The National Company Law Appellate Tribunal (NCLAT) has set aside the initiation of Corporate Insolvency Resolution Process (CIRP) against OFB Tech Private Limited, citing the existence of a pre-existing dispute between the parties and records available with the National E-Governance Services Limited (NeSL).
In its order, the appellate tribunal overturned the decision of the National Company Law Tribunal (NCLT), which had earlier admitted an application filed under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016 by an operational creditor.
Dispute Existed Prior to Insolvency Filing
The NCLAT observed that documents placed on record clearly indicated that disputes between the operational creditor and OFB Tech existed well before the insolvency petition was filed. The tribunal noted that the operational creditor had raised the issue of default despite ongoing disagreements relating to the quality of services and settlement of dues.
Importantly, the appellate tribunal relied on the NeSL records, which reflected that the debt was already marked as “disputed.” The presence of such a dispute, the tribunal said, disentitled the operational creditor from invoking insolvency proceedings under Section 9 of the IBC.
Insolvency Code Not a Recovery Tool
Reiterating settled legal principles, the NCLAT emphasized that the Insolvency and Bankruptcy Code is not meant to be used as a debt recovery mechanism. It held that when a genuine dispute exists prior to the issuance of a demand notice, insolvency proceedings cannot be sustained.
The tribunal further stated that the adjudicating authority is required to examine whether a dispute is “real and substantial” and not merely spurious or illusory. In this case, the dispute was supported by documentary evidence and electronic records maintained by NeSL.
CIRP Set Aside, Company Restored
As a result, the NCLAT allowed the appeal filed by OFB Tech and set aside the NCLT’s order admitting the insolvency petition. The tribunal also directed that OFB Tech be restored to its original position, effectively bringing an end to the CIRP initiated against the company.
The ruling once again reinforces judicial safeguards against misuse of the IBC and highlights the growing importance of NeSL records in insolvency proceedings.
