Companies ActNCLTRulingsTribunal & Appellate

NCLT clarifies that Insolvency & Bankruptcy Code is not a substitute to a recovery forum, dismisses petition for CIRP

Simplex Infrastructures Limited vs. Nitesh Estates Limited

NCLT dismisses petition for CIRP finding that the debt and default are in dispute as well as suffer a bar by latches and limitation, as per the provisions of the IBC, 2016 cannot be invoked for recovery of outstanding amount.

Simplex Infrastructures Limited (Petitioner/Operational Creditor) filed  Company Petition under section 9 of the Insolvency & Bankruptcy Code, 2016 (IBC Code) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016 seeking to initiate Corporate Insolvency Resolution Procedure (CIRP) against Nitesh Estates Limited (Respondent/Corporate Debtor) alleging default in payment of Rs. 6,03,55,646/- along with interest at the rate of 18% p.a  w.e.f. 26.12.2014. Corporate Debtor had proposed to construct a world class hotel bearing the name and style of Ritz Carlton Hotel hence Operational Creditor participated in the tender by submitting its bids along with other bidders. On the success of tender, Operational debtor issued a letter of acceptance. Thereafter, when the construction started Corporate Debtor informed the Operational Creditor about faulty civil work however Operational Creditor assured about the defects would be sorted out and till that time balance payment was made to be kept in hold.  

However, Operational Creditor alleges that the payment was due in furtherance of services rendered by the Operational Creditor to the Corporate Debtor. Corporate debtor disputes the aforementioned amount by filing a suit for arbitration and raising several disputes with regards to the works executed, pending works, etc. and has appointed a sole Arbitrator to adjudicate the disputed amount.

NCLT has passed an order dated 25.07.2018 by referring the parties to Arbitration in pursuant to clause 5 of the Letter of Acceptance by granting liberty to the parties to take appropriate legal course of action in accordance with law.  This same order was challenged before the HC of Karnataka which set aside the impugned order by observing that NCLT heard the learned Counsel for the Petitioner on the Application u/s 8 of the Arbitration and Conciliation Act, 1996 but did not hear the case u/s 9 of the IBC, 2016. HC directed to decide the application u/s 8 of the Arbitration and Conciliation Act, 1996.

NCLT examines the issue at hand and finds that the C.P did not hold merit as it was considered for arbitration. NCLT observes that the Contract Agreement for the construction of the “Ritz Carlton Hotel” in Bengaluru was executed between the parties and has been in force since 2013. Thereafter, NCLT observes that the present dispute debt and default is not in question as it relates to 2017 when Demand notice was issued. Therefore, NCLT holds that the Petition is not only barred by limitation but also comes under the definition of “dispute” under the Code. In addition, NCLT adds that since the amount claimed by the Petitioner is not only disputed by the Respondent but the matter was referred to Arbitration and was pending adjudication. NCLT relied on the decision of the Supreme Court in B.K. Educational Services Pvt. Ltd. V Parag Gupta and Associates (2018)SCC Online SC 1921 where it was held that the provisions of the Limitation Act will apply to proceedings or appeals before NCLT/NCLAT . NCLT finds that the alleged debt and default occurred in 2014 and hence, the Petitioner has failed to explain how the Company Petition is within Limitation.

NCLT relies on the decision of the Supreme Court in Transmission Corporation of A.P. Ltd. V Equipment Conductors and Cables Ltd. (C.A No. 9597 of 2018)dated 23rd October, 2018, (2018)147 CLA 112 (SC) where it was held that the existence of undisputed debt  is sin qua non of initiating CIRP.

Further, NCLT list three conditions that determines whether the application can be relevant under Section 9 of the Code. In case one of the below condition is lacking then the application would have to be rejected. Below are the conditions :-

(i) Whether there is an ‘operational debt’ as defined exceeding Rs. 1 Lakh ?

(ii) Whether documentary evidence furnitured with the application shows that the aforesaid debt is due and payable and has not yet been paid ?

(iii) Whether there is existence of dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before receipt of demand notice of the unpaid operational debt in relation to such dispute?

NCLT further relies on the Supreme Court decision in the case of Mobilox Innovations Private Limited V Kirusa Software Private Limited (2018) 1 SCC 353 where it was held that

“the Insolvency and Bankruptcy Code, 2016 is not intended to be substitute to a recovery forum”.

NCLT observes that the debt and default is not only in dispute and it is barred by latches and limitation. Further, the instant main Company Petition is filed to recover the alleged outstanding amount, which is in dispute. NCLT thus dismisses the Company Petition since the provisions of the Code cannot be invoked for recovery of outstanding amount.


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