TaxTMI 
TaxTMI 
2020 (12) TMI 242
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....rom time to time for payment of its outstanding dues which included principal sum as well as interest for the delay in payment. However, due to non-payment of its total dues, Operational Creditor filed this application u/s 9 of IBC, 2016 on 20.12.2018. 2. The learned senior counsel appearing on behalf of the Operational Creditor narrated these basic facts and drew our attention to the letter of award dated 27.03.2015 (copy of which is placed at page 13 to 16 of the petition). Thereafter, he referred to summary of bills raised and payments received as well as the balance amount due. The learned senior counsel further submitted that in all 14 running bills were raised out of which 13 bills were certified in toto. The amount payable of these 13 running bills after deduction of TDS and seigniorage was 58.12 crores approximately against which payment of Rs. 55.89 crores approximately was made and a sum of Rs. 2.24 crores approximately was outstanding which was due and payable by the Corporate Debtor and for non repayment thereof this petition was admissible as this amount was much more than Rs. 1 Lakh being threshold limit for filing of an application u/s 9 of IBC, 2016. For this pro....
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....Chemicals (P) Ltd. Vs. Shakti Bioscience Limited. 4. As regard to the objections raised by the Corporate Debtor for giving a false affidavit u/s 9(3)(b) of IBC, 2016, it was contended that the affidavit, in fact, referred to Demand Notice as it was clearly mentioned therein that no notice of dispute was given by the Corporate Debtor within the time as stipulated under the IBC, 2016. In this regard, he gave the chronology of events and sequence of dates relating to delivery of notice u/s 8 of IBC, 2016 and the date of receipt of reply thereto from the Corporate Debtor. It was also contended that there was no suppression of facts. In respect of his contentions, he placed reliance on the following judicial decisions. (i) (2018) 2 SCC 674 Macquarie Bank Ltd. vs. Shilpi Cable Technologies Ltd. (ii) Company Appeal (AT) 17 of 2020 Sangeeta Goel vs. Roidec India Chemicals Pvt. Ltd. 5. Learned senior counsel for the Corporate Debtor, at the very outset, pleaded that it was a case of pre-existing dispute. In this regard, he drew our attention to e-mails written by the Corporate Debtor to the Operational Creditor during the period from 01.02.2016 to 03.04.2017. Thereaf....
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....ision of NCLT, Chennai Bench in the case of OPG Metals (P.) Ltd. vs. Pavai Alloys & Steels (P.) Ltd. (taxman.com251, NCLT-Chennai) for the proposition that where affidavit filed u/s. 9(3) (b) of IBC, 2016 was wrong, the application filed u/s 9 was liable to be rejected for suppression of material fact. As regard to reliance placed by the Operational Creditor on the certificate dated 17.04.2017 and letter dated 23.10.2018, the learned senior counsel contended that the Corporate Debtor and Operational Creditor were related to each other and this certificate was issued as accommodation gesture, hence, it could not be used against the Corporate Debtor. The learned senior counsel, thereafter, again pleaded that there was pre-existing dispute much prior to the issue of Demand Notice u/s 8 of IBC, 2016, hence, such application was not maintainable. For this proposition, the learned senior counsel placed reliance on the order of Hon'ble National Company Law Appellate Tribunal (NCLAT) in the case of Karpara Projects Engg. (P.) Ltd. vs. BGR Energy Systems Ltd. taxman.com502 and in the case of BR Construction vs. G.R. Infraprojects Ltd. para 27. He also placed reliance on the decision of ....
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.... the basis of Bills raised by the Corporate Debtor. As per the subcontract, supervision and quality check of the said work i.e. subcontract work is within the scope of main contractor i.e. Corporate Debtor. Retention money @ 5% has to be recovered which is to be released against the submission of unconditional Bank guarantee as and when the same is released to the Corporate Debtor by the client. It is noted that the Operational Creditor raised 14 RA Bills starting from 22.08.2015 till 25.01.2017. It is also noted that payments have been released by the Corporate Debtor from time to time. 9. It is further noted that along with all running account bills schedules/annexures of work done along with bill of quantity have been attached. It is also noted that in each running bill period of work done is also mentioned. It is also noted that stipulated scheduled date of completion of project is 26.03.2018, however, the fact is that the Operational Creditor remained part of the project only up to 25.01.2017. As per the Operational Creditor work for the value of Rs. 69.19 crores approximately was done and which has been billed in 14 running account bills. Bill No. 1 to 13 has been duly cer....
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....putes. Thus, in our considered view, for this reason alone, this application is liable to be admitted. 12. The next contention raised by the Operational Creditor is that unqualified work done certificate was issued by the Corporate Debtor at the request of the Operational Creditor. It is noted that certificate of work experience dated 17.04.2017 stating actual cost/value of work completed at Rs. 69.19 crores approximately has been issued by the Corporate Debtor. Subsequently, the Ircon International Limited wrote a letter dated 7th/8th October, 2018 addressed to the Corporate Debtor for verification of this work certificate issued by the Corporate Debtor on 17.04.2017. The Corporate Debtor vide its reply dated 23.10.2018 confirmed that the experience certificate was issued by the Corporate Debtor to the Operational Creditor on the said date. Learned senior counsel for the Corporate Debtor tried to show that such certificate was incorrect as total amount of work done shown in the certificate was 69.19 crores approximately but the date of completion of said work was mentioned as 31.03.2016 which was not correct as this value was for work done up to 25.01.2017. However, considering....
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....e-mail of 07.03.2017 which is the basis of such deductions/recoveries, hence, differences stand resolved. It is further noteworthy that in this computation, the value of work done by the Operational Creditor has been accepted by the Corporate Debtor at Rs. 65.50 Crores which is more than the amount of work done and billed by the Operational Creditor in 13 running bills, hence, it is apparent that running account bill No. 14 has also been taken into consideration. It is also noted that amount of retention money of Rs. 3.27 crores approximately has been stated to be kept on hold and to be released on successful completion of diffeliability period of the project. Thus, this amount by no stretch of imagination can lose its character of money belonging to the Operational Creditor which is due and payable and the same cannot be an instance of dispute under any circumstances. Thus, if this amount is excluded from the recovery and deduction, the outstanding sum immediately payable by the Corporate Debtor to the Operational Creditor works out to Rs. 1.20 crores approximately i.e. difference between the amount of retention money and the amount excess paid amount work out by the Corporate Deb....
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....r and consequences of such abandonment, if any, have to be dealt in accordance with the terms and conditions of the contract between the parties and, as stated earlier so, no material has been brought on record to show that any action has been taken by the Corporate Debtor against the Operational Creditor on this score. Thus, such plea has got no bearing on the present proceedings. 15. Another defence was taken that the payment was to be released by the Corporate Debtor to the Operational Creditor within the seven days from the receipt of payment from the Government of Andhra Pradesh. During the course of hearing, the fact of receipt of payment from Government was admitted, however, details of such payments have not been brought on record. Further, there is no bar in the contract that the Corporate Debtor cannot make payment to the Operational Creditor from its own resources. As such modus operandi of the payment to be released only after receipt of payment has been provided for proper cash flow management. Apart from this, it has not been disputed by the Corporate Debtor that it has not received the payments from the Government of Andhra Pradesh for the milestones of working co....
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....pute 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. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. 45. Going by the aforesaid test of "existence of a dispute", it is clear that without going into the merits of the dispute, the appellant ha....
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....Hon'ble Supreme Court has said that such defense should not be feeble legal argument or an assertion of fact unsupported by evidence. Further, such defence should not be spurious or merely bluster, frivolous or vexatious. It should not be a made to believe story. However, merits of the case need not to be a factor to decide the matter. These observations itself define the scope that the Adjudicating Authority has to look into the material produced before it and to analyze the same to reach some conclusion. It can neither be precluded from doing so nor it is precluded by these observations, hence, the Adjudicating Authority is well within its jurisdiction when it analyzes the accounting records, correspondences, contract etc. as produced by the parties to arrive at a conclusion as regard to nature and existence of dispute. This exercise may require some deep analysis in some case or in some cases it may be a very minor examination based upon the facts of each case and material produced by the parties. In cases, in our considered view, where greater analysis is required then in that situation, such analysis would not amount to roving inquires or exercise beyond jurisdiction as it....
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.... such type of correspondences generally take place. Such projects also provide significant scope for various disagreements arising between the sub-contractor and the contractor. Thus, in the course of execution of the projects/works such coordination exercise is essential one and any such communication between the parties as such cannot be termed as dispute, particularly, when bills relating to such works are cleared and whatever settlement/recovery/deduction is to be made is mutually made. Thus, in such situation, there remains no dispute by mutual process adopted by the parties. In our view, terms and conditions of the contract are also a big factor to determine when a disagreement constitutes a dispute and resolution thereof by way of specified mechanism. Thus, the mere fact of notifying a claim does not automatically and immediately gives rise to a dispute. A dispute does not arise unless and until it emerges with the claim which is not admitted. We do not hesitate to state that litigation has not generated any hard and fast universally applicable legal rules as to what is a dispute and it merely offers some guidance. We may also add that legal framework under which proceedings....
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.... by the Corporate Debtor in the chart of such e-mails that what action had been taken and by whom. It is particularly to be noted that these correspondences are in relation to the work done by the Operational Creditor for which running bills have been raised by the Operational Creditor and which have duly been certified and payments have also been released. Last e-mail has been written on 07.03.2017 after the Operational Creditor had already left the project. Even in this mail amounts to be withheld have not been indicated. In earlier e-mails only three mails mentioned the amount which could be recovered from the Operational Creditor that too is meager as compared to work done. Further, response of Operational Creditor has not been provided. These Bills have raised from 22.08.2015 to 25.02.2017. These are 14(fourteen) in numbers. Strangely, no documentary evidence has been brought on record to the effect that Government of Andhra Pradesh also made recovery from Corporate Debtor, wherever applicable. It has also not been established that any payment had been withheld by the Government in respect of work done by Operational Creditor. Further, if these facts are considered with work e....
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....dispute but not within stipulated time. Thus, there is no misstatement by the Operational Creditor as the Corporate Debtor has itself admitted that such notice was delivered beyond 10 days from the date of receipt of notice of demand u/s 8 of IBC, 2016. 25. This factual situation, however, leads to another dimension. In the case of operational debt, the proceedings for initiation of CIRP u/s 9 are materially different from proceedings u/s 7 of IBC, 2016 as in the case of claims of Operational Creditor delivery of notice of demand u/s 8 of IBC, 2016 to the Corporate Debtor before filing of application is a must. It is an incurable defect. Thus, an application filed u/s 9 of IBC, 2016 without delivery of notice of demand u/s 8 of IBC, 2016 on the Corporate Debtor then such application is liable to be rejected at the very outset. The Petitioner/Applicant cannot be allowed to serve such notice after the filing of application u/s 9 under any circumstances. Correspondingly, the Corporate Debtor is under an obligation as per provisions of Section 8(2) r.w. Section 8(2)(a) of IBC, 2016 to reply to such notice of Operational Creditor within a period of 10 days from the date of receipt of....
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....e existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the self-same 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor or send an attested copy of the record that the operational creditor has encashed a cheque or otherwise received payment from the corporate debtor (Section 8(2)(b)). It is only if, after the expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corporate debtor or notice of dispute, that the operational creditor may trigger the insolvency process by filing an application before the adjudicating authority under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the Ins....
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....perational debt (Section 9(5)(ii)(b), or the creditor has not delivered the invoice or notice for payment to the corporate debtor (Section 9(5)(ii)(c)). It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility (Section 9(5)(ii)(d)). Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected (Section 9(5)(ii)(e)). 25. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding Rs. 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid ope....
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....n the case of Innoventive Industries Ltd. Vs. ICICI Bank and Ors. held in para 29 are reproduced as under: 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. Thereafter, Hon'ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd. and Ors. vs. Union of India and Ors. held as under: 24. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central....
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....tension of time which is not the case here. Hence, ratio of this decision is also not applicable. In the case of Battula Anjaneyulu vs. DBM Geotechnics & Construction (P.) Ltd., the Corporate Debtor had already filed a legal suit in the Mumbai High Court which is not the case here. There were several others issues of imposition of liquidated damages, termination, forfeiture of security deposits, earnest money, balance payment, invocation of bank guarantee, blacklisting etc which is not the case here. Thus, this decision also does not help the cause of Corporate Debtor. 27. The Operational Creditor has proposed the name of Interim Resolution Professional (IRP) i.e. CS Mr. Arvind Gaudana having its registered number IP Reg. No. IBBI/IPA-002/IP-N00283/2017-18/10841 who has given his consent and no disciplinary proceeding are pending against him. Hence, we can appoint such person as IRP. The application is otherwise complete and defect free and it also complies with other requirements of IBC, 2016 r.w. regulations made there under. 28. IA 102 of 2020 has been filed by the Corporate Debtor regarding service of reply to the demand notice on 11.12.2018. In the said application the p....
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....2); (d) The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. v. The supply of essential goods or services to the corporate debtor as may be specified shall, not be terminated, suspended, or interrupted during moratorium period. vi. The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. vii. The order of moratorium shall have effect from the date of admission till the completion of the corporate insolvency resolution process. viii. Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. ix. Necessary public announcement as per Section 15 of the IBC, 2016 may be made. x. CS. Mr. Arvind Gaudana, IP Registration No. IBBI/I....