NCLAT Delhi Sets Aside FTF Pharma Insolvency, Says Pre-Existing Dispute Bars Admission

The National Company Law Appellate Tribunal (NCLAT), New Delhi, on 4 November set aside the admission of insolvency proceedings against FTF Pharma Private Limited, finding that a genuine pre-existing dispute existed between the parties before the issuance of the statutory demand notice under the Insolvency and Bankruptcy Code (IBC), 2016.

A Bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha allowed an appeal filed by Abhay Sapre, suspended director of FTF Pharma, challenging the Ahmedabad Bench of the National Company Law Tribunal's (NCLT) order admitting a Section 9 application filed by operational creditor Immacule Lifesciences Private Limited. It held:

“Having found that pre-existing disputes existed, the Adjudicating Authority had to reject the application under Section 9(5)(ii)(d). The Code does not let it admit the application on the view that the dispute is not significant. The test is whether the dispute is plausible. It is not whether it is significant.”

The appeal challenged an order passed by the NCLT admitting insolvency proceedings against FTF Pharma.

The dispute arose from a Technology Transfer Agreement (TTA) executed on 4 May 2022 for the development and technology transfer of Phytonadione Injection, intended for commercialisation in the United States. Under the agreement, FTF Pharma, which primarily engaged in pharmaceutical research and development, contracted Immacule Lifesciences to manufacture finished dosage products.

The agreement provided for milestone-based payments upon completion of specified deliverables. Immacule Lifesciences claimed an unpaid operational debt of Rs. 2.18 crore under three invoices, including charges for third-party laboratory testing.

Sapre submitted that FTF Pharma had disputed all three invoices through a series of communications exchanged between July 2023 and August 2024, well before the statutory demand notice dated 22 October 2024.

He argued that the disputes concerned alleged non-performance and deficient performance of contractual obligations and were not merely about delays in payment. He further submitted that once the NCLT found that pre-existing disputes existed, it was bound to reject the insolvency application.

Examining the record, the NCLAT identified the central issue as whether a dispute existed before the issuance of the demand notice. Referring to Sections 5(6), 8(2)(a) and 9(5)(ii)(d) of the IBC, the Tribunal reiterated that the NCLT must determine whether a real and plausible dispute exists, without examining whether the defence is ultimately likely to succeed. It observed:

“A demand notice under Section 8 gives the corporate debtor a short and fixed window to say that the debt is disputed. If it does so, the operational creditor cannot use the Code to collect the money, and has to go to the forum where the dispute can be decided on evidence. The Adjudicating Authority is not meant to hold a trial at the admission stage. It reads the material to see whether a genuine dispute is there, and goes no further.”

Further, the Bench clarified that a dispute qualifies as pre-existing only if it arises before the corporate debtor receives the demand notice. It further held that the dispute need not have resulted in a suit, arbitration or formal notice and could also be established through emails, letters or WhatsApp communications.

Applying this test, it found that FTF Pharma had sent multiple emails disputing the invoices before the demand notice. These communications sufficiently established the existence of a pre-existing dispute, and the NCLT had erred in admitting the Section 9 application.

Moreover, the Appellate Tribunal emphasised that once a plausible pre-existing dispute is established, the NCLT cannot admit an insolvency application by treating the dispute as insignificant.

It held that the NCLT had applied an incorrect standard by examining the significance and strength of the dispute instead of determining whether a plausible dispute existed. The NCLT had also ventured into examining the merits of the underlying dispute, which was beyond the scope of its inquiry at the admission stage.

The Bench also noted that Immacule Lifesciences acknowledged that all claims and disputes between the parties had been settled in their entirety and fairly submitted that it did not oppose the disposal of the appeal.

Accordingly, the NCLAT allowed the appeal, set aside the NCLT's admission order, closed the corporate insolvency resolution process against FTF Pharma, terminated the moratorium, discharged the Interim Resolution Professional and restored the management and powers of the company's board of directors with immediate effect.