Refunds Under Vivad Se Vishwas Scheme Cannot Be Enforced Under Insolvency Jurisdiction: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai has held that refunds claimed under the Vivad Se Vishwas–I Scheme, a government COVID-19 relief measure that allows MSMEs to seek return of most performance guarantees forfeited during the pandemic, cannot be enforced through insolvency proceedings under Section 60(5) of the Insolvency and Bankruptcy Code.

In a recent order, the tribunal said that such claims must be dealt with by the authorities implementing the scheme and not by an insolvency forum.

A coram of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy said that while Section 60(5) of the Code gives the tribunal wide powers, it does not allow it to decide eligibility or grant refunds under the government scheme.

The tribunal observed, “Determination of eligibility under the Vivad Se Vishwas–I Scheme, verification of entitlement, and assessment of amounts payable thereunder are matters falling squarely within the administrative domain, and not within the adjudicatory competence of this Tribunal under Section 60(5).”

The case related to Star Trace Private Limited, an MSME that was awarded an EPC contract in 2017 by Hindustan Copper Limited for setting up a copper ore tailing beneficiation plant at the Malanjkhand Copper Project in Madhya Pradesh. As part of the contract, Star Trace furnished two bank guarantees worth Rs 8.49 crore and Rs 9.35 crore.

After the project faced delays on multiple accounts, Hindustan Copper encashed the guarantees in March and September 2020. It thereafter terminated the contract in August that year. Subsequently, Star Trace was admitted into insolvency in August 2021 and was later ordered into liquidation in August 2024.

After liquidation commenced, the company's liquidator approached the insolvency forum seeking a refund of about Rs 16.95 crore. This represented about 95 percent of the encashed guarantees. the liquidator relied on on the Vivad Se Vishwas–I Scheme while seeking the refund.

The liquidator argued that the scheme was meant to give relief to MSMEs affected during COVID-19 and that procuring entities were required to refund 95 percent of performance securities forfeited during that period.

Hindustan Copper opposed the plea, saying the scheme did not apply to EPC contracts or to contracts whose original completion period was before February 19, 2020. It also maintained that the guarantees were unconditional and were encashed strictly as per the contract due to long-standing defaults.

Dismissing the application, the tribunal said it could not act as an implementing authority for a government scheme or decide disputed contractual and policy issues under insolvency jurisdiction.

It noted, “The relief sought in the present Application is founded not on any provision of the Code, but entirely on an executive policy scheme of the Government of India,” adding that the tribunal “cannot issue a mandamus directing refund under such a Scheme.”

The tribunal also observed that the bank guarantees were unconditional and lawfully invoked, and that “the mere fact that encashment occurred during the COVID-19 period cannot, by itself, render the invocation unlawful or obligate restitution.”

The plea for any benefits claimed under the scheme was accordingly dismissed.