Pranav B Prem

The National Company Law Tribunal, Chennai Bench, has held that refunds claimed under the Vivad Se Vishwas–I Scheme, a COVID-19 relief measure introduced by the Government of India for MSMEs, cannot be enforced by invoking insolvency jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016. The tribunal clarified that matters relating to eligibility, verification and entitlement under the scheme fall within the administrative domain of the authorities implementing the scheme and do not lie within the adjudicatory competence of the insolvency forum.

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The ruling was delivered by a Bench comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy while dismissing an application filed by the liquidator of Star Trace Private Limited against Hindustan Copper Limited. The tribunal observed that although Section 60(5) of the Code confers wide residual jurisdiction, it does not empower the NCLT to decide claims founded entirely on executive policy schemes of the Government of India.

Star Trace Private Limited, an MSME, was awarded an EPC contract in 2017 by Hindustan Copper Limited for setting up a copper ore tailing beneficiation plant at the Malanjkhand Copper Project in Madhya Pradesh. In terms of the contract, the company furnished two performance bank guarantees amounting to ₹8.49 crore and ₹9.35 crore respectively. Following delays in execution, Hindustan Copper encashed the guarantees in March and September 2020 and subsequently terminated the contract in August 2020. Star Trace was admitted into corporate insolvency resolution proceedings in August 2021 and was later ordered into liquidation in August 2024.

After the commencement of liquidation, the liquidator approached the insolvency forum seeking a refund of about ₹16.95 crore, representing nearly 95 percent of the encashed guarantees. The liquidator relied on the Vivad Se Vishwas–I Scheme, contending that the scheme was intended to provide relief to MSMEs affected during the COVID-19 period and mandated procuring entities to refund 95 percent of performance securities forfeited during that period.

Hindustan Copper opposed the plea, contending that the scheme was not applicable to EPC contracts and did not extend to contracts whose original completion period was prior to February 19, 2020. It was further argued that the bank guarantees were unconditional in nature and were lawfully invoked in accordance with contractual terms due to long-standing defaults by the contractor, independent of the pandemic. The PSU also submitted that the insolvency tribunal could not act as an implementing authority under a government policy scheme.

Accepting these submissions, the tribunal held that the relief sought was not traceable to any provision of the Insolvency and Bankruptcy Code but was founded entirely on an executive policy of the Government of India. It observed, “Determination of eligibility under the Vivad Se Vishwas–I Scheme, verification of entitlement, and assessment of amounts payable thereunder are matters falling squarely within the administrative domain, and not within the adjudicatory competence of this Tribunal under Section 60(5).” The tribunal further held that it “cannot issue a mandamus directing refund under such a Scheme.”

The Bench also noted that the bank guarantees were unconditional and had been validly encashed, and that “the mere fact that encashment occurred during the COVID-19 period cannot, by itself, render the invocation unlawful or obligate restitution.” It declined to examine disputed contractual and policy issues within insolvency proceedings, observing that such matters could not be adjudicated in a summary jurisdiction under the Code.

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Accordingly, the NCLT dismissed the application, holding that benefits claimed under the Vivad Se Vishwas–I Scheme cannot be enforced through insolvency proceedings, while leaving the liquidator free to pursue any remedies available in law before the appropriate administrative or judicial forum.

Appearance

For Petitioner: Advocate Ashwin Shanbhag, A. Sella Visalakshi, Reshmitha G. Sarma

For Respondent: Advocate Antony R Julian, V. R. Swetha Naidu and Janani P.R

Cause Title: R Venkatakrishnan (RP) M/s Star Trace Pvt Ltd v. Hindustan Copper Ltd

Case Number: IA/IB/2365/CHE/2024 in IBA/304/2020

Coram: Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy