NCLT Mumbai Orders ONGC To Release Rs 22.14 Crore Withheld From Dolphin Offshore Over GST Garnishee Notice

The National Company Law Tribunal (NCLT) at Mumbai has recently directed Oil and Natural Gas Corporation Limited (ONGC) to release payments due for work executed under its contracts with Dolphin Offshore Enterprises (India) Ltd., which had been withheld pursuant to a GST department garnishee notice. It held that pre-CIRP claims of the GST department stood extinguished upon approval of the resolution plan.

The direction includes the release of Rs. 22.14 crore determined under one of the contracts. The order was passed on an application filed by Dolphin Offshore, now under new management following completion of its insolvency resolution.

A coram of Judicial Member Lakshmi Gurung and Technical Member Hariharan Neelakanta Iyer heard the matter.

The tribunal observed, “Upon receipt of the payment by the GST Department as provided in the Resolution Plan, all claims of the Department whether determined or undetermined, ascertained or unascertained, crystalized or uncrystallised stand extinguished.”

Dolphin Offshore had sought directions restraining the GST department from enforcing a garnishee notice issued before the initiation of the insolvency process. It also sought release of amounts withheld by ONGC pursuant to that notice.

The dispute arose from two contracts awarded by ONGC in March 2012 and May 2016. Under one contract, ONGC admitted dues of Rs. 1.75 crore and USD 1,07,678. Payment was withheld following a garnishee notice dated January 30, 2020, issued by the GST department for recovery of service tax dues.

Dolphin Offshore entered insolvency in July 2020, and a resolution plan submitted by Deep Industries Limited was approved on September 29, 2022. Under the plan, the GST department's statutory dues were settled for Rs. 7.65 lakh as full and final payment.

The tribunal noted that the GST department itself acknowledged in March and April 2024 that its recovery notice did not survive after approval of the resolution plan.

Despite this, the department later stated that the garnishee notice would remain in force pending legal opinion. ONGC continued to withhold payments on that basis.

The tribunal held that the Insolvency and Bankruptcy Code recognises no exception for claims merely because a garnishee notice was issued to a third party before the initiation of CIRP. Such claims are extinguished once a resolution plan is approved.

"There is no exception for the claims in respect of which a garnishee notice was served on a third party prior to initiation of CIRP. This issue is for the consideration of the framers of the law or the regulatory authorities to deliberate whether under such situations where garnishee notice for recoveries from third party was subsisting on the date of initiation of CIRP, then is SRA entitled to get amount released in its favour or not," the tribunal observed.

It added that this issue may require consideration by lawmakers or regulatory authorities. The tribunal also said that IBBI may independently examine whether the resolution professional discharged his duties diligently.

This includes examining whether substantial recoverables from ONGC were reflected in the information memorandum.

The tribunal accordingly directed ONGC to release the amounts due to Dolphin Offshore.