PRE-EXISTING DISPUTES,
FRAUD: WHTHER NCLT has jurisidction under IBC 2016?
The Kolkata bench of NCLT in a
recent judgment i.e in Company Petition
(IB) No. 154/KB/2022 in a matter captioned as Abdul Hannan Vs M/s. Jai Jute
and Industries Limited has deliberated upon the effect of pre-existing
dispute in preferring Insolvency petition u/s 9 of Insolvency & Bankruptcy
Code 2016 and also if the allegation of fraud or forgery could be deliberated
and decided by the NCLT. It is pertinent
to mention that whether the Insolvency Petition is preferred by Financial
Creditor (FC) u/s 7 of Insolvency & Bankruptcy Code (In short IBC 2016) or
u/s 9 of the IBC 2016 preferred by Operational Creditor (OC), disputed claim
are not required to be considered in the aforesaid petitions. The NCLT Kolkata
in Abdul Hannan (Supra) case has
revisited the judicial precedents and adjudicated the issues as framed
hereunder effectually. Moreover, whether the Tribunal shall be competent to
deal with the allegation of fraud or forgery has also been dealt with. In the
backdrop of given facts, the issues that fell for determination:
(i) Whether a
Police Complaint can be considered as preexisting dispute.
(ii) Whether
the issue relating to forgery and fabrication can be decided in a summary
proceeding under I&B Code.
Before delving further it may be
apt to peruse the terms of Section 9 of the IBC 2016, more particularly, sub-clauses
(1) to (3). The same is as under:
(1) After the expiry of the period of
Ten (10) days from the date of delivery of the notice or invoice demanding
payment under sub-Section (1) of Section 8, if the operational creditor does
not receive payment from the corporate debtor or notice of the dispute
under sub-section (2) of section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a Corporate
Insolvency resolution Process (CIRP).
(2) The application under sub-section
(1) be field in such form and manner and accompanies with such fee as may be
prescribed.
(3) The operational creditor shall, along with the
application shall furnish-
(a)
A
copy of the invoice demanding payment or demand notice delivered by the
operational creditor to the corporate debtor;
(b)
An
affidavit to the effect that there is no notice given by the corporate debtor
relating to a dispute of the unpaid operational debt;
(c)
A
copy of the certificate from the financial institutions maintaining accounts of
the operational creditor confirming that there is no payment of an unpaid operational
debt by the corporate debtor, if available.
The perusal of the aforesaid
shall itself reveal the emphasis to the effect that there is no pre-existing
dispute and the corporate debtor shall have to be notified and it is to be further
specified that no notice of dispute from the corporate dispute was received.
Therefore, the emphasis on no dispute is the basic limb for preferring
application under section 9 of the Insolvency & Bankruptcy Code (IBC) 2016.
Thus, if any disputes existed, from the bare terms of section 8 & 9 of IBC,
the application by the Operational Creditor may not pass muster. The law elucidated has reinforced this.
LAW
The NCLT, Kolkata had relied upon
various judgments of NCLAT before adjudicating the aforesaid issues.
1. Hon’ble
NCLAT in Sherbahadur D. Yadav Vs. M/s. Rohan Dyes and Intermediates Ltd.
in Company Appeal (AT) (Ins) No. 472 of 2021 reported in (2022) ibclaw.in 78 NCLAT wherein
the Hon’ble NCLAT, held that:
“8. When the
allegations against each other are serious allegations including allegations of
offence against each other, we are not convinced by the Appellant that police
complaint do not evidence any dispute between the parties. It is to be noted
that all the aforesaid complaints are much before initiation of proceedings u/s
9 by the Appellant. The Adjudicating Authority has not committed any error in
relying of the facts and materials on record to come to the conclusion that
there was pre-existing dispute between the parties.’
“9.
We are of the view that IBC proceedings are not for the purposes of
adjudicating such dispute between the parties and are not the recovery
proceedings to recover the unpaid amount by the official creditor whose claim
is disputed by the ‘Corporate Debtor’.’
2.
Hon’ble NCLAT in Mr. Anil J. Nemaavarkar vs. M/s.
Kumar Builders Mumbai Realty Pvt. Ltd. in Company Appeal (AT)
(Insolvency) No. 330 of 2022 reported in (2022) ibclaw.in 270 NCLAT that:
“5. We are not
convinced with the submissions of the Learned Counsel for the Appellant that
there was no dispute raised before the Demand Notice under Section 8 was issued
by the Appellant. Appellant himself has filed large number of complaints
including Police Complaint and Complaint before the Labour Authority regarding
his claim and making other serious allegations against the Corporate Debtor. We
are of the view that Insolvency and Bankruptcy Code is not for resolving such
dispute, the remedy of the Appellant with regard to his services benefits if
any, lies elsewhere and Adjudicating Authority has rightly rejected the
Application noticing the ‘pre-existing dispute’ between the parties.’
“The
Appeal is dismissed.”
The overwhelming view therefore is
that the Police Complaint, prior to the issuance of the statutory notice of demand
under Section 8 of the I&B Code, prosecuting a dispute regarding the supply
of inferior goods and/or service shall be a “pre-existing
dispute” and application under section 9 of IBC 2016 shall not be
maintainable. It is consistently held that the Tribunals under IBC 2016 is not
a recovery court for adjudication of disputes and only the admitted liability
shall fall within the domain of the Tribunal and adjudication of disputes shall
be the domain of civil courts.
Issue of fraud and its adjudication by NCLT
The second issue framed in the
above reference relates to fraud and whether NCLT shall be competent to adjudicate
about it.
1.
That in a matter captioned as
Radha
Exports (India) Pvt. Limited vs. K.P. Jayaram reported
at MANU/SC/0646/2020:
(2020) 10 SCC 538, wherein the Hon’ble Apex Court held that:
“16.
Allegations of forgery and fraud are not decided in proceedings Under Sections
433 and 434 of the Companies Act 1956 for winding up of a company. Such
disputes necessarily have to be adjudicated in a regular suit, on the basis of
evidence, including forensic examination reports.’
2.
That in Jaginder Singh Lather v. AU Small
Finance Bank Ltd. reported at 2018 SCC OnLine NCLAT 706, the
Hon’ble NCLAT held that:
“3.
In the present appeal this Appellate Tribunal cannot decide issue such as
whether the document produced by a party is forged and fabricated or not,
though it is always open to aggrieved person to file an application under
Section 65 of the I & B Code with such allegation.”
3.
That in Shelendra Kumar Sharma v. DSC
Ltd., reported in 2019 SCC OnLine NCLAT 1274, it is
laid down that:
“5.
In view of such infirmity, we observe that the application was filed by the
Appellant with an intent to receive the dues from the Corporate Debtor and not
with intention for resolution or liquidation, therefore, we hold that the
Adjudicating Authority rightly rejected the prayer of the Appellant. So far as
the question as to whether the documents are forged or not is concerned, it
cannot be determined by the Adjudicating Authority (National Company Law
Tribunal) or this Appellate Tribunal and therefore, the Adjudicating Authority
rightly not deliberated on such issue.”
4.
That in Satori Global Limited v. Shailja Krishna reported
at 2023
SCC OnLine NCLAT 249, the Hon’ble NCLAT has further held that:
“15.
We are conscious of the fact that the ‘Gift Deed’ was not challenged which is
of significance more so when the ‘title of Shares’ is relevant to decide the
issue of the maintainability. At the cost of repetition, any dispute with
respect to issues relating to ‘fraud’, ‘manipulation’, and ‘coercion’, and
false statements cannot be decided in a summary jurisdiction. The contentions
of the Learned Counsel for the Respondent that there is ‘over writing on the
certificates’, signatures were taken on blank forms, there is mala fide
suppression of some documents all require examination of evidence and hence
cannot be decided by the NCLT in a summary fashion.”
5.
That the NCLT, New Delhi Bench in the case of Shri
T.R. Arya v. Dilawari Motors Pvt. Ltd. reported in (2024) ibclaw.in 44 NCLT has held that:
“32.
We are therefore of the considered view that the judgment passed by Hon’ble
NCLAT in M/s. Satori Global Case (supra) will apply to the present case. This
Tribunal is not empowered to adjudicate the issues relating to serious
allegations of fraud and forgery.”
Therefore, it emanates from the
aforesaid discussion that in a summary proceeding under the I&B Code, the
dispute relating to forgery and fabrication of document cannot be adjudicated
by the Adjudicating Authority. To examine an application under Section 9 of the
I&B Code, the Adjudicating Authority requires to determine whether there is
an “operational debt” exceeding the threshold limit as prescribed, whether the
documentary evidence furnished with the application substantiating the debt is
due and payable and whether there is existence of a dispute between the parties
before the receipt of the demand notice of the unpaid operational debt in
relation to such dispute. The same is deliberated in Mobilox Innovations Private
Limited vs. Kirusa Software Private Limited reported in (2018)
1 SCC 353. The Mobilox (Supra) clearly
provides that the expression
“and” occurring in section 8(2)(a) may be read as “or” in order to further the
object of the statute and/ or to avoid an anomalous situation. It thus follows
that, once the operational creditor has filed an application, which is
otherwise complete, the adjudicating authority, if it finds that there is a
record of dispute , must reject the application under Section 9(5)(2)(d), more
so, if notice of dispute has been
received by the operational creditor or there is a record of dispute. So long
as a dispute truly exists in fact and is not otherwise spurious, or illusory,
the Adjudicating Authority has to reject the application. Needless to say that
a “dispute” is said to exist, so long as there is a real dispute that would
fall within the inclusive definition contained in Section 5(6) of the Code. It shall also be worthwhile to refer to a Supreme Court judgment
reported as Transmission Corporation of Andhra Pradesh Limited Vs. Equipment
Conductors and Cables Limited 2018 ibclaw.in 33 SC.
The Supreme Court has held that the IBC is not intended to substitute a
recovery forum & whenever there is existence of real disputes, the IBC
provisions cannot be invoked.
------
Anil
K Khaware
Founder & senior Associate
Societylawandjustice.com
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