NCLT Allahabad Admits Aarti Industries' ₹8.21 Crore Insolvency Plea Against Magma Industries

The Allahabad Bench of the National Company Law Tribunal (NCLT) has admitted a CIRP plea filed by Aarti Industries Limited against Magma Industries Limited, holding that the company defaulted on operational dues of over Rs 8.21 crore and that no real dispute existed to block the proceedings.

A bench of Judicial Member Praveen Gupta and Technical Member Ashish Verma said, “Therefore, we find that the alleged disputes claimed by the Corporate Debtor are feeble and not supported by credible evidence. Hence, no real pre-existing dispute is discernible as there is no sufficient ground to establish any real and substantial preexisting dispute which can thwart the admission of section 9 application against the Corporate Debtor"

Aarti Industries, which manufactures and supplies specialty chemicals, had supplied Para Nitro Chloro Benzene (PNCB), Ortho Chloro Nitro Benzene (ONCB) and PNCB flakes to Magma Industries under multiple purchase orders issued between July 2022 and January 2023.

The tribunal noted that the goods were delivered and received, and no objections were raised at the time regarding their quality.

As per the terms of the invoices, payments were to be made within 90 days. However, Magma Industries failed to clear its dues. The total outstanding included a principal of about Rs 6.04 crore and interest of about Rs 2.16 crore, calculated till July 25, 2024, taking the total to over Rs. 8.21 crore.

The tribunal also took note of several post-dated cheques issued by the company that were dishonoured due to insufficient funds, along with email communications showing acknowledgment of liability and part payments made by the corporate debtor.

Aarti Industries had initially issued a demand notice on July 31, 2024. The corporate debtor replied to this notice on August 10, 2024, disputing the claim and alleging delay in the supply of raw materials. The creditor later withdrew the notice due to a computation error and issued a fresh demand notice on September 14, 2024. No reply was filed to the fresh notice.

In its defence, Magma Industries argued that the insolvency plea was filed with “unclean hands” and in violation of Sections 65 and 75 of the Insolvency and Bankruptcy Code. It claimed that the demand of Rs.8.21 crore was inflated and unsupported by evidence. The company further alleged that delays in the supply of raw materials had disrupted its operations, caused losses and led to cost escalation.

Aarti Industries countered that these objections were afterthoughts unsupported by any documents. It argued that no dispute had been raised at the time of delivery and that the goods had been accepted without protest. The creditor also pointed to the record of default and email correspondence to show acknowledgment of liability.

The tribunal noted that the application was filed on October 30, 2024, within three years from the date of default on October 31, 2022, and was therefore within limitation.

On the issue of debt and default, the bench found that invoices, partial payments, and admissions in emails clearly established liability. It also noted that the outstanding amount exceeded the Rs 1 crore threshold required under the Code.

Rejecting the defence of dispute, the tribunal observed, “When we look into the facts of the present case, it transpires that no dispute with reference to services and quality of goods was raised by the Corporate Debtor before the issuance of demand notice.”

The bench also recorded that the corporate debtor had made a partial payment of around Rs 44.9 lakh without raising any dispute and had issued post-dated cheques, further indicating acknowledgment of dues.

Concluding that all conditions for initiating insolvency were satisfied, the tribunal said, “The Respondent Corporate Debtor has defaulted in the payment of operational debt which amount had clearly become due and payable above the threshold limit, and further in the absence of any credible or plausible pre-existing dispute, we find all requisite conditions necessary to trigger CIRP under Section 9 stands fulfilled"

Accordingly, the tribunal admitted the plea, initiated the corporate insolvency resolution process (CIRP) against Magma Industries Limited, appointed Rajesh Srivastava as the interim resolution professional, and imposed a moratorium under Section 14 of the Insolvency and Bankruptcy Code.