In a pivotal ruling, the appellate tribunal clarified that an Adjudicating Authority under Section 60(5) of the Insolvency and Bankruptcy Code could not direct summary enforcement of receivables where such claims remained disputed, conditional, or contingent upon contractual performance. The tribunal emphasised that uncrystallised receivables could not be treated as admitted liabilities merely because they appeared in financial statements, thereby requiring the Liquidator to pursue appropriate contractual or statutory forums instead of summary adjudication in liquidation proceedings.
The National Company Law Appellate Tribunal, Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that receivables which are subject to contract-compliance, underlying arbitral process, or disputed quantification cannot be summarily directed for recovery under Section 60(5) IBC. The tribunal clarified that entries in audited accounts, including balance sheets, would not amount to an acknowledgement or admission of liability for enforcing recovery. The Liquidator was therefore required to pursue appropriate legal recourse rather than invoking the summary jurisdiction of the Adjudicating Authority.
The appeal had arisen from the order whereby the Appellant, acting as Liquidator of the Corporate Debtor, had sought directions for the recovery of amounts claimed to be receivable from the Respondents under certain project execution contracts. The Corporate Debtor had earlier been awarded subcontracted works relating to the construction of electrical sub-stations. Upon initiation of liquidation, the Appellant asserted that outstanding amounts stood duly crystallised and were reflected in the audited financial statements as receivables. The Appellant thus approached the Adjudicating Authority for recovery of these amounts to form part of the liquidation estate.
It was asserted that the balance sheet entries of the Corporate Debtor constituted an admission of liability on the part of the Respondents, and therefore, the receivables formed part of the liquidation estate under Sections 35 and 36 of the IBC. The Appellant contended that the Adjudicating Authority, being vested with jurisdiction under Section 60(5)(c), was competent to adjudicate any issue concerning liquidation assets and could not direct the Liquidator to pursue alternate civil or arbitral remedies. Reliance was placed on precedents wherein recovery of admitted dues had been held permissible before the Adjudicating Authority.
The Respondents opposed the claim on the ground that the alleged dues were neither admitted nor crystallised and that payments remained contingent upon contractual compliance, including submission of tax documents, certification of works, and approval of variations. It was further contended that disputes regarding recoverability would require adjudication on evidence and, therefore, could not be decided in summary jurisdiction under the IBC. Reference was made to the contractual clauses providing arbitration as the dispute resolution mechanism, and it was emphasised that the Liquidator could not bypass those remedies.
Upon consideration, it was observed that amounts claimed for different project sites remained conditional or disputed. For one location, no final invoice had been submitted; for another, payment reconciliation existed, but release of funds remained contractually dependent upon certification and documentation; and for the third, amounts were contingent upon approval of variations by the awarding authority. The record revealed that no unqualified admission of debt existed from the Respondents, and the entries in the Corporate Debtor’s balance sheet could not be treated as a binding admission against either Respondent.
In this factual background, the Tribunal found that the Adjudicating Authority had correctly declined to exercise jurisdiction under Section 60(5) of the IBC. The claims were not adjudicated liabilities or undisputed receivables but involved contested contractual issues requiring the determination of factual compliance. Such disputes could not be adjudicated summarily within insolvency proceedings, and the Liquidator was permitted to take recourse to appropriate legal proceedings as envisaged under the underlying contracts. The dismissal of the application, therefore, did not suffer from jurisdictional error.