NCLAT: NCLT Cannot Decide Disputed Contractual Claims During Liquidation If Arbitration Clause Exists
Pranav B Prem
The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT), comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), has held that contractual disputes involving triable issues cannot be adjudicated by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) if the underlying contract contains an arbitration clause. The Tribunal reiterated that IBC forums are not substitutes for traditional civil or arbitral mechanisms for the determination and recovery of disputed dues.
Background
The appeal arose from the rejection of an interlocutory application by the NCLT, Chennai, in IA(IBC)/1618/CHE/2024 filed within CP(IB)/25(CHE)2022. The application had been filed by Mr. Amier Hamsa Ali Abbas Rawther, the second liquidator of LSML (India) Pvt. Ltd., who sought recovery of ₹40.98 crores from NLC India Limited. This amount comprised various components including substation maintenance charges, unauthorized invocation of a performance bank guarantee, retention money from the project contract, and unpaid invoices under the operation and maintenance contract.
The contract in question was dated 15.11.2013 and was executed between NLC India Ltd. and LSML (India) Pvt. Ltd. It pertained to the erection, commissioning, and maintenance of wind turbine generators in Kaluneer Kulam, Tamil Nadu. The Corporate Debtor was engaged in this project, and due to alleged failure by NLC India to fulfill its contractual and financial obligations, the Corporate Debtor eventually defaulted on its payments to suppliers, leading to the commencement of CIRP and subsequently, liquidation. The Appellant was appointed as the liquidator on 30.11.2023.
Upon assuming charge, the liquidator identified receivables from NLC India and issued a demand notice seeking payment. With NLC India denying the liability, the liquidator approached the NCLT, which dismissed the application, prompting the present appeal before the NCLAT.
Contentions
The Appellant argued that the Corporate Debtor suffered financial losses due to NLC India’s failure to honor its contractual obligations and due to certain force majeure events. These failures allegedly prevented the Corporate Debtor from fulfilling its obligations to suppliers and creditors, eventually leading to insolvency.
On the other hand, the Respondent denied any dues payable under the contract and maintained that the claims were disputed and involved complex factual issues. The Respondent contended that such issues could not be summarily adjudicated by the NCLT under the IBC framework and pointed out that the contract included an arbitration clause for dispute resolution.
Findings of the NCLAT
The NCLAT upheld the order passed by the Adjudicating Authority and dismissed the appeal. It noted that the claim raised by the liquidator was clearly based on a contract that contained an arbitration clause, and the dispute involved triable issues that required a detailed examination of facts. The Tribunal emphasized that: “The forum under the I&B Code is not a forum, which could be abused to be resorted to as a substitute to the determination and recovery of dues.”
The Tribunal further observed that since the contract provided a specific mechanism for dispute resolution—namely arbitration—it was not open to the liquidator to bypass that mechanism and approach the NCLT for recovery of disputed dues.
It was also noted that the dispute involved various heads of claim, including performance guarantees and invoices, which required the establishment of liability through appropriate evidence. The Tribunal concluded that such issues fell outside the summary jurisdiction of the NCLT.
In view of the above, the NCLAT found no error in the reasoning of the Adjudicating Authority. It held that the application filed by the liquidator was not maintainable under the IBC and that the appropriate remedy lay before the forum specified in the contract—i.e., arbitration. As such, the Tribunal dismissed the company appeal, stating: “The proceedings under the I&B Code is not a recovery proceeding and that too for the recovery of an amount which is disputed and arising out of contractual obligation contained in the terms of contract, which itself provided a mechanism for redressal of the dispute by agitating the same before the Arbitrator.” Accordingly, the appeal was dismissed and all pending interlocutory applications were closed.
Appearance
For Applicant: Ms. Jayanthi K Shah, Advocate
For Respondent: Ms. Ancy, Advocate
Cause Title: Amier Hamsa Ali Abbas Rawther V. NLC India Limited
Case No: Company Appeal (AT) (CH) (Ins) No. 213/2025
Coram: Justice Sharad Kumar Sharma [Member (Judicial)], Jatindranath Swain [Member (Technical)]
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