NCLT Hyderabad Rejects Insolvency Plea Against Madhucon Over Disputed Debt, Inconsistent Claims

The National Company Law Tribunal (NCLT) at Hyderabad has dismissed a corporate insolvency plea filed by Sri Balaji Associates against Madhucon Projects Ltd. for an alleged operational debt of Rs.83.84 lakh.

It held that material inconsistencies in the computation of debt, along with a pre-existing dispute, meant the claim could not be admitted under the Insolvency and Bankruptcy Code, 2016.

The bench comprising Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri found that the application did not meet the conditions for admission, given the dispute on record and the lack of certainty in the debt claimed.

“In the absence of any reconciliation between the two figures, a material inconsistency arises in the quantification of the claim, thereby rendering the quantum of the due payable uncertain," it said.

“The record placed before us establishes beyond doubt that a real and plausible dispute existed on the very same cause of action long prior to the issuance of the Section 8 Demand Notice," it added.

Sri Balaji Associates said the dues arose from subcontract agreements executed between 2009 and 2011. It claimed that despite issuing a demand notice in December 2017, Madhucon Projects neither responded nor cleared the outstanding amount. The later move to invoke arbitration, it argued, was an afterthought to create a dispute.

Madhucon Projects resisted the plea, pointing to disputes that had surfaced years earlier. Correspondence from 2014 and 2015 flagged issues with defective and substandard work, along with costs incurred to rectify them. The company also drew attention to winding-up proceedings already initiated before the Telangana High Court on the same set of claims, which remain pending.

The tribunal examined the figures placed on record. The demand notice pegged the total value of work at Rs.5.31 crore, while the work completion certificate recorded Rs.5.03 crore. No explanation was offered for the gap.

That mismatch, the bench noted, rendered the quantum of the alleged debt uncertain.

Records also showed that disputes over quality and liability had been raised well before the demand notice was issued. The Tribunal relied on the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. to underline that even a plausible dispute, if not spurious or illusory, is enough to reject such proceedings.

The earlier winding-up case on the same claim weighed with the Bench as well. It indicated that the process was being used to recover money rather than to address insolvency.

Taken together, these factors led the tribunal to conclude that the application did not meet the conditions for admission. The petition was dismissed.