NCLT set aside insolvency plea against ZTE filed by TVS Supply Chain

The National Company Law Tribunal (NCLT) has dismissed the insolvency petition filed by TVS Supply Chain Solutions against the Indian unit of telecom gear maker ZTE after noting the pre-existing dispute between the parties.

According to the Chandigarh-based bench of NCLT, the debt claimed by TVS Supply Chain Solutions was under dispute and reconciliation since 2017, much before the statutory demand notice.

“In view of these facts, we hold that this is a case of pre-existing dispute, the application under Section 9 is not at all admissible,” said the NCLT bench, comprising members Kaushalendra Kumar Singh and Khetrabasi Biswal.

TVS Supply Chain Solutions, formerly known as TVS Logistics Services, had moved the insolvency tribunal claiming default of ₹4.27 crore from ZTE Telecom India by filing a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC). This dispute is from the period from June 2012 to February 2019.

ZTE, a telecom equipment supplier to companies like Reliance, Tata, Aircel and BSNL, had entered into two master service agreements (MSAs) with TVS Supply Chain. According to the MSA, TVS Supply Chain Solutions used to issue invoices at regular intervals, which were required to be paid within 30 days of issuing the invoice.

However, TVS Supply Chain Solutions alleged that ZTE had generally made either partial payment against the invoices raised or delayed payment on the pretext that the invoices were not satisfactory, and that some amount remained due and payable at all times since 2012. As of September 2015, an amount of ₹7.04 crore was outstanding for payment by ZTE for various projects.

However, ZTE had sent an audit query on the bills, and was contesting discrepancies in earlier invoices. Later, some emails were exchanged between the parties.

Ultimately, on January 29, 2018, ZTE wrote a letter to TVS in which it said there were alleged discrepancies in TVS’s invoices amounting to ₹5.60 crore. However, ZTE did not share any supporting documents.

On July 9, 2018, TVS issued a demand notice under Section 8 of the IBC, demanding payment of ₹4.27 crore as principal and interest at 12% per annum. In its response, ZTE argued there was a pre-existing dispute, accusing TVS of paying additional amounts.

Later, on May 7, 2019, TVS moved NCLT by filing a bankruptcy petition against ZTE.

ZTE, represented by S&A Law Offices, submitted it through several written communications, including emails and letters, expressing its concern regarding the disputed invoices and expressed its intention to issue a debit note to TVS if the issues remain unresolved.

The NCLT observed that the case involved multiple reconciliations and audit objections before the statutory demand notice. The loan was never accepted by ZTE. The tribunal said that insolvency proceedings cannot be misused to recover disputed claims, and pointed out that the authority cannot investigate the genuineness of the debt.

“Furthermore, it is a settled position of law that the Tribunal cannot conduct a roundabout inquiry into the cardinal principles governing the loan, default and dispute, given only summary jurisdiction, and not the jurisdiction of the trial court, to examine the genuineness of the loan and dispute by examining documents running into thousands of pages, so as to arrive at a conclusion on the question of loan and dispute,” the NCLT said while dismissing TVS’ plea. Said dismissively.