Corporation escapes insolvency proceedings when payment failure stems from government's procedural compliance issues under Section 9

NCLAT Principal Bench dismissed appeal challenging rejection of Section 9 insolvency application. Appellant provided e-auction solutions under agreement requiring third-party administrator (TPA) certification for quarterly payment release. Corporation could not pay due to government's failure to appoint TPA for certification. Tribunal held no default by corporation as payment mechanism required TPA verification per agreement terms. Non-payment resulted from procedural compliance issues, not corporate debtor's default. Appellant advised to pursue contractual remedies rather than insolvency proceedings.

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Issues:
- Rejection of Section 9 Application by the Adjudicating Authority
- Dispute over payment of outstanding dues between the Appellant and the Respondent

Analysis:
1. The Appellant, an Operational Creditor, filed an Appeal challenging the rejection of its Section 9 Application by the Adjudicating Authority. The dispute arose from an Agreement between the Parties for the implementation of an e-Tendering and e-Auction solution in the State of Goa.

2. The Adjudicating Authority rejected the Section 9 Application on the grounds that the debt had not become due and payable as per the terms of the Agreement. The Corporation had not appointed a Third-Party Auditor (TPA) to verify the invoices issued by the Appellant, leading to non-payment.

3. The Appellant argued that the Corporation had admitted the debt by proposing to release 75% of the outstanding payments. The Appellant contended that the Adjudicating Authority misinterpreted the Agreement clause regarding payment certification by the TPA.

4. The Respondent countered that under the Agreement, payment was subject to TPA certification, which had not been provided. The Corporation's recommendation to release payment was not accepted, and no default had been committed as per the Agreement terms.

5. The Tribunal noted that the Agreement required TPA certification for payment release, which had not been fulfilled due to the Government of Goa's failure to appoint a TPA. The Appellant had withdrawn a Writ Petition seeking outstanding dues, indicating a dispute over payment.

6. The Tribunal upheld the Adjudicating Authority's decision, stating that no default had been committed by the Corporation. The Appellant was advised to seek remedy for outstanding dues through the Agreement's dispute resolution process rather than Insolvency proceedings.

7. The Tribunal dismissed the Appeal but allowed the Appellant to pursue remedies for outstanding dues under the Agreement. It clarified that the observations made in the Order should not hinder the Appellant's pursuit of legal remedies for payment.

Conclusion:
The Tribunal upheld the rejection of the Section 9 Application, emphasizing the need for the Appellant to seek resolution for outstanding dues through the Agreement's dispute resolution process. The decision highlighted the importance of adhering to contractual terms and seeking appropriate remedies for payment disputes.

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