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IBC Cannot Substitute a Recovery Forum: NCLAT

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In the case of M/s Kuntal Construction Pvt Ltd vs. M/s Bharat Hotels Ltd, the Appellant filed an appeal against the order dated 30th January 2020 by National Company Law Tribunal, New Delhi. The appeal was filed under Section 61 of Insolvency and Bankruptcy Code (IBC), 2016, so as to initiate the Corporate Insolvency Resolution Process (CIRP) against the respondent or corporate debtor for an outstanding amount of Rs 14 89,966. 

Facts of the Case

The Appellant was engaged in the business of civil works. The respondent approached the Appellant for availing its services, and consequently, work orders dated 04.10.2011 and 14.10.2013 were issued for an amount of ₹47,50,000 and ₹2,07,00,000 respectively. Only partial payments were received from the respondent, and also post adjustment, the Appellant claimed that there was an outstanding payment of ₹14,89,967 and also included a retention amount of ₹6,74,247. 

Arguments Made by Appellant

The appellant stated that according to the mutual settlement letter dated 07.10.2015, the respondent had to pay a total sum of ₹1,21,73,545, but did not pay an outstanding amount of ₹14,89,964.  

Additionally, the order passed by National Company Law Tribunal (NCLT) ignored the merits of the case since the bench acknowledged the letter dated 07.10,2015 but ignored the two issues involved in it. 

Arguments Made by Respondent

According to the respondent, the appellants never contended that the corporate debtor failed to did not disclose any patent illegality/perversity/misconduct to set aside the order of NCLT. It was contended by the respondent that the Insolvency Resolution Process is not a civil recovery court, and if any amount was to be paid to the Appellant must be contested before the Arbitration/Civil Courts.

The respondent claimed that the Appellant concealed the facts wherein it neither disclosed nor filed a copy of the full and final settlement letter dated 07.10.2015. The Appellant also concealed the fact wherein it failed to state that the respondent sent a reply dated 05.12.2018 to the Appellant.

The respondent clarified that the appellant was notified about the retention money of ₹6,74,247, which was duly adjusted towards the defects liability of the respondent. 

The Adjudicating Authority, also in its judgment, clearly stated that the respondent was aware of the intimation of the retention, and the same was also clarified by the Appellant to the respondent. 

Court’s Analysis

The Tribunal made the following observations:

  • The email correspondences clearly showed that the Appellant was well aware of the fact that retention money was adjusted on accounts of the defect in the Work Order.
  • IBC is not intended to substitute a recovery forum, and whenever there is any real expenditure, then IBC provisions cannot be invoked. 
  • There was a dispute existing before the issuance of Section 8 of IBC. Therefore the insolvency proceedings cannot be invoked.
  • Whether the corporate debtor was entitled to adjust the retention amount was a disputed question and must be decided by the appropriate forum.

Court’s Judgment

There was no merit to interfere in the impugned order duly passed by National Company Law Tribunal. Hence the appeal was dismissed with no order for costs. is now on Telegram. Follow us for regular legal updates and judgements from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe for our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

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