NCLAT Upholds Rejection Of Reliance Realty's Insolvency Plea Against Altruist Over Pre-Existing Dispute

The National Company Law Appellate Tribunal (NCLAT) at Delhi recently upheld the dismissal of an insolvency plea filed by Reliance Realty Limited against Altruist Customer Management India Pvt. Ltd., holding that the dispute between the parties over rental liability was genuine and could not be resolved through proceedings under the Insolvency and Bankruptcy Code.

A bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka observed that the disagreement raised by the corporate debtor was substantive in nature.

The tribunal said, “We also observe that this is not a spurious or moonshine dispute but it is a substantive dispute, for which insolvency proceedings under Section 9 of the Code cannot be invoked.”

Reliance Realty had challenged an order of the National Company Law Tribunal in New Delhi, which refused to admit its insolvency petition against Altruist. The company sought initiation of the corporate insolvency resolution process, alleging unpaid rent of about Rs 24.34 crore under a licence agreement dated March 29, 2019, for premises in Navi Mumbai that had been occupied by Altruist.

Reliance Realty argued that the corporate debtor had itself admitted liability for at least twenty percent of the rent and that this admitted portion alone crossed the one crore rupee threshold required to trigger insolvency proceedings.

It further contended that the licence agreement contained an “entire agreement” clause and therefore earlier arrangements, including a memorandum of settlement, memorandum of understanding, and letter of understanding executed among the parties and related entities, could not be relied upon to dilute the corporate debtor's liability.

The company also relied on the Supreme Court's decision in Mobilox Innovations v Kirusa Software, which clarifies that only a genuine dispute raised prior to the demand notice can bar proceedings under the Code.

Altruist opposed the appeal and argued that the licence arrangement could not be viewed independently of the earlier settlement documents. According to the company, those documents structured the payment of rent in an 80 to 20 ratio between Reliance Communications and the corporate debtor as part of a settlement of group company liabilities.

It said the disagreement over who was responsible for paying the rent, along with disputes connected to the settlement arrangement, showed that a real dispute existed long before the insolvency proceedings were initiated.

Examining the record, the appellate tribunal said the disagreement over rental liability was deeply intertwined with the underlying commercial arrangements between the parties and related entities. The bench noted that the parties differed on whether rent was payable solely by the corporate debtor or jointly along with another group company.

It also took note of a civil suit filed by Reliance Realty seeking eviction of the corporate debtor from the premises in Thane. In those circumstances, the tribunal said the claim could not be treated as an undisputed operational debt.

The bench observed, “Thus, we observe that the dispute is deeply embedded in the matter with regard to the payment of rent by the Corporate Debtor alone or jointly by the Corporate Debtor and another group company.Also, for eviction of the corporate debtor from the premises, the financial creditor has filed a suit before the civil court in Thane, Mumbai.Thus, we have no hesitation in observing that this is a case of pre-existing dispute, raised by the Corporate Debtor, which is substantiated by the records and submissions and is not a spurious or moonshine dispute and the present appeal doesn't merit consideration.”

The appeal was accordingly dismissed