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Adjudicating authority can either admit Application or to reject the same. No third option or course is postulated by law

In Sodexo India Services Pvt. Ltd. vs Chemizol Additives Pvt. Ltd., appeal was filed before the NCLAT against the order of the NCLT whereby the Adjudicating Authority without admitting the Application filed under Section 9 of the Insolvency Code, disposed an Application by directing the Respondent - Corporate Debtor, in the first instance, to make endeavours for resolution in respect of outstanding debt, failing which the Appellant would be at liberty to invoke arbitration clause contained in Agreement.

The NCLAT observed that on plain reading of the Section 9, it emerges that the Adjudicating Authority is required either to admit the Application, if the same is complete, there is no payment of the unpaid operational debt, the invoice or notice for payment has been delivered to the Corporate Debtor and no notice of dispute has been received by the Operational Creditor or there is no record of dispute in the information utility. The Adjudicating Authority may reject the Application, if the Application is incomplete or that the operational debt stands paid, or the Creditor has not delivered the invoice or notice for payment to Corporate Debtor or that the notice of dispute has been received by the Operational Creditor, or there is a record of dispute forthcoming from the information utility. It is abundantly clear that the Adjudicating Authority has only two options, either to admit Application or to reject the same. No third option or course is postulated by law.

Instead, the Adjudicating Authority proceeded to make out a case for the Respondent-Corporate Debtor on the premise that the Appellant-Operational Creditor has not invoked other remedies available under law.

The NCLAT observed that contrary to the opinion of NCLT, availability of alternate remedy would not  render the debt and default disputed. In absence of pre-existing dispute having been raised by the Corporate Debtor or it being demonstrated that a suit or arbitration was pending in respect of the operational debt, in respect whereof Corporate Debtor was alleged to have committed default, the Adjudicating Authority would not be justified in drawing a conclusion in respect of there being dispute as regards debt and default merely on the strength of an Agreement relied upon by the Appellant – Operational Creditor, notwithstanding the fact that such Agreement provided for reference of a dispute arising between the parties in relation to a claim through arbitration. Even otherwise, Section 238 of the I&B Code, which has an overriding effect over the existing laws or any other law or contract, would not admit of the alternative remedy being a disabling provision for Operational Creditor to seek resolution of a dispute in regard to operational debt claimed against the Corporate Debtor by triggering the Corporate Insolvency Resolution Process. The Adjudicating Authority was concerned with the insolvency resolution qua the operational debt, which the Corporate Debtor owed to the Operational Creditor. It was immaterial whether it was solvent or insolvent qua other creditors. The I&B Code would not permit the Adjudicating Authority to make a roving enquiry into the aspect of solvency or insolvency of the Corporate Debtor except to the extent of the Financial Creditors or the Operational Creditors, who sought triggering of Corporate Insolvency Resolution Process.


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