NCLT Hyderabad Dismisses Section 9 IBC Petition Due to Non-Receipt of Payment by Corporate Debtor in Subcontracted Work
Pranav B Prem
The Hyderabad Bench of the National Company Law Tribunal, comprising Sri Rajeev Bhardwaj (Judicial Member) and Sri Sanjay Puri (Technical Member), dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), after observing that the Corporate Debtor had not received payments from its client for the subcontracted work executed by the Operational Creditor. The Tribunal found that the petition appeared to be a misuse of the insolvency process for recovery of dues, contrary to the objectives of the IBC.
The petition was filed by M/s S.K. Construction, a registered partnership firm and Operational Creditor, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Sri Avantika Contractors (I) Ltd., the Corporate Debtor, for non-payment of Rs. 2,48,21,261, which included Rs. 1,99,44,109 as principal and Rs. 48,77,152 as interest at 18% per annum. The Operational Creditor contended that it had carried out construction work as a subcontractor for a project awarded to the Corporate Debtor by the Executive Engineer, PWD, Government of Manipur. Although the Sub-Contract Agreement dated 09.05.2021 remained unsigned, the work was undertaken based on oral assurances. Invoices were raised and partially paid, and TDS was also deposited by the Corporate Debtor.
The Respondent, however, argued that the Sub-Contract Agreement clearly stated that payments to the Operational Creditor were conditional upon receipt of payment from the main client. Since the Executive Engineer, PWD, had withheld payment and terminated the main contract on 11.04.2023, the Corporate Debtor had not received the corresponding amounts. The Corporate Debtor also pointed to an ongoing dispute with PWD and mentioned the pendency of Writ Petition No. 358 of 2023 before the Manipur High Court, which had passed a status quo order on 01.08.2023.
Further, the Corporate Debtor alleged that the Operational Creditor had failed to submit the required bank guarantees under Clause 4(iii) of the Sub-Contract Agreement. In view of this, the Respondent arranged the guarantees on behalf of the Operational Creditor and recovered the associated costs. These circumstances, the Respondent argued, gave rise to a genuine dispute, which made the application under Section 9 of IBC non-maintainable. The Respondent also cited various judgments, including Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., and Sabarmati Gas Ltd. v. Shah Alloys Ltd., to highlight that IBC cannot be used as a tool for debt recovery in cases where a dispute exists.
The Operational Creditor, in its rejoinder, contended that the Corporate Debtor’s claim of non-receipt of payment was false. It submitted a statement of accounts allegedly issued by the Executive Engineer, PWD, showing payments received by the Corporate Debtor for the subcontracted work. It was argued that the Corporate Debtor was misleading the Tribunal by creating an illusion of a dispute and wrongly withholding the retention amount, despite being paid in full by the PWD. The Applicant also clarified that its impleadment application in the writ petition pending before the High Court was filed only to protect its interest and not as an acknowledgment of any dispute with the Corporate Debtor.
Upon examining the documents and hearing both parties, the Tribunal found that the subcontract agreement contained a clear clause stating that payments to the Operational Creditor were dependent upon the Corporate Debtor receiving funds from its client. The Tribunal noted that the Applicant had not produced any conclusive or credible evidence to show that the Corporate Debtor had indeed received payment from the PWD for the subcontracted work. Although a statement of accounts was submitted, the "received" column remained blank, failing to establish that payment had been made.
The Tribunal emphasized that the IBC mechanism is not intended to serve as a debt recovery forum. Referring to the Supreme Court’s judgment in M/s S.S. Engineers v. Hindustan Petroleum Corporation Ltd., it reiterated that CIRP proceedings under Section 9 are not meant to penalize solvent companies for non-payment of disputed dues. The Tribunal stated, “The NCLT, exercising powers under Section 7 or Section 9 of the IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy.”
In conclusion, the Tribunal held that the present petition lacked merit as the Operational Creditor had failed to prove that the Corporate Debtor had received any specific payment for the subcontracted work. It found that the petition was an attempt to invoke the insolvency process as a means for recovery, which falls outside the intended purpose of the IBC. Accordingly, the petition was dismissed.
Appearance
For the Applicant: Mr. Singh Chawla and Mr. Ashish KR Gupta.
For the Respondent: Ms. Sughosh Subramanyam and Mr. D. Pavan Kumar.
Cause Title: M/S. S.K. Construction V. Sri Avantika Contractors (I) Limited
Case No: CP (IB) No.128/09/HDB/2024
Coram: Sri Rajeev Bhardwaj [Judicial Member], Sri Sanjay Puri [Technical Member]
