Genuine pre-existing dispute raised prior to Section 8 notice, alleging economic coercion in credit note issuance, justifies rejection of Section 9 application without merits examination.

J U D G M E N T

(Hybrid Mode)

[Per: Ajai Das Mehrotra, Member (Technical)]

The present appeal has been filed by Vave India Energy Solutions Private Limited (hereinafter referred to as the ‘Operational Creditor’) against the impugned order passed by the Ld. NCLT, New Delhi in CP (IB) No. 117/(ND)/2023 dated 13.10.2023 wherein the Ld. NCLT had rejected the application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘IBC, 2016’) on the ground of pre-existing dispute.

2. The brief facts of this case as noted in the order dated 13.10.2023 of Ld.NCLT are as under:

i. The application under Section 9 was filed by the Operational Creditor seeking initiation of Corporate Insolvency Resolution Process (hereinafter referred to as the ‘CIRP’) of Eastman Auto & Power Limited (hereinafter referred to as the ‘Corporate Debtor’) for the alleged default on the part of the Corporate Debtor in clearing the debt of Rs. 1,02,70,985/- along with interest @ 18% per annum.

ii. It is the submission of the Operational Creditor that the Operational Creditor and the Corporate Debtor had entered into an Agreement dated 02.01.2018 for supply of inverter batteries of different models and capacity by the Corporate Debtor to the Operational Creditor.

iii. In terms of said agreement, the Operational Creditor used to place purchase orders on the Corporate Debtor for inverter batteries to be manufactured and supplied by the Corporate Debtor. On the basis of the purchase orders issued by the Operational Creditor, the Corporate Debtor would manufacture and supply the inverter batteries to the Operational Creditor and raise an invoice in this regard. On receipt of the inverter batteries, the Operational Creditor used to make payment with regard to the same.

iv. The Operational Creditor submitted that it started receiving complaints in respect of the power backup of the inverter batteries manufactured and supplied by the Corporate Debtor. The Operational Creditor sent an email in 2018 addressed to the Corporate Debtor giving details of the defects found in the inverter batteries manufactured and supplied by the Corporate Debtor. Thereafter, several correspondences were exchanged and discussions were held between the Corporate Debtor and the Operational Creditor.

v. On 12.08.2019, the Corporate Debtor offered the issue of a credit note promising monthly payments of Rs. 10 lakhs per month, in lieu of the defective inverter batteries. The Corporate Debtor acknowledged its liability to pay for defective 2697 batteries but failed to pay the admitted acknowledged amount of Rs. 1,02,70,985/- under the credit note.

vi. The Corporate Debtor sent an email dated 08.12.2022 addressed to the Operational Creditor stating that credit note was obtained under economic coercion and that the warranty obligations for the batteries had already expired. vii. Subsequently, on 28.12.2022, a notice under Section 8 of the IBC, 2016 was issued by the Operational Creditor to the Corporate Debtor.

viii. Taking note of email dated 08.12.2022 issued prior to the notice under Section 8, the Ld. NCLT rejected the application under Section 9 of the IBC, 2016 on the ground of pre-existing dispute.

3. In his oral and written submissions, the Appellant/Operational Creditor, has submitted as under:

i. The disputes inter-se parties with respect to the defective batteries were amicably resolved and recorded in email dated 12.0