Why NCLT rejected Rs 4.31-crore insolvency plea against Shapoorji Pallonji after validating Uniton’s debt…

Reports coming in for today mention that The Mumbai bench of the National Firm Law Tribunal (NCLT) has rejected Uniton Infra Pvt Ltd’s plea seeking to initiate insolvency proceedings against Shapoorji Pallonji and Firm Pvt Ltd over an alleged debt of Rs 4.31 crore.

According to the order dated September 23, the tribunal accepted Uniton’s right to pursue the claim after RKI Builders assigned the alleged debt to it, but still rejected the insolvency plea on multiple grounds. The tribunal found that a major portion of the claim was covered by the COVID-era insolvency bar, while the remaining amount was below the statutory threshold. It additionally found that Uniton had not established that the debt had become due and payable.

The dispute arose from a road-resurfacing project in Andhra Pradesh's Nellore. The Public Health and Municipal Engineering Department (PHMED), through Nellore Municipal Corporation (NMC), had invited tenders for resurfacing damaged cement-concrete roads. Shapoorji Pallonji was awarded the project.

Shapoorji Pallonji subsequently subcontracted part of the project to RKI Builders Pvt Ltd for Rs 8.25 crore under an agreement dated March 12, 2019.

RKI then subcontracted the work to Uniton Infra. According to Uniton, it financed and executed the work, while RKI boosted invoices on Shapoorji Pallonji.

Two invoices formed the basis of the alleged debt: Rs 3.41 crore dated September 15, 2020, and Rs 89.60 lakh dated May 15, 2021, together totalling Rs 4.31 crore. RKI later assigned this alleged debt to Uniton through a Debt Assignment Deed dated April 10, 2022. Why Uniton approached NCLT

Uniton issued a demand notice to Shapoorji Pallonji in May 2023 seeking payment of Rs 4.31 crore. Shapoorji disputed the claim, saying there was no direct contract between it and Uniton and that the relevant payment from NMC had not been received.

Uniton subsequently filed a Section 9 petition under the Insolvency and Bankruptcy Code seeking initiation of CIRP against Shapoorji Pallonji.

NCLT validates debt assignment

One of the important findings went in Uniton’s favour.

Shapoorji argued that RKI could not assign the debt without its prior permission and that the assignment deed was not binding on it.

The NCLT rejected this argument. It held that the assignment of the debt was valid and that the judgments relied upon by Shapoorji did not establish that prior permission of the debtor was required merely for assigning the debt.

But Rs 3.41 crore hit by COVID-era bar

The tribunal then examined the Rs 3.41-crore invoice dated September 15, 2020.

Section 10A of the IBC barred applications under Sections 7, 9 and 10 for defaults arising between March 25, 2020 and March 25, 2021.

Since the invoice declined within this period, the NCLT held that the default arising from it could not be considered for initiating CIRP.

That left only Rs 89.60 lakh, which was below the Rs 1-crore threshold prescribed under Section 4 of the IBC.

There was another hurdle. Under the subcontract, Shapoorji was required to release payment to RKI within 10 working days of receiving the corresponding payment from NMC.

Uniton relied on a March 2, 2021 PHMED memo showing that Rs 10.08 crore had been paid to Shapoorji Pallonji. It argued that this triggered Shapoorji’s payment obligation.

That stated, Shapoorji disputed that the payment related to the work covered by the invoices. The NCLT found that Uniton had not placed evidence showing that Shapoorji had received payment from NMC specifically for the work claimed by Uniton.

The tribunal as a result held that the alleged debt was not established as “due and payable” and rejected the Section 9 petition.

The NCLT clarified that its observations would not prejudice Uniton’s rights before any other judicial forum.