NCLAT Dismisses CIRP Plea By Durgapur Corporation Against Aryan Ispat, Cites Pre-Existing Dispute

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has dismissed an appeal filed by Durgapur Corporation Private Limited against Aryan Ispat & Power Private Limited, reiterating that a Section 9 application must be rejected where there exists a pre-existing dispute between the parties.

“The only thing that is to be looked into is that whether there is plausible contention. In the facts of the present case, we find that plausible contention was raised by the Corporate Debtor in the reply to Section 9 application and there being pre-existing dispute between the parties, application filed under Section 9 deserved rejection.”

The tribunal reiterated that at the stage of admission of a Section 9 application under the Insolvency and Bankruptcy Code, 2016, the adjudicating authority is only required to examine whether there is a plausible contention indicating a dispute and not whether the defence would ultimately succeed, in line with the settled law in Mobilox Innovations (P) Ltd. vs. Kirusa Software (P) Ltd., (2018) 1 SCC 353.

On the nature of the transaction, the tribunal also affirmed that the Operation & Management (O&M) Agreement dated February 1, 2021 between the parties did not give rise to an operational debt, as it merely entitled Durgapur Corporation to a share in profits rather than creating a liability for payment for goods or services.

Durgapur Corporation had entered into the O&M Agreement with Aryan Ispat to operate and manage its plant. Under the agreement, it was entitled to service fees derived from the profits of the plant, while also being obligated to pay a fixed monthly usage fee to Aryan Ispat.

After termination of the agreement, and after Aryan Ispat had already issued a demand notice under Section 8 on December 16, 2023 and filed its own Section 9 application, Durgapur Corporation issued a demand notice dated March 12, 2024 and subsequently filed a Section 9 application before the NCLT, New Delhi. The adjudicating authority dismissed the petition, holding that the claim did not constitute operational debt and that a pre-existing dispute existed.

The NCLAT agreed with the earlier findings, pointing to the termination agreement dated November 25, 2022 and the accompanying balance settlement sheet, both of which showed that disputes over liabilities had already surfaced between the parties. It also made it clear that a corporate debtor is not shut out from raising such disputes merely because it did not respond to a demand notice; these can still be placed on record in reply to a Section 9 application.

Durgapur Corporation, for its part, relied on a set of emails to argue that Aryan Ispat had acknowledged the dues. The Tribunal was not persuaded. It noted that the emails did not indicate who had sent them, making them unreliable as proof of acknowledgment.

“When email does not disclose as to who has sent email, the Adjudicating Authority has not committed any error in not relying on the email.”

With no error found in the NCLT's approach on either count, the appeal came to be dismissed