NCLT Indore Rejects Oswal Woollen Mills Insolvency Plea Against EKI Energy

The Indore Bench of the National Company Law Tribunal (NCLT) has dismissed Oswal Woollen Mills Ltd.'s insolvency petition against EKI Energy Services Ltd., a carbon-credit developer and supplier.

The petition concerned alleged unpaid dues arising from the supply of Certified Emission Reductions (CERs).

The bench of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta found that a genuine pre-existing dispute existed between the parties before Oswal issued its statutory demand notice on 22 April 2024.

Oswal had approached the tribunal under Section 9 of the Insolvency and Bankruptcy Code (IBC), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against EKI. It claimed that EKI had failed to pay for CERs supplied under an Emission Reduction Purchase Agreement (ERPA) executed on 12 April 2022.

According to Oswal, the CERs were delivered on January 13, 2023, and payment became due within 15 days. It claimed principal dues of ₹1.28 crore, along with interest of about ₹56.53 lakh. The tribunal, however, did not adjudicate the parties' entitlement to the claimed amount or interest.

EKI opposed the insolvency petition, arguing that the dispute was not merely about non-payment. It relied on correspondence exchanged between March and December 2023 to contend that the parties had disagreed over the contractual price, payment mechanism, and quantity of CERs.

The dispute also concerned a contractual provision that EKI invoked on 29 March 2023 to seek revision of the CER rates. Oswal rejected the proposed revision on 2 June 2023. In December 2023, the correspondence between the parties referred to the possibility of legal proceedings.

The tribunal observed that these communications demonstrated opposing positions on the contractual obligations well before the statutory demand notice. It held that EKI's defence was not a bare denial or a “moonshine” defence.

Referring to the Supreme Court's test in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the tribunal observed that a dispute need not be finally established on merits at the Section 9 stage.

The defence only needs to raise a plausible contention requiring further investigation, provided the dispute is real and not spurious, hypothetical or illusory.

“The fact that each party consistently maintained its own position does not make the dispute illusory,” the tribunal observed. It held that the disagreement remained unresolved and constituted a pre-existing dispute concerning the parties' contractual obligations.

The tribunal also considered the parties' competing positions over the quantity of CERs and invoicing requirements. It found that these issues formed part of the broader contractual controversy. Their ultimate merits were therefore left open.

The bench clarified that the existence of an arbitration clause in the ERPA did not, by itself, bar an application under Section 9. The petition was rejected instead because the tribunal independently found a genuine pre-existing dispute.

It held that the dispute existed before the 22 April 2024 demand notice, attracting the bar under Section 9(5)(ii)(d) of the IBC.

The tribunal clarified that its findings were confined to the maintainability of the insolvency petition. It did not decide the parties' rights on the contractual rate, CER quantity, invoicing, payment mechanism, or interest.

The petition was accordingly dismissed, with no order as to costs.