NCLAT sets asides insolvency proceedings against Flipkart

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Published: February 27, 2020 1:18:45 PM

Earlier the Bengaluru Bench of the NCLT had admitted the insolvency plea filed by Cloudwalker Streaming Technologies, an operational creditor of Flipkart.

A three-member bench of the NCLAT released Flipkart from the corporate insolvency resolution process.

The National Company Law Appellate Tribunal (NCLAT) has set aside the order of the NCLT to initiate insolvency proceedings against e-commerce major Flipkart. A three-member bench of the NCLAT released Flipkart from the corporate insolvency resolution process and directed the Interim Resolution Professional (IRP) appointed by NCLT to handover the records and assets of the company back to its promoter immediately.

Earlier, on October 24, 2019, the Bengaluru Bench of the National Company Law Tribunal (NCLT) had admitted the insolvency plea filed by Cloudwalker Streaming Technologies, an operational creditor of Flipkart. “We set aside the impugned order dated October 24, 2019 passed by the adjudicating authority (NCLT) and the application filed under Section 9 by the operational creditor Cloudwalker Streaming Technologies Pvt Ltd, company petition is rejected,” said NCLAT.

It further said: “The Flipkart India Pvt Ltd (corporate debtor) is released from the corporate insolvency resolution process.” NCLAT order came over a petition filed by Neeraj Jain, Director of Flipkart India Private Ltd. “Interim resolution professional will handover the records and assets of the corporate debtor to the promoter immediately, who will manage the corporate debtor,” it added on its order passed on February 24. Flipkart’s operational creditor Cloudwalker Streaming Technologies, which used to supply the e-commerce major imported LED TVs, had filed a petition before NCLT contending that Flipkart defaulted for an amount of Rs 26.95 crore.

However, it was rejected by NCLAT saying that the demand notice delivered under Section 8(1) of the Insolvency & Bankruptcy Code (IBC) was “not proper and was also incomplete”. “The operational creditor failed to submit any documents to prove in existence of the operational debt and the amount in default,” the appellate tribunal said observing that Cloudwalker Streaming Technologies also failed to submit the copy of invoices and copies of all the documents referred in the application.

Cloudwalker Streaming Technologies had contended that Flipkart contacted it in selling its product of LED TVs and entered into a supply agreement on December 29, 2016. As per the agreement, it would receive the purchase order, after which it will import and procure the required quantities of LED TVs and deliver the same to Flipkart at its desired location. According to the operational creditor, Flipkart received delivery of the first few batches but after that it avoided taking delivery of the LED TVs on the ground of lack of warehouse space.

It further submitted that later, Flipkart started delaying the collection of the LED TVs, and in some instances did not collect them at all. In an attempt to gain more profit out of the goods ordered, Flipkart was putting pressure on Cloudwalker Streaming Technologies to offer the already imported and warehoused LED TVs, at a discounted price.

Later, the operational creditor demanded payment of the LED TVs procured and imported from October 11, 2017 to December 1, 2017, based on the import and the purchase order issued by Flipkart, which failed to collect more than 70 per cent of the stock as ordered by them till March 2018. It issued a demand notice on June 8, 2019. This was rejected by Flipkart, saying that there was no admitted debt or liability and an amount of Rs 85.57 crore was paid.

Challenging the order of NCLT, Flipkart contended that the order was passed without appreciating the fact that Cloudwalker Streaming has not produced any documentary evidence as purchase orders, acceptance letters, invoices and proof of any intimation of sale to the end customers or any post-delivery services with specific reference to the amounts.

Moreover, claim for damages cannot amount to an operational debt under IBC and hence it can not be treated to have committed default, contended Flipkart. Consenting to submissions of Flipkart, NCLAT said: “The operational creditor has failed to submit the relevant documents under which the debt has become due.” On August 18, 2018 US retail major Walmart had completed acquisition of 77 per cent stake in Flipkart for about USD 16 billion, a deal which gave the US retailer access to the Indian e-commerce market.

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