and had claimed dues of Rs 5.50 crore.