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NCLAT: Pendency Of Case U/S 138 & 141 NI Act Amounts To Admission Of Debt, Not Existence Of Dispute

In Sudhi Sachdev Vs APPL Industries Ltd. appeal filed by the promoter of the corporate debtor, M/s Auto Décor Pvt. Ltd.  against the moratorium ordered by NCLT with reference to the application under Section 9 of the Code filed by the respondent (Operational Creditor).

The appellant had now asserted that the application should not have been accepted, as a dispute existed in view of the fact that APPL had instituted cases under Section 138/441 of the Negotiable Instruments Act, 1881, which are pending in the court of Metropolitan Magistrate, Gurgaon.

The NCLAT, however, did not agree with this contention and referred to Innoventive Industries Ltd. v. ICICI Bank and Ors., where it was held that as per Section 8 of IBC Code, the Corporate Debtor is to bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing – i.e. before such notice or invoice was received by the corporate debtor within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1). The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

The NCLAT decided that in the present case, it is not in dispute that there is a debt payable to the Operational Creditor and default on the part of the Corporate Debtor. The pendency of the case under Section 138/441 of the Negotiable Instruments Act, 1881, even if accepted as recovery proceeding, it cannot be held to be a dispute pending before a court of law. Thereby the pendency of the case under Section 138/441 of Negotiable Instruments Act, 1881 actually amounts to admission of debt and not an existence of dispute.

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