NCLAT On Pre-Existing Disputes: Outright Dismissal Of CIRP Application When There Is Pre-Existing Dispute
LIVELAW NEWS NETWORK
31 Oct 2022 5:55 AM GMT
On 28.09.2022, the National Company Law Appellate Tribunal ('NCLAT') Bench comprising of the Justices Ashok Bhushan (Chairperson) and Barun Mitra, Member (Technical) upheld the decision of NCLT, Kolkata rejecting the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ('IBC') filed against Heavy Engineering Corporation ('HEC') by G4S Secure Solutions (India) Private Limited ('G4S') on the ground of pre-existing dispute between parties prior to issue of the demand notice.
The NCLAT held that "… we are of the view that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. There is no merit in the Appeal. Appeal is dismissed."
HEC had issued work orders to G4S for supply of security personnels at its different premises. However, dispute arose between the parties with regards to short-supply of security personnels by G4S in violation of the terms of the contract entered between the parties and alleged non-payment/less payment by HEC which led to filing of Application under Section 9 of IBC by G4S before NCLT, Kolkata being C.P.(IB) No. 27/KB/2021 [2022 SCC OnLine NCLT 184] for a claim quantified to more than Rs. 1 Crore.
The NCLT, Kolkata had held that 'there is sufficient record evidencing a "Pre-Existing Dispute" between the parties prior to the issuance of the Demand Notice under Section 8, IBC, 2016, which is in line with the afore-noted Judgment of the Hon'ble Apex Court. Hence, the Petition is rejected.'
Being aggrieved by the NCLT order, G4S had preferred an Appeal under Section 61 of IBC.
It was argued by Shri Ramji Srinivasan, Ld. Senior Counsel appearing for G4S that there was no dispute existing or subsisting between the parties to resist the initiation of the CIRP. The dispute between the parties was resolved and the circumstances of the case explicitly show the willingness of the HEC to pay the disputed amount to G4S. Further, the invocation of arbitration by HEC was also subsequent to issuance of Demand Notice and could not be relied upon as contributing to any pre-existing dispute.
Per contra, Ms. Madhavi Divan, Ld. ASG appearing on behalf HEC argued that there are subsisting and unresolved 'Pre-existing dispute' between the G4S and HEC at the time of filing of the Section 9 IBC Application. The correspondences including emails and letters exchanged between the parties show the existence of dispute prior to the receipt of the demand notice and the Section 9 Application under IBC. Relying on the decisions of the Supreme Court in S.S. Engineers v. Hindustan Petroleum Corporation and Ors., [Civil Appeal No. 4583 of 2022] and Kay Bouvet Engg. Ltd. v. Overseas Infrastructure Alliance (India) (P) Ltd., [(2021) 10 SCC 483], the Ld. ASG argued that so long as a dispute exists in fact, the adjudicating authority has no option but to reject the application.
It was further argued by the Ld. ASG that there were serious penal consequences of the breach of the contractual terms which G4S was well-aware of and in any event, the Tribunal is not a money recovery forum and recovery claim can only lie, in arbitration proceedings.
The NCLAT observed that the materials brought on the record before the NCLT, Kolkata and NCLAT clearly indicate that there was pre-existing dispute with regard to payment of amount claimed by G4S and G4S was duly communicated of the said dispute even prior to issuance of demand notice. The communications between the parties indicated existence of dispute relating to short-supply of security personnel which was not settled or decided before issuance of the demand notice. G4S was informed that all the recovery will be visited on conclusion of the contract and the release of final amount by HEC was conditional in order to save employees of G4S.
Upon such observation, NCLAT was pleased to dismiss the appeal filed by G4S and once again reiterate that the moment it is established that there is a pre-existing dispute, no CIRP can be initiated against the Corporate Debtor.
Case: G4S Secure Solutions (India) Private Limited v. Heavy Engineering Corporation Limited
Court: National Company Law Appellant Tribunal at New Delhi
Advocates for HEC:
Before NCLAT - Ms. Madhavi Divan, ASG with Mr. Amit Meharia, Ms. Tannishtha Singh, Ms. Vidushi Tripathi, Mr. Vishesh Kalra and Ms. Aishani Narain, Advocates - Meharia & Company (MCO Legals)
Before NCLT - Ms. Madhavi Divan, ASG with Mr. Amit Meharia, Ms. Urmila Chakraborty, Ms. Tannishtha Singh, Ms. Paramita Banerjee and Ms. Amrita Das Advocates - Meharia & Company (MCO Legals)
