NCLT Dismisses Cross-Insolvency Petitions Between Swaraj India Agro and Walchandnagar Industries Citing Disputes and Premature Filing

Mumbai: The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Prabhat Kumar (Member Technical) and V. G Bisht (Member Judicial), has dismissed two cross-petitions filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The petitions, C.P. (IB) No. 530 (MB)/2018 filed by M/s Walchandnagar Industries Limited (WIL) against M/s Swaraj India Agro Limited (SIAL), and C.P. (IB) No. 4127 (MB)/2018 filed by SIAL against WIL, were both rejected primarily due to the existence of pre-existing disputes and, in SIAL's case, also on grounds of premature filing. The order was delivered on May 29, 2025.

Background of the Dispute

The disputes originated from a Supply, Erection and Commissioning Agreement dated September 9, 2013, where WIL was engaged by SIAL to set up a sugar plant and a 22 MW Cogeneration Power Plant. The project value was initially Rs. 109.20 crores, later revised to Rs. 107.20 crores. Delays and disagreements over project completion, payments, and scope of work led to both companies claiming operational debts from each other and subsequently filing insolvency petitions.

WIL's Petition (CP 530/2018) Against SIAL

WIL sought to initiate Corporate Insolvency Resolution Process (CIRP) against SIAL for an alleged operational debt of Rs. 4,06,78,432. This claim primarily included: * Rs. 3.07 crores, as agreed in a Minutes of Meeting (MoM) dated March 27, 2015. * Rs. 1,78,46,432 against invoices for ACC balance materials, payable by July 10, 2015, as per MoM dated June 29, 2015. * Rs. 11,31,000 towards 73% of painting work.

SIAL contested these claims, arguing project delays by WIL, necessity to engage other contractors, disputed completion certificates, and that payments claimed by WIL were subject to conditions WIL failed to meet, such as timely submission of a Performance Bank Guarantee (PBG). SIAL also highlighted its own counter-claims.

NCLT's Findings on WIL's Petition

The Tribunal meticulously examined each component of WIL's claim:

1. Rs. 3.07 Crore Claim: The NCLT found that the payment obligation was linked to WIL furnishing a PBG. WIL furnished the PBG much later than the due date for payment stipulated in its demand notice (April 5, 2015). The Tribunal noted, "...no default can be attributed to SIAL on 05.04.2015 when the corresponding obligation on WIL was not fulfilled." Thus, the demand notice for this sum was deemed invalid.

2. Rs. 1.78 Crore Claim (ACC Materials): While acknowledging the existence of this debt, the NCLT found that SIAL had raised counter-claims due to project delays and costs incurred for third-party work before WIL filed the insolvency petition. The Tribunal observed, "...due to existence of counter claims on the date of issuance of demand notice the said amount cannot said to be an undisputed debt so as to enable WIL to ask for initiation of CIRP against SIAL..."

3. Rs. 11.31 Lakh Claim (Painting Work): The NCLT found a dispute regarding this claim, noting WIL had not substantiated SIAL's obligation for part payment for partly completed work, and SIAL provided evidence of payments to other vendors for painting.

Citing the Supreme Court's decision in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 , the NCLT emphasized that if a "plausible contention which requires further investigation" exists, and the dispute is "not a patently feeble legal argument or an assertion of fact unsupported by evidence," the adjudicating authority must reject the application. The Tribunal noted that WIL's own arbitration notice dated December 30, 2021, acknowledged "existence of disputes regarding non acceptable debit notes."

Concluding that pre-existing disputes were substantiated by SIAL, the NCLT dismissed WIL's petition.

SIAL's Petition (CP 4127/2018) Against WIL

SIAL, in turn, filed a petition against WIL claiming an operational debt of Rs. 27,70,90,645. This comprised: * Rs. 3,87,23,545 under debit notes. * Rs. 9,87,76,813 for invoices raised by third-party vendor Spray Engineering Devised Limited (SEDL). * Rs. 6,25,90,287 based on invoices from other third parties. * Rs. 7,70,000 for liquidated damages. The judgment noted that SIAL provided documents for an alleged claim of Rs. 20,00,90,645, with a lack of material evidence for the remaining Rs. 7,70,00,000.

WIL countered SIAL's petition on several grounds, including premature filing, a false affidavit by SIAL regarding receipt of a dispute notice, and pre-existing disputes concerning the claimed amounts.

NCLT's Findings on SIAL's Petition

The NCLT first addressed the maintainability of SIAL's petition:

Premature Filing: The demand notice under Section 8 was received by WIL on October 20, 2018. The 10-day period for WIL to respond expired on October 29, 2018, meaning SIAL's right to file the insolvency application accrued on October 30, 2018. However, SIAL's affidavit supporting the petition (under Section 9(3)(b) and Form 5) was executed on October 27, 2018, before the right to file accrued. The NCLT held: "...C P 4217 of 2018 is not maintainable as the affidavit in terms of Section 9(3) (b) and Form 5 were executed prior to even accrual of a right to file an application in terms of Section 9(1) of the Code."

On the merits, the NCLT found pre-existing disputes for all components of SIAL's claim:

Debit Notes (Rs. 3.87 crores): WIL had credited a portion (Rs. 3,00,94,335) and disputed the balance, arguing the MoM dated March 27, 2015, required mutual discussion for debit notes.

Third-Party Invoices (SEDL and others - total approx. Rs. 16.13 crores): WIL disputed these as being outside the scope of the agreement, or due to modifications made by SIAL without WIL's intimation, or lacking sufficient proof of payment by SIAL to these vendors and contractual obligation for WIL to reimburse.

Liquidated Damages (Rs. 7,70,000): The claim was contested based on the MoM dated June 29, 2015, which stipulated SIAL would not be entitled to levy liquidated damages if delays were attributable to SIAL. The NCLT found contested facts requiring adjudication.

The Tribunal concluded that SIAL's petition was not maintainable due to premature filing and also due to pre-existing disputes.

Court's Final Decision and Implications

The NCLT dismissed both C.P. (IB) No. 530 (MB)/2018 and C.P. (IB) No. 4127 (MB)/2018.

The judgment underscores the NCLT's adherence to the principles laid down in Mobilox Innovations , reiterating that the IBC framework for operational creditors is not intended for the recovery of dues where genuine, pre-existing disputes exist. Such complex contractual disagreements involving claims and counter-claims, unascertained damages, and detailed adjudication of performance fall outside the summary jurisdiction of the NCLT under Section 9 and are better suited for resolution through arbitration or civil courts. The decision also highlights the procedural strictness regarding the timing of filing insolvency applications post-demand notice.