The National Company Law Appellate Tribunal (hereinafter “Tribunal”), on 14 February 2019, passed a final order in Mr. Ashish Garodia v. Impact Event Management and Another (Company Appeal (AT) (Insolvency) No. 67 of 2019). A copy of the order is attached. 

 Facts of the Application

The appeal before the Tribunal was against an order passed by the National Company Law Tribunal, Kolkata Bench (hereinafter “NCLT”) on 14 January 2019 admitting an application preferred by the operational creditor (Respondent before the Tribunal) under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor (Appellant before the Tribunal) produced a letter it had issued to the creditor to the effect that it had stopped payment due to certain agreed services not being provided by the creditor. Pursuant to the order of admission passed by the NCLT, an Insolvency Resolution Professional came to be appointed and the Committee of Creditors was constituted. Thereafter the dispute between the parties came to be settled. The Appellant challenged the order of admission passed by the NCLT before the Tribunal. 

Tribunal’s Order

The Tribunal observed that the NCLT had passed the order under challenge despite the existence of a ‘pre-existing’ dispute between the parties. The Tribunal held that the letter sent by the Appellant to the Respondent stopping payment due to the Respondent’s failure to provide services would be regarded as a ‘pre-existing’ dispute as the same had not been denied by the Respondent. Holding the order of the NCLT to be contrary to the provisions of Section 9 of the Insolvency and Bankruptcy Code, 2016, the Tribunal set aside the order. It also held that all actions that had been taken under the aegis of the said order, including the issuance of public notice and formation of the Committee of Creditors, were illegal and set the same aside. Further, the Tribunal observed that the parties had settled the matter before the constitution of the Committee of Creditors and that the order of the NCLT was liable to be set aside on this ground as well. 

Concluding Analysis

The key takeaways from this order are (a) that communications issued by the Corporate Debtor that evidence a dispute, if undenied by the Applicant creditor, may be regarded as evidence of ‘pre-existing dispute’; and (b) that disputes between creditors and corporate debtors may be settled prior to the constitution of the Committee of Creditors.