The National Company Law Tribunal (NCLT) has rejected an insolvency petition filed against Noida Metro Rail Corporation (NMRC), stating that the claims raised by the opposing party – Empire Transport Services (ETSL) – stems from a pre-existing dispute, and hence can’t be pursued under the Insolvency and Bankruptcy Code (IBC).
NCLT found that the dispute between NMRC and the operational creditor (ETSL) existed before the insolvency notice was issued against the state-owned metro operator. Relying on the Supreme Court’s landmark ruling in Mobilox Innovations vs Kirusa Software, the tribunal noted that the existence of a genuine dispute prior to the demand notice is adequate to dismiss a plea for initiating the corporate insolvency resolution process (CIRP).
Contractual Friction
The case pertains to an agreement between ETSL and NMRC under which ETSL was supposed to provide day-to-day running of 100 low-floor AC CNG buses in Noida, Greater Noida and the Noida-Greater Noida connectivity routes. But just 50 buses were put into service. Following the alleged delay in payment by NMRC, ETSL issued a notice under Section 8 of the IBC, claiming default and subsequently filed a petition against NMRC.
Defense Merits
In its defence, NMRC argued that no payment default had occurred under the IBC. It also alleged that ETSL failed to provide services as per the specifications of the contract in addition to committing multiple breaches of their agreement, which was communicated to ETSL via several show-cause notices.
The tribunal agreed to the NMRC’s argument, and observed that the dispute between both parties was not merely about non-payment of dues but involved major disagreements regarding the quality of services provided by ETSL and the deductions imposed by NMRC under the contract.