NCLT admits Karnataka’s irrigation project arm Cauvery Neeravari Nigama to insolvency

The National Company Law Tribunal (NCLT) has initiated Corporate Insolvency Resolution Process (CIRP) against the State-owned Cauvery Neeravari Nigama Ltd (CNNL) in Karnataka [SPML Vs Cauvery Neervari Nigam]

The Bengaluru bench of NCLT made the decision on an application filed by SPML Infra Ltd under Section 9 of the Insolvency and Bankruptcy Code (IBC), after finding that the government company had committed default in payment of operational debt for works executed by SPML for Nanjapura Lift Irrigation Scheme.

In the order dated December 10, the bench of Member (Judicial) Sunil Kumar Aggarwal and Member (Technical) Radhakrishna Sreepada noted that mediation efforts in the matter had failed.

"It hardly matters that the respondent is a going concern or a Govt undertaking when it is patently distancing itself from discharging its liabilities. The parties were referred for mediation in an effort to strive for ending the stalemate and finding solution to the issues but the endeavour did not end in resolution."

SPML’s claim in the case arose from the Extra Items of works (EIRL works) carried out by it under the for 1999 Nanjapura Lift Irrigation Scheme. The works are stated to have been completed by 2009, with submission of final bill in 2013.

Though CNNL is stated to have acknowledged the amounts in multiple communications over a decade while seeking internal approvals, it failed to release payments.

SPML claimed ₹9.36 crore, including interest, from the government enterprise.

However, CNNL denied liability, arguing that the debt was disputed and related issues were pending before an arbitrator appointed in 2004.

The tribunal examined CNNL’s correspondence from 2009 to 2019 and found that its officials had consistently sought revised EIRL statements, acknowledging liability and the quantum of debt. The Chief Engineer’s 2012 order directing expedited approval of ₹404.55 lakh as pending for three years was treated as a binding acknowledgment.

The tribunal observed that CNNL’s subsequent attempt to characterise these letters as internal communications without legal effect was untenable.

"In the facts of the present case, the series of official letters issued by the CD from 2009 to 2019 requesting the OC to sign and execute the EIRL item bills and proposals constitute successive acknowledgements of debt," the tribunal said.

On the pre-existing dispute argument, the NCLT held that the 2004 arbitration concerned earlier disputes and did not relate to the EIRL works, which were assigned and completed later.

As no dispute regarding the present claim was raised prior to the demand notice, the tribunal held that CNNL failed the Mobilox test for demonstrating a pre-existing dispute.

Its belated replies of December 2020 and February 2021 lacked specific objections to the EIRL claim and could not cure that defect, the tribunal ruled.

"Applying this established jurisprudence to the facts of the present case, we find that the Respondent's reliance on the pendency of an unrelated arbitration and its vague characterization of the EIRL debt as "disputed" do not satisfy the threshold for establishing a genuine pre-existing dispute as contemplated under the IBC," it added.

Admitting the petition, the NCLT declared a moratorium under Section 14 of IBC and appointed insolvency professional Addanki Haresh as Interim Resolution Professional (IRP).

The IRP has been directed to keep the government corporation functioning as a going concern and proceed with issuing notices, inviting claims and constituting the Committee of Creditors.

Advocate Sirisha Shetty represented SPML.

Advocates Sunita Srinivas and Pavan Srinivas represented CNNL.

[Read Order]