NCLAT: case pending under negotiable instruments act not a dispute

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The National Company Law Appellate Tribunal (NCLAT) recently held that if a case is pending under section 138/141 of the Negotiable Instruments Act, 1881 (NIA), it cannot be held to be a dispute pending before a court of law. The pending case amounts to admission of debt and not the existence of a dispute.

In Sudhi Sachdev v APPL Industries Ltd, NCLAT was considering an appeal against an order passed by the National Company Law Tribunal (NCLT), New Delhi bench. NCLT had allowed the application filed by APPL Industries (the operational creditor) under section 9 of Insolvency & Bankruptcy Code, 2016 (IBC), and also passed an order of moratorium.

On appeal, Sudhi argued that a dispute already existed because APPL had already instituted a case under section 138/141 of NIA, which was pending in Gurgaon. A proceeding under section 138 is a civil case for recovery of money, therefore, in view of the pending outcome of the case, an application under section 9 of IBC could not be sustained.

NCLAT, however, did not agree with the contention and held that under section 8 of IBC, the corporate debtor is to bring to the notice of the operational creditor the existence of a dispute or the record of a pending suit or arbitration proceedings, which is preexisting i.e., before such notice or invoice was received by the corporate debtor within a period of 10 days of receipt of the demand notice or a copy of the invoice mentioned in sub-section (1). If there is existence of such a dispute, the operational creditor does not fall within the realm of the IBC.

NCLAT held that in the present case, it was not in dispute that there was a debt payable to the operational creditor and default on the part of the corporate debtor.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.