Quantum of debt is irrelevant/not considered by the Court

1. Mr. Vineet Khosla Shareholders and (ex) Director Margra Industries LTD. Vs M/s.
Edelweiss Asset Reconstruction Company LTD. & others.
Edelweiss Asset Reconstruction Company Ltd. (Edelweiss – in short) – Financial
Creditor filed Company Petition No.(IB)-866(PB)/2018 before the Adjudicating
Authority (National Company Law Tribunal, Principal Bench, New Delhi) under Section
7 of the Insolvency and Bankruptcy Code, 2016 (IBC – in short) against Respondent
No.2 - Margra Industries Ltd. – Corporate Debtor, which has been admitted vide
Impugned Order.
With regard to the dispute raised by the Corporate Debtor that incorrect amount had been
claimed, it has been held by Adjudicating Authority that dispute over the quantum of
default cannot be a ground to reject the Application under Section 7 as determination of
quantum of financial debt is not in the domain of Adjudicating Authority. It was also
observed that the Corporate Debtor would be free to raise objection regarding mismatch
of dues and excess before the Resolution Professional/Committee of Creditors.
Adjudicating Authority also found that the transaction showed that loan was disbursed
against consideration for time value of money with a clear commercial effect of
borrowing. It has been found that the record shows that Corporate Debtor availed the
loan facility and committed default in repayment of huge outstanding financial debt.
Consequently, Adjudicating Authority admitted the Application.

2. National Company Law Appellate Tribunal (NCLAT): A two-member bench

comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S. Cheema,
Member (Judicial), allowed an appeal filed against the order of National Company Law
Tribunal, Mumbai whereby an application preferred by the respondent (Operational
Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 was admitted;
order of moratorium was passed; and Insolvency Resolution Professional was appointed.
The appellant (Corporate Debtor), referring to the emails exchanged between
the parties, submitted that there was an existence of dispute prior to issuing of demand
notice under Section 8(1). The dispute as alleged was regarding the quantum of payment,
which was subsequently settled and the agreed amount plus GST had already been paid
to the respondent. It is pertinent to note that originally, as submitted by the respondent,
the appellant agreed to pay a fee of Rs 1 crore as brokerage towards the TATA-
Neptune  deal. However, the respondent accepted that the same was settled at Rs 75 lakhs
plus GST, part payment of which was already done. The appellant submitted that though
there was an existence of dispute, inspite of the same the NCLT admitted respondent’s
application under Section 9 and passed the order impugned.
For settling the issue at hand, the Appellate Tribunal made a reference to the Supreme
Court decision in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and
perused Section 7 (when it comes to financial creditor triggering the process, this section
becomes relevant) and Section 9 of the Code. It was observed that the Supreme Court, in
the case mentioned herein, held that in a petition under Section 9, the Corporate Debtor
has a right to show that there is an existence of dispute  about the quality of goods and
services provided, as well as a right to dispute the debt including the quantum of
payment. In view of the Appellate Tribunal, the emails exchanged between the parties
clearly show that negotiations were going on relating to the quantum of payment.
Originally, the payment to be made was Rs 1 crore which was finally settled at Rs 75
lakh. In such circumstances, it could be accepted that there was an existence of dispute
about the payment of the debt. The Appellate Tribunal held, if the debt has been
disputed, the question of default does not arise. Accordingly, the appeal filed by the
Corporate Debtor was allowed; the order impugned passed by the National Company
Law Tribunal, Mumbai was set aside, and the application preferred by Operational
Creditor was dismissed.