2026 Supreme(Online)(NCLT) 3595

NATIONAL COMPANY LAW TRIBUNAL
Manni Sankariah Shanmuga Sundaram, Judicial Member, Atul Chaturvedi, Technical Member
Ahluwalia Contracts (India) Limited – Appellant
Versus
Prateek Realtors India Private Limited – Respondent
CP (IB) 650 (ND) 2025

An application under Section 9 of the Insolvency and Bankruptcy Code is not maintainable if a pre-existing dispute is evident or if the claimed debt includes unliquidated damages and compensation, as the Code is not a mechanism for enforcing recovered damages or adjudicating complex contractual disputes.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 4, 5(21), 8 and 9 - Corporate Insolvency Resolution Process - Initiation by operational creditor - Statutory threshold and pre-existing dispute - Application filed seeking initiation of insolvency process on ground of default in payment under a construction contract and subsequent settlement agreement - Corporate debtor raised plea of pre-existing dispute and challenged maintainability on ground that settlement sum included unliquidated damages and compensation for losses which do not qualify as operational debt - Requirement is to determine whether genuine dispute exists prior to issuance of demand notice - Settlement agreement itself recorded existence of disputes and included compensation component not directly arising from provision of services - Summary jurisdiction under Section 9 cannot be invoked where claimed debt requires detailed adjudication and reconciliation of reciprocal claims and losses. (Paras 6(vi), 6(vii), 6(ix), 6(xi), 6(xiv))

(B) Operational Debt - Meaning and scope - Claim arising out of settlement agreement relating to construction work - Whether enforceable under Section 9 - Held, where settlement agreement involves compensation for losses and damages, it cannot ipso facto be treated as consideration for goods or services and does not partake the character of operational debt - Code is not a substitute for recovery mechanism or adjudication of complex contractual disputes. (Paras 6(xi), 6(xiv))

Facts of the case:
An application was filed under Section 9 of the Code by an operational creditor against a corporate debtor alleging default in payment of outstanding dues arising from a works contract and a subsequent settlement agreement. The corporate debtor contested the application, asserting that serious disputes regarding project delays, penalties, and reciprocal losses existed well before the demand notice. It further argued that a significant portion of the settlement amount represented compensation and damages, rendering the debt ineligible as operational debt, and that the balance amount fell below the statutory threshold.

Findings of Court:
The Adjudicating Authority found that the documentation clearly established the existence of pre-existing disputes. The settlement agreement itself was a product of these disputes. Moreover, the claim included components of compensation and damages which fall outside the definition of operational debt under Section 5(21) of the Code. The court held that the summary nature of the proceedings precludes it from adjudicating upon claims involving complex reconciliation of damages and reciprocal counter-claims.

Issues: Whether the claim based on a settlement agreement constitutes an operational debt and whether a pre-existing dispute exists, thereby rendering the application under Section 9 of the Code non-maintainable.

Ratio Decidendi: If a genuine dispute exists prior to the issuance of a demand notice, or if the claim involves unliquidated damages or compensation arising out of complex contractual disputes rather than a simple debt from goods or services, the summary jurisdiction under the Code cannot be invoked.

Result: Application dismissed.