NCLAT Sets Aside NCLT Delhi Order For Failing To Examine Post-Covid Invoice Defaults In Insolvency Plea

The National Company Law Appellate Tribunal (NCLAT) at Delhi on Wednesday set aside an order of the National Company Law Tribunal, Delhi, which had dismissed an insolvency application by invoking the Covid-19 bar under the Insolvency and Bankruptcy Code. The appellate tribunal held that the NCLT Delhi failed to consider invoices whose dates of default fell outside the Covid-19 excluded period.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra said the approach adopted by the NCLT Delhi was flawed.

Allowing the appeal, the tribunal held, "In sum, we have no hesitation in concluding that the impugned order is unsustainable, as it has failed to notice that the two invoices relating to Vanijya Bhawan Project are not covered by Section 10-A of IBC. We therefore find merit in the present appeal."

The appeal was filed by Airtech Airconditioning against Parnika Commercial & Estate Private Limited. Airtech had provided HVAC services for three projects of Parnika. These were at Vanijya Bhawan in New Delhi, a DRDO facility in Delhi, and IIT Bombay. Separate work orders were issued for each project. Running account invoices were also raised separately.

Airtech claimed that dues of Rs 8.23 crore remained unpaid for its services and issued a demand notice for the same. Parnika denied the liability and raised several issues relating to performance and billing. The NCLT Delhi later dismissed the Section 9 application, holding that the invoices relied upon fell within the period covered by Section 10A, during which initiation of insolvency proceedings is barred.

Before the appellate tribunal, Airtech submitted that invoices relating to the DRDO and IIT Bombay projects did fall within the Section 10A period. However, it pointed out that two invoices relating to the Vanijya Bhawan project had dates of default on April 14, 2022 and July 29, 2022. These dates were beyond the excluded period. The amount due under these two invoices was about Rs 2.36 crore, which crossed the statutory threshold under the Code.

Parnika opposed the appeal. It alleged that there were pre-existing disputes, overbilling, delays in execution, and abandonment of work. It also relied on the fact that arbitration proceedings had been initiated between both the parties.

However, the appellate tribunal refused to examine the existennce of a dispute. It noted that the insolvency application relied on six invoices and the NCLT considered only three of them, all of which fell within the excluded period.

The tribunal said that the two invoices relating to the Vanijya Bhawan project were not examined.

“Since the date of default arising out of these two invoices falls beyond the Section 10-A period, the Section 9 application could not have been dismissed by the Adjudicating Authority on grounds of Section 10-A. We find that the amount arising out of the two invoices in respect of Vanijya Bhawan Project which is more than the amount of threshold provided under Section 4 of IBC of Rs 1 Cr., the Section 9 application could not have been dismissed by the Adjudicating Authority without looking into these two invoices. ”

The tribunal restored the insolvency application and remanded the matter to the NCLT Delhi for fresh consideration. It clarified that the claim will remain confined to the two invoices relating to the Vanijya Bhawan project. 

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