Case: M/s. FLSmidth Private Limited vs Lanco Infratech Ltd. TA (AT) No.207/2021 (CA (AT) (Ins) No.1353/2019)

In the case brought before the NCLAT Chennai bench (the tribunal), the Corporate Debtor, entered into contract with the Appellant, for the supply and commissioning of systems worth Rs. 95.17 crore. However, the Corporate Debtor failed to open a letter of credit worth Rs. 73.602 crores and did not take delivery of the supplies, resulting in the cancellation of the contract by the end-user. The Appellant filed claims totalling Rs. 102.8 crores against the Corporate Debtor, which were partially rejected by the Liquidator, who found lacking documentation for certain claims. The Liquidator contended that the claims were rejected due to non-performance required adjudication by a competent Civil Court or Arbitrator under the Insolvency and Bankruptcy Code (IBC). The Appellant argued that the Liquidator failed in their duty by initially accepting and later rejecting a portion of the claim.

The central issue in the current case revolves around the Liquidator’s dismissal of claims during the insolvency resolution process, which raises doubts regarding the Corporate Debtor’s compliance with contractual obligations and the lack of sufficient documents. 

The tribunal acknowledged that the Corporate Debtor failed to meet its contractual obligations, including not opening a letter of credit, failing to take delivery of supplies, and neglecting to issue Material Dispatch Clearance Certificates. This breach led to the contract’s cancellation by the end-user, indicating the Corporate Debtor’s non-performance. The Liquidator argued that rejected claims lacked supporting documents, implying a lack of proper documentation. However, it’s essential to assess whether rejection based solely on documentation is justified, given the circumstances. The tribunal noted that NCLT Hyderabad had addressed this issue previously, stating that claims and counterclaims involving non-performance should be adjudicated by a competent Civil Court or Arbitrator. Consequently, the Liquidator’s rejection of the claims was upheld. 

In conclusion, while the Corporate Debtor’s failure is evident, concerns remain regarding procedural fairness and documentation requirements in rejecting certain claims. Nonetheless, the tribunal’s affirmation underscores the importance of proper legal channels for resolving claims involving non-performance. Thus, the Liquidator’s rejection of the claims was deemed appropriate under the circumstances.

Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

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