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IBCInsolvency & Bankruptcy CodeWhether Dispute Was Unwarranted and Spurious Due to Which It Cannot Be Accepted as Existence of Dispute (IBC)

June 12, 2019by GLC & Partners

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In the case of Karpara Project Engineering Private Limited v BGR Energy Systems Ltd. ( Company Appeal (AT) (Insolvency) No. 622 of 2018)  the main issue before the NCLAT was whether dispute was unwarranted and spurious due to which it cannot be accepted as existence of dispute.

The facts of the case were that the Corporate Debtor (Respondent) awarded certain work orders to the Operational Creditor (Appellant) for collection of raw materials, transportation, erection etc. There was delay in completion of work due to various reasons which required periodical revisions to be issued and the last one .i.e. the fifteenth one was made on 5th March 2015, for extending the time required for completion till 31st May 2015. Upon completion of work on 28th March 2018 the operational creditor received a “completion certificate” by the Corporate Debtor. The Operational Creditors raised various bills and sent email claiming  overrun compensation of  Rs. 5,49,22,446/-. The operational creditor sought the release of the two bank guarantees provided by him to the Corporate Debtor as the work was completed and the Corporate debtor released the same. The Corporate debtor sent an email acknowledging due of Rs. 3,07,62,493 subject to liquidated damages due to delay in work. Following this a demand notice was sent by the Operational Creditor for amount of  Rs. 8,56,84,939/- along with interest of Rs. 3,07,62,493 apart from the ORC amount of Rs. 5,49,22,446.  The Corporate Debtor sent a reply disputing the claim and made a counter claim for Rs.1,81,78,699.

The operational creditor then filed a suit under section 9 of the Insolvency and Bankruptcy Code, 2016 which was dismissed due to reasons mentioned above. An appeal was filed against the order. Their contention was that the dispute was spurious, unwarranted and only designed to harass the appellant. It was submitted that issuance of “completion certificate” was unconditional and liquidation damages cannot be claimed. It was also submitted that during the fifteen revisions no liquidation damage was imposed by Corporate debtor even once and after release of the two bank guarantees a claim for liquidation damages cannot lie.

The Corporate Debtor submitted that the dispute, i.e. the claim for liquidation damages was communicated to the Operational Creditor before the issuance of demand notice, thus it is a pre-existing dispute. It is also submitted that issuing “completion certificate” and release of two bank guarantees has nothing to do with settlement of dues.

In the annexures of the Work Orders it was clearly stated that delay in work would be subject to liquidation damages and overrun compensation will not be paid beyond the period of two months, if it for reasons caused by the Corporate Debtor.

Due to the reasons stated above it is clearly seen that the dispute was in fact pre-existing and not unwarranted, illusory or spurious.

As long as there exists a dispute and it is not unwarranted, spurious it is enough to reject the application and it is not required by the Adjudicating Authority to look into the merits of the same.