Criminal Proceedings Against Managing Director Cannot Constitute Pre-Existing Dispute Under Section 9 of IBC: NCLAT Delhi
Case Overview
Case Name: Thothappa Nainar Mohamed Sirajdheen Vs Intex Technologies (India) Ltd. (NCLAT Delhi)
Court: National Company Law Appellate Tribunal, Delhi
Subject Matter: Admissibility of an operational creditor's application under Section 9 of the Insolvency and Bankruptcy Code, 2016 and the threshold required to establish a "pre-existing dispute"
Background of the Dispute
The matter arose from an order passed by the Adjudicating Authority — the National Company Law Tribunal (NCLT), Division Bench, Chennai — dated 22 June 2018, whereby an application filed by the Respondent (Operational Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) was admitted, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
The Appellant challenged this admission order before NCLAT Delhi, contending that a genuine dispute existed between the parties, which ought to have prevented the NCLT from admitting the insolvency application.
Appellant's Submissions
The Appellant's counsel sought to establish the existence of a dispute by placing reliance on two principal grounds:
A letter dated 11 June 2017, which was cited in support of the claim that a dispute was subsisting between the parties.
A criminal case filed against Mr. Mohammed Sirajudeen, the Managing Director of the Corporate Debtor. The Appellant's counsel submitted that Mr. Mohammed Sirajudeen, in his capacity as Managing Director, had procured certain materials that bore no connection whatsoever to the business operations of the Corporate Debtor. It was further submitted that cheques issued by him were subsequently dishonoured, leading to the registration of a criminal case against him.
The thrust of the Appellant's argument was that these circumstances collectively demonstrated the existence of a dispute, which should have been treated as a bar to the admission of the Section 9 application.