NCLAT Upholds Rejection of Operational Creditor’s Insolvency Plea in PEB Contract Dispute
NCLAT Upholds Rejection of Operational Creditor’s Insolvency Plea in PEB Contract Dispute
Introduction
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, dismissed an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), affirming the Adjudicating Authority’s rejection of a Section 9 application. The Tribunal held that the record clearly reflected a pre-existing dispute between the parties, thereby attracting the bar under Section 9(5)(ii)(a) of the IBC.
Factual Background
The Appellant, F.M.T. Engineers Pvt. Ltd., was awarded work by the Corporate Debtor, Raj Kesari Rocks Pvt. Ltd., for completing a Pre-Engineered Building (PEB) structure. As per the contractual terms, the work was to be completed by June 2022. However, the structure was allegedly completed only in January 2023, with the Corporate Debtor asserting that the work was delayed and incomplete.
The Appellant claimed that certain outstanding payments remained unpaid and issued a demand notice dated 15 January 2024 under Section 8 of the IBC, demanding ₹1,31,52,221/-. The Corporate Debtor replied on 16 February 2024, refuting the claim in detail and setting out multiple grounds for denial, including alleged defects, delay, excess billing, unjust enrichment due to reduction in raw material prices, and a prior settlement/understanding dated 11 August 2023.
The Corporate Debtor also stated that it had already paid ₹1,45,34,930/- under protest in December 2022 and that a settlement had been reached under which various financial adjustments were agreed upon between the parties.
Procedural Background
Upon receipt of the reply to the demand notice, the Appellant filed an application under Section 9 of the IBC before the Adjudicating Authority (NCLT), seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. By order dated 7 October 2025, the NCLT rejected the application on the ground that a pre-existing dispute existed between the parties.
Aggrieved by the rejection, the Appellant preferred an appeal before the NCLAT under Section 61 of the IBC, challenging the finding of pre-existing dispute and contending that the settlement document relied upon by the Corporate Debtor was not genuine.
Issues
1. Whether the reply dated 16 February 2024 constituted a valid notice of dispute under Sections 8 and 9 of the IBC?
2. Whether the existence of contractual disputes and an alleged prior settlement amounted to a “pre-existing dispute” barring admission of the Section 9 application?
Contentions of the Parties
The Appellant contended that despite alleged delays in erection of the PEB structure, it remained entitled to the outstanding amount. It argued that the one-page handwritten settlement dated 11 August 2023 relied upon by the Corporate Debtor could not be treated as a valid settlement, as its terms were unclear and disputed. The Appellant further submitted that various emails demanding payment were not denied by the Corporate Debtor and that no genuine pre-existing dispute existed prior to the issuance of the demand notice.
The Corporate Debtor maintained that the claim was thoroughly refuted in its reply dated 16 February 2024, wherein detailed reasons were provided across multiple sub-paragraphs. It alleged substantial delay in completion of work, defective performance, unjust retention of benefits due to reduction in raw material prices, and discrepancies in invoices. It further asserted that a settlement had been arrived at on 11 August 2023, which governed the parties’ financial understanding. On this basis, it was submitted that the existence of disputes predated the demand notice and barred admission of the Section 9 application.
Reasoning and Analysis
The NCLAT examined the demand notice dated 15 January 2024 and the detailed reply dated 16 February 2024. It noted that the Corporate Debtor had immediately refuted the claim and set out specific factual grounds disputing liability. The reply elaborated upon delay in completion, quality issues, payments made under protest, price reduction claims, and the alleged settlement dated 11 August 2023.
The Tribunal observed that under Section 9(5)(ii)(a) of the IBC, if a notice of dispute has been received by the Operational Creditor, the Adjudicating Authority is bound to reject the application. The existence of dispute need not be conclusively adjudicated at that stage; it is sufficient if the dispute is not spurious, hypothetical, or illusory.
The NCLAT further noted that the settlement document had been placed on record by the Corporate Debtor and that its validity was disputed by the Appellant. However, the mere denial of the settlement’s authenticity did not negate the fact that disputes existed prior to the demand notice. The detailed nature of the reply and the reference to prior events, including payments under protest and negotiations, clearly reflected a pre-existing dispute.
The bench of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) concurred with the Adjudicating Authority’s conclusion that the dispute was real and substantial, arising out of contractual performance and financial adjustments. It reiterated that insolvency proceedings cannot be invoked as a substitute for debt recovery in cases involving genuine contractual disputes.
Decision
The NCLAT dismissed the appeal and affirmed the order of the Adjudicating Authority rejecting the Section 9 application. The Tribunal clarified that the Appellant was at liberty to pursue appropriate remedies before a competent forum for recovery of any amount, in accordance with law.
In this case the appellant was represented by Mr. Pawaneet Singh Dindra, Sr. Advocate with Mr. Ketan Madan and Mr. Utkarsh Singh, Advocates. Meanwhile the respondent was represented by Mr. Sanyam Jain, Advocate.
