NCLT Delhi Initiates Insolvency Process Against National Textile Corporation Ltd., A Public Sector Enterprise

Background Facts

National Textile Corporation Ltd. is a Public Sector Enterprise under the Ministry of Textiles, Government of India. It was incorporated in 1968 and has textile mills pan India for the production of yarn and fabric.

In 2015, the Solar Energy Corporation of India (SECI) had granted a Letter of Allocation to Hero Solar Energy Pvt. Ltd. ("Operational Creditor"), for 'Designing, Engineering, Manufacturing, Supplying, Testing & Commissioning' of rooftop solar panels in cities of India. The Operational Creditor had entered into an Agreement with National Textile Corporation Ltd. ("Corporate Debtor") on 07.06.2016, for installation of rooftop Solar PV power System for power generation. The Agreement did not contain any clause with respect to imposition of penalty.

In 2016-17 the Operational Creditor had completed the work in view of the Agreement and the due amount was paid by the Corporate Debtor. However, an amount of Rs.13,84,254/- was retained by the Corporate Debtor from the total payment.

The Operational Creditor issued a demand notice dated 23.10.2019 under Section 8 of Insolvency and Bankruptcy Code, 2016 ("IBC") to the Corporate Debtor, for the remaining payment of Rs.13,84,254/-. Following which, the Operational Creditor had filed a petition under Section 9 of the IBC before NCLT, New Delhi ("Adjudicating Authority"), seeking initiation of CIRP against the Corporate Debtor.

Contentions Of The Operational Creditor

The Operational Creditor contended that the Corporate Debtor had never raised any dispute over delay in execution of the work contract, not even in response to the Demand Notice dated 23.10.2019. Further, reconciliation statements were signed between the parties on 07.01.2019 and no dispute was raised therein. The claim of dispute was an afterthought. Also, the Agreement did not have any provision of penalty and SECI had already charged Rs. 14 Lakhs as penalty from the Operational Creditor. Hence, double penalty could not be charged.

Contentions Of The Corporate Debtor

The Corporate Debtor submitted that there is a dispute between parties over the pending amount of debt, as the Operational Creditor had delayed the execution of work by 117 days and Corporate Debtor had deducted penalty amounting to Rs.13,84,254/- from the final payment in view of such delay.

Decision Of The Adjudicating Authority

The Adjudicating Authority affirmed that no dispute was ever raised by the Corporate Debtor with respect to quantum of claim or delay on the part of the Operational Creditor. There was nothing on record to show that imposition of penalty was ever communicated to the Operational Creditor before the issuance of the Demand Notice.

It was observed that default had occurred in payment of operational debt and the plea of dispute is merely a 'moonshine dispute' as laid down by the Supreme Court in Mobilox Innovative Pvt. Ltd. v Kirusa Software Pvt. Ltd.

The Adjudicating Authority held that there is a claim which is due and payable and the Corporate Debtor had failed to prove existence of any 'pre-existing dispute' in respect of the default. The petition was admitted under Section 9 of IBC and CIRP was initiated against the Corporate Debtor. Mr. Amit Talwar has been appointed as the Interim Resolution Professional and moratorium has been declared.

Case Title: Hero Solar Energy Pvt. Ltd. v National Textile Corporation Ltd, C.P. No. IB-452/ND/2020

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