NCLT Chandigarh’s ruling on Section 9 IBC application in In re Ervika Global Private Limited
1. Background and procedural posture
The matter before the National Company Law Tribunal, Chandigarh Bench (Court-I), arose from a Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC / Code) filed by M/s. Knitscraft Textile LLP as Operational Creditor against M/s. Ervika Global Private Limited as Corporate Debtor.
The Operational Creditor sought initiation of the Corporate Insolvency Resolution Process (CIRP) alleging default in payment of an operational debt of Rs. 1,65,47,709/- (principal) together with contractual interest, arising from supply of garments pursuant to purchase orders placed by the Corporate Debtor during 2023–2024.
The Bench ultimately admitted the petition, declared moratorium under Section 14, and appointed an Interim Resolution Professional (IRP), holding that the debt and default stood established and that the Corporate Debtor’s plea of pre-existing dispute was neither substantiated nor plausible within the framework of the Code.
2. Factual matrix: business dealings and default
2.1 Business relationship and supplies
- The Operational Creditor, M/s. Knitscraft Textile LLP, is engaged in manufacture and trade of garments.
- During 2023 and 2024, the Corporate Debtor, M/s. Ervika Global Private Limited, approached the Operational Creditor for supply of garments/clothes for onward supplies to Myntra Jabong Private Limited/Flipkart.
- Purchase orders were issued by the Corporate Debtor; the Operational Creditor supplied the ordered goods and raised tax invoices corresponding to such supplies.
- A running account was maintained between the parties, reflecting the ongoing commercial transactions.
2.2 Payments, outstanding amount and MOU
- The Corporate Debtor made part payments from time to time.
- No payment was made after 13.06.2024, leaving an asserted outstanding principal of Rs. 1,65,47,709/- with agreed interest up to 07.11.2024.
- The Corporate Debtor had issued cheques towards its dues.
- A Memorandum of Understanding (MOU) was executed, in which the Corporate Debtor acknowledged an outstanding sum of Rs. 1,07,15,312/-, subject to reconciliation of accounts.
- The order refers to this MOU as dated 24.09.2024 in one portion and 27.09.2024 in other paragraphs.
- According to the Operational Creditor, despite this acknowledgment, no further payment was made and the MOU terms were not honoured.
2.3 Demand notice and Section 9 filing
- Repeated follow-ups by way of email, phone calls, WhatsApp messages and personal visits allegedly elicited no payment or dispute regarding quality or delivery of goods.
- Consequently, the Operational Creditor issued a demand notice dated 07.11.2024 in Form 3 under Section 8 of the Code.
- The Corporate Debtor replied by email dated 06.12.2024, disputing the claim.
- With the dues still unpaid, the Section 9 application (CP(IBC) No./43/Chd/Hyr/2025) was filed on 29.01.2025 seeking commencement of CIRP.
3. Corporate Debtor’s defence: alleged settlement and pre-existing dispute
In its reply, the Corporate Debtor resisted admission on several grounds.
3.1 Characterisation as recovery action
The Corporate Debtor argued that the petition was a recovery mechanism in the guise of insolvency and contrary to the objective of the Code. It was contended that no operational debt was legally “due and payable” so as to justify invocation of Section 9.
3.2 Settlement arrangements and incomplete ledger
- The Corporate Debtor referred to business dealings during 2023–2024 and alleged that the parties had entered into:
- an Agreement to Sell, and
- a Memorandum of Understanding,
which, it claimed, were not complied with by the Operational Creditor.
- The ledger relied upon by the Operational Creditor was alleged to be incomplete and not reflective of the full commercial understanding.
3.3 Claim of adjustments reducing amount below threshold
The Corporate Debtor’s key contention was that:
- The Operational Creditor had agreed to:
- pay 2.5% of the purchase order value, and
- Rs. 10 per piece on garments supplied to Myntra.
- It claimed these amounts were not accounted for while computing the outstanding dues.
- If such alleged adjustments and the effect of settlements were considered, the resultant default would be less than the minimum threshold of Rs. 1 Crore under Section 4 of the Code.
- The Corporate Debtor also alleged artificial inflation of the claim to meet the statutory threshold.
3.4 Assertion of pre-existing disputes and criminal complaint
- The Corporate Debtor maintained that there were pre-existing disputes between the parties, arising out of the settlement arrangements and mutual obligations.
- It referred to a criminal complaint allegedly lodged by it against the Operational Creditor in relation to those disputes.
- On this basis, it asked for dismissal of the petition as not maintainable.
4. Operational Creditor’s rejoinder: denial of defence and emphasis on acknowledgment
In its rejoinder, the Operational Creditor rejected the Corporate Debtor’s stand.