NCLT Mumbai Rules Against Directing Corporate Debtors To Civil Courts Or Arbitration For Admitted Dues Under IBC

NCLT Mumbai Rules Against Directing Corporate Debtors To Civil Courts Or Arbitration For Admitted Dues Under IBC

The National Company Law Tribunal (NCLT), Mumbai Bench, consisting of Kuldip Kumar Kareer (Judicial Member) and Anil Raj Chellan (Technical Member), has ruled that directing a corporate debtor to resolve disputes through civil courts or arbitration for admitted dues would undermine the objectives of the Insolvency and Bankruptcy Code (IBC).

NTPC Limited (the respondent) had issued two work orders to Petron Engineering Construction Limited (the corporate debtor) for the supply and installation of electrical equipment, completed by January 2020 and July 2020. Despite the completion of work, NTPC did not release pending dues totaling ₹22,72,62,756/-. Although the respondent admitted ₹12,34,01,237/- as payable during an account reconciliation, payment was withheld pending a No-Demand Certificate from the corporate debtor.

The terms of the contract included periodic RA bills with 10% retention by the respondent. When the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor and subsequent liquidation was ordered, the corporate debtor had already completed the work. NTPC did not clear the dues, and the corporate debtor's requests for bill certification and completion certificates were ignored.

Instead of paying, NTPC imposed liquidated damages of ₹5,74,64,442/- plus GST and encashed three bank guarantees totaling ₹14,69,53,711/-. The respondent admitted ₹12,34,01,237/- but conditioned payment on receiving a no-demand certificate. The corporate debtor's attempts to resolve the issue during the liquidation process led them to approach the NCLT.

NTPC argued that the liquidator bypassed proper legal remedies by directly approaching the NCLT. They contended that the matter required extensive adjudication and evidence beyond the Tribunal's jurisdiction. NTPC also disputed that the corporate debtor had fulfilled the contract requirements or that any amount was admitted as payable.

The NCLT noted NTPC’s admission of liability for ₹12,36,28,455/- and referenced the Supreme Court’s ruling in Gujarat Urja Vikas Nigam Ltd v. Amit Gupta. The Court held that the IBC is designed to centralise insolvency proceedings under the NCLT to expedite resolutions and avoid delays.

The NCLT emphasised that the IBC aims for a timely resolution process, and diverting such cases to civil courts or arbitration for admitted dues would counteract this objective. The Tribunal observed that the corporate debtor continued services during CIRP, and the liquidator’s efforts to recover dues were closely linked to the insolvency process.

For claims beyond the admitted amount, the NCLT indicated that the liquidator could seek permission under Section 33(5) of the Code to pursue further legal actions. The NCLT partly approved the application, directing NTPC to immediately pay the admitted liability of ₹12,36,28,455/- to the corporate debtor.