Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, and Mr. Naresh Salecha (Technical Member), has dismissed an appeal filed by Ahluwalia Contracts (India) Ltd., an operational creditor, against Shristi Infrastructure Development Corporation Ltd. The Tribunal held that a completion certificate containing caveats regarding rectification of defects cannot be considered as unconditional acceptance of work. Consequently, the Section 9 IBC petition was rightly rejected by the NCLT due to the existence of pre-existing disputes.

Also Read: Revival Of Insolvency Proceedings Permissible Despite Absence Of Revival Clause In Settlement Agreement: NCLAT New Delhi

Background

Ahluwalia Contracts was awarded a contract on April 25, 2012, to execute civil works for a five-star hotel project in New Town, Kolkata, with a contract value of Rs. 85 crores. The work was completed on August 31, 2015, and a completion certificate was issued on November 7, 2016. Ahluwalia claimed to have submitted its final bill of Rs. 3.61 crores in July 2016 and argued that the certificate demonstrated successful completion. Despite reminders, the corporate debtor allegedly failed to release the balance dues, leading to the issuance of a demand notice under Section 8 of the IBC and subsequently a Section 9 application before the NCLT, which was dismissed. The appellant contended that the corporate debtor had admitted liability through a letter dated June 19, 2020, acknowledging an amount of Rs. 2.87 crores. It argued that the levy of liquidated damages nearly four years after completion was frivolous and an attempt to manufacture a dispute.

Respondent’s Stand

Shristi Infrastructure denied liability, contending that the appellant had caused significant delays and executed defective work. It argued that multiple correspondences and 89 emails prior to the demand notice highlighted defects requiring rectification. The respondent emphasized that the completion certificate itself was conditional, requiring rectification of defect liabilities during the defect liability period, and therefore was not an unconditional acceptance of work. It further relied on the recommendations of its consultant, Currie & Brown (India) Ltd., which imposed liquidated damages of about Rs. 4.79 crores for delays.

Findings of the Tribunal

The NCLAT affirmed the NCLT’s finding that disputes relating to quality of work and liquidated damages could not be adjudicated in summary proceedings under the IBC. Referring to the Supreme Court’s ruling in Innoventive Industries v. ICICI Bank, the bench emphasized that the role of the Adjudicating Authority under Section 9 is limited to determining whether genuine pre-existing disputes exist, not to resolve contractual disagreements.

On the issue of the completion certificate, the Tribunal observed:“The completion certificate was issued subject to the rectification of defects to the satisfaction of the corporate debtor. Therefore, it cannot be construed as unconditional acceptance of work.”  It further held that the existence of 89 emails raising concerns about defects demonstrated that disputes were genuine and predated the Section 8 demand notice.

Also Read: NCLAT: BIFR Scheme Claims Extinguished Once Resolution Plan Under IBC Is Approve

Holding that the dispute was substantial and not spurious or illusory, the Tribunal dismissed the appeal, affirming that the Section 9 petition had been rightly rejected. The issuance of a completion certificate with a caveat regarding defect rectification does not bar the corporate debtor from raising disputes about the quality or timeliness of work.

Appearance

For Appellant: Mr. Anil K. Airi, Sr. Advocate along with Mr. Sunil Mund, Mr. Abhishek Taneja, Mr. Mritunjya K. Singh, Mr. Jagjeet Singh, Mr. Vedant Mund & Mr. Uttkarsh Gupta.

For Respondent: Mr. Rishav Banerjee, Ms. Anoushka Dey & Ms. Prerna Shaha, Advocates

Cause Title: Ahluwalia Contracts (India) Limited Office V. Shristi Infrastructure Development Corporation Limited

Case No: Comp. App. (AT) (Ins) No. 1155 of 2024 & I.A. No. 4134, 4135, 4136 of 2024

Coram:  Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, Mr. Naresh Salecha (Technical Member)