NCLAT New Delhi Dismisses Shreenathji Infra Appeal, Finds Pre-Existing Dispute Bars IBC Action

On 19 May, the New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed by Shreenathji Infrastructure against Namasthetu Infratech Pvt. Ltd., holding that incomplete performance of work and termination of contracts by the Corporate Debtor reflected a pre-existing dispute and rendered insolvency petition non-maintainable.

The Bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka observed:

“We observe that there were many issues regarding non-completion and quality of the work for which lot of correspondence was going on between the two parties prior to the issuance of the demand notice. These issues are not superfluous or issues which have been made up by the Respondent.”

The appeal arose from the NCLT Mumbai order dated 17 May 2024, which had rejected Shreenathji Infrastructure's petition under Section 9 of the Insolvency and Bankruptcy Code seeking initiation of insolvency proceedings against Namasthetu Infratech Pvt. Ltd. for alleged unpaid operational debt.

Shreenathji Infrastructure, a civil and mining contractor, was awarded work orders in 2018–19 by Namasthetu Infratech for excavation, installation of mobile stone crushers, and supply of moorum for works at Jabalpur Airport. It claimed to have executed substantial work and raised invoices of about Rs 1.54 crore with interest at 24% per annum. Payments allegedly stopped in September 2019 after the Airport Authority of India (AAI) objected to the installation of crushers for want of approval.

The Appellant argued that the AAI intervention was beyond its control and amounted to force majeure, issuing demand notices in December 2019 and later filing the Section 9 petition in January 2022. It further contended that Namasthetu failed to disclose the absence of required permissions and that its silence on work completion amounted to an implied admission of liability. It also relied on Section 56 of the Contract Act, stating that frustration of contract excused non-performance.

Namasthetu Infratech, however, opposed the petition, asserting that there was a clear pre-existing dispute. It alleged that Shreenathji had executed only a fraction of the contracted work, about 131,444 CFT against a requirement of 5,040,000 CFT of GSB and had abandoned the site. It also pointed to multiple communications between June and November 2019 raising issues of quality, quantity, GST compliance, and performance, and stated that termination letters were issued on 5 July 2019 and 15 November 2019.

The Respondent further claimed that it had incurred additional costs exceeding Rs 2.87 crore and that the Appellant had sub-contracted work without settling dues of vendors. It argued that the claim was in the nature of contractual damages rather than operational debt, and that insolvency proceedings were being misused as a recovery mechanism.

The Tribunal noted that the contractual deadline for completion was March 2019, while only a small portion of the work was completed even after a year. It held that correspondence and termination notices clearly demonstrated disputes prior to the issuance of the demand notice dated 16 December 2019.

Rejecting the Appellant's reliance on the AAI objection, the Tribunal observed that the contract was already in breach prior to that event and that any claim of frustration would lie in civil proceedings under Sections 56 and 73 of the Contract Act, not under the insolvency framework.

It also took note of allegations that Shreenathji had sub-contracted work without clearing payments to vendors, reinforcing the existence of disputes.

Accordingly, the NCLAT dismissed the appeal.

For Appellants: Advocates Vishal Bhatnagar and Veer Pratap Singh

For Respondents: Advocates Rohit Gupta and Rhythm Buaria