TaxTMI 
TaxTMI 
2019 (1) TMI 137
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.... has committed a default in payment of outstanding amount of Rs. 38,77,88,860/- (Rupees Thirty Eight Crore Seventy Seven Lakhs Eighty Eight Thousand Eight Hundred Sixty Only). 2. The case is listed for admission and hearing on various dates viz. 22.11.2017, 29.11.2017, 07.12.2017, 19.12.2017, 24.01.2018, 19.02.2018, 13.03.2018, 19.04.2018, 09.05.2018, 01.06.2018, 15.06.2018, 17.07.2018, 10.08.2018, 11.09.2018, and finally heard on 24.10.2018 and orders reserved. 3. Brief facts of the case, as mentioned in the Company Petition, are as follows: 1) M/s. IMECO Limited, (the Petitioner/Operational Creditor) is a company registered under the provisions of Companies Act, 1956. It is one of the largest engineering Organization in India, inter alia having required expertise and infrastructure for supply and execution of different types of EPC contracts including that for supply and Retro fitment of middle berths on longitudinal side wall of coaches berths etc. It has well equipped manufacturing facility for manufacture and fabrication of pressed, fabricated & welded structures and products including Berths at Kharagpur West Bengal. 2) M/s. BEML, a Mini Ratna Category....
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....ts & aggregates specifying schedules, LD & payments etc. * BEML team will execute the order and IMECO will assist in completing the contract on time. * Payments to IMECO as per the work order will be paid on Back-to-Back basis i.e. in proportion to and in relation to receipt of payment from Supply and Retrofitment of middle berths on longitudinal side wall of coaches and cushioning of berths railways. b. IMECO * IMECO will offer its services to BEML for submission of tenders wherever required or any other services BEML may require. * IMECO will purchase and supply all the new seats and bought out components and other items, and BEML will purchase whenever required for completing the work as per the schedule. * IMECO will mobilise tools and tackles, plant and machinery etc. to undertake the work at various locations and work shop. * IMECO shall undertake the Supply and Retrofitment of Middle berths as well as all allied activities associated with it through its project teams on mutually agreed terms. * The above Project will be carried out at various sites/locations as required by Indian/Zonal Railways. IMECO wi....
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....tive Zonal Divisional Railways on account of being the lowest, was duly accepted. For the purpose of accelerating work and completing the same, the Corporate Debtor had engaged the Petitioner/Operational Creditor for the purpose of performance of the Contract. In total 44 contracts were executed between the Petitioner and the Respondent. (6) While the scope of work in respect of the contracts awarded by the respective Zonal Railways to the Corporate Debtor was nearing completion, on 18.02.2009, the Railway Board communicated the discontinuation of the scheme for provision of middle berths, thereby proposing to terminate the Corporate Debtor's contracts. The Operational Creditor had to take up the domino effect on account of the back-to-back applicability the contracts with respect to the payment terms. (7) On 06.03.2009 the Corporate Debtor had written to the respective zonal Railway Divisions intimating them about the completion of the manufacture of the entire quantity of the middle berths much before the cut-off date as finalized by the Railway Board as on 30.03.2009, and raised the invoices accordingly. In the meantime Railway Board vide its le....
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....reditor within one month from the date of receipt of the funds. However, the judgment has been challenged by the Southern Railway Division by filing APOT No. 79 of 2012 before the Hon'ble High Court of Calcutta and the same is stated to be pending. (11) When the Respondent/Corporate Debtor failed to pay the outstanding amount, a demand notice/invoices demanding payment was issued on 09.08.2017 under Form-3 to the respondent. In pursuant to the demand notice, a reply dated 21.08.2017 was sent by the Respondent raising dispute. (12) A copy of the Certificate issued by the Axis Bank Limited, Banker of petitioner, is filed confirming that BEML has not made any payment towards the undisputed operational debt. Therefore, the present petition is filed, by inter alia, seeking to initiate Corporate Insolvency Resolution Process in respect of Corporate Debtor. 4. The Respondent has opposed the Company Petition by filing a statement of objection dated 13.03.2018 and subsequent pleadings inter alia contending as follows: (1) In pursuant to the demand notice dated 09.08.2017 issued under the provisions of IBC, 2016, they have already given a reply d....
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....ed an application, which is otherwise complete, the adjudicating authority must reject the application, under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. (4) It is stated that payment terms of each of the 12 LOAs executed between the Corporate Debtor and the Operational Creditor explicitly state that the payments will be done on a back-to-back basis, i.e., as and when payments are received from the respective zonal railways. Further, the MOA dated 18.09.2007 has stressed on the back-to-back payment mechanism. The Operational Creditor is estopped from feigning ignorance about the back-to-back applicability in light of its acknowledgement of the same in several correspondences issued by it. The payment alleged to have been made by the Corporate Debtor was in fact towards the tax amounts that were withheld by the Corporate Debtor, while releasing pay....
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....a, the latter has been a bone of contention from the time the materials were handed over by the Operational Creditor to the Railway authority at Gorakhpur. Several correspondences were exchanged in this regard. The payment terms of the LOA pertaining to the North East Railways explicitly mandates 100% completion of fitment in order to obtain payments. (8) As regards the remaining 10 contracts, the materials remain in the warehouse of the Operational Creditor. It is the contractual duty of the Operational Creditor to transport the same to the respective zonal Railways, however in the event of the scheme being withdrawn by the Government, there was nothing they could do to ensure the materials were transferred to the Railways. Therefore, they urged the Tribunal that the petition is liable to be rejected as it is not maintainable. 5. Heard Shri Naresh Balodia, Ms. Varsha Banerjee, Shri Ramesh Kumar Sharma and Ms. Jayashree Parthasarathy, learned Counsels for the Petitioner; Shri K.G. Raghavan, Learned Senior Counsel along with Ms. Ridhima T, Learned Counsel for the Respondent. We have carefully perused the pleadings of both the parties along with extant provisions of th....
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....teria for rejecting the petition under Section 9 of the IBC is existence of dispute and the ground raised by the Corporate Debtor that it is allegedly solvent and CIRP cannot be initiated is contrary to provisions of law. The contention raised by the Respondent regarding the limitation is not at all tenable since the Corporate Debtor has admitted the dues of the Petitioner in writing vide its letter dated 15.05.2015, and thus it gives rise to a fresh cause of action and thus the instant application is deemed to be filed within the limitation period. The Petitioner maintains a running account, and the last payment was received on 11.02.2016. In respect of this contention, they relied upon the judgment of the Hon'ble High Court of Delhi in Bharath Skins Corpn. v. Taneja Skins Co. (P.) Ltd. [RFA(OS) No. 13 of 2002, dated 21-12-2016. (5) It is the right to apply under the IBC accrued only on 01.12.2016 when the provisions of the IBC came into effect as held by Hon'ble NCLAT in the matter of Brijesh Kumar Agarwal v. Punjab National Bank [C.A (AT) (Insolvency) No. 312 of 2018, dated 5-7-2018]. Therefore, the instant Company Petition is within the limitatio....
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....rt at Kolkata in Writ Petition WP.No. 162 of 2012. (9) That even Clause (7) of General Conditions of the Contract, under which contract was given by Indian Railways to the Corporate Debtor, it was categorically provided that any subletting of work by the Contractor shall not establish any contractual relationship between the sub-contractor and the Railway and shall not relieve the Contractor of any responsibility under the Contract. Relevant extract of General Conditions of Contract is reproduced hereunder: Extract of Para 7 of GCC, Indian Railways Assignment of subletting of contract: The Contractor shall not assign or sublet the contract or any part thereof or allow any person to become interested therein any manner whatsoever without the special permission in writing of the Railway. Any breach of this condition shall entitle the Railway to rescind the contract under clause 62 of these conditions and also render the contractor liable for payment to the Railway in respect of any loss or damage arising or ensuing from such cancellation. Provided always that execution of the details of the work by petty contractor under the direct and personal ....
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....hat there is no pre-existing dispute between the 'Corporate Debtor' and the 'Operational Creditors'. 17. An outstanding in the account of a borrower (customer), is a debt due and payable by the borrower to the Creditor. The Creditor is the owner of such debt. Such debt is an asset in the hands of a Creditor, whether 'Secured Creditor' or 'Unsecured Creditor' or 'Operational Creditor' or 'Financial Creditor'. The creditor can always transfer its liability of debt to a third party. Therefore, the Appellant cannot take advantage of agreement of transfer of liability of debt of 'Corporate Debtor' to Mr. Dinesh Arora." 19. The 'Corporate Debtor' is a separate entity under Section 9 of the Companies Act, 2013. The order was given by the 'Corporate Debtor' based on which the supply was made to the 'Corporate Debtor' by the 'Operational Creditors', who received the supply on behalf of the 'Corporate Debtor' is an inter se dispute amongst the Directors and the Staff Officers or the Employees of the 'Corporate Debtor'. In absence of privity of contract between....
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....ack-to-back payment mechanism. The Operational Creditor is estopped from feigning ignorance about the back-to-back applicability in light of its acknowledgement of the same in several correspondences issued by it. (3) It is stated that the correspondence dated 15.06.2015 is in fact the Corporate Debtor's response to the Operational Creditor's RTI application dated 21.04.2015. The amount of Rs. 43,08,96,214/- that has been stated to be due as on 31.03.2009 in the RTI response has been cleared in the course of the last six years as and when the payments were received and it is completely distinct from those claimed through the present insolvency proceeding. (4) It is stated that the relief sought in the present company petition sought by the Operational Creditor is also with respect to recovery of outstanding dues as against the very same contracts that were a subject matter of the said writ petition but it is with regard to two out of the 12 contracts. And the matter is still subjudice before the Hon'ble High Court of Calcutta in APOT No. 79 of 2014 against the Learned Single Judge's judgment dated 18.10.2012 in WP No. 162 of 2012. It is also pointe....
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....f clarity, it would be apt to reproduce Section 9 in its entirety." "9. Application for initiation of corporate insolvency resolution process by operational creditor:- (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall he filed in such form and manner and accompanied with such fee as may be prescribed. (3) The operational creditor shall, along with the application furnish- (a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining acc....
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....titute to a recovery forum. It is also laid down that whenever there is existence of a real dispute, the IBC provisions cannot be invoked. Para 34 Therefore, the Adjudicating Authority, while examining an application under Section 9 of Code, will have to determine: i. Whether there is an 'operational debt' as defined exceeding Rs. 1 lakh? ii. Whether documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? iii. Whether there is existence of dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before receipt of demand notice of the unpaid operational debt in relation to such dispute? If any one of afore said conditions is lacking, the application would have to be rejected. Para 42 "This being the case, is it not open to the adjudicating authority to then go into whether a dispute does or does not exist? It is important to notice that Section 255 read with the Eleventh Schedule of the Code has amended Section 271 of the Companies Act, 2013 so that a company being unable to pay its debts is no longe....
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....adjudicating authority has to reject the application." 8. The Hon'ble Supreme court in B.K. Educational Services (P.) Ltd. v. Parag Gupta & Associates and Associates (2018 SCC Online SC 1921, has inter alia held that provisions of Limitation Act will apply to proceedings or appeals before NCLT/NCLAT. Section 238A of the Code make provisions of Limitation Act would apply to proceedings under the Code. 9. In the light of provisions of code, and the law as cited above, the instant case has to be examined as to whether it is a fit to initiate of Corporate Insolvency Resolution Process (CIRP) as sought for. As detailed supra, in order to participate in Tenders being floated by the Railways, a Memorandum of Agreement (MoA) dated 18.09.2017 was executed between the Petitioner and the Respondent, wherein, it is inter alia, decided that the Petitioner along with Respondent have jointly take up the contracts from the Railways involving Supply and Retrofitment of middle berths on longitudinal side wall of coaches and cushioning of berths in question. As per Article 4 of the Agreement, as mentioned above, it is BEML, who would participate and orders would be obtained as per law from ....
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....ed by the non-payment outstanding dues in respect of tenders/contracts, has filed the said petition, by seeking to pay the amount by the BEML. However, the Hon'ble High Court after considering the entire issue, has directed to pay the outstanding amount only on receipt of the amount from the Railways. Aggrieved by the order of single bench, the Railways has filed Appeal as stated supra. The contention of the Petitioner that Writ Petition relates to only 2 contracts and it do not relates to the sub-contracts/tenders as raised in the instant Company Petition is not tenable. The basis of business relationship between the petitioner and the respondent depends on the same MOA dated 18th September, 2007. As stated supra, the Hon'ble Court has inter alia held payment to the petitioner would arise only after receiving its dues from the Railways. Moreover, as per MOA stated supra, payments will be basing on back-to-back basis and by accepting the same, the Hon'ble High Court also directed the Railways to pay its dues to the BEML and thereafter, directed the BEML to pay to the petitioner herein. 12. Therefore, even though dues/claims are pending with BEML/Respondent, the same ....