Warranty Dispute Over Defective Batteries Held Pre-Existing Dispute; NCLAT Upholds Rejection Of CIRP Plea Against Eastman Auto

The National Company Law Appellate Tribunal (NCLAT) at Delhi recently refused to allow insolvency proceedings to be initiated in a dispute between Vave India Energy Solutions Private Limited and Eastman Auto & Power Limited.

The tribunal found that the case arose from complaints about defective batteries supplied under warranty and that the liability had been disputed before the statutory demand notice was issued.

A bench of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra observed, “It is sufficient that the pre-existing dispute is genuine and is raised prior to the issuance of notice under Section 8 of the IBC, 2016. Considering that the dispute was raised prior to the issuance of notice under Section 8 of the IBC, 2016, the Ld. NCLT has rightly rejected the application of the Operational Creditor.”

The appellate tribunal upheld an order of the National Company Law Tribunal rejecting the plea filed by Vave India Energy Solutions to start the corporate insolvency resolution process against Eastman Auto & Power, holding that the material on record showed a real dispute between the parties relating to defective batteries supplied under the contract and the claim arising out of warranty.

The case arose from an agreement under which Vave India Energy Solutions purchased inverter batteries from Eastman Auto & Power for resale. Vave said it began receiving complaints about poor power backup, after which discussions were held between the parties. It relied on a credit note of about 1.02 crore rupees issued in 2019, claiming that Eastman had acknowledged defects in 2,697 batteries supplied within the warranty period and had agreed to make payments.

In December 2022, Eastman sent an email stating that the credit note had been issued under economic coercion and that the warranty obligations had already expired. A demand notice was issued later that month and insolvency proceedings were then filed.

Vave argued that the dispute had already been resolved when the credit note was issued and that the allegation of coercion was raised only after repeated reminders for payment. It submitted that the tribunal should examine whether the defence was genuine and not a mere attempt to avoid liability.

Eastman contended that the claim arose out of warranty issues relating to defective batteries, that the credit note had been issued under pressure when Vave refused to lift manufactured stock, and that the dispute had been raised before the demand notice. It also stated that arbitration had been invoked to resolve the dispute between the parties.

Agreeing with Eastman, the tribunal said the record showed that the dispute had been communicated before the notice under Section 8 of the Code and therefore qualified as a pre-existing dispute.

Referring to the law laid down by the Supreme Court, the bench observed, “The Adjudicating Authority is not required to go into the merits of the dispute, including the chance of success of either side and it is sufficient for rejection of the application under section 9 of IBC, 2016 if a genuine dispute exists prior to issue of notice under section 8 of IBC, 2016.”

Holding that the dispute had been raised prior to the statutory notice, the tribunal concluded that the insolvency application had been rightly rejected and declined to interfere with the earlier order.