The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal by Korea Trade Insurance Corporation (K-Sure) seeking to initiate insolvency proceedings against Amrit Polychem Pvt. Ltd. The tribunal upheld the earlier decision of the National Company Law Tribunal (NCLT), which found that a preexisting dispute between Amrit Polychem and J.T. Corporation—whose debt K-Sure had acquired—barred the application under Section 9 of the Insolvency and Bankruptcy Code (IBC). The appellate tribunal further observed that the claim appeared time-barred and that K-Sure’s operational creditor status was questionable.
Background: Dispute Originating from a Commercial Transaction
The case originated from a series of commercial transactions between Amrit Polychem Pvt. Ltd. and J.T. Corporation (JTC), a South Korean firm. Under the agreement, JTC supplied goods to Amrit Polychem on 90-day payment terms from the date of shipment. When Amrit Polychem allegedly failed to make payments, JTC filed a claim with its insurer, Korea Trade Insurance Corporation (K-Sure), which subsequently compensated JTC and obtained the right to recover the outstanding dues from Amrit Polychem through a Letter of Assignment dated December 20, 2017.
K-Sure demanded Rs. 1.92 crore (approximately) from Amrit Polychem and, after non-payment, filed a Section 9 application under the Insolvency and Bankruptcy Code to commence insolvency proceedings. The NCLT Mumbai Bench, however, dismissed the petition in August 2023, citing the existence of a preexisting dispute between the buyer and the seller before the insurance claim and assignment were executed.
NCLAT’s Findings: Validity of Dispute and Claim Limitations
Preexisting Dispute Confirmed
In its detailed judgment, the NCLAT affirmed the NCLT’s finding that a commercial dispute between JTC and Amrit Polychem had arisen before K-Sure took over the debt. The appellate bench observed that once an insurer steps into the shoes of the insured, it inherits both the rights and the knowledge of prior disputes associated with that debt. Consequently, K-Sure’s claim could not qualify as “undisputed operational debt,” a prerequisite for invoking Section 9 of the IBC.
The tribunal noted that insolvency proceedings cannot serve as a substitute for debt recovery when a genuine dispute exists. The presence of documented communication and objections prior to K-Sure’s intervention demonstrated that Amrit Polychem had contested the claims even before the insurance assignment was made.
Limitation and Creditor Status Issues
Although the existence of a preexisting dispute was sufficient grounds for dismissal, the NCLAT also pointed out two additional weaknesses in K-Sure’s petition:
Limitation Period – The tribunal observed that the claim appeared to have been filed beyond the legally prescribed time frame, thereby rendering it time-barred under the Limitation Act.
Operational Creditor Status – Questions were raised regarding K-Sure’s eligibility as an operational creditor, as the Letter of Assignment between JTC and K-Sure was allegedly unregistered and, therefore, lacked full legal enforceability in Indian jurisdiction.
These concerns, though not adjudicated in detail, added weight to the dismissal of the appeal.
Tribunal’s Decision: Appeal Devoid of Merit
Upholding the NCLT’s earlier decision, the NCLAT dismissed K-Sure’s appeal, terming it “devoid of merit.” The bench ruled that the insolvency mechanism under the IBC is designed for resolving genuine cases of default, not for adjudicating commercial disputes that precede the claim. However, the tribunal granted liberty to K-Sure to explore alternative remedies available under law, such as civil recovery proceedings or arbitration.
Legal and Commercial Implications
The judgment reinforces several critical aspects of India’s insolvency framework:
- Preexisting disputes bar insolvency action: The case reiterates that insolvency proceedings under Section 9 are not intended for recovery of disputed debts. Creditors—domestic or foreign—must establish that the claimed default is undisputed and legally enforceable.
- Due diligence in cross-border assignments: Insurers and international trade financiers acquiring Indian debts must conduct rigorous due diligence to identify preexisting disputes and limitation risks.
- IBC as a last resort, not a collection tool: The ruling reflects the judiciary’s consistent stance that the IBC cannot be misused as a debt recovery forum. The process must uphold the integrity of insolvency as a resolution mechanism rather than a coercive strategy.
Conclusion: A Precedent for Cross-Border Creditors
The NCLAT’s verdict in the K-Sure vs. Amrit Polychem case underscores the legal boundaries governing cross-border debt recovery under India’s insolvency regime. It signals to international trade credit insurers and foreign creditors that Indian tribunals will scrutinize the existence of disputes and statutory timelines before admitting any insolvency petition.
By reaffirming the primacy of the “preexisting dispute” doctrine and emphasizing procedural discipline, the ruling strengthens the jurisprudential foundation of the Insolvency and Bankruptcy Code — ensuring that it remains a tool for genuine insolvency resolution, not for contentious commercial recoveries.
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