NCLAT Faults NCLT for Mechanical Use of Covid Bar, Revives Insolvency Plea Based on Post-2020 Defaults

NCLAT Faults NCLT for Mechanical Use of Covid Bar, Revives Insolvency Plea Based on Post-2020 Defaults

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has set aside an order passed by the National Company Law Tribunal (NCLT), Delhi, which had dismissed an insolvency application by mechanically invoking the Covid-19 bar under Section 10A of the Insolvency and Bankruptcy Code, 2016 (IBC). The appellate tribunal held that the NCLT failed to examine invoices whose dates of default fell outside the Covid-19 excluded period, rendering the dismissal legally unsustainable.

Factual Background

The appeal was filed by Airtech Airconditioning, an operational creditor, against Parnika Commercial & Estate Private Limited, the corporate debtor. Airtech had provided HVAC services to Parnika for three distinct projects:

• Vanijya Bhawan Project, New Delhi
• DRDO facility, Delhi
• IIT Bombay

Separate work orders were issued for each project, and running account invoices were raised independently. According to Airtech, total dues of ₹8.23 crore remained unpaid for services rendered.

Procedural Background

Airtech issued a demand notice under Section 8 of the IBC, which was disputed by Parnika on grounds relating to performance and billing. Airtech thereafter filed an application under Section 9 of the IBC before the NCLT, Delhi. The NCLT dismissed the application, holding that the invoices relied upon fell within the Covid-19 barred period under Section 10A of the IBC, during which initiation of insolvency proceedings is prohibited. Aggrieved by this dismissal, Airtech preferred an appeal before the NCLAT.

Issues

1. Whether the NCLT was justified in dismissing the Section 9 application solely on the basis of Section 10A of the IBC without examining invoices whose dates of default fell beyond the Covid-19 excluded period.

Contentions of the Parties

Appellant: Airtech submitted that while invoices relating to the DRDO and IIT Bombay projects did fall within the Section 10A period, two invoices pertaining to the Vanijya Bhawan project had dates of default on April 14, 2022 and July 29, 2022, well after the Covid-19 exclusion period. The amount due under these two invoices alone was approximately ₹2.36 crore, exceeding the statutory threshold under Section 4 of the IBC. It was argued that the NCLT erred in ignoring these invoices altogether.

Respondent: Parnika opposed the appeal, alleging pre-existing disputes, overbilling, delays in execution, and abandonment of work by Airtech. It also relied on the pendency of arbitration proceedings between the parties to contend that the insolvency application was not maintainable.

Reasoning and Analysis

The bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that the approach adopted by the NCLT was fundamentally flawed. It noted that the insolvency application was based on six invoices, but the NCLT examined only three invoices, all of which fell within the Section 10A barred period. Crucially, the two invoices relating to the Vanijya Bhawan project, whose dates of default were beyond the excluded period, were not considered at all.

The appellate tribunal observed that once the dates of default for these two invoices were outside the Section 10A period, the Section 9 application could not have been dismissed outright on that ground. Since the amount due under these invoices crossed the statutory threshold of ₹1 crore, the Adjudicating Authority was required to examine them on merits.

The NCLAT declined to examine the issue of pre-existing disputes at this stage, holding that the matter must first be reconsidered by the NCLT after proper examination of the relevant invoices.

Decision

Allowing the appeal, the NCLAT set aside the impugned order of the NCLT, Delhi, and restored the Section 9 insolvency application. The matter was remanded to the NCLT for fresh consideration, with a clarification that the claim shall remain confined to the two invoices relating to the Vanijya Bhawan project whose dates of default fell beyond the Section 10A period.

In this case the appellant was represented by Mr. Vipul Ganda, Ms. Avnika Mishra, Ms. Nitu Barik and Mr. Gyanesh Tiwary, Advocates. Meanwhile the respondent was represented by Mr. Bhupesh Narula, Advocate.