NCLT rejects Appellant's Insolvency Application due to pre-existing disputes

The National Company Law Tribunal (NCLT), New Delhi Bench-II, rejected the Appellant's Application under Section 9 of the Insolvency and Bankruptcy Code due to a pre-existing dispute between the parties. The Tribunal found substantial evidence of disputes, breaches, and delays existing before the issuance of the Demand Notice, leading to the termination of the contract by the Corporate Debtor. The rejection did not bar the Appellant from pursuing claims for payment under the contract terms. The Appeal was dismissed without costs.

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Issues Involved:
1. Rejection of Application under Section 9 of the Insolvency and Bankruptcy Code (IB Code) due to pre-existing dispute.
2. Termination of contract by the Corporate Debtor.
3. Alleged breaches and delays by the Appellant.
4. Demand Notice and subsequent correspondence between the parties.
5. Verification and acceptance of running account bills.
6. Dispute resolution process as per the contract.

Issue-wise Detailed Analysis:

1. Rejection of Application under Section 9 of the IB Code due to pre-existing dispute:
The Appellant filed an Application under Section 9 of the IB Code, which was rejected by the National Company Law Tribunal (NCLT), New Delhi Bench-II, on the ground of pre-existing dispute. The Adjudicating Authority examined the correspondence and materials on record, concluding that disputes existed between the parties before the issuance of the Demand Notice on 13.09.2017. The Tribunal noted that the Corporate Debtor had raised several issues and claims against the Appellant, including breaches and delays in the execution of the work.

2. Termination of contract by the Corporate Debtor:
The Corporate Debtor terminated the Appellant's contract on 20.11.2014, citing various breaches and delays. The termination letter referenced earlier communications pointing out the Appellant's failure to perform the work in a timely manner and the resulting substantial losses incurred by the Corporate Debtor. The Tribunal found the termination to be a significant factor indicating the existence of a dispute.

3. Alleged breaches and delays by the Appellant:
The Corporate Debtor had repeatedly communicated breaches and delays by the Appellant, which were documented in letters and emails between 2013 and 2014. These communications highlighted the Appellant's failure to complete the work on time, non-payment to workers, and diversion of payments. The Tribunal considered these documented breaches as evidence of a pre-existing dispute.

4. Demand Notice and subsequent correspondence between the parties:
The Appellant issued a Demand Notice on 13.09.2017, demanding payment of Rs. 8,34,18,876 with accumulated interest. The Corporate Debtor replied on 23.09.2017, stating that the contract and claims were in dispute, and detailed the breaches and delays by the Appellant. The Appellant responded with a rejoinder on 05.10.2017, and the Corporate Debtor sent another reply on 24.10.2017. The Tribunal reviewed this correspondence and concluded that the disputes were clearly communicated before the Demand Notice.

5. Verification and acceptance of running account bills:
The Appellant argued that the running account bills were verified at the Corporate Debtor's site office, indicating acceptance of the bills. However, the Corporate Debtor contended that final bills were processed at its Head Office, and the Appellant's bills had not been verified due to pending issues and recoveries. The Tribunal found that the final verification of bills had not occurred, supporting the existence of a dispute.

6. Dispute resolution process as per the contract:
The contract included a dispute resolution process, which required disputes to be settled amicably or referred to the engineer for a decision, followed by arbitration if necessary. The Corporate Debtor referred to this process in its reply to the Demand Notice and the Section 9 Application. The Tribunal noted that the disputes had been referred for resolution as per the contract, further indicating a pre-existing dispute.

Conclusion:
The Tribunal concluded that there was overwhelming evidence of a pre-existing dispute between the parties, which justified the rejection of the Application under Section 9 of the IB Code. The Tribunal emphasized that the rejection of the Application did not preclude the Appellant from raising claims for payment of bills in accordance with the contract terms. The Appeal was dismissed, with no order as to costs.

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