Liquidated Damages Validly Deducted During CIRP Cannot Be Refunded After Approval Of Resolution Plan: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that once the Resolution Professional opted to continue the contract during Corporate Insolvency Resolution Process (CIRP), all its terms including liquidated‑damages deductions from invoices...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that once the Resolution Professional opted to continue the contract during Corporate Insolvency Resolution Process (CIRP), all its terms including liquidated‑damages deductions from invoices will remain binding. These deductions cannot be faulted, and no refund can be ordered after the approval of the Resolution Plan.
Brief Facts:
Hindustan Petroleum Corporation Limited (HPCL) floated a tender for constructing three 500‑MT mounded storage vessels at its Purnea LPG Plant. Pursuant to this, HPCL issued several purchase orders to Fabtech Projects and Engineers Ltd. (Corporate Debtor), between 31 July 2018 and 9 July 2019.
An application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) was filed by the Bank of Maharashtra which was admitted by the National Company Law Tribunal (NCLT) on 24 September 2019.
During the CIRP, a resolution plan submitted jointly by Manjeet Cotton Private Limited and Parason Machinery (India) Private Limited was approved by the Committee of Creditors and subsequently by the NCLT on 16 November 2021. The plan contemplated a twelve‑month extension for project completion.
The Applicant later filed I.A. No. 712 of 2022 seeking various reliefs, but HPCL opposed the application. The Adjudicating Authority rejected the application.
Against the above order, the present appeal has been filed.
Contentions:
The Appellant submitted that the approved Resolution Plan is binding on the Respondent and all other concerned and it cannot act contrary to the Resolution Plan by realising liquidated damages. No claim having been submitted, liquidated damages cannot be illegally retained by the Respondent.
It was further submitted that the observation of the Adjudicating Authority that Resolution Professional never raised objection is not correct. Resolution Professional has by letter dated 20.11.2019 had requested that no liquidated damages be levied.
Per contra, the Respondent submitted that there was no question of filing any claim by Hindustan Petroleum Corporation Limited since there was no claim prior to CIRP period. There was no claim required to be filed by the Respondent since no amount was due on the Corporate Debtor.
It was also submitted that Liquidated damages were deducted from bills as per the terms and conditions of the contract which cannot be claimed to be refunded after the Successful Resolution Applicant came to picture after getting the plan approved.
Lastly, it was submitted that Extension of 12 months' time was given for completion of the project, however, which extension did not provide for refund of liquidated damages already deducted. Mere extension of time by itself would not mean that Respondent has not suffered delay in the work but it was merely granting time for completion of the work.
Observations:
The Tribunal observed that reliance on the approved Resolution Plan's claim extinguishment does not affect liquidated damages already deducted by HPCL from invoices under the terms of the Purchase Order. Since the Resolution Professional continued the contract after the commencement of the CIRP, the work remained subject to those terms, including liquidated‑damages deductions. Consequently, no direction can be issued, after plan approval, to refund such deductions.
The Tribunal further noted that the present is a case where Successful Resolution Applicant after approval of the plan was asking for refund of deducted liquidated damages which deduction was made from invoices during the currency of the contract as per the terms and conditions of the contract.
It further added that thus, extinguishment of the claims, liquidated damages on account of approval of the plan has no effect on the liquidated damages already deducted as per terms and conditions of the contract.
Based on the above, it held that it is true that any claim which was not filed or not part of the Resolution Plan shall stand extinguished on the approval of the Resolution Plan but that does not mean that any liquidated damages deducted during currency of the contract should be allowed to be refunded to the Successful Resolution Applicant.
Accordingly, the present appeal was dismissed.
Case Title: Fabtech Projects and Engineers Pvt. Ltd. (Formerly Fabtech Projects and Engineers Ltd.) Versus Hindustan Petroleum Corporation Ltd.
Case Number: Company Appeal (AT) (Insolvency) No. 373 of 2025
Judgment Date: 23/04/2025
For Appellant: Mr. Chaitanya, Advocate.
For Respondent: Mr. T. Sundar Ramanathan, Ms. Sukanya Vishwanathan, Mr. Krishan Singhal, Advocates.