NCLAT upholds the order of NCLT rejecting the application u/s 9 of IBC against TATA Chemicals Ltd.

National Company Law Appellate Tribunal on 11.08.2020 upheld the decision of NCLT, Mumbai bench dated 15.11.2019 of dismissing the application filed u/s 9 of IBC 2016 against Tata Chemicals in the matter of M/s Allied Silica Ltd. Vs. M/s Tata Chemicals Ltd.
Facts of the case-
In this matter, the Appellant (Operational Creditor) and the Respondent (Corporate Debtor) entered into a Business Transfer Agreement (BTA) dated 07.04.2018 for the transfer of undertaking on a Slump Sale basis under Section 2(42C) of the Income Tax Act, 1961 at a lump sum amount of Rupees One Hundred Twenty Three Cores only (Rs 123 Crores) as per the provisions of BTA to acquire the Silica Business of M/s. Allied Silica Limited, other assets, contracts, deeds etc. including the plant at Cuddalore from the Operational Creditor on a Slump Sale.
The Appellant contends that the Corporate Debtor had transferred a sum of Rs 65 Crores only to the Appellant out of Rs 123 Crores and the balance amount of Rs 58 Crores have not been paid, and on account of default, the interest amounting to Rs. 10.44 Crores, a total of Rs. 68 Crores remain outstanding, which is the unpaid Operational Debt is claimed to be due as unpaid Operational Debt.
Whereas the Respondent contended that the Adjudicating Authority rejected Section 9 Application on the grounds of pre-existence of a dispute and absence of operational debt. For admitting or rejecting a petition under Section 9 of the I&B Code, the Adjudicating Authority has to ensure the existence of an operational debt of more than the threshold limit of Rupees one lac and which was due and payable and lastly ensure that there is no pre-existence dispute between the parties, before the receipt of the demand notice by the Corporate Debtor.

According to the Corporate Debtor, the transfer consideration for Rs. 123,00,00,000 for BTA was divided into Closing Balance Consideration of Rs. 65,00,00,000/-, and remaining Rs. 58,00,00,000/- into 3 Tranche Payments. The Corporate Debtor had adjusted the Tranche III payment against the improvement costs borne by the Corporate Debtor, on account of non-completion of Tranche II conditions precedent by the Applicant which was mutually agreed between them and recorded in Letter dated 08.01.2019.

Observations of the NCLAT

The Adjudicating Authority had rejected the application mainly on the ground that the Applicant has failed to prove the Operational Debt and its default and further on the ground of pre-existing dispute.

Hon’ble Tribunal noted that the letter written by Operational Creditor dated 13.05.2019 to the Corporate Debtor, clearly reflects that dispute existed between parties regarding some alterations in the Business Transfer Agreement (BTA) prior to issuance of demand notice. The Bench referred to a judgement of Supreme Court in “Mobilox Innovations Private Limited vs Kirusa Software Private Limited (AIR 2017 SC 4532)” where the Apex Court has interpreted the phrase ‘pre-existence of dispute’ used in section 9 of the I&B Code as-
… What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing – i.e. it must exist before the receipt of the demand notice or invoice, as the case may be.”

The Tribunal observed that “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)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility… 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.”

Further, the Tribunal also took into consideration that the Corporate Debtor had replied to the Demand Notices within the statutory period of 10 (Ten) days raising disputes with regards to the claim of Applicant and noncompliance of the BTA by the Applicant.

Thus, the Hon’ble Tribunal did not find any reason to interfere with the impugned order and dismissed the Appeal.