FTI Consulting India Pvt. Ltd. Vs MGF Developments Ltd. (NCLAT Delhi)
The National Company Law Appellate Tribunal (NCLAT), Delhi, considered an appeal challenging the order dated 31.10.2025 passed by the National Company Law Tribunal (NCLT), New Delhi, which had rejected a Section 9 application filed by the appellant seeking initiation of the Corporate Insolvency Resolution Process (CIRP). The application had been dismissed by the Adjudicating Authority on the ground that the dispute between the parties was contractual in nature and could not be pursued through insolvency proceedings.
Background of the Dispute
The appellant agreed to provide independent expert services to the respondent in relation to an arbitration proceeding pending before the International Chamber of Commerce (ICC), London. The engagement was formalised through a letter dated 26.02.2020 addressed to the respondent and its legal advisors. The letter contained the terms and conditions governing the engagement, including the scope of work and the fee structure.
Under the engagement, the appellant was required to provide expert services relating to quantification of financial losses allegedly suffered in the arbitration dispute. The work was divided into four phases. Phase-1 involved a preliminary review of documents and information relating to the claim. Phase-2 involved preparation of an independent expert report assessing losses. Phase-3 contemplated preparation of a report responding to expert evidence filed by the opposing side, while Phase-4 included assistance during hearings, including expert testimony and addressing financial issues arising during or after the hearing.
The agreement specified that a Senior Managing Director of the appellant would serve as the primary contact for the engagement. Another Senior Managing Director was also responsible for planning, coordination, and completion of the engagement.
The appellant subsequently rendered services and issued invoices to the respondent on several dates between 2022 and 2023. The respondent made payments from time to time towards these invoices. According to the record, payments totaling USD 469,600 were made, including a payment of USD 219,600 made on 28.04.2023.
Departure of Key Personnel
A significant development occurred when the Senior Managing Director who had been designated as the primary contact for the project ceased employment with the appellant on 14.01.2022. After his departure, the respondent continued to obtain services from him through another entity with which he became associated. An agreement was entered into between the respondent and that entity on 01.06.2023 for expert services related to the same arbitration matter.
Payments were made by the respondent to that entity during 2023 for services rendered by the individual concerned. The respondent stated that it had paid a substantial amount to him, both while he was associated with the appellant and later through his independent entity.
Demand Notice and Insolvency Application
The appellant issued a demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC) on 15.07.2024 claiming an outstanding amount of USD 367,353.29 along with interest. The claim was based on the service agreement, addendum, invoices, and email correspondence between the parties.
The respondent replied to the demand notice on 25.07.2024 and denied the claim. In its reply, the respondent expressly stated that the response should be treated as a notice of dispute under Section 8(2) of the IBC.
The respondent contended that the services to be rendered under the agreement were primarily to be performed by the Senior Managing Director who had been cited as an expert witness in the ICC arbitration proceedings. According to the respondent, after that individual left the appellant’s employment, the appellant was unable to continue providing the required services. The respondent further asserted that services actually rendered had already been paid for and that additional payments had been made to the individual through his new entity.
The respondent also claimed that certain services referred to in the invoices, such as trial preparation and attendance, had not been rendered by the appellant. It maintained that no amount remained due and payable.
The appellant later responded to the reply notice and subsequently filed an application under Section 9 of the IBC seeking initiation of insolvency proceedings on the basis of alleged default.
Decision of the Adjudicating Authority
The Adjudicating Authority considered the agreement between the parties and the subsequent developments. It concluded that the dispute between the parties was commercial and contractual in nature and that insolvency proceedings could not be used as a recovery mechanism for such disputes. The application was therefore dismissed with costs of Rs.25,000.
Appeal Before NCLAT
The appellant challenged the dismissal before the NCLAT. It argued that the departure of the Senior Managing Director did not affect the appellant’s ability to perform its contractual obligations. The appellant contended that services had been rendered under the agreement and that invoices had been raised accordingly.
The appellant also argued that the respondent had not produced any correspondence or material showing the existence of a dispute prior to the issuance of the demand notice. According to the appellant, the respondent had neither disputed the expert reports nor objected to the services mentioned in the invoices at the relevant time.
It was further submitted that services were provided in different phases and invoices were issued between 2022 and 2023. The appellant argued that even if the respondent later engaged another entity, this did not absolve it from paying amounts due under the earlier agreement.
Legal Framework under Sections 8 and 9 of the IBC
The appellate tribunal examined the statutory scheme under Sections 8 and 9 of the IBC. Section 8 permits an operational creditor to issue a demand notice for unpaid operational debt. Upon receiving the notice, the corporate debtor may, within ten days, bring to the notice of the operational creditor either the existence of a dispute or proof of payment.
Section 9 allows the operational creditor to file an application for initiation of the insolvency resolution process if payment is not received and no notice of dispute has been communicated.
Under Section 9(5), the Adjudicating Authority must reject the application if a notice of dispute has been received or if there is a record of dispute.
Existence of Dispute
The tribunal examined whether the reply to the demand notice dated 25.07.2024 constituted a valid notice of dispute. The reply explicitly stated that it should be treated as a notice of dispute and provided detailed reasons disputing the claim.
The tribunal referred to the principles laid down by the Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. The Supreme Court had held that while considering an application under Section 9, the adjudicating authority must determine whether there is an operational debt, whether the debt is due and unpaid, and whether there exists a dispute between the parties.
The Supreme Court further clarified that the authority need only determine whether there is a plausible contention requiring further investigation. If a genuine dispute exists and is not spurious or illusory, the application must be rejected.
Findings of the Appellate Tribunal
The tribunal noted that the agreement between the parties identified the Senior Managing Director as the primary contact and that he played a central role in providing the expert services. It was also undisputed that he left the appellant’s employment in January 2022.
The tribunal further observed that the respondent continued to obtain services from him through another entity and had entered into a separate agreement with that entity. Payments made to that entity were also placed on record.
These developments occurred well before the demand notice was issued in July 2024. The respondent had also provided explanations in its reply notice regarding non-payment of certain invoices and the continuation of services through another entity.
The tribunal held that these circumstances demonstrated the existence of a dispute relating to performance of the contract and the entitlement of the appellant to the amounts claimed.
The tribunal also noted that insolvency proceedings under Section 9 are not intended to adjudicate contractual disputes or determine issues relating to the interpretation of agreements. Such proceedings are meant to address cases where an operational debt is undisputed and remains unpaid.
Relying on the Supreme Court decision in S. S. Engineers v. Hindustan Petroleum Corporation Ltd., the tribunal reiterated that an operational creditor can initiate CIRP only when the debt is undisputed. Where the debt is disputed, the application must be dismissed.
Conclusion
The tribunal concluded that the reply to the demand notice constituted a valid notice of dispute under Section 8(2) of the IBC. The dispute raised by the respondent involved issues relating to contractual performance and payments made for services, and these issues required further investigation.
Since a genuine dispute existed between the parties, the conditions for admission of a Section 9 application were not satisfied. The Adjudicating Authority had therefore correctly rejected the application.
Finding no error in the order of the NCLT, the appellate tribunal dismissed the appeal.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
