NCLAT Rejects Insolvency Plea Over Disputed, Time-Barred Advance Refund Claim

The National Company Law Appellate Tribunal (NCLAT) at Chennai, has dismissed an appeal filed by Geeta Sugars against The Indian Sugars and Refiners Ltd., upholding the rejection of its insolvency plea over a claim for a refund of advance paid for sugar, where the remaining quantity was not supplied.

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain held that the claim was both disputed and time-barred.

Dealing first with the issue of limitation, the tribunal noted that the claim arose from an advance paid under a purchase order dated April 21, 2015, for which a refund was sought on May 13, 2015.

“It is not the case of the Operational Creditor, that the amount claimed to be due under the demand notice of 20.06.2018, is not the amount paid as advance for the purchase order of 21.04.2015, which was demanded to be refunded by the correspondence (letter) of 13.05.2015.”, it said.

“In that eventuality, even if the due is admitted, it will be deemed to have fallen due and has been defaulted as back as on 13.05.2015 and if that be the situation, the issuance of the demand notice for the first time only on 20.06.2018 would be barred by limitation.”it added.

The appeal arose from an order of the NCLT, Bengaluru, which had dismissed Geeta Sugars' application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Geeta Sugars, a trader, claimed it had paid Rs 21,08,835 as advance for 880 metric tonnes of sugar, but the remaining quantity was not supplied. It sought a refund of the amount, relying on correspondence in which the company had indicated its inability to supply.

The company opposed the plea, contending that the amount stood forfeited as the operational creditor failed to lift the contracted quantity within the stipulated time. It also argued that the claim was barred by limitation and that the insolvency process was being used to recover a disputed contractual amount.

Examining the record, the appellate tribunal found that the claim arose from a commercial transaction involving advance payment and did not constitute an undisputed operational debt. It noted that business dealings between the parties continued even after the initial dispute and that negotiations and subsequent arrangements indicated that the issue of liability remained contested.

“Thus the claim of the OC will take the shape of a 'pre-existing dispute' and that too pertaining to a refund of advance paid towards the purchase of sugar, which will not be falling to be under the definition of debt as provided under the I&B Code.”

The tribunal also emphasised that the presence of a forfeiture clause and the failure to lift the goods within time further reinforced the existence of a dispute.

It further held that for invoking Section 9 of the Code, both “debt” and “default” must exist in respect of a crystallised liability, which was not established in the present case in view of the dispute and the forfeiture clause.

Finding no error in the NCLT's order, the appellate tribunal dismissed the appeal.