Recently, by its judgement dated March 1, 2019 given in the matter of Bhandari Hosiery Exports Ltd. & Ors. vs. In-Time Garments Pvt. Ltd., the NCLAT took on record – a text message sent (over ‘whats app’ messenger) by a corporate debtor to an operational creditor complaining about the quality of goods supplied. On basis of this ‘whats app’ message, the Court was satisfied to hold that there was a ‘pre-existing dispute’ under Section 9 of the Code and accordingly further held the Insolvency Application could not be admitted on account of a pre-existing dispute.
Background of the Update
The Code offers an opportunity to operational creditors (i.e. unpaid suppliers of goods and services) to initiate insolvency proceedings against the corporate debtors. As per provisions of the Code, if there is a default in payment of an operational debt, the operational creditor has to first issue a demand notice to the corporate debtor prior to initiating insolvency proceedings against the debtor. Within 10 days from the date of receipt of the demand notice, the debtor has to make the payment, or if there is any pre-existing dispute with respect to the goods/services supplied, then the debtor has to bring the same to the notice of the creditor.
If the Court (i.e. NCLT) is prima facie satisfied that there is a ‘pre-existing’ dispute raised by the corporate debtor, then it will not admit the insolvency application. In doing so, the NCLT does not need to be satisfied that the defence is likely to succeed and it does not examine the merits of the dispute. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the NCLT has to reject the application.
Facts of the Case
Bhandari Hosiery Exports Limited (“Creditor”) supplied certain goods to Respondent Debtor.
The Debtor contended that the initial delivery of the fabric were as per its requirement, however, after few deliveries, the quality of certain portion of the fabric delivered failed to meet the requirements. The said issue was raised by way of a message sent over the ‘Whatsapp’ messenger mentioning that the defective fabric is not acceptable. Accordingly, the Debtor did not make payment to the Creditor.
The Debtor further contended that, – even after being informed about defective fabric, the Creditor continued to supply the defective fabric to the Debtor. That on repeated complaints by the Debtor, the Creditor had sent an official to inspect the fabric at the Debtor’s factory and he had also verified that the supplied fabric was defective. After various attempts for justification/replacement of the fabric, the Creditor had assured that the Debtor may proceed with the manufacturing of the garments with the fabric and the final product would be as per the requirements and specifications.
The Debtor manufactured the garments after the assurance of the quality goods supplied by the Creditor, but the buyer of the Debtor rejected the shipment thrice on the grounds of defective fabric because the product was not as per the specification of the buyer.
The Debtor did not make payment to the Creditor. The Creditor issued a demand notice to the Debtor. The Debtor replied to the said notice alleging existing of the dispute.
The Creditor filed an application for initiation of corporate insolvency resolution under Section 9 of the Insolvency Code with NCLT, New Delhi. The NCLT rejected the application for initiation of corporate insolvency resolution. The Creditor filed an appeal in the NCLAT.
The Debtor pleaded that as the ‘WhatsApp message’ sent by him was much prior to the receipt of the demand notice, there was already a pre-existing dispute between the parties.
Judgment of the NCLAT
The NCLAT took cognizance of the “WhatsApp” communication sent by the corporate debtor prior to the issue of the demand notice, and accordingly, NCLAT came to a conclusion that there was a pre – existing dispute between the Parties which needed elaborate investigation and due to which the insolvency application could not be admitted.
SMS/WhatsApp message are admissible under the court of law under Section 65 of Indian Evidence Act, 1872. Bombay High court in the recent ruling had held that legal notice or messages sent through WhatsApp messaging app are to be considered as legal evidence under the law, and the ‘blue tick’ in what app platform is a valid proof that the Respondent has accepted the physical copy of the communication.
The aforesaid judgment of the NCLAT is an addition to the catena of judgments which makes the Code evolving.