NCLAT Dismisses Ksure’s Insolvency Plea Against Amrit Polychem; Holds Insurer Stepped Into Pre-Existing Dispute Under Section 9 IBC

NCLAT Dismisses Ksure’s Insolvency Plea Against Amrit Polychem; Holds Insurer Stepped Into Pre-Existing Dispute Under Section 9 IBC

Introduction

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), dismissed the appeal filed by Korea Trade Insurance Corporation (Ksure) seeking initiation of insolvency proceedings against Amrit Polychem Pvt. Ltd. (APL). The Tribunal held that Ksure was fully aware of the pre-existing dispute before stepping into the shoes of the original supplier, JT Corporation (JTC), thereby barring the invocation of Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Factual Background

Amrit Polychem Pvt. Ltd. (APL) had placed three purchase orders with JT Corporation (JTC), Korea, for the supply of certain chemicals. To safeguard against buyer default, JTC obtained insurance coverage from Korea Trade Insurance Corporation (Ksure). While APL paid for the second consignment, disputes arose regarding the first shipment, which APL claimed was not delivered, resulting in financial losses. Consequently, APL withheld payment for the third consignment to adjust against the alleged loss caused by non-delivery of the first shipment. Subsequently, Ksure reimbursed JTC under the insurance policy and obtained an assignment of the debt through a Letter of Assignment (LoA). Thereafter, Ksure issued a demand notice under Section 8 of the IBC to APL. APL, however, disputed the claim, asserting the existence of prior losses and non-delivery of goods.

Procedural Background

Following APL’s denial of liability, Ksure filed an application under Section 9 of the IBC before the NCLT, Mumbai Bench, seeking initiation of insolvency proceedings. The NCLT dismissed the petition, holding that there existed a pre-existing dispute between the parties prior to the issuance of the demand notice. Aggrieved by the NCLT’s decision, Ksure preferred an appeal before the NCLAT, Principal Bench, New Delhi, challenging the dismissal order.

Issues

1. Whether the existence of a pre-existing dispute between Amrit Polychem Pvt. Ltd. and JT Corporation barred Ksure from initiating insolvency proceedings under Section 9 of the IBC.

2. Whether Ksure, as an assignee of the debt, could claim ignorance of disputes that existed prior to the assignment.

Contentions of the Parties

Appellant (Ksure): Argued that upon reimbursement to JTC under the insurance policy and subsequent assignment, Ksure became the rightful operational creditor entitled to recover dues from APL. The appellant contended that the denial of liability by APL was unfounded and that the non-payment constituted an operational debt default under the IBC.

Respondent (Amrit Polychem Pvt. Ltd.): Asserted that there existed a clear pre-existing dispute between APL and JTC regarding the non-delivery of goods under the first purchase order. The respondent argued that Ksure, having stepped into the shoes of JTC, was fully aware of the ongoing dispute at the time of assignment. They contended that the Letter of Assignment (LoA) was rendered invalid due to the disputed nature of the underlying transaction.

Reasoning and Analysis

The NCLAT examined the email correspondence and documentary evidence between APL and JTC and found clear references to disputes concerning non-delivery of the first shipment. It held that the adjustment of loss through withholding of payment for the third shipment was an acknowledged fact between the parties.

The Tribunal noted that Ksure was aware of these disputes before the assignment of debt and, therefore, could not claim the status of an operational creditor with an undisputed debt. The respondent’s reply to the Section 8 demand notice, categorically denying liability, was found to substantiate the existence of a pre-existing dispute.

Relying on the landmark judgment in Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353, the NCLAT reaffirmed that when there exists a plausible dispute prior to the issuance of the demand notice, the Adjudicating Authority must reject a Section 9 application.

Implications

This judgment reinforces the settled principle that insolvency proceedings cannot be used as a tool for debt recovery in cases where genuine disputes exist. The NCLAT’s decision underscores that assignees, such as insurers or factoring entities, inherit not only the rights but also the limitations and disputes attached to the original creditor’s claim.

The order further reiterates that awareness of disputes prior to debt assignment precludes the invocation of IBC’s summary insolvency mechanism, preserving the sanctity of commercial dispute resolution through civil proceedings.

Order

The NCLAT dismissed the appeal filed by Korea Trade Insurance Corporation (Ksure), affirming the NCLT’s finding of a pre-existing dispute between the parties. However, it granted liberty to Ksure to pursue appropriate civil remedies available under law.

In this case the appellant was represented by Mr. Sarthak Varma, Sr. Advocate with Mr. Manish Dhir Mr. Shantanu Parmar, Mr. Balram and Mr. Vivek Tyagi, Advocates. Meanwhile the respondent was represented by Mr. Abhijeet Sinha, Sr. Advocate with Ms. Prachi Johri, Mr. Saikat Sarkar, Ms. Heena Kochar and Ms. Mrigangi Parul, Advocates.