Pre-Existing Dispute In Ledgers: NCLAT Dismisses Drive India's Insolvency Appeal Against Essline

The National Company Law Appellate Tribunal (NCLAT) at Delhi has dismissed Drive India Enterprise Solutions Ltd.'s insolvency appeal against Essline Engineers and Consultants Pvt. Ltd., holding that a pre-existing dispute between the parties was real and documented long before the insolvency notice was issued.

A bench of Judicial Member Justices Ashok Bhushan and Technical Member Barun Mitra held:

“The present is a case where notice of dispute was issued by the Corporate Debtor immediately after receiving of the demand notice and materials brought in reply to Section 9 application clearly proves that the plea raised by the Corporate Debtor that it does not owe any amount to the Appellant was supported by its ledgers. In any view of the matter, there were correspondences between the parties as noted above which clearly reflect the pre-existing dispute between the parties.”

Drive India had invoked Section 9 of the Insolvency and Bankruptcy Code claiming Rs 7,41,39,165 for supplies of mobile parts and batteries under High Sea Sale Agreements executed between February 2017 and March 2018.

The demand notice was issued on December 11, 2019. Eight days later, on 19 December 2019, Essline responded, disputing the claim and maintaining that once earlier account adjustments involving BTM Exports Ltd. were taken into account, nothing remained payable.

The dispute turned on a letter dated October 4, 2018, by which Rs 3,99,47,076.92 was adjusted against dues said to be linked to BTM Exports Ltd., Essline's holding company. Drive India's case was that this was a one-sided adjustment that it had never agreed to.

The Appellate Tribunal was not persuaded. It recorded that the adjustment letter had been sent to Drive India, which replied by asking for the ledger in Excel format, indicating that the communication had been received and responded to. The ledger was then provided. In these circumstances, the Bench held it was not open to the Appellant to claim that the adjustment was unilateral.

The tribunal also recorded that several exchanges regarding balance confirmations, ledger entries and account adjustments had taken place well before the December 11, 2019 demand notice.

Relying on the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the coram reiterated that at the Section 9 stage, the Adjudicating Authority is not expected to conduct a detailed examination of the claim. Its role is limited to seeing whether a plausible dispute exists between the parties.

Finding that Essline's defence was backed by ledger entries and correspondence on record, and could not be dismissed as illusory or unsupported by evidence, the Appellate Tribunal affirmed the rejection of the Section 9 application and dismissed the appeal.