Court denies insolvency process due to pre-existing dispute on settlement and retention amount adjustment.

The court rejected the initiation of Corporate Insolvency Resolution Process against the respondent-corporate debtor due to a pre-existing dispute regarding full and final settlement and the adjustment of the retention amount. The bench found that the respondent had established the existence of a prior dispute not disclosed by the petitioner, making resolution through insolvency inappropriate. Consequently, the petition for insolvency resolution was rejected, and the file was consigned to the Record Room.

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Issues:
Initiation of Corporate Insolvency Resolution Process against respondent-corporate debtor based on outstanding liability and retention amount claimed by the petitioner.

Analysis:
The petitioner filed a petition seeking the initiation of Corporate Insolvency Resolution Process against the respondent-corporate debtor due to an outstanding liability of Rs. 14,89,967, including a retention amount of Rs. 6,74,247. The petitioner, engaged in civil work, had provided services to the corporate debtor, who failed to clear the dues despite repeated requests. The operational creditor maintained a running account with the corporate debtor, and after adjustments, an amount of Rs. 8,15,720 was claimed to be due for payment, along with the retention amount.

The respondent-corporate debtor, in its reply, contended that a full and final settlement had occurred between the parties on 07.10.2015, and the retention money had been adjusted due to defects in the work carried out. The respondent claimed that the operational creditor was aware of this adjustment, as evidenced by their communication dated 23rd January 2016, which mentioned the adjustment of the retention money.

The main contention of the respondent was based on a "Letter of Full and Final Settlement" dated 07.10.2015 issued by the operational creditor itself, which stated that all works had been completed successfully, and the entire account stood settled in full and final except for the retention money. The respondent argued that the operational creditor had concealed this vital document, which negated any further claim against them.

The bench observed that there was a prior dispute regarding the full and final settlement of the claim and the adjustment of the retention amount. The existence of this dispute indicated that resolution through the insolvency process was not appropriate. The bench noted that the respondent had been able to establish the existence of a prior dispute, which the petitioner had not disclosed. Therefore, the right to recover the retention money and any outstanding liability was deemed a contentious issue that could not be resolved through the insolvency resolution process.

In conclusion, the bench rejected the prayer for initiating the Corporate Insolvency Resolution Process against the respondent due to the pre-existing dispute regarding the full and final settlement and the adjustment of the retention amount. The file was ordered to be consigned to the Record Room, signaling the rejection of the petition for insolvency resolution.

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