NCLT Rejects Insolvency Plea Against Shapoorji Pallonji
The National Company Law Tribunal (NCLT) in Mumbai has dismissed an insolvency application filed by KBC Infrastructure against Shapoorji Pallonji & Co, stating that the Insolvency & Bankruptcy Code (IBC) is not a tool for debt recovery.
NcltShapoorji PallonjiInsolvency Bankruptcy CodeKbc InfrastructureDebt RecoveryReal Estate MumbaiOct 24, 2024
The case dates back to 2019 when KBC Infrastructure, an operational creditor, filed the insolvency application alleging that Shapoorji Pallonji & Co failed to pay for supplies of crusher aggregates and ready-mix concrete, amounting to approximately Rs 1.55 crore. However, the tribunal, in its order on October 22, stated that the operational creditor had failed to establish the existence of a crystallised and undisputed operational debt exceeding the threshold limit under Section 4 of the IBC.
The bench, comprising judicial member KR Saji Kumar and technical member Sanjiv Dutt, emphasized that the IBC is not a debt collection forum and is not intended to penalize solvent companies for non-payment of disputed dues. They noted, “It clearly emerges that the operational creditor has failed to establish the existence of a crystallised and undisputed operational debt exceeding the prescribed threshold limit under Section 4 of the Code due and payable by the Corporate Debtor (Shapoorji Pallonji & Co).”
Shapoorji Pallonji, a conglomerate with a strong presence in engineering and real estate, argued that substantial business transactions had occurred between both parties since FY2017. The company stressed that a reconciliation of accounts was necessary to accurately determine the exact amount owed by Shapoorji Pallonji & Co to KBC Infrastructure. They further pointed out that no reconciliation of accounts had been undertaken, and various payments and adjustments had not been credited to them as admitted by their supplier.
Ashish Pyasi, Partner at law firm Aendri Legal, commented on the judgment, noting that it reconfirms that the NCLT cannot be used as a recovery forum. He added, “Issues like reconciliation of accounts and the claims of interest under the MSME Act cannot be resolved before the adjudicating authority and these issues amount to a dispute which renders the petition fit for dismissal.”
Dhiraj Mhetre, Partner at Khaitan Legal Associates, highlighted that Shapoorji Pallonji is a solvent company with a strong market reputation. He stated, “Filing a petition under the IBC against such a company appears to be a mere pressure tactic and an attempt to use the NCLT as a recovery mechanism. Therefore, it is clear that the Operational Creditor has failed to demonstrate the existence of a crystallised and undisputed operational debt to initiate CIRP against the Corporate Debtor.”
This judgment serves as a reminder to operational creditors that the IBC is not a substitute for regular debt enforcement procedures. It underscores the importance of establishing a clear and undisputed debt before initiating insolvency proceedings, ensuring that the process is not misused for undue pressure or recovery tactics.
Frequently Asked Questions
What is the primary reason the NCLT dismissed the insolvency application against Shapoorji Pallonji & Co?
The NCLT dismissed the insolvency application because the operational creditor, KBC Infrastructure, failed to establish the existence of a crystallised and undisputed operational debt exceeding the prescribed threshold limit under Section 4 of the IBC.
What is the significance of the NCLT's decision in this case?
The decision is significant as it clarifies that the IBC should not be misused as a tool for debt recovery, especially when the debt is disputed and does not meet the prescribed threshold.
Why did Shapoorji Pallonji & Co argue that a reconciliation of accounts was necessary?
Shapoorji Pallonji & Co argued that a reconciliation of accounts was necessary to accurately determine the exact amount owed by them to KBC Infrastructure, as substantial business transactions had occurred between both parties since FY2017.
What does the judgment imply for operational creditors in similar cases?
The judgment implies that operational creditors must establish a clear and undisputed debt before initiating insolvency proceedings, and that the IBC is not a substitute for regular debt enforcement procedures.
How does this decision affect the reputation of Shapoorji Pallonji & Co?
The decision reinforces Shapoorji Pallonji & Co's reputation as a solvent and reputable company, highlighting that the insolvency application was more of a pressure tactic rather than a legitimate claim.
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