NCLAT Says Gemini Engi Fab Can't Cite Delay, Quality Disputes After Itself Quantifying Dues; Upholds CIRP

The National Company Law Appellate Tribunal (NCLAT) in Delhi has upheld insolvency proceedings against Gemini Engi. Fab. Private Limited. The tribunal held that the company could not rely on disputes over delayed deliveries and defective goods to resist the case after it had itself quantified deductions for those issues and reflected a balance amount payable to the supplier.

“Since the issues related to quality and delay are governed by the contractual terms and conditions of the work order, and the appellant itself has incorporated them and prepared a consequences sheet and shared it with the R1 and later on has agreed to pay this amount, therefore the claim of the Appellant that there are issues relating to quality and delay and that is leading to a dispute is an untenable ground for a pre-existing dispute”, the court observed.

The bench of Judicial Member Justice N Seshasayee and Technical Members Arun Baroka and Indevar Pandey passed the ruling while dismissing an appeal by suspended director Rakesh Dalpatram Panchal against an NCLT Mumbai order admitting a Section 9 insolvency plea filed by Kisaan Steels Pvt. Ltd.

Kisaan Steels had moved the insolvency plea over unpaid dues arising from multiple purchase orders issued between December 2021 and June 2022 for the supply of forgings and related materials.

Panchal argued that the insolvency plea was not maintainable because disputes over delayed deliveries and defective goods existed before the statutory demand notice was issued.

He contended that even the NCLT had recognised the existence of disputes but still admitted the plea by relying on the company's November 1, 2023 communication.

He also argued that after arguments were concluded before the NCLAT, he sought to settle the matter by offering the petition claim amount, but Kisaan Steels refused and instead sought a higher amount. According to him, this showed that the insolvency process was being used as a recovery mechanism rather than for resolution.

The NCLAT rejected that contention.

“We observe that the procedure laid down in the code requires an initial demand notice, and an opportunity to settle the dues was very much available with the Appellant if it was bonafide interested to settle it. However, it did not avail of that opportunity and contested the claim before the Adjudicating Authority.”

The tribunal noted that even during the appeal proceedings, it had allowed the parties to explore settlement and had clarified that any resolution would have to proceed through the withdrawal mechanism under Section 12A of the Insolvency and Bankruptcy Code. However, no written settlement was filed.

The appellate tribunal noted that in reply to Kisaan Steels' demand notice dated July 1, 2023, Gemini had itself issued a consequences sheet after accounting for late delivery charges, liquidated damages, and alleged quality defects. That document reflected a balance payable amount of Rs 3.84 crore.

It further noted that Kisaan Steels restricted its insolvency claim to Rs 3.97 crore, treating only what it considered the undisputed portion as the operational debt in default.

“We note that in a worst-case scenario, the Corporate Debtor had to pay to the OC an amount of Rs. 3.97 crores qua which there was no dispute and which is above threshold.”

Holding that the company could not continue asserting disputes after it itself quantified deductions and acknowledged a balance payable, the tribunal dismissed the appeal.