NCLAT Upholds Rejection of FTI Consulting's Insolvency Application Against MGF Developments Tribunal Affirms that Insolvency Proceedings Cannot Serve as Recovery Mechanisms for Contractual Disputes
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, upheld the rejection of FTI Consulting India Pvt. Ltd.'s application to initiate insolvency proceedings against MGF Developments Ltd. The Tribunal clarified that the Insolvency and Bankruptcy Code (IBC) cannot be used as a tool for recovering debts arising from contractual disputes.
The case revolved around FTI Consulting's claim of unpaid dues for services rendered to MGF Developments in relation to an arbitration case pending before the International Chamber of Commerce (ICC), London. FTI Consulting had filed a Section 9 application under the IBC, which was dismissed by the National Company Law Tribunal (NCLT) on grounds of a pre-existing dispute between the parties.
Justice Ashok Bhushan, Chairperson, and Barun Mitra, Member (Technical), presiding over the appeal, concurred with the NCLT's findings. They emphasized that disputes concerning contractual interpretation and performance fall outside the ambit of insolvency proceedings under the IBC.
The Tribunal noted that FTI Consulting had issued a demand notice under Section 8 of the IBC, demanding payment for outstanding invoices. MGF Developments responded with a notice of dispute, challenging the claims made by FTI Consulting. The primary contention was the cessation of services by Montek Mayal, a Senior Managing Director at FTI Consulting and a key figure in the agreement, who had left the company in January 2022. MGF argued that subsequent services were provided by Mayal through Osborne Partners, another entity, creating overlapping claims.
The NCLAT reiterated that insolvency applications under Section 9 should be dismissed if there exists a dispute that is not patently feeble or unsupported by evidence. It cited the Supreme Court judgment in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., underscoring that disputes must not be spurious, hypothetical, or illusory.
The Tribunal concluded that MGF Developments had successfully demonstrated the existence of a genuine dispute, supported by evidence, regarding the performance and payment terms under the service agreement. Consequently, the application by FTI Consulting was dismissed, affirming the NCLT's stance that insolvency proceedings are not recovery forums for such commercial disputes.
Bottom Line:
Application under Section 9 of the Insolvency and Bankruptcy Code (IBC) cannot be used as a recovery mechanism; disputes relating to contractual interpretation and performance fall outside the purview of IBC proceedings.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 8, 9
