NCLAT dismisses insolvency plea against Wipro

NCLAT dismisses insolvency plea against Wipro

The National Company Law Appellate Tribunal (NCLAT) has rejected a request from an operational creditor to initiate insolvency proceedings against Wipro Ltd., citing a pre-existing dispute over payment between the two parties. The Chennai bench of the appellate tribunal also noted that the Insolvency and Bankruptcy Code (IBC) was not intended to be a "mere creditor recovery mechanism."

NCLAT has thus affirmed the National Company Law Tribunal's (NCLT) order in this case.

On January 16, 2020, the Bengaluru Bench of the NCLT dismissed a plea by Tricolite Electrical Industries, a Delhi-based operational creditor. The manufacturer of electric panels decided to challenge the NCLT order with the appellate body NCLAT.

However, the NCLAT also rejected the appeal, noting that there was a genuine dispute between Wipro and the operational creditor, as evidenced by Wipro's withholding of 3 per cent of the total invoice amount.

The Insolvency and Bankruptcy Code (IBC) generally allows insolvency proceedings to be initiated against a corporate debtor only if there is no genuine dispute over the debt owed.

The IBC is designed to facilitate the orderly and timely insolvency resolution of corporate debtors and to maximise the value of their assets. To achieve this goal, the IBC requires that insolvency proceedings be initiated only in cases where there is a genuine need for such proceedings.

However, in the case of a real debt dispute between the parties, the insolvency process may not be the most appropriate way to resolve the matter. Instead, the parties are encouraged to resolve the dispute through other means, such as mediation or arbitration.

The dispute in this case concerned the supply of goods for a government project that Wipro was implementing. Wipro had been awarded the contract to design, manufacture, supply, and install MV Panels for the project, and had placed purchase orders worth ₹13.43 crore in accordance with that contract.

The appellant alleged that it supplied the goods on time and issued invoices, but Wipro only paid 97 per cent of the invoice amount, leaving a substantial outstanding balance of 3 per cent. The appellant also claimed that it sent several reminders to Wipro, but Wipro did not respond to its demand notices.

Wipro denied the allegations, claiming that there was a pre-existing dispute between the parties, as evidenced by their email correspondence. Wipro also argued that it had already paid 97 per cent of the amount due and that the appellant had disputed Wipro's right to levy liquidated damages of 3 per cent of the contract value.

The NCLAT upheld Wipro's position that it had paid 97 per cent of the amount due and that the balance of 3 per cent was being withheld pending an evaluation of customer satisfaction. The NCLAT also found that the appellant company had delayed the execution of the job by six weeks and that Wipro was entitled to levy liquidated damages of ₹40,56,539, as per the terms of the contract.

"Therefore, this Tribunal is of the considered view that there is a pre-existing dispute, which is not a spurious defence which is a mere bluster," said the NCLAT bench comprising Justice M Venugopal and Shreesha Merla.