Companies ActImportant RulingsRulings

NCLT is not the appropriate forum for disputes relating to breach of contract

Duferco S A vs. Satish Kumar Gupta RP Essar Steel India Ltd.

Adjudicating Authority of the NCLT holds that it is not the appropriate forum for deciding matters pertaining to a breach of contract as it cannot be termed a full-fledged Civil Court, dismisses the matter.

The present application is filed by the Duferco S.A. (Applicant) before the NCLT against the Resolution Professional of Essar Steel India Ltd. , State Bank of India, Standard Chartered Bank, Arcelormittal India Pvt. Ltd. (Corporate Debtors) seeking payment of outstanding debt to the tune of USD 21,25,00 from the Corporate Debtors. Applicant has claimed payment of the debt through the Interim Professional Resolution of the Corporate Debtors Company.  Applicant alleges that as per its contractual obligation the Corporate Debtor was required to open a letter of Credit for 100% of the invoice value but had committed a breach of contract by failing to do so within the stipulated time and did not open the same even when the time period was extended by the Applicant. It has been alleged by the Applicant that the Corporate Debtor has fallen back on its contractual commitments by asking the Applicant to revisit the transaction in a more suitable market condition. Applicant alleges that it has suffered damages due to the Corporate Debtor’s breach of its contractual obligations and submits that it is entitled to be paid the outstanding debt along with interest by the Corporate Debtor.

Upon perusal of the facts of the present case, NCLT observes that the Applicant has not yet supplied the materials/goods to the Corporate Debtor pursuant to the sales order due the Corporate Debtor not opening the letter of Credit which was a prerequisite to the supply of the materials/goods under the sales order contract.

NCLT states the object of the I.B. Code is to consolidate and amend the laws relating to re-organization and insolvency and Corporate Resolution Process Code. NCLT observes that it is not expected to decide matters pertaining to breach of contract or to interpret its terms of or to issue direction for specific performance of contract as it is not a full-fledged civil court. NCLT further observes that it is not expected to prove damage or to assess the quantum of damages payable and notes additionally  that in order to establish breach of contract it requires pleadings and evidence to be adduced by both parties before a Competent Civil Court.

NCLT states that an aggrieved party is always at liberty to approach a Competent Civil Court to claim its damage. NCLT holds that the remedy for the present case for approval of its disputed claim for damage on an alleged breach of contract does not lie with the NCLT. NCLT holds the application not to be legally tenable and dismisses the case.

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