NCLT Allahabad Rejects Insolvency Plea Against Noida Metro Rail Over Pre-Existing Dispute

The Allahabad Bench of the National Company Law Tribunal (NCLT) has dismissed an insolvency plea filed by Empire Transport Services Limited (ETSL) against Noida Metro Rail Corporation Limited (NMRC).

The plea arose from alleged unpaid dues under a Bus Operators Agreement for operation and maintenance of bus services in Noida, Greater Noida and the Noida-Greater Noida connectivity corridor.

A bench of Judicial Member Praveen Gupta and Technical Member Ashish Verma observed that the material on record demonstrated the existence of disputes between the parties before the issuance of the demand notice.

"we are satisfied that the material placed on record sufficiently demonstrates the existence of a genuine and substantial pre-existing dispute between the parties concerning the quality of services rendered by the Operational Creditor, the deductions and penalties imposed thereon and the consequent amounts payable under the Bus Operators Agreement, all of which existed prior to issuance of the demand notice dated 07.02.2020.” the court noted.

NMRC engaged ETSL under a Bus Operators Agreement dated January 15, 2016. ETSL was responsible for the operation, maintenance and management of 100 low-floor AC CNG buses on routes in Noida, Greater Noida, and the Noida-Greater Noida connectivity corridor.

According to ETSL, bus services commenced on December 14, 2016. However, only 50 buses were initially put into operation. ETSL claimed that invoices raised between April 2019 and March 2020 remained unpaid. It alleged that a principal amount of Rs 7.09 crore remained outstanding as of March 16, 2020.

ETSL issued a demand notice on February 7, 2020. It subsequently approached the tribunal seeking initiation of insolvency proceedings against NMRC.

ETSL contended that NMRC had acknowledged the operational debt through partial payments. It also argued that NMRC had failed to establish the existence of any pre-existing dispute.

ETSL further alleged that around 41 show-cause notices issued between January and March 2020 were intended to avoid payment obligations.

NMRC opposed the plea. It contended that ETSL had failed to maintain the prescribed service standards under the agreement. NMRC relied on multiple show-cause notices issued before the demand notice. Those notices alleged deficiencies in operation, maintenance and performance of the bus services.

NMRC also contended that disputes between the parties were already pending before arbitral forums and other proceedings. It further argued that invoices raised by ETSL were subject to verification and certification by the Uttar Pradesh State Road Transport Corporation. According to NMRC, only certified amounts became payable.

The tribunal identified as the principal issue whether a pre-existing dispute existed before the issuance of the demand notice.

Referring to the Supreme Court's decision in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, the bench observed that a dispute must genuinely exist before the issuance of a demand notice. It further observed that the dispute must be real and plausible and not spurious, hypothetical or illusory.

The bench observed that the disputes raised by NMRC substantially related to the quality and standard of services rendered under the Bus Operators Agreement. It held that such disputes fell within the category of disputes recognised under the Insolvency and Bankruptcy Code.

The tribunal further observed that the agreement authorised NMRC to inspect, audit and monitor performance. It also empowered NMRC to impose penalties for operational deficiencies and contractual non-compliances.

The bench noted that, before the demand notice was issued, NMRC had issued several show-cause notices in January 2020. Those notices raised allegations relating to deficiencies in operation, maintenance and performance of the bus services.

The notices referred to issues including inadequate fleet availability, defective passenger information systems, malfunctioning GPS systems, cracked windshields, defective handicap ramps, route deviations, failure to maintain designated stoppages and other operational lapses.

The tribunal also noted that ETSL had responded to the show-cause notices. It further observed that material placed on record showed that concerns regarding service deficiencies had been raised before issuance of the demand notice.

Finding that a genuine and substantial pre-existing dispute existed between the parties before the demand notice was issued, the tribunal dismissed the petition.