NCLAT Upholds Insolvency Admission Against JV Partner As Claim Arose From Supply Obligation

The National Company Law Appellate Tribunal at Delhi has upheld the admission of insolvency proceedings against ASB Energy Systems & Construction Pvt. Ltd., holding that unpaid dues for supplies made by its joint venture partner qualify as operational debt.

A coram of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed that the case was about unpaid dues for supplies, not profit sharing between joint venture partners.

“All materials brought in Section 9 application makes it clear that the Section 9 claim was only related to towards the outstanding payment against the supplies made by the operational creditor. We had already noticed the agreement between the parties dated 04.01.2019 and first Addendum under which the supply component was to be performed by the operational creditor and operational creditor was to receive payments towards supply component after the said amount is received from OPTCL by corporate debtor”

The appeal was filed by Amarendra Mohapatra, a suspended director of the company, challenging the NCLT Cuttack Bench's decision admitting the insolvency plea filed by Daga Power Systems & Engineers Pvt. Ltd.

The dispute arose from a consortium formed to execute a transmission line project for Orissa Power Transmission Corporation Ltd. Under their internal agreement, Daga Power was responsible for supplying materials, while ASB Energy was to raise bills on OPTCL and release payments after receiving funds.

Rejecting the argument that the parties were merely joint venture partners sharing profits, the tribunal held that the claim was not based on profit-sharing but on a specific contractual obligation relating to supply of goods.

“The Section 9 application was not based on any component of profit sharing. Question of profit sharing is a question may arise, which after completion of work and what is the profit received by both the parties then was required to be shared. In the present case, application was only with respect to supply components which was exclusively made by the operational creditor as per Agreement dated 04.01.2019 between the parties read with the Addendum as noted above”

the tribunal noted that the agreements defined the respective roles of the parties and held that dues arising from the supply component constituted operational debt.

The tribunal also relied on a letter dated October 21, 2022, in which ASB Energy acknowledged receipt of payments from OPTCL and admitted outstanding liability towards the operational creditor.

“We do hereby confirm that we have received Rs. 11,3865,860/- from OPTCL against supply of materials for the bills raised up to 4th Jun 2022 and out of which we have paid Rs. 9.86.39,711/- to M/s Daga Power Systems & Engineers Pvt. Ltd. and our liability of balance payment to M/s Daga Power Systems & Engineers Pvt. Ltd. is Rs. 1,52,26,153/- for supply of materials.”, it quoted.

On the contention that the claim was barred due to the suspension of insolvency filings during the Covid period, the tribunal held that the date of default was October 31, 2021, which fell outside the protected period. It clarified that raising invoices during the restricted period does not amount to default.

The tribunal also rejected the plea of a pre-existing dispute, noting that the corporate debtor had clearly acknowledged its liability.

Upholding the admission of insolvency proceedings, the tribunal directed the continuation of the corporate insolvency resolution process while leaving it open for the parties to settle and seek withdrawal in accordance with law.