Karnataka HC grants relief to Flipkart in insolvency case

In a major relief to Flipkart India, the B2B company of the Walmart-owned Flipkart Group, the Karnataka High Court has stayed the insolvency order against the Bengaluru-based company passed by the National Company Law Tribunal (NCLT) for non-payment of dues.

“Karnataka High Court has stayed the order of the NCLT in favour of Flipkart. This is an ongoing commercial litigation which we are challenging. At this stage, we have no further comments,” Flipkart said in a statement.

The relief follows the NCLT’s October 24 order initiating insolvency process against Flipkart India after CloudWalker Streaming Technologies, a supplier to the ecommerce company, filed a case for non-payment of Rs 26 crore in dues.

Flipkart had inked a deal to acquire LED televisions from CloudWalker in several batches since 2017. According to the supplier, Flipkart stopped taking delivery of the television sets in 2018 and also refused to make payments for the same.

This, according to NCLT order, is default on debt payment by Flipkart. 

The High Court issued a stay on the NCLT order as the financial claims made by the supplier do not constitute as debt and the tribunal does not have jurisdiction to hear the case, a source told TechCircle. 

Both companies were not able to settle the issues although the case was filed in July 2019. It is also open to Flipkart and CloudWalker to settle the case even after the NCLT has passed the order. 

The government introduced the Insolvency and Bankruptcy Code in 2016 giving NCLT the authority to hear cases against companies defaulting on repayment of their dues. As per the law, NCLT can initiate insolvency process against the defaulters on cases filed by banks and suppliers. 

Under the insolvency process, the control of existing board of directors is transferred to insolvency resolution professional (IRP), who takes over the affairs of the company on behalf of the NCLT. A committee of creditors is formed, which then invite bids from firms interested in acquiring the defaulter.

The entity which agrees to acquire the defaulter has to repay the dues of all the registered lenders in order to compete the insolvency process. 

Last month, Flipkart India reported loss of Rs 3835 crore and revenues of Rs 30931 crore for the financial year ended March 31, 2019.