2022 (7) TMI 49 - Tri - Insolvency and Bankruptcy

Tribunal Admits Creditor's Insolvency Application: Debt Valid, Privity of Contract Confirmed

Usha Martin Limited Versus Bengal Shelter Housing Development Limited

The Tribunal admitted the Operational Creditor's application under Section 9 of the Insolvency and Bankruptcy Code, 2016, initiating the Corporate ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - privity of contract - existence of debt and dispute or not - HELD THAT:- There was no acceptance by the Operational Creditor of the purported assignment done by the Corporate Debtor. Therefore, the plea of the Corporate Debtor is untenable and the same is hereby rejected. It is an admitted position that the tender was floated by Corporate Debtor and the work was executed by the Operational Creditor. The Operational Creditor is not a party to the assignment sought to be made by Corporate Debtor to Barnopraichay Book Mall Pvt. Ltd. Therefore, the privity of contract between Corporate Debtor and the Operational Creditor never came to an end and accordingly, the payment of outstanding dues continues to remain the contractual obligation of the Corporate Debtor. It is clear that there was a debt due and there is default by the Corporate Debtor in payment of its dues. A demand notice under Section 8 of IBC was issued by Operational Creditor to the Corporate Debtor and the same was issued dated 9th of August, 2019 served upon the Corporate Debtor and to which the Corporate Debtor furnished its reply on 23rd of August, 2019. The said reply does not raise any pre-existing disputes regarding the quality of goods supplied - This application is complete in every respect. The application under section 9 of the Code read with rule 6(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating CIRP against the Corporate Debtor being Bengal Shelter Housing Development Limited is admitted - Moratorium declared. Issues Involved:1. Existence and Validity of Debt2. Assignment of Contract3. Privity of Contract4. Period of Limitation5. Default and Admission of Debt6. Initiation of Corporate Insolvency Resolution Process (CIRP)Detailed Analysis:1. Existence and Validity of Debt:The Operational Creditor performed post-tensioning works for the Corporate Debtor under an Agreement dated 10th September 2008. The Corporate Debtor accepted the services without any protest, and running bills were raised accordingly. After adjusting payments, a principal amount of Rs.17,72,655/- remained due. The Operational Creditor issued a demand notice on 9th August 2019, which the Corporate Debtor received on 13th August 2019. The Corporate Debtor's response did not dispute the amount claimed.2. Assignment of Contract:The Corporate Debtor argued that the contract was assigned to Barnaparichay Book Mall Pvt. Ltd. on 6th August 2009, and thus, all payments were to be made by Barnaparichay. However, the Operational Creditor denied accepting any such assignment, stating that any transfer of liabilities without its consent is void. The Tribunal relied on the Supreme Court's decision in Kapilaben and Ors. v. Ashok Kumar Jayantilal Sheth, which established that obligations under a contract cannot be assigned without the consent of the other party.3. Privity of Contract:The Tribunal found that the privity of contract between the Operational Creditor and the Corporate Debtor never ended. The Operational Creditor consistently raised bills directly against the Corporate Debtor, and part payments were made by the Corporate Debtor, indicating acknowledgment of the debt. The Corporate Debtor's attempt to transfer liabilities to Barnaparichay without the Operational Creditor's consent was deemed invalid.4. Period of Limitation:The Tribunal noted that the 28th RA Bill was raised on 31st December 2015, and subsequent confirmations of outstanding amounts were made by Barnaparichay on various dates, including 16th May 2018. This confirmed that the application was within the period of limitation.5. Default and Admission of Debt:The Corporate Debtor did not dispute the execution of work by the Operational Creditor. The demand notice issued under Section 8 of the IBC was served on the Corporate Debtor, and no pre-existing disputes were raised in the reply. The Tribunal found that there was a clear default in payment of the outstanding operational debt by the Corporate Debtor.6. Initiation of Corporate Insolvency Resolution Process (CIRP):The Tribunal admitted the application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. A moratorium under Section 14 of the IBC was declared, and an Interim Resolution Professional (IRP) was appointed to carry out the CIRP functions. The Operational Creditor was directed to deposit Rs. 2,00,000/- with the IRP for expenses related to issuing public notices and inviting claims.Conclusion:The Tribunal concluded that the application was complete and admitted the petition for initiating CIRP against the Corporate Debtor. The privity of contract remained between the Operational Creditor and the Corporate Debtor, and the assignment of contract to Barnaparichay without consent was invalid. The Corporate Debtor was found to be in default of its payment obligations, and the CIRP process was initiated accordingly.