NCLAT upheld the dismissal of the Section 9 application, emphasizing the existence of a pre-existing dispute and the non-completion of contractual obligations.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra and Mr. Arun Baroka (Technical Members) reviewed an appeal and observed that the existence of a pre-existing dispute, evidenced by the parties' correspondence and allegations of incomplete work and overpayment, justifies the dismissal of an application under Section 9 of the IBC, as the debt was not deemed due and payable. Consequently, the NCLT's decision was upheld, reaffirming that a legitimate claim cannot proceed when a valid dispute exists.
In the matter at hand, the Appellant sought to challenge the NCLT's order dated May 7, 2024, which dismissed its petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, on the grounds of a pre-existing dispute with the Corporate Debtor, Ghanaram Infraengineers Pvt. Ltd. The core of the dispute arose from contracts related to the construction of the Ramganga Barrage. The Appellant asserted that it had fulfilled its contractual obligations and submitted invoices for payment, yet the Respondent failed to settle the outstanding amount. This led the Appellant to initiate communications regarding the overdue debt.
Conversely, the Respondent contended that the Appellant had abandoned the project, completing only a portion of the work, and accused the Appellant of submitting false documents to instigate insolvency proceedings. The NCLT emphasized email correspondence presented by the Respondent, which purportedly demonstrated a pre-existing dispute, while the Appellant argued that these communications simply reflected payment requests and did not acknowledge any deficiencies in the work performed. Consequently, the NCLT found sufficient grounds to dismiss the Appellant's petition, prompting this appeal aimed at reversing that order based on the assertion that a legitimate debt existed and no pre-existing dispute was present.
Further analysis revealed that the Appellant submitted a false affidavit claiming an admitted debt despite a dispute raised as early as September 11, 2018. Under Section 3(12) of the IBC, a debt is considered unpaid when it is due and payable. Given the subcontract agreement's terms and the ongoing dispute, the alleged debt was determined not to be due. The demand notice issued on December 27, 2021, was deemed barred by limitation due to the existence of this pre-existing dispute, with the last invoice dated June 24, 2017. The Appellant's petition filed on February 21, 2022, was thus considered time-barred, and the Respondent cited the Supreme Court's ruling in Sagufa Ahmed and Others v. Upper Assam Polywood Products Private Limited and Others, REEDLAW 2020 SC 09563, emphasizing that the limitation period could not be extended by the Supreme Court's suo moto writ orders.
Upon review, it was evident that the dispute arose from two agreements concerning the barrage project. The Appellant claimed to have met its contractual obligations, yet acknowledged a dispute regarding payments in September 2018. The Respondent maintained that the project was incomplete and that the Appellant had been overpaid. The correspondence between the parties indicated a clear dispute over the quality of work and payment, further complicated by mutual accusations of forgery regarding documentation. Given these circumstances, the NCLAT concluded that the lower tribunal's dismissal of the application under Section 9 of the IBC was justified due to the evident pre-existing dispute and the Appellant's failure to meet contractual obligations. Consequently, the Appeal was rejected, affirming the NCLT's order without costs.
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