Damages Arising From Contractual Disputes Cannot Trigger Insolvency Proceedings, Rules NCLT Mumbai
Pranav B Prem
The National Company Law Tribunal (NCLT) at Mumbai has clarified that claims arising from liquidated or unliquidated damages—which are contractual in nature—cannot be used to trigger insolvency proceedings, as such claims do not constitute an operational debt under the Insolvency and Bankruptcy Code, 2016. Dismissing the Section 9 petition filed by Goodrich Logistics Private Limited seeking initiation of CIRP against Transrail Lighting Limited, the Tribunal held that the adjudicating authority has no scope to determine or crystallise damages in a summary insolvency proceeding.
The bench comprising Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt held that a “claim for liquidated damages for breach of contractual obligations cannot trigger insolvency process unless adjudicated by a court of competent jurisdiction” and added that “the Adjudicating Authority under Section 9 of the Code has no jurisdiction to adjudicate upon contractual disputes.” The Tribunal emphasised that liquidated damages, even if contractually stipulated, can be crystallised only after adjudication before a civil court or arbitral tribunal.
The dispute emanated from Goodrich’s application filed on December 2, 2024, alleging unpaid container detention charges and depreciated value of unreturned containers arising out of the logistics arrangements for Transrail’s transmission line project in Nigeria. Relying on invoices dated June 24 and 25, 2024, Goodrich claimed dues exceeding ₹59 crore, asserting that only 22 of the 63 containers supplied under service orders and bills of lading issued between March 2020 and January 2021 had been returned. Goodrich asserted that all containers were to be returned within 30 days without charge, after which detention charges would accrue.
Transrail disputed the claim, submitting that payments had already been made to Goodrich’s Dubai entity, Goodrich FZE, pursuant to revised arrangements that constituted a novation of contract. It relied on records to show that detention liabilities had been negotiated and discounts of 60–70% had been mutually agreed between the parties. The reply dated July 5, 2024 was placed on record highlighting a pre-existing dispute even before issuance of the demand notice. Transrail also opposed the allegation of forgery and contended that claims for container detention and depreciated residual value fell outside the scope of the original pricing under the service orders.
Upon examining the material, the Tribunal noted that “detention charges are designed to compensate the shipping line for the loss of business and loss of profits on account of detention of containers,” and therefore constitute liquidated damages. It held that the depreciated residual value (DRV) of unreturned containers—which was not predetermined in the service orders—represents unliquidated damages meant to be assessed by a civil court or arbitral tribunal only after establishing actual loss. Thus, both heads of claim were in the nature of damages and not liabilities arising from goods or services supplied.
The Tribunal further recorded that Goodrich had failed to furnish key documentary evidence such as financial ledgers and container-wise calculations, despite allegations of damage running into tens of crores. It held that such failure indicated that the petition was not based on a crystallised and undisputed debt. It additionally observed that allegations raised by both sides—including forgery and fraud—required detailed evidentiary examination and could not be decided within the Code’s summary jurisdiction. Holding that there existed a clear pre-existing dispute and that the alleged claim did not qualify as operational debt under Section 5(21), the Tribunal reiterated that the insolvency framework cannot be used as a debt recovery tool.
Ultimately, finding that there was no crystallised and undisputed operational debt and that the claim was in the nature of contractual damages requiring adjudication before a competent forum, the NCLT dismissed Goodrich Logistics’ application for initiation of CIRP against Transrail Lighting Limited. However, it clarified that the dismissal shall not prejudice Goodrich’s right to seek appropriate remedies in accordance with law.
Appearance
For Operational Creditor: Advocates Shyam Kapadia, Shamant Satya, Taranjeet Phull
For Corporate Debtor: Senior Advocate Vikram Nankani, Advocates Nousher Kohli, Anisha Didwani, Zaki Ansari instructed by Agarwal and Dhanuka Legal
Cause Title: Goodrich Logistics Private Limited vs Transrail Lighting Limited
Case No: CP (IB) No. 1001/MB/2024
Coram: Judicial Member Ashish Kalia, Technical Member Sanjiv Dutt
