Decided on 01 September 2013 | NCLT Ahmedabad
Following an application from an operational creditor to commence a Corporate Insolvency Resolution Process (CIRP) against a prominent player in the beverage industry, the National Company Law Tribunal, Ahmedabad Bench (NCLT), held that initiating civil proceedings after the issuance of a Demand Notice should not be regarded as constituting a dispute within the purview of the Insolvency and Bankruptcy Code (IBC).
Rasna Private Limited (Rasna) was subjected to the CIRP by the NCLT on an application filed under Section 9 of the IBC by Bharat Road Carrier Private Limited (BRCPL) on the 1st September 2023. The application was related to outstanding payments for transportation services.
This case brings into focus the question of whether a dispute existed between the parties. In November 2018, Rasna had initiated a civil lawsuit seeking damages amounting to Rs 1.25 crore in the Hon’ble Commercial Court at Ahmedabad. Although this matter was referred to mediation, the process failed due to the non-participation of BRCPL. The NCLT observed that neither party had provided information regarding the outcome of the civil lawsuit, and it emphasized that the civil proceedings were initiated after the issuance of the Demand Notice. Consequently, the NCLT did not consider this as constituting a dispute and proceeded to initiate the CIRP against Rasna by appointing an Interim Resolution Professional.
The suspended director of Rasna challenged the NCLT’s decision before the National Company Law Appellate Tribunal (NCLAT). Additionally, an application, in the form of a Special Civil Application (SCA), was filed with the High Court of Gujarat, seeking various remedies, including a stay on the effects of the NCLT’s order dated September 1, 2023. The High Court granted an interim stay of the NCLT’s order considering the circumstances surrounding the pending appeal before the NCLAT.
Implications and pending questions
The NCLAT now faces the crucial question of whether civil proceedings initiated following the issuance of a Demand Notice can be considered as constituting a dispute within the context of the IBC. Furthermore, it will assess whether the NCLT’s decision to initiate insolvency proceedings against the beverage giant was warranted.
Photo: 66558437 / Verdict © Flynt | Dreamstime.com