Part-Payments After Demand Notice Do Not Negate Pre-Existing Dispute In Insolvency Plea: NCLT Bengaluru

The National Company Law Tribunal (NCLT) at Bengaluru has held that part-payments made after issuance of a demand notice do not, by themselves, conclusively establish the absence of a dispute over the entire operational debt claimed in an insolvency petition where the quantum of liability remains disputed.

The tribunal dismissed a plea filed by a shareholder and erstwhile director of IC India Pvt Ltd.

A bench of Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada dismissed a petition filed by Ramareddy Devraj, proprietor of Rama Enterprises.

He had sought initiation of the corporate insolvency resolution process (CIRP) against IC India Pvt Ltd over an alleged operational debt of ₹4.05 crore.

“This Adjudicating Authority is of the view that such payments prima facie indicates existence of commercial transactions and admission of certain liabilities between the parties. However, mere part-payments or reconciliation payments by themselves do not conclusively establish absence of dispute in respect of the entire operational debt claimed in the present petition, particularly when the transactions between the parties arise out of a continuous running account involving multiple projects but the quantum of liability itself remains disputed," the tribunal held.

The petition was confined to a claim arising from a Karnataka Residential Educational Institutions Society (KRIES) project. The project involved the supply and installation of desk-cum-benches at various residential schools across Karnataka.

According to Devraj, the project had been completed, and KRIES had issued a project completion certificate in favour of the corporate debtor. He contended that the corporate debtor had received payment under the project but failed to clear his dues.

IC India opposed the petition. It contended that there were pre-existing disputes between the parties. The company argued that the parties maintained a common running account covering multiple projects. It further contended that the KRIES project could not be segregated from that running account.

The tribunal noted that the corporate debtor had issued a detailed reply to the demand notice. In that reply, it disputed the claim and raised issues relating to execution of works, reconciliation of accounts, and commercial dealings between the parties.

The tribunal also observed that Devraj was not an independent third-party vendor. He was a shareholder of the corporate debtor and had served as its director during the relevant period of the transactions. The tribunal noted that he continued as director even after issuance of the demand notice. It further noted that he resigned on May 6, 2025, citing a "Management Dispute".

The corporate debtor alleged that purchase orders relating to the KRIES project had been issued in favour of Devraj's proprietorship concern while he was functioning as a controlling director of the company. According to the company, he was participating in its operational and financial affairs after the demise of its then managing director, Naveen Kumar.

“Allegations of conflict of interest, breach of fiduciary obligations and related party transactions have consequently been raised by the CD. Whether such allegations are ultimately sustainable or not is not required to be adjudicated in the present proceedings. We however, cannot overlook that such disputes arise out of the very substratum of the transactions forming the subject matter of the petition and are supported by contemporaneous documents and surrounding circumstances,” the tribunal observed.

The tribunal found prima facie merit in the corporate debtor's contention that the accounts between the parties were maintained as a common running account covering multiple projects. It observed that the ledger statements and reconciliations relied upon by Devraj pertained to continuous commercial dealings involving multiple projects executed over a period of time.

“Manifestly only for the purposes of this petition the petitioner has unilaterally chosen to segregate the Project No. 5-KRIES, on realising lingering pre-existing disputes raised by the CD by asserting that a single consolidated running account is maintained by the parties,” the tribunal observed.

The tribunal held that segregation of the KRIES claim from the broader running account would require examination of reconciliation of accounts, allocation of payments, project-wise liabilities, and contractual arrangements.

It observed that these involved disputed questions of fact incapable of adjudication in summary insolvency proceedings.

The tribunal also observed that Devraj relied on a completion certificate relating to the KRIES project and a record of default generated through the Information Utility. However, it held that proof of debt and default alone was insufficient for admission of a petition where a genuine pre-existing dispute existed.

Referring to Supreme Court precedents, the tribunal observed that the Insolvency and Bankruptcy Code is not intended to be invoked as a substitute for debt recovery.

It further observed that the insolvency process cannot be permitted to become a forum for determination of complex questions involving reconciliation of accounts, internal management disputes, fiduciary obligations and disputed commercial transactions.

“In the considered opinion of this Adjudicating Authority, the present dispute arises out of a broader breakdown of commercial and managerial relationship between the parties and involves substantial questions requiring detailed adjudication before a competent Civil/Commercial forum,” the tribunal held.

Accordingly, the tribunal dismissed the petition.

For Petitioner: Anirudh

For Respondent: Shrikar A.J