In a recent case, the Mumbai bench of the National Company Law Tribunal ( NCLT ) has viewed that the claims presented by the Operational Creditor (OC) in the arbitration proceedings and those in the CIRP application of similar and pertained to the same subject matter which indicates the existence of a pre-existing dispute between the parties. The bench rejected an application for initiation of CIRP due to pre-existing dispute.
The matter pertained to an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by Ksheeraabd Constructions Private Limited , the Operational Creditor (OC) seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Reliance Infrastructure Limited, Corporate Debtor (CD).
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The application alleged a total default amount of Rs. 35,80,00,000/-, which included a retention amount of Rs. 1.21cr, royalty dues of Rs. 8.86cr, Rs. 3.50cr related to invoices from August and September 2018, and Rs. 22.23cr for other outstanding items including benefit sharing. These claims were based on services provided by the OC as a contractor for the construction of the Pune-Satara Section of National Highway-4 in Maharashtra.
Under the Construction Agreement, the OC was tasked with designing, procuring, and executing the Pune-Satara Highway project on an item-rate basis. The OC performed the work and issued running bills which the CD certified through Interim Payment Certificates (IPCs).
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The payments were made against IPCs until July 2018, but in August and September 2018, the CD issued IPC Nos. 85 and 86 and sought account reconciliation. The OC prepared a statement showing a net payable amount of Rs. 8.58 Crore to the CD, which was acknowledged in an email from the CD’s representative.
The CD invoked all bank guarantees retaining Rs. 25.61 Crore more than their claimed entitlement. The OC argued that this excess retention represented the outstanding amount owed by the CD. The OC also filed Commercial Arbitration Petitions seeking interim relief regarding the bank guarantees, and arbitration proceedings commenced with both parties submitting their claims and defenses. The OC argued that the present application was distinct from the arbitration claims and that the CD’s attempt to evade payment by raising pre-existing disputes was unfounded.
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In response, the CD argued that the petition should be dismissed due to pre-existing disputes evidenced by the constitution of an Arbitral Tribunal for all disputes arising from the Construction Agreement. The CD claimed that the debt alleged by the OC was disputed as reflected in the ongoing arbitration proceedings. The CD filed a counter-claim of Rs. 268.99 Crore including damages for delays and other issues.
The NCLT noted that the Construction Agreement included a ‘Dispute Resolution Procedure’ outlined in Clause 43. According to Clause 43.3 of the agreement, any unresolved disputes, which cannot be amicably settled or mediated, are to be resolved through binding arbitration under the Arbitration and Conciliation Act, 1996.
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The bench of K. R. Saji Kumar (Judicial Member) and Sanjiv Dutt (Technical Member) viewed that disputes existed between the parties prior to the filing of the CIRP application, It was also noted that the OC’s claims were related to the same issues being contested in the arbitration indicating that the disputes were intertwined and not suitable for summary proceedings under Section 9 of the IBC.
Since there was a pre-existing dispute between the parties, the NCLT held that the application for CIRP was rejected.
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