2023 (6) TMI 757 - HC - Insolvency and Bankruptcy

Court orders payment without deduction, deems withholding unjust. Coercive measures post-NCLT approval not allowed.

The court ruled in favor of the petitioner, directing the respondents to clear pending bills for the completed work without deducting the vigilance claim. ... CIRP - Withholding the payments to be made to the petitioner company in relation to the works executed by the petitioner company - allegation of substandard work - liquidated damages - HELD THAT:- It is an admitted fact that the petitioner company has entered into an agreement with the respondents on 27.05.2013 and thereafter in response to the request made by the petitioner, first extension was granted in favour of the petitioner company up to 26.05.2017. But however, though the petitioner company has completed 85% of the work, the balance work could not be completed in view of the change of scope of work which includes preparation of drawings and specifications and also extension of time under a fresh agreement as the specifications in relation to the contract of RE walls is not suitable and therefore the petitioner company suggested for construction of retaining walls with Reinforced Cement Concrete, for which, a fresh agreement was not entered with by the respondents because of which the petitioner’s company would not proceed with the work and thereafter the petitioner company also received a letter dated 11.08.2017 from the 4th respondent stating that the petitioner’s EOT proposals up to 26.12.2017 as requested by them was forwarded to the 3rd respondent vide letter dated 25.05.2017 and the EOT was awaited and it was also stated that the transactions were approved by the competent authority on 10.08.2017 and in view of the changed circumstances, instead of giving extension of time to the petitioner company the respondents got issued a fresh notification calling for tenders though the petitioner has completed 85% of the works. It also appears that the financial creditors of the petitioner company have approached the NCLT, Chennai under the provisions of IBC Code, 2016 wherein an interim resolution professional was initially appointed and pending the proceedings before the NCLT a publication was made in relation to the claims of any third parties to which the respondents have not responded and have not choosen to file any claim before the NCLT and therefore a final order was passed on 20.07.2020 approving the resolution plan. In view of the same, the respondents are stopped from initiating any coercive measures against the petitioner company. In view of the above Judgment of the Hon’ble Apex Court in GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR & ORS. [2021 (4) TMI 613 - SUPREME COURT], which was further followed by the High Court of Telangana in the case of The Sirpur Paper Mills Limited, vs. Union of India [2022 (1) TMI 977 - TELANGANA, HIGH COURT], this Court holds that any debt in respect of payment of dues arising under any law for the time being in force including the ones owed to the Central Government or any State Government, or any local authority which does not form a part of the approved resolution plan shall stand extinguished and once a resolution plan is duly approved by the Adjudicating Authority under sub-Section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan. The writ petition is disposed of directing the respondents to clear the pending bills with regard to 85% of the work completed by the petitioner without deducting the vigilance claim. Issues Involved:1. Withholding of payments related to executed works.2. Issuance of fresh tender despite ongoing contract.3. Claims of substandard work and liquidated damages.4. Applicability of the Insolvency and Bankruptcy Code (IBC) on pending claims.Summary:1. Withholding of Payments Related to Executed Works:The petitioner sought a Writ of Mandamus to declare the respondents' action of withholding payments for works executed under agreement No. 17/2017-18 as illegal and arbitrary. The petitioner completed 85% of the work but faced delays due to external factors like the Seemandhra Strike and Phailin Cyclone. Despite these challenges, the respondents withheld payments citing a Vigilance Report that recommended recovering Rs. 1,93,87,048/- for substandard work and liquidated damages.2. Issuance of Fresh Tender Despite Ongoing Contract:The petitioner argued that the respondents issued a fresh tender notification for the same work without terminating the existing contract. This was done even though the petitioner had completed a significant portion of the work. The court found that the respondents' intention seemed to be to award the work to third parties, which was evident from their actions of issuing show-cause notices and withholding payments.3. Claims of Substandard Work and Liquidated Damages:The respondents justified withholding payments based on a Vigilance Report that cited substandard work and delays. They calculated liquidated damages as per Clause 48.20 of the agreement. However, the petitioner contended that the Vigilance Report was not communicated to them, and no opportunity was given to refute the claims. The court noted that the financial creditors of the petitioner had approached the NCLT, and the respondents did not file any claims before the NCLT, which approved the resolution plan.4. Applicability of the Insolvency and Bankruptcy Code (IBC) on Pending Claims:The court referred to Section 15, 13, 24, and 31 of the IBC Act, 2016, and cited a Supreme Court judgment which held that once a resolution plan is approved by the Adjudicating Authority, all claims not part of the resolution plan are extinguished. The court held that the respondents could not initiate any coercive measures against the petitioner post-approval of the resolution plan.Conclusion:The court directed the respondents to clear the pending bills for the 85% work completed by the petitioner without deducting the vigilance claim. The writ petition was disposed of with no order as to costs, and any pending miscellaneous applications were also closed.