NCLAT Dismisses Appeal, Upholds Pre-existing Dispute in Contractual Dispute Case

NCLAT Dismisses Appeal, Upholds Pre-existing Dispute in Contractual Dispute Case

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi bench, comprising Justice Rakesh Kumar Jain, Justice Mohd Faiz Alam Khan, and Mr. Naresh Salecha (Technical Member), has dismissed an appeal filed by Ahluwalia Contracts (India) Limited, the operational creditor, against Shristi Infrastructure Development Corporation Limited, the corporate debtor.

Factual Background

Ahluwalia Contracts was awarded a contract by Shristi Infrastructure Development Corporation Ltd. to execute a civil work for a five-star hotel at Kolkata. The work was completed in August 2015, and a completion certificate was issued in November 2016. Despite multiple reminders, the corporate debtor failed to clear the dues, leading to the issuance of a demand notice under Section 8 of the IBC, followed by an application under Section 9 of the IBC.

Procedural Background

The application was dismissed by the NCLT, and the operational creditor filed an appeal before the NCLAT. The NCLAT considered the appeal and the contentions of both parties.

Issues

The primary issue before the NCLAT was:

• Pre-existing Dispute: Whether a pre-existing dispute exists between the parties regarding the quality of work and the imposition of liquidated damages.

Contentions of Parties

• Operational Creditor: Ahluwalia Contracts submitted that the issuance of the completion certificate shows that the work was completed on time and that a letter issued in June 2020 by the corporate debtor amounted to an admission of debt.
• Corporate Debtor: Shristi Infrastructure Development Corporation Ltd. contended that the work was not completed on time, and the operational creditor left defects in the work executed, for which third-party contractors were employed to rectify them at the operational creditor's cost.

Reasoning & Analysis

The NCLAT observed that:

• Limited Role of Adjudicating Authority: The role of the Adjudicating Authority is limited to determining whether a genuine pre-existing dispute between the parties exists, not to adjudicate contractual claims.
• Pre-existing Dispute: The corporate debtor had raised concerns regarding delay and quality of work through multiple correspondences that predated the demand notice issued under Section 8 of the IBC.
• Completion Certificate: The completion certificate issued by the corporate debtor contained a caveat that the defects have to be rectified, and therefore, it cannot be construed as an unconditional acceptance of work.

Implications

The NCLAT's decision highlights the importance of considering the entirety of the circumstances surrounding a dispute, including the terms of the contract and the communications between the parties. The judgment underscores the principle that the Adjudicating Authority's role is limited to determining the existence of a pre-existing dispute, rather than adjudicating the merits of the dispute itself.

In this case the appellant was represented by Mr. Anil K. Airi, Sr. Advocate along with Mr. Sunil Mund, Mr. Abhishek Taneja, Mr. Mritunjya K. Singh, Mr. Jagjeet Singh, Mr. Vedant Mund, and Mr. Uttkarsh Gupta, Advocates. Meanwhile the respondent was represented by Mr. Rishav Banerjee, Ms. Anoushka Dey, and Ms. Prerna Shaha, Advocates.