NCLAT dismisses plea to initiate insolvency proceedings against Tata Chemicals

The National Company Law Appellate Tribunal (NCLAT) has set aside a plea challenging an NCLT order that rejected the petition to initiate insolvency proceedings against Tata Chemicals for claimed operational debt of Rs 68.44 crore. A three-member NCLAT bench upheld the order of the Mumbai bench of the National Company Law Tribunal (NCLT) that dismissed the plea of Allied Silica to initiate insolvency proceeding against the Tata group firm.

Observing that the NCLT has rightly dismissed the plea as Allied Silica has failed to prove the operational debt and its default and further on the ground of pre-existing dispute, the appellate tribunal rejected the appeal against it. “We are of the considered opinion that the Adjudicating Authority (NCLT) has rightly dismissed the application filed under Section 9 of IBC,” the NCLAT bench headed by Acting Chairman Justice B L Bhat said. "We do not find any reason to interfere with the impugned order. There is no substance in the appeal which is accordingly dismissed."

Allied Silica and Tata Chemicals had entered into a business transfer agreement (BTA) on April 7, 2018, under which the silica business of the former was to be acquired by the Tata group firm on a slump sale basis for a consideration of Rs 123 crore.

Tata Chemicals was also to acquire an existing silica plant at Cuddalore, Tamil Nadu from Allied Silica.

According to the appellant - Allied Silica, Tata Chemicals had only transferred Rs 65 crore out of Rs 123 crore and the balance Rs 58 crore was not paid and claimed to be due as unpaid operational debt.

The sale was consummated on June 18, 2018, and on the same day, the possession of undertaking was handed over by Allied Silica to Tata Chemicals.

The total outstanding was Rs 68.44 crore, which also includes the interest of Rs 10.44 crore for the period between June 18, 2018, and June 17, 2019, the petitioner contended. Allied Silica further contended that post-transfer of the undertaking, both parties had mutually decided to continue their respective rights and obligations to lay down the pipeline, trial run, satisfactory operation etc with the additional scope of work with other tranche payments, which were separate and distinct from slump sale.

However, Tata Chemicals rebutted it and said that the appeal was premised on the suppression of facts and information, misrepresentation and gross misconstruction of the provision of BTA.

According to it, the alleged debt is not an "Operational Debt" and Allied Silica is not an "Operational Creditor" as defined under the IBC.

Moreover, Tata Chemical said BTA was divided into a closing balance consideration of Rs 65 crore and remaining Rs 58 crore was into three tranche payments.

It has duly paid the closing balance consideration of Rs 65 crore and Tranche I and Tranche II payments even upon non-completion of conditions Precedent, had adjusted Tranche III payment against the improvement costs borne by the company on account of non-completion of Tranche II conditions precedent, Tata Chemicals submitted.

Consenting with Tata Chemicals’ submissions, NCLAT said, "On perusal of the documents submitted by the parties, it is evident from the Letter dated January 8, which is signed by both the parties, that the Applicant had failed to complete the Tranche II Conditions Precedent as a result of which the Corporate Debtor had exercised its right under the BTA and set-off and adjusted the Tranche III payment.”

Tata Chemicals had also disputed that the applicant is in non-compliance of the BTA and therefore is not liable to receive Tranche II and Tranche III payment.

“These disputes by the Corporate Debtor are raised before the receipt of demand notices. Further, it is also pertinent to note that the Corporate Debtor had replied to the Demand Notices within the statutory period of ten days raising disputes with regards to the claim of Applicant and non-compliance of the BTA by the Applicant,” said NCLAT.