Insolvency and BankruptcyNCLTRulingsTribunal & Appellate

NCLT holds that non-completion of work cannot be considered as “a pre-existing dispute”

Drafted by Anirudh Agrawal

NCLT, Ahmedabad held that non-completion of work cannot be considered as pre-existing dispute. In addition, in order to prove that there is a pre-existing dispute, it is mandatory for the Corporate Debtor to place the material on record to show that the dispute had arisen between the parties. NCLT further highlights that dispute must not be a spurious, hypothetical or illusory.

In the present case, Deep Constructions Co (Petitioner) had filed an application in NCLT for non-payment of outstanding amount after repeated invoices for the construction work, carried out against A & I Hospitality Private Ltd (Respondent), between September 2015 to July 2016. After the Respondent did not reply to the demand notice under Section 8(1) of the Code within ten days, the Petitioner proceeded to the Adjudicating Authority filing documents required under Section 9 of the Code.

The major objection raised by the Respondent is whether partner has the authority to file the application and the relevant documents not being filed along with the application. To the pursuance of this, the Petitioner submitted the relevant documents including the Letter of Authority of partner and the partnership deed to justify the authority of partner to file the application. Thereafter NCLT observed that main objection raised by Respondent was that payment had to be made to the Petitioner once the works gets completed. Hence, the grievance of the Corporate Debtor was, “whether there is a pre- existing dispute, namely, the construction has not been completed and it had caused losses in its business.

In reference to the objection NCLT relied on Mobilox Innovations Private Limited vs Kirusa Software Private Limited wherein SC mentioned about the importance of the existence of dispute. SC further highlighted that What is important is that the existence of the dispute and/ or the suit or arbitration proceedings must be pre-existing – i.e. it must exist before the receipt of the demand notice or invoice, as the case maybe.”

Hence, in the present case, NCLT held that  Corporate Debtor did not even place any other material on record to show that a dispute has arisen between it and the Operational Creditor regarding non-completion of work. Therefore, in the facts of the case, it can only be said that there is no pre-existing dispute, namely non-completion of work of godown. What is essential is ‘a pre-existing dispute’. The next essential is that it must be brought to the notice of the Corporate Debtor in the notice of dispute. The other requirement is that the dispute must not be a spurious, hypothetical or illusory.

Accordingly, NCLT declared moratorium for A & I Hospitality Private Ltd after Deep Constructions Co has filed an application for Corporate Resolution Insolvency Process under Insolvency and Bankruptcy Code 2016 (Code) and labeling the Respondent as corporate debtor.

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