NCLAT Dismisses Appellant’s Appeall Against NCLT Order: Upholds Section 10A Bar [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal filed by VPR Mining Infrastructure Pvt. Ltd., upholding the order of the National Company Law Tribunal (NCLT), NCLAT Indore Bench, which had rejected a Section 9 application filed under the Insolvency and Bankruptcy Code, 2016.

The appellant had approached the NCLAT against the NCLT’s order dated 05.04.2024, arguing that the Adjudicating Authority erred in rejecting the Corporate Insolvency Resolution Process (CIRP) plea on the ground that the alleged default occurred during the moratorium period specified under Section 10A of the Code.

VPR Mining had entered into a Memorandum ofUnderstanding (MoU) with the respondent, Gajraj Mining Pvt. Ltd., in 2019 for excavation work subcontracted from Northern Coalfields Limited. The scope of work was later expanded through amendments in 2019 and 2020. The appellant claimed that despite performance of work, it faced continuous delays in payment and the respondent failed to clear outstanding invoices and TDS liabilities.

It was submitted that dues amounting to ₹22.44 crore remained unpaid, and a demand notice was issued on 20.05.2021. The NCLT, however, held that the invoices raised fell within the 10A period, during which no insolvency application could be initiated under Sections 7, 9 or 10 of the Code.

Before the Appellate Tribunal, VPR Mining contended that the debt originated before the 10A period and that the NCLT erred in treating the invoices as “running bills.” The appellant argued that the default was clear and undisputed and that the respondent had admitted liability during a meeting held on 16.12.2020. It was also alleged that procedural irregularities had occurred, including the acceptance of additional documents by the NCLT after reserving the matter for orders.

The Appellate Tribunal, after considering the submissions and the clauses of the MoU, noted that the nature of the billing arrangement between the parties clearly indicated that the invoices were running bills and not final or fixed bills. It was held that in such arrangements, partial payments reduce the outstanding dues on a running basis, and the remaining balance at the end must be correlated to the final invoices, which, in this case, were dated March 5 and March 19, 2021, both of which falls within the Section 10A period.

On the issue of TDS liability, the Tribunal held that the non-deposit of TDS with the government, although a statutory obligation, does not constitute operational debt payable to the appellant under the Code. It observed that the liability, in such cases, is between the corporate debtor and the tax authorities and not enforceable through CIRP proceedings initiated by the service provider.

Rejecting the allegation of procedural lapse, the Appellate Tribunal noted that the NCLT had considered the relevant materials and provided opportunity to the parties. The Appellant’s argument regarding denial of natural justice was therefore not accepted.

The NCLAT held that the default amount pertained to invoices raised during the prohibited period under Section 10A and that no actionable operational debt outside that window had been established. It concluded that there was no merit in the appeal and upheld the NCLT’s rejection of the Section 9 application. As a result the appeal was dismissed with no order as to costs.

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