NCLAT Upholds Rejection of Insolvency Plea Against Essar Power Gujarat Over Pre-Existing Dispute

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld the rejection of an insolvency plea filed by Narayani Resources Pvt. Ltd. against Essar Power Gujarat Ltd., holding that the dispute between the parties were pre-existing.

A bench of Justice Ashok Bhushan and Technical Member Barun Mitra said the disagreement over settlement and payment reconciliation was clear from the record.

“The dispute between the parties regarding reconciliation and settlement is very much apparent from reply to demand notice and the rejoinder. Thus, the above dispute clearly exists much before issuance of demand notice. Thus, the defence which was raised by the corporate debtor in its reply to demand notice was not feeble contention unsupported by evidence,” the tribunal said.

Narayani had claimed dues of about Rs 85 crore for coal supplied to Essar Power Gujarat and sought insolvency proceedings over non-payment. However, the company responded that a Rs 107 crore settlement had already been reached in January 2025.

Essar Power Gujarat said it had paid most of the agreed amount and that the remaining component depended on a debit note that Narayani never issued. It also said it had paid Rs 8 crore in advance towards interest, which it claimed should be refunded.

Narayani disputed this and moved the tribunal, arguing that even as per Essar's own reply, some dues remained unpaid and insolvency proceedings should be allowed.

However, both the NCLT and the appellate tribunal found that the dispute over accounts and settlement terms was genuine and ongoing. The NCLAT reiterated the legal position that insolvency proceedings cannot be used to recover money when the debt itself is disputed.

The tribunal also noted:

“However, the Hon'ble Supreme Court has laid down that dispute sought to be raised in notice of dispute has not to be patently feeble legal argument or an assertion of fact unsupported by evidence. It was held that dispute truly exists in fact and is not spurious, hypothetical or illusionary. Thus, even if the notice of dispute has been given, which contains the patently feeble legal argument or an assertion of fact unsupported by evidence and is spurious and illusionary, adjudicating authority can still proceed to admit application and reject the defence which can be said to be a moonshine defence.”

It also noted that the disputes between the parties have already been referred to arbitration with their consent.

Finding no error in the earlier order, the NCLAT dismissed the appeal.