Application for Corporate Insolvency Rejected due to Good Faith Payment Dispute

The Tribunal dismissed the application seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Tribunal found that the Corporate Debtor had shown good faith by releasing payments for admitted debt portions and issuing stop payment instructions for disputed amounts due to incomplete snag works. Due to a genuine dispute and adherence to FIDIC conditions, the petition was dismissed without cost.

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Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Claims of Operational Debt by the Operational Creditor.
3. Alleged default and dishonor of cheques by the Corporate Debtor.
4. Dispute regarding completion of snag works.
5. Compliance with FIDIC conditions of contract.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The Operational Creditor, M/s. ETA Engineers Private Limited, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. GBJ Hotels Private Limited. The application aimed to declare a moratorium and appoint an Interim Resolution Professional.

2. Claims of Operational Debt by the Operational Creditor:
The Operational Creditor claimed a sum of Rs. 11,45,997 along with interest at 18% as Operational Debt arising from a Works Contract for fire fighting executed for the Corporate Debtor's hotel project. The total amount claimed, including service tax and VAT reimbursements, was Rs. 34,09,534.

3. Alleged Default and Dishonor of Cheques by the Corporate Debtor:
The Operational Creditor issued a Demand Notice under Section 8 of the I&B Code, 2016, on 14th January 2019. The Corporate Debtor had issued several cheques, some of which were dishonored. Specifically, cheques totaling Rs. 8,52,383 were dishonored. The Corporate Debtor had issued stop payment instructions due to the Operational Creditor's alleged failure to complete snag works.

4. Dispute Regarding Completion of Snag Works:
The Corporate Debtor contended that the Operational Creditor had not completed several snag works essential for the fire fighting system in the hotel project. The Corporate Debtor provided detailed lists of pending snag works and argued that the Operational Creditor failed to address these issues despite multiple communications. The Corporate Debtor maintained that the payment of certain cheques was withheld due to the incomplete snag works.

5. Compliance with FIDIC Conditions of Contract:
Both parties accepted the FIDIC conditions of contract for construction of Buildings and Engineering Works. According to these conditions, any claims or disputes should be resolved through a Dispute Adjudication Board if mutual agreement could not be reached. The Tribunal noted that there existed a dispute regarding the completion of snag works, and the parties could approach a Dispute Adjudication Board for resolution.

Conclusion:
The Tribunal found that the Corporate Debtor had demonstrated bona fide by releasing payments for the admitted portion of the debt and issuing stop payment instructions for the disputed portions due to incomplete snag works. Given the existence of a genuine dispute and the FIDIC conditions, the Tribunal dismissed the petition without cost.

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