NCLAT Upholds Stay on Bank Guarantee Invocation in JAL Case

NCLAT Issues Notice to Monitoring Committee of Jaiprakash Associates Ltd

Key Developments:

• The National Company Law Appellate Tribunal (NCLAT) has issued a notice to the monitoring committee of Jaiprakash Associates Ltd (JAL) on a plea by Velocity Enterprises, a Bhopal-based contractor, challenging the rejection of its claim under the insolvency process.
• The appellate tribunal directed that the bank guarantee furnished by Velocity should not be invoked until the next hearing and asked the contractor to extend the validity of the guarantee.

Background:

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The notice was issued due to a dispute between Velocity Enterprises and the monitoring committee, which oversees the implementation of Adani Enterprises Ltd's ₹14,543 crore resolution plan for JAL, approved on 17 March by the Allahabad bench of the National Company Law Tribunal (NCLT).

Resolution Plan:

The resolution plan, which has about 93% creditor approval, led by National Asset Reconstruction Co. Ltd (NARCL), which holds over 85% voting share, offers approximately ₹6,000 crore upfront, with the balance payable over two years. The plan was preferred over Vedanta Ltd's ₹12,505-crore bid, which proposed a five-year payout.

Dispute:

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Velocity Enterprises, which was awarded a 2022 work order for design, engineering, supply, and commissioning of electrical and substation works for an irrigation project, furnished a mobilization advance bank guarantee of about ₹1.48 crore. The contractor invoked arbitration and filed claims of around ₹2.55 crore before the RP, but the RP terminated the contract, citing breaches, including failure to supply the required transformers and the stoppage of work, and rejected the claims.

Claims:

The contractor argued that the termination and proposed invocation of the bank guarantee were mala fide and that its claims were rejected without adequate opportunity of hearing. The NCLT declined to intervene, holding that the dispute was contractual in nature and fell outside the insolvency framework's limited jurisdiction.