Emails Admitting Defects, Compensation Offers Prove Dispute: NCLAT Dismisses CIRP Plea Against Amod Stampings

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has upheld the rejection of plea seeking initiation of the corporate insolvency resolution process (CIRP) against Amod Stampings Private Limited, holding that emails admitting defective supply and offering compensation demonstrate a pre-existing dispute.

A Bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed, “The Appellant having agreed to compensate the Corporate Debtor is also a clear admission of the fact that the goods supplied were not in terms of the specifications which had been agreed to by the parties. The plea taken by the Appellant that the Adjudicating Authority did not take into account the surrounding facts and circumstances in that the Appellant was compelled to agree to pay the compensation amount as they were subjected to blackmail by the Corporate Debtor does not impress us. When the emails explicitly record admission of deficiency in supply and resultant payment of compensation by the Appellant, it is not the remit of the Adjudicating Authority to get into the circumstantial reasons which led to such compensatory offers.”

The appeal was filed by the operational creditor, JS Steel Co. Ltd., challenging an order of the National Company Law Tribunal (NCLT), Ahmedabad Bench, which had dismissed its Section 9 application seeking initiation of CIRP against Amod Stampings Private Limited on the ground of existence of a dispute.

The dispute arose from a purchase order dated September 8, 2021, for the supply of electrical silicon steel sheets. While payments were made for two consignments, Amod Stampings Private Limited defaulted on the third consignment, following which JS Steel Co. Ltd. moved under the Insolvency and Bankruptcy Code for recovery of its operational debt.

JS Steel Co. Ltd. issued a demand notice under Section 8 of the Code on June 26, 2023. In reply dated July 4, 2023, Amod Stampings Private Limited raised disputes regarding defective and non-conforming goods supplied in earlier consignments.

The corporate debtor maintained that there existed disputes over the quality of goods and pointed to communications in which JS Steel Co. Ltd. had acknowledged defects and offered compensation.

Taking note of the email exchanges between the parties, the appellate tribunal found that the correspondence clearly showed acknowledgment of deficiencies in the goods supplied.

Rejecting the contention that each consignment should be treated independently, the tribunal held that all supplies were made under a single purchase order and disputes relating to earlier consignments could not be segregated.

The tribunal reiterated that once a corporate debtor issues a notice of dispute, the adjudicating authority is only required to see whether the dispute raised is plausible and requires further investigation and not whether the defence is likely to succeed.

It clarified that so long as the dispute is not illusory, spurious, or unsupported by evidence, the application under Section 9 must be rejected.

Accordingly, the appeal was dismissed.