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

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

A Chandigarh-based bench of the NCLT, the debt claimed by TVS Supply Chain Solutions was disputed and under reconciliation dating back to 2017, well before the statutory demand notice.

“In view of these facts, we hold that this being a case of preexisting dispute, the Application under Section 9 is not at all maintainable,” said the NCLT Bench, comprising members Kaushalendra Kumar Singh and Khetrabasi Biswal.

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

ZTE, a telecom equipment supplier for companies like Reliance, Tata, Aircel, and BSNL, had entered into two Master Service Agreements (MSAs) with TVS Supply Chain. As per MSAs, TVS Supply Chain Solutions raised invoices at a regular interval, which were payable within 30 days of raising the invoice.

However, TVS Supply Chain Solutions alleged that ZTE has generally made either part payments against the invoices raised or delayed the payment on the pretext that the invoices are not satisfactory, and certain amounts have remained due and payable at all times since 2012. Till September 2015, an amount of ₹7.04 crore was outstanding for payment by ZTE for various projects.

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

Finally, on January 29, 2018, ZTE addressed a letter to TVS wherein it stated that there are purported discrepancies in invoices of TVS to the tune of ₹5.60 crore. However, ZTE had not shared any supporting documents.

On July 9, 2018, TVS issued a demand notice under Section 8 of IBC, demanding payment of ₹4.27 crore as principal and interest at the rate of 12% per annum. In its reply, ZTE contended a pre-existing dispute alleging an excess amount being paid to TVS.

Later, on May 7, 2019, TVS moved the NCLT by filing an insolvency petition against ZTE.

ZTE, represented by S&A Law Offices, submitted it through multiple written communications, including emails and letters, conveying its concern regarding the disputed invoices and intention to raise a debit note in the event the issues remained unresolved by TVS.

The NCLT observed that the matter involved multiple reconciliation and audit objections before the statutory demand notice. The debt was never admitted by ZTE. The Tribunal noted that insolvency proceedings cannot be misused to recover disputed claims, and pointed out that the authority cannot conduct a roving inquiry into the veracity of debt.

“Further, it is a settled position of law that the Tribunal cannot go in roving enquiry on cardinal principles governing debt, default and dispute, which is conferred only summary jurisdiction and not a trial court jurisdiction to examine veracity of debt and dispute by examining documents running into thousands pages, so as to come to conclusion on the question of debt and dispute,” said the NCLT while dismissing the TVS plea.