An appeal was filed challenging the NCLT order that had rejected the insolvency application for initiating Corporate Insolvency Resolution Process against Tata Chemicals Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘IBC Code’) and the same was upheld by NCLAT.
Allied Silica Limited (Operational Creditor) appealed that in 2018, Tata Chemicals (respondent) had entered into a Business Transfer Agreement (‘BTA’) for the transfer of Operational Creditor’s silica business on a Slump Sale basis for a consideration of Rs 123 crore and had transferred only a sum of Rs. 65 Crores and the balance amount of Rs 58 Crores remained unpaid. On account of default, the interest amounted to Rs. 10.44 Crores, and therefore a total of Rs. 68 Crores was due. They further contended that, post-transfer of the undertaking, both parties had mutually agreed to continue their respective rights and obligations to lay down the pipeline, trial run, and satisfactory operation etc with the additional scope of work with other tranche payments, which were separate and distinct from slump sale.
In response, Tata’s contended that the Operational Creditor had suppressed facts and information and that the said debt did not fall under the definition of an ‘Operational Debt’ and the Appellant was not an ‘Operational Creditor’ as defined under IBC.
They argued that the consideration under BTA was divided into a 3 Tranche Payment system and that they had duly paid the Closing Balance consideration and Tranche I and Tranche II payments to the Operational creditor even though there existed a non-completion of Tranche I and Tranche II Conditions Precedent. On account of non-completion of Tranche II conditions precedent by the Operational Creditor, Tata’s had adjusted the Tranche III payment against the improvement costs borne by it and also submitted their reply to the demand notice of the Operational Creditor within 10 days, raising dispute to the claim.
To this, the NCLT had rejected the application, mainly on the ground of pre-existing debt.
A three-member bench of Acting Chairperson Justices Bansi Lal Bhat, V. P. Singh Member (Technical) and Shreesha Merla Member (Technical) stated that the appellant had failed to prove the operational debt and its default and there was a ground of a pre-existing dispute and held –
“It is further evident from the Letter of Corporate Debtor dated 06.03.2019, wherein the Corporate Debtor had demanded a refund from the Applicant of Rs 15.01 Crores along with interest for violation of terms of Letter dated 08.01.2019 by the Applicant, in the same Letter the Company Appeal (AT) (Insolvency) No. 1522 of 2019 18 of 18 Corporate Debtor had also disputed that the Applicant is in non-compliance of the BTA and therefore is not liable to receive Tranche II and Tranche III payment under the BTA. These disputes by the Corporate Debtor are raised before the receipt of demand notices. Further, it is also pertinent to note that the Corporate Debtor had replied to the Demand Notices within the statutory period of 10 (Ten) days raising disputes with regards to the claim of Applicant and noncompliance of the BTA by the Applicant. Therefore, in the facts and circumstances of the present case, we are satisfied that there is a plausible contention in the defence raised by the corporate debtor which requires further investigation and that the alleged “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence.”
Hence, the Tribunal held that “the Ld. Adjudicating Authority has rightly dismissed the application filed under Section 9 of IBC. Thus, we do not find any reason to interfere with the impugned Order. There is no substance in Appeal which is accordingly dismissed.”