Case Note & Summary
The appeal before the Supreme Court arose from the judgment and order dated 01.02.2021 passed by the National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) (Insolvency) No. 188 of 2020, which affirmed the order of the National Company Law Tribunal, Amravati Bench admitting the Section 9 application filed by the operational creditor and initiating insolvency proceedings against the corporate debtor. The appellant had invited an International Competitive Bid on 13.12.2010 for setting up a 225 MW gas based combined cycle Power Station at Bikkavolu, East Godavari District, Andhra Pradesh. The respondent was awarded the contract as the lowest bidder, and a Letter of Award dated 24.12.2010 was issued for Rs. 827 crore. The parties then entered into an Engineering Procurement and Construction agreement dated 09.02.2011, with a completion period of 14 months and an arbitration clause. The payment terms included milestones: 10% advance against corporate guarantee, 5% against ordering major equipment, 5% against release of advances, 70% against billing break-up, and 5% each on commissioning in open cycle and combined cycle. The respondent achieved the first three milestones and submitted billing break-ups on 13.07.2011 and 03.01.2012, but the appellant paid only Rs. 50.15 crore out of Rs. 165.4 crore due. The respondent sent a suspension notice on 30.07.2011 due to non-payment of Rs. 32.55 crore, stopped EPC activities, and terminated contracts with vendors. Legal notices were sent on 25.07.2014, 16.09.2014, and 15.07.2015 demanding payment, with no response. After nearly three years, the respondent sent a demand notice under Section 8 of the IBC on 02.07.2018 for Rs. 1292,13,35,000/-, claimed due on 25.02.2011. The respondent filed the Section 9 application on 12.10.2018. The NCLT admitted the application on 13.12.2019, holding that the amount was operational debt under Section 5(21) of IBC, that the EPC contract continued to subsist as neither party terminated it, that no pre-existing dispute existed because the appellant did not respond to the demand notice, and that the application was not barred by limitation because the contract had not been frustrated. The NCLAT dismissed the appeal on 01.02.2021, agreeing that the claim was operational debt, that the contract was not frustrated by efflux of time, that no prior dispute existed, and that the limitation plea was not sustainable. The appellant preferred the present civil appeal challenging the NCLAT order. The judgment text provided does not include the Supreme Court's final analysis, conclusions, or operative order; therefore, the final decision and ratio decidendi of the Supreme Court are not available from the excerpt.
Headnote
A) Insolvency Law - Operational Debt - Section 5(21) of Insolvency and Bankruptcy Code, 2016 - The respondent's claim for unpaid amounts under the EPC contract constituted operational debt - NCLT and NCLAT both held that the claim was operational debt under Section 5(21) of IBC, as it arose from supply of goods and services under the EPC contract. Held (NCLT/NCLAT) that the respondent's claim is operational debt. (Paras 13-14) B) Insolvency Law - Pre-existing Dispute - Section 9 of Insolvency and Bankruptcy Code, 2016 - The NCLT held that absence of response to respondent's Section 8 demand notice negated pre-existing dispute; NCLAT observed that appellant raised no dispute after demand notice. Held (NCLT/NCLAT) that no pre-existing dispute barred Section 9 application. (Paras 13-14) C) Contract Law - Frustration of Contract - Not mentioned - The NCLAT observed that EPC contract was silent on frustration due to efflux of time and hence not automatically frustrated; NCLT held that contract continued to subsist because neither party terminated it. Held (NCLT/NCLAT) that EPC contract subsisted and was not frustrated. (Paras 13-14) D) Limitation Law - Limitation for Section 9 Application - Insolvency and Bankruptcy Code, 2016, Section 9 - NCLAT rejected appellant's plea that respondent's Section 9 application was time-barred, holding that due to non-termination of EPC contract, the debt continued to be due. Held (NCLAT) that respondent's application was not barred by limitation. (Paras 13-14)
Issue of Consideration
Whether the EPC contract was frustrated by efflux of time; whether the monies claimed constitute operational debt under Section 5(21) of IBC; whether there existed a prior dispute; whether the Section 9 application was time-barred
Law Points
- Operational debt under Section 5(21) of IBC
- pre-existing dispute
- limitation
- frustration of contract
- subsistence of EPC contract
