Directing Corporate Debtor To Civil Courts Or Arbitration For Admitted Dues Undermines IBC Objectives: NCLT Mumbai

Brief Facts:

NTPC Limited (Respondent) issued two work orders to Petron Engineering Construction Limited (Corporate Debtor) for the supply of electrical equipment and installation and erection works, which were duly completed by January 2020 and July 2020. Despite the completion of work, the Respondent failed to release pending dues amounting to Rs. 22,72,62,756/-. The Respondent admitted an amount of Rs. 12,34,01,237/- as due and payable during reconciliation of accounts but withheld the payment and demanded a No-Demand Certificate from the Corporate Debtor.

Under the terms of the contract, the Corporate Debtor raised RA Bills periodically with 10% of each bill retained by the Respondent. The Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor by the National Company Law Tribunal (NCLT), Mumbai Bench. As the CIRP was unsuccessful, NCLT issued a liquidation order against the Corporate Debtor. Despite this, the Corporate Debtor completed the contracted works by July 2020. The Respondent failed to clear the bills for the completed works which prompted the Corporate Debtor to issue letters requesting the certification of bills and the granting of a completion certificate to which the Respondent did not respond.

Later, the Corporate Debtor informed the Respondent about the CIRP and liquidation process and requested the release of outstanding amounts and bank guarantees. The Respondent, instead of making payments levied liquidated damages (LD) of Rs. 5,74,64,442/- plus GST after more than a year post-completion of the work. On January 3 and January 18, 2022, the Respondent encashed three bank guarantees totaling Rs. 14,69,53,711/-. The Respondent then issued an email regarding account reconciliation and admitted dues of Rs. 12,34,01,237/- but imposed a condition for a No-Demand Certificate from the Corporate Debtor. The Respondent's repeated illegal withholdings and deductions despite requests and reminders jeopardized the timely completion of the liquidation process. Therefore, the Corporate Debtor approached the NCLT.

In response, the Respondent argued that the Liquidator bypassed legal remedies by directly filing the application before the NCLT. The Respondent contended that the recovery of money is a matter requiring extensive adjudication and evidence which was beyond the Tribunal's jurisdiction in liquidation matters. The Respondent denied that the Corporate Debtor completed the work as per the contract's scope and that it admitted any amount as payable.

Observations by the NCLT:

The NCLT observed that the Respondent clearly admitted its liability to pay INR 12,36,28,455/- in the email. Further, the bench referred to the Supreme Court's decision in Gujarat Urja Vikas Nigam Ltd v/s. Amit Gupta where it was held that IBC aimed to streamline the insolvency process under a unified jurisdiction to expedite resolutions. It held that the non-obstante clause in Section 60(5) was designed to grant exclusive jurisdiction to the NCLT for matters related to the insolvency of the Corporate Debtor ensuring that no other forum could entertain such proceedings.

The NCLT noted that the insolvency and liquidation process under the IBC is intended to be time-bound. Delays could undermine the objectives of the Code, as the value of assets could diminish over time. It held that relegating the Applicant to civil courts or arbitration for admitted dues would defeat the purpose of a timely resolution. The bench noted that the Corporate Debtor continued to provide services to the Respondent during the CIRP and the Liquidator sought to recover dues for these services which establish a clear nexus with the insolvency process.

Regarding dues beyond the admitted amount, the NCLT stated that the Liquidator could seek permission under Section 33(5) of the Code to initiate appropriate legal proceedings. Consequently, the NCLT partly allowed the application and directed the Respondent to pay the admitted liability of INR 12,36,28,455/- to the Applicant immediately.

Case Title: Vineet K. Chaudhary vs NTPC Limited

Case Number: INTERLOCUTORY APPLICATION NO. 3453 OF 2022 IN COMPANY PETITION (IB) NO. 1374 (MB)/2017

Advocate for the Applicant: Counsel Mr. Soayib Qureshi appeared through V-C.

Advocate for the Respondent: Counsel Pulkitesh Dutt Tiwari.

Date of Judgment: 23.07.2024

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