2018 (8) TMI 1826 - Tri - Insolvency and Bankruptcy

Tribunal rejects application under Section 9 of IBC, emphasizing need for further investigation.

Karpara Project Engineering (P) Ltd. Versus BGR Energy Systems Ltd.

The tribunal rejected the application under Section 9 of the IBC due to the substantial dispute between the parties regarding delays in work completion ... Commencement of Corporate Insolvency Resolution Process - Operational Debt - Whether there is an Operational Debt, as defined in the Code exceeding ₹ 1, 00,000/-? - HELD THAT:- Those amounts relate to the work done by the Operational Creditor pursuant to the work orders dated 19.08.2009 and 30.07.2013. Therefore, the amount claimed has got all the characteristics of an Operational Debt as defined in the Code. Whether the Operational Debt is due and payable and has not been paid? - Whether there is existence of dispute between the Operational Creditor and Corporate Debtor and whether such dispute has been brought to the notice of the Operational Creditor by the Corporate Debtor by giving notice of dispute? - HELD THAT:- In the instant case, as per clause 2.5(D)b of the Work Order, dated 19.08.2009, if there is any delay attributable to the Operational Creditor, the Corporate Debtor can from time-to-time adjust the liquidated damages from the amounts payable to the Operational Creditor - In view of the said clause, if the delay in completion of work is on account of the Operational Creditor, then the Corporate Debtor is entitled for liquidated damages. That means, in case of breach of the terms of the Work Order/ Contract is there on the part of the Operational Creditor, the Corporate Debtor is entitled for liquidated damages. The claim for damages, whether liquidated or unliquidated there is no existing obligation to pay any amount. It is held in various decisions no pecuniary liability in regard to the claim for damages arises till the Court adjudicate upon the claim for damages and holds that the other party has committed breach and incurred liability to compensate the claimant for the loss and then access what the liability is. In the instant case, the Competent Court has to decide whether the party that committed breach of contract is liable to pay damages and if so, to what amount - In the instant case, as can been scene from the following correspondence, the Corporate Debtor has been raising the issue of delay in completion of works even prior to the issuance of Demand Notice. The following are the letters, addressed by the Corporate Debtor to the Operational Creditor, raising the issue of delay in completion of work. Admittedly, by both parties, there is delay in completion of work but one party is accusing the other party for the delays - Therefore, there is existence of a dispute between the Operational Creditor and the Corporate Debtor regarding the breach of terms of Contract and the damages. The controversy regarding the breach of terms of contract and the quantification of damages has to be decided by a Competent Civil Court - In the case on hand, there exists a dispute even before the issuance of demand notice and the said dispute has been brought to the notice of the Operational Creditor by the Corporate Debtor in the form of a reply notice. It is not a case whether a dispute has been raised for the first time in the reply notice dated 17.10.2017. The dispute raised is not a patently feeble legal argument or an assertion of fact unsupported by evidence. Application dismissed. Issues Involved:1. Existence of Operational Debt2. Due and Payable Operational Debt3. Existence of Dispute between Operational Creditor and Corporate DebtorIssue-wise Detailed Analysis:1. Existence of Operational Debt:The Operational Creditor claimed amounts related to work done under work orders dated 19.08.2009 and 30.07.2013, totaling Rs. 10,59,66,910. These amounts include final bills, retention amounts, and overrun compensation. The tribunal found that these amounts possess the characteristics of an Operational Debt as defined in the Insolvency and Bankruptcy Code (IBC).2. Due and Payable Operational Debt:The tribunal examined whether the claimed Operational Debt was due and payable. As per clause 2.5(D)b of the Work Order, if delays were attributable to the Operational Creditor, the Corporate Debtor could adjust liquidated damages from payable amounts. The tribunal noted that there was a delay in the completion of work, and the Corporate Debtor had raised issues regarding this delay even before the issuance of the demand notice. The Operational Creditor argued that the delays were due to the Corporate Debtor’s failure to provide necessary facilities and materials. However, the tribunal found that there was an ongoing dispute regarding who was responsible for the delays.3. Existence of Dispute:The tribunal found substantial evidence of a pre-existing dispute between the parties. The Corporate Debtor had repeatedly communicated issues regarding delays and defects in the work through various letters and emails. The tribunal noted that the dispute was not a patently feeble legal argument or an assertion unsupported by evidence. The Hon'ble Supreme Court's decision in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. was cited, emphasizing that the adjudicating authority must reject the application if there is a plausible contention requiring further investigation.Conclusion:Given the existence of a substantial dispute regarding the delay in work completion and the quantification of damages, the tribunal concluded that the application under Section 9 of the IBC must be rejected. The application was accordingly rejected, with no order as to costs.Key Judgments Referenced:- Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd.- J.G. Engineering (P.) Ltd. v. Union of India- State of Karnataka v. Shree Rameshwara Rice Mills- Greenhills Exports (Private) Limited v. Coffee Board- Union of India (UOI) v. Raman Iron Foundry- Iron & Hardware (India) Co. v. Firm Shamlal & Bros.- Oil & Natural Gas Corpn. Ltd. v. SAW Pipes Ltd.The tribunal emphasized that the quantification of damages and the determination of breach of contract are matters for a competent civil court to decide.