NCLAT rejects insolvency plea against Wipro citing pre-existing payment dispute

The National Company Law Appellate Tribunal has dismissed an operational creditor's petition to initiate insolvency proceedings against Wipro Ltd.

A two-member Chennai bench of the appellate tribunal held earlier that there was a pre-existing dispute over the payment between Wipro and the petitioner and observed that the Insolvency and Bankruptcy Code was not framed for being a "mere recovery legislation for creditors".

The National Company Law Appellate Tribunal (NCLAT) has upheld the order of the NCLT.

Earlier, the Bengaluru Bench of the National Company Law Tribunal (NCLT), on January 16, 2020, dismissed the plea by Tricolite Electrical Industries in the capacity of operational creditor. 

The order was challenged by the Delhi-based operational creditor, a manufacturer of 'LT/ HT Electric Panels' before the appellate body NCLAT.

However, the NCLAT also dismissed it after observing, "We are satisfied that a dispute' truly existed for the Respondent Company (Wipro) to have withheld 3 per cent of the total invoice amount".

Under the IBC, the insolvency process against any corporate debtor is generally initiated only in clear cases where a real dispute between the parties as to the debt owed did not exist.

The dispute is related to the supply of goods for a government project implemented by Wipro, where it was awarded the work of design, manufacture, supply and installation of MV Panels.

Pursuant to that, Wipro had placed purchase orders for a total supply worth Rs 13.43 crore.

Payment dispute details

According to the appellant, it supplied the goods in a timely manner and raised various invoices, for which Wipro made a payment of 97 per cent of the value of the invoices, but 3 per cent of the total value of the invoices, which is a substantial amount, was kept outstanding.

Despite several reminders, it was not paid and did not reply to the Demand Notice issued by it.

Wipro denied the allegations, arguing that there is a pre-existing dispute between the parties, which is reflected in their email. It has already paid 97 per cent of the amounts due, and the appellant had sought to question the basis and the right of the respondent to levy liquidated damages to the tune of 3 per cent of the contract value.  

Agreeing with it, the NCLAT said: "It is the consistent stand of Wipro that 97 per cent of the amount was paid and the balance 3 per cent was kept on hold only on account of evaluating customer satisfaction and it was established that there was a delay of six weeks on behalf of the Appellant Company in executing the job assigned to them on account of which liquidated damages/Penalty of Rs 40,56,539, which is as per the terms of the contract was levied".

"Therefore, this Tribunal is of the considered view that there is a pre-existing dispute, which is not a spurious defence which is a mere bluster," said the NCLAT bench comprising Justice M Venugopal and Shreesha Merla.