NCLT Allahabad Holds Simultaneous CIRP And MSEFC Proceedings Amount To Forum Shopping

The Allahabad bench of the National Company Law Tribunal (NCLT) has held that pursuing insolvency proceedings while simultaneously seeking recovery of the same claim before the Micro and Small Enterprises Facilitation Council (MSEFC) amounted to “forum shopping”.

The tribunal made the observation while dismissing R N Buildcon's insolvency plea against Ocean Infraheight Pvt. Ltd.

Judicial Member Praveen Gupta and Technical Member Ashish Verma noted that R N Buildcon had initiated MSEFC proceedings for recovery of its claim. It then pursued the insolvency route without waiting for those proceedings to conclude.

This, the tribunal held, “clearly establishes forum shopping by its own convenience.”

The tribunal also found a real, genuine, and substantial pre-existing dispute over the construction contract. It held that the dispute existed before R N Buildcon issued its demand notice for payment.

R N Buildcon had sought initiation of the Corporate Insolvency Resolution Process (CIRP) against Ocean Infraheight under Section 9 of the Insolvency and Bankruptcy Code (IBC). The provision allows an operational creditor to seek initiation of insolvency proceedings against a company over an unpaid operational debt, subject to the requirements of the IBC.

The claim arose from construction work undertaken by R N Buildcon for Towers D and E of the Sarvottam Golden-I project in Greater Noida. The firm claimed that Ocean Infraheight had failed to pay Rs 27,76,58,492 under 23 running account bills.

Ocean Infraheight disputed the claim. It raised issues concerning the completion and pace of the work, procurement of steel, cement and other material, contractual rates and escalation, quality and rectification, and reconciliation of the running account bills.

The tribunal found that these disputes had arisen during the contractual relationship. They were not defences raised only after the insolvency demand notice.

The NCLT also considered the MSEFC proceedings concerning the same claim. The council rejected R N Buildcon's claim in its entirety by an order dated June 14, 2024.

The tribunal noted that the MSEFC had examined the same factual dispute and considered material relating to the construction contract. It held that the council's findings on the merits could not simply be ignored or re-adjudicated through a Section 9 insolvency proceeding.

The bench further observed that the Section 9 proceedings were “nothing but an arm-twisting tactics only to affect recovery, one way or the other.”

The tribunal consequently dismissed the insolvency petition and disposed of the connected application.