NCLAT Dismisses Sri Bajrang Wind Park Insolvency Plea Against Inox Wind Over Pre-Existing Dispute

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has dismissed an appeal filed by Sri Bajrang Wind Park Developers challenging the rejection of its Section 9 insolvency petition against Inox Wind Infrastructure Services Limited.

The tribunal held that email correspondence and reconciliation discussions between the parties showed the existence of a pre-existing dispute.

A coram of Judicial Member Justice N Seshasayee and Technical Member Arun Baroka held,

“From the pleadings and particularly email exchange which is on record, one can safely come to a conclusion that these are not spurious or moonshine disputes and these were pre-existing disputes. Thus, the Company petition under Section 9 of the Code is not maintainable and cannot be allowed.”

The tribunal noted that reconciliation discussions and disputes regarding invoices, liquidated damages, and other adjustments had arisen between the parties prior to the issuance of the demand notice under the Insolvency and Bankruptcy Code.

The appeal arose from an order dated December 13, 2023, passed by the National Company Law Tribunal (NCLT), Ahmedabad. The NCLT had rejected the Section 9 application filed by Sri Bajrang Wind Park Developers.

Sri Bajrang Wind Park Developers claimed that it had executed work orders and purchase orders issued for a 50 MW wind power project at Sadala in Gujarat. It raised 75 invoices aggregating to Rs 111.02 crore. Out of this amount, approximately Rs 85 crore was paid. The remaining principal amount of Rs 25.72 crore, along with interest at 24 percent per annum, was claimed as operational debt. A demand notice under Section 8 of the Code was issued on July 2, 2019.

The NCLT dismissed the petition on two grounds. It held that a pre-existing dispute existed between the parties. It also held that the demand notice was premature as the default had not crystallised. Sri Bajrang Wind Park Developers challenged this order before the NCLAT.

Sri Bajrang Wind Park Developers argued that most invoices had been acknowledged and were largely undisputed. It submitted that arbitration was invoked only after the issuance of the demand notice and therefore could not amount to a pre-existing dispute. It also argued that reconciliation discussions did not negate the admitted operational debt.

Opposing the plea, Inox Wind Infrastructure Services Limited submitted that multiple emails demonstrated disputes regarding invoices, liquidated damages, tax issues, and reconciliation of accounts. It further submitted that arbitration proceedings were pending before a sole arbitrator, Justice D.K. Jain, former judge of the Supreme Court.

In those proceedings, Sri Bajrang Wind Park Developers had filed counterclaims, including the amount claimed in the Section 9 proceedings.

Examining the email correspondence between the parties, the tribunal noted that discrepancies were pointed out in the invoices. Inox Wind Infrastructure Services Limited had also stated that acceptance of invoices was not final as liquidated damages, generation loss and idle charges were yet to be adjusted.

The tribunal also referred to an email dated December 5, 2018, which sought reconciliation of accounts and cited several anomalies. It observed that such communications showed ongoing disputes between the parties.

It held that “the email dated 17.08.2018, which is at 208 and 209 of APB clearly brings out discrepancies in the invoices. We find so many emails exchanged between the two parties, prior to the issuance of the demand notice issued on 02.07.2019 under Section 8 of Code. Furthermore, in Reply to the Section 8 demand notice also, the Corporate Debtor sent a notice of dispute by the Corporate Debtor to the Appellant on 17.07.2019. We note that prior to issuance of the demand notice lot of disputes were going on between the Appellant and the Operational Creditor and they cannot be described as moonshine or frivolous disputes.”

Referring to the Supreme Court judgment in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the tribunal reiterated that while considering a Section 9 application the adjudicating authority must examine whether a plausible dispute exists requiring further investigation.

The tribunal also noted that arbitration proceedings between the parties were pending before Justice D.K. Jain. It recorded that by an order dated November 24, 2023 the arbitral tribunal rejected the counterclaim filed by Sri Bajrang Wind Park Developers, which included the amount claimed in the Section 9 proceedings.

“We also note that there are pending arbitration proceedings before Hon'ble Mr. Justice D.K. Jain, Former Judge, Supreme Court of India. And on 24.11.2023, an order was made rejecting the counter claim made by the Operational Creditor – Appellant, which includes the amount claimed in Section 9 Petition,” the tribunal noted.

On the issue of prematurity of the demand notice, the tribunal observed that under the contractual terms between the parties, default would arise only after 365 days from the due date of the invoices. The demand notice dated July 2, 2019, had been issued before the expiry of that period.

It held that “Respondent contends that the event of default will occur only after 365 days of the issue of the invoice. Since the invoice starts from 20.07.2018 to 14.05.2019, the default will happen from 2019 till 14.05.2020. We find that merit in the argument of the Respondent No.1 that the demand notice is premature, as it is issued before the default has occurred and there was no default at all.”

Finding no infirmity in the NCLT's reasoning, the appellate tribunal dismissed the appeal and upheld the rejection of the insolvency petition. It held that disputes existed between the parties prior to the issuance of the demand notice.