NCLAT set aside Nike India's plea to initiate insolvency against its dealer

The National Company Law Appellate Tribunal (NCLAT) on Monday dismissed a petition filed by Nike India to initiate insolvency proceedings against one of its dealers.

A two-member NCLAT bench upheld the orders of the National Company Law Tribunal (NCLT), which on December 22, 2022, rejected the footwear and apparel maker's plea to initiate the insolvency proceedings against its distributor on the ground of pre-existing dispute.

The appellate tribunal further said it was "not satisfied with the submission of the Appellant (Nike India) that dispute is a moonshine dispute."

However, the NCLAT said Nike India is free to take recourse to the mechanism as provided in the Distributorship Agreement for realisation of its dues.

Nike India, an operational creditor had issued a notice under section 8 of the Insolvency & Bankruptcy Code (IBC) claiming an amount of Rs 3.15 crore.

In its reply, Nike India's claim was disputed by Enkay Brand Distribution.

On this, Nike India said it was a "moonshine" since in the distributorship Agreement between the parties, there was no liability which could have been fastened on the ground of sale on a lower price by the Corporate Debtor (distributor) and further under the agreement between the parties, Distributorship Agreement, no claim could have been raised.

However, after going through the reply, the NCLAT said it raises issues pertaining to a pre-existing dispute between the parties.

It further said the distributorship agreement between parties is not disputed and Nike India has claims against the Corporate Debtor.

"Appellant is free to take recourse to the mechanism as provided in the Distributorship Agreement for the realisation of its dues," it said.

NCLAT further said that the present matter is not a case, where Section 9 (insolvency) proceedings under I&B Code can be initiated when a dispute is raised in reply to the Section 8 notice.

"We, thus, are of the view that the Adjudicating Authority did not commit any error in dismissing the Section 9 application. The appeal is dismissed," said NCLAT.

Under section 8, an operational creditor, on the occurrence of a default, sends a demand notice of unpaid debt to the corporate debtor. IBC says corporate debtors shall reply within a period of ten days of the receipt of the demand notice.