Home Legal News Foreign entity can file plea for initiation of corporate insolvency resolution process under Section 9 IBC: NCLT

Foreign entity can file plea for initiation of corporate insolvency resolution process under Section 9 IBC: NCLT

by Shreya
NCLT

The National Company Law Tribunal, Mumbai Bench has held that in view of Section 3(23) of Insolvency & Bankruptcy Code, 2016, even a foreign entity can file a petition for initiation of corporate insolvency resolution process under Section 9 IBC. The order was passed by a bench of Member (Judicial) Suchitra Kanuparthi.

Section 9 IBC
Suchitra Kanuparthi
Suchitra Kanuparthi

The Tribunal has also held that contract of warranty constitutes a separate contract between a corporate debtor and an operational creditor and thus invocation of warranty claims can not be set up as a pre-existing dispute.

The Petitioner was represented by Kochhar & Co. Corporate Debtor was represented by Advocate Kalpesh Joshi.

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Case background

The Petitioner with section 9 IBC plea was a company incorporated under the laws of Angilla and supplied batteries to various clients globally.

In 2015, the Corporate Debtor issued several Purchase Orders to the Petitioner and subsequently, separate contracts were signed for dealing with the sale of batteries and other relating to warranty claim, if any. In 2017, the parties agreed to a Payment Agreement, pursuant to which the Corporate Debtor agreed to clear all the pending dues in the next few months. It was also agreed that the certain invoices would be settled against the Corporate Debtor’s warranty claim in terms of the warranty agreement.

After making one instalment, the Corporate Debtor again defaulted on the payment as it raised issues relating to the warranty claims. A second Payment Agreement between the Corporate Debtor and the Petitioner came into existence. Receiving no money from the Corporate Debtor, the Petitioner first issued a Demand Notice under Section 8 of IBC to the Corporate Debtor and then proceeded to file the insolvency plea.

In response to the insolvency plea, the Corporate Debtor submitted that from March 2017 onwards, the Petitioner had not acknowledged the warranty claims and there were thus disputes between the parties with respect to setting off warranty claims.

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The Corporate Debtor thus argued that there was a pre-existing dispute under Section 9 IBC with respect to breach of warranty claims between the parties.

In view of the agreements between the parties, emails of Corporate Debtor admitting the claim and payment of a certain amount to the Petititioner pursuant to the claim, the NCLT concluded that there was a clear contractual liability on the Corporate Debtor to pay the Petitioner.

It further held that the claim of warranty was collateral to the main contract of supply of batteries and was a separate contract between the Corporate Debtor and the holding company of the Petitioner.

Since the liability of payment of outstanding dues was admitted, NCLT held that there was no dispute in relation to the Section 9 IBC plea.

It further held,

The objection that the Petitioner is a foreign entity and cannot file the present petition is not tenable in view of Sec 3(23(g) and 25)of I & B code, wherein, the definition of person includes person resident outside India

The NCLT concluded that the Section 9 IBC plea for initiation of corporate insolvency resolution process against the Corporate Debtor deserved to be admitted.

Moratorium was imposed under Section 14 IBC and Anand Gopikishan Mundada was appointed as the insolvency resolution professional.

Read the order here:

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