Damages Arising Out of Contractual Disputes Cannot Trigger Insolvency Proceedings: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has held that claims arising from liquidated or unliquidated damages, which it said are contractual in nature, cannot be used to trigger insolvency proceedings as it dismissed Goodrich Logistics Private Limited's CIRP plea against Transrail Lighting Limited.

A coram of Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt said the tribunal is not empowered to adjudicate such contractual disputes.

“Claim for liquidated damages for breach of contractual obligations cannot trigger insolvency process unless adjudicated by a court of competent jurisdiction. The Adjudicating Authority under Section 9 of the Code has no jurisdiction to adjudicate upon contractual disputes. Liquidated damages, even if stipulated, can be crystallised only upon adjudication by a civil court or arbitral tribunal."

The case arose from Goodrich's application filed on December 2, 2024 alleging unpaid container detention charges and the depreciated value of unreturned containers relating to Transrail's transmission line project in Nigeria. Relying on invoices dated June 24 and 25, 2024, Goodrich claimed dues exceeding Rs 59 crore, asserting that only 22 of the 63 containers were returned under service orders and bills of lading issued between March 2020 and January 2021.

It accused Transrail of forging service orders and disputed that it was required to return containers in empty and undamaged condition within 30 days, after which detention charges would accrue.

Transrail opposed the claim, arguing that payments had already been made to Goodrich's Dubai entity, Goodrich FZE, pursuant to revised arrangements that constituted a fresh contract. It produced documents indicating that detention liabilities had been negotiated and discounts of 60-70% had been agreed between the parties. It also highlighted its detailed reply dated July 5, 2024 disputing the claim, demonstrating a pre-existing dispute.

After examining the material, the tribunal said the detention charges and depreciated residual value (DRV) of unreturned containers did not form part of the original service order pricing and were in the nature of damages that could not be adjudicated in summary proceedings under the Code.

It noted, “Detention charges are designed to compensate the shipping line for the loss of business and loss of profits on account of detention of containers. Thus, detention charges in shipping are considered a form of liquidated damages for breach of contract. Similarly, DRV for unreturned containers which was not pre-determined in the Service Orders dated 12.03.2020 represents unliquidated damages for breach of contract which have to be assessed by a court or arbitral tribunal based on the actual loss suffered by the injured party after the breach occurs.”

The tribunal also recorded that Goodrich had approached the forum with unclean hands as it failed to furnish basic records such as ledger accounts and container-wise calculations to substantiate its claim. It further observed that allegations of forgery required detailed evidence and could not be decided within the Code's summary jurisdiction. Finding that no crystallized and undisputed operational debt was established, the tribunal dismissed the application while clarifying that Goodrich was free to approach the appropriate authority.