NCLT Ahmedabad Rejects A.R. Company's Insolvency Plea Against Sadbhav Engineering

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) on 19 August dismissed an insolvency petition filed by A.R. Company against Sadbhav Engineering Limited over unpaid dues arising from the supply of road and building construction materials.

A Bench comprising Judicial Member Chitra Hankare and Technical Member Dr V.G. Venkata Chalapathy observed:

“The claim arising from the alleged breach of the MOU has to be pursued in accordance with the remedies contemplated under the MOU and cannot, in the circumstances of the present case, be treated as an operational debt arising from the original invoices for initiation of CIRP under Section 9 of the Code.”

A.R. Company, a supplier of road and building construction materials, raised 5,735 invoices between December 2016 and March 2019, aggregating to Rs 21.26 crore. Sadbhav Engineering made part payments of Rs 19.31 crore, leaving Rs 1.94 crore allegedly unpaid against 753 invoices. A.R. Company approached the Haryana Micro and Small Enterprises Facilitation Council (HMSEFC) in January 2021.

On 18 November 2022, the HMSEFC awarded Rs 1.94 crore with interest at 22.25% per annum. No appeal was filed against the award, which attained finality.

The parties subsequently entered into a Memorandum of Understanding (MoU) on 31 March 2023, under which Sadbhav agreed to pay the dues in eight instalments. Sadbhav paid only Rs 10 lakh in June 2023, following which A.R. Company terminated the MoU in September 2023. It then issued a demand notice under Section 8 of the IBC in December 2023 and filed the present petition.

Sadbhav Engineering raised several objections to the petition. It contended that the claim arose from an alleged breach of the MoU and not from the original supply of goods, and therefore did not constitute an “operational debt” under Section 5(21) of the IBC. It also argued that the proceedings before the HMSEFC constituted a pre-existing dispute, which barred admission of the petition.

It further contended that the purchase orders did not stipulate payment of interest and that the demand notice, which included interest, was therefore not maintainable. It also questioned the authority of the person who filed the petition on behalf of the partnership firm.

During the pendency of the petition, Sadbhav paid Rs 50 lakh in July 2025 and Rs 1.34 crore in April 2026, taking the payments towards the awarded principal to Rs 1.84 crore and leaving only the claim for interest.

A.R. Company submitted that partners are agents of the firm under the Partnership Act, 1932 and that no special authorisation was required. It denied that the HMSEFC proceedings constituted a pre-existing dispute, pointing out that the award had attained finality. It also contended that the partial payments did not extinguish the default.

The Bench noted that A.R. Company had supplied materials to Sadbhav and had obtained an award from the HMSEFC. However, the parties subsequently entered into the MoU voluntarily, creating a separate contractual framework governing payment of the dues and the consequences of default.

It held that the alleged breach of the MoU could not be equated with an operational debt arising from the original invoices. It held that A.R. Company's remedies for the alleged breach lay under the MoU and could not form the basis for initiating CIRP under Section 9 of the IBC. It also noted that the invoices were time-barred and that the HMSEFC award had its own statutory mechanism for execution.

Accordingly, the NCLT dismissed the petition.