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Existence of dispute or pending litigation not applicable to petition under Section 7 of IBC

In Company Appeal (AT) (Insolvency) No. 06 of 2019, Vinayaka Exports Vs. M/s. Colorhome Developers Pvt. Ltd, appeal was filed against the dismissal of petition by the Adjudicating Authority on the grounds that under Section 5(6) and Section 5(6)(a) of the IBC, 2016 as there is a civil suit pending and there exists a dispute in the amount of debt between both the parties and also under section 7(5)(b) of the IBC, 2016 for being incomplete in details.

The NCLAT however found that application was filed under Section 7 of the Insolvency Code and there is no dispute about the existence of a default. The Adjudicating Authority was of the view that in view of pendency of the civil suit, there exist a dispute in the amount of debt between both the parties is concerned. The said stand cannot be accepted. The application filed before the Adjudicating Authority is under Section 7 of the IBC and not under Section 9 of the IBC where one can take a plea stating that there exists a dispute between the parties before issuing a Demand Notice under Section 8(1) of the IBC. Therefore, we are unable to uphold such finding of the Adjudicating Authority.

About the incomplete details in the application also, the NCLAT opined that the AA dismissed the application without giving any opportunity to the applicant to rectify the mistake as specifically stated in the Code.

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