NCLT Mumbai Rejects Electrical Panel Supplier's Insolvency Plea Against L&T

On August 4, the Mumbai Bench of the National Company Law Tribunal dismissed a Section 9 insolvency application filed by GS Industries against Larsen & Toubro Ltd. (L&T).

The tribunal said that the dispute between the parties regarding the quality of electrical panels supplied constituted a pre-existing dispute, thereby barring initiation of the corporate insolvency resolution process (CIRP).

A bench of Judicial Member Ashish Kalia and Technical Member Anil Raj Chellan observed that although separate invoices had been raised, the electrical panels supplied by GS Industries were not accepted by L&T due to alleged defects, and merely relying on separate invoices would not advance the operational creditor's case.

"In the present case, although separate invoices may have been raised, the fact remains that the goods supplied by the Applicant, being electrical panels, were not accepted by the Corporate Debtor on account of alleged defects. Therefore, merely raising a plea that the invoices are different would not advance the case of the Applicant.", the Tribunal said. 

GS Industries filed the insolvency application alleging a default of ₹18.40 lakh comprising a principal amount of ₹10.52 lakh and interest of ₹7.88 lakh, towards supplies of electrical panels made under purchase orders issued between May and December 2018. It argued that L&T had not disputed several invoices and contended that CIRP could at least be initiated in respect of undisputed invoices.

L&T however, submitted that the panels supplied under the purchase orders were found to be defective and incompatible with contractual specifications. It also pointed out that the operational creditor's request dated January 1, 2019 to amend the purchase order had been rejected on January 7, 2019, demonstrating that the dispute predated the insolvency proceedings.

The Tribunal held that a dispute regarding the quality of goods supplied was sufficient to establish a pre-existing dispute, making Section 9 proceedings unavailable to the operational creditor.

Rejecting GS Industries' contention that CIRP could be initiated based on a separate invoice, the Tribunal noted that defects had been alleged in the goods supplied under both invoices.

"On perusal of the reply, the Respondent stated that the defects were found in the goods supplied by the Operational Creditor in both the above-mentioned invoices. Thus, there is hardly any scope to believe the statement of the Petitioner/Operational Creditor."

Relying on precedents in Sabarmati Gas Ltd. v. Shah Alloys Ltd., Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., and other Supreme Court precedents, the Tribunal dismissed the insolvency petition.

The Tribunal clarified that the operational creditor remained free to pursue other legal remedies.

For Operational Creditor: Adv. Devul Dighe

For Corporate Debtor: Adv. Rahul Gupta a/w. Adv. Amir Arsiwala and Adv. Shadab Peerzade i/b. Adv. Munir Merchant