TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 868
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.... the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as the 'Code'). By the Impugned Order, the Learned Adjudicating Authority has allowed the Application preferred by 'M/s. S.S. Engineers & Anr.' (hereinafter referred to as the 'Respondent/'Operational Creditor'), and observed as follows: "16. Thus, considering the legal framework as a whole, i.e., provisions of section 3(23) along with other provisions of the IBC, 2016, in our considered view, in the present context, the term "person" in our considered view would include sole proprietorship firm as well being eligible to file petition under section 7 or 9 under IBC 2016. We further observe that these aspects and legal provisions were not argued in cases relied on by the Corporate Debtor while deciding the issue as regards to maintainability of the application by the sole proprietorship firm, hence, we most humbly submit that such decisions are not applicable. 17. As regards the pre-existing dispute, we have gone through all the facts stated by the Corporate Debtor but having regard to the quantum of claim in respect of supplies order, in our considered view, the amount of disputed claim due and payable will be ....
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....sis of the provisional statement prepared and filed by the Corporate Debtor itself. At the cost of repetition, we again state that this statement takes into consideration all these disputes raised by the Corporate Debtor, hence, the amount payable by the Corporate Debtor remains in positive which is more than one lakh ultimately that too when we have considered the project as a whole against the claim of Operational Creditor of undisputed dues of supply portion only. We have also gone through the emails which have been taken into consideration while preparing this provisional statement. Hence, on the basis of material on record, it cannot be said that any other dispute remains to be considered. Apart from this, the fact which is crucial to note is that the Corporate Debtor has awarded new work orders to the Operational Creditor subsequently which means that all the disputes relating to this contract had been considered/resolved and this fact has remained undisputed. Further, Form "C"s have been issued as late as up to March 2018. We further make it clear that we have analysed the provisional statement with limited objective of admissibility of this application and this analysis can....
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.... on Annexure 8 and Annexures 16-93. It is on account of abandoning of the project by the 'Operational Creditor' that the 'Corporate Debtor' had suffered huge losses and made excess payments to the sub-contractors. The 'Corporate Debtor' had cleared all outstanding dues in a timely manner as was agreed to by the first Respondent in the Minutes of the Meetings. The 'Corporate Debtor' invoked the Arbitration clause seeking to refer the 'disputes for adjudication by an Arbitrator'. Two Demand Notices were issued by the first Respondent one on 30.08.2017 and the other on 25.07.2018, both raised a demand for payment in relation to the very same 8 Purchase Orders seen in the letter dated 09.07.2016. The Learned Counsel placed reliance on the ratio of Hon'ble Supreme Court in the following Judgments: 'Mobilox Innovations (P) Ltd.' Vs. 'Kirusa Software (P) Ltd.' (2018) 1 SCC 353. 'K. Kishan' Vs. 'Vijay Nirman Co. (P) Ltd.' (2018) 17 SCC 662. The Application for initiation of CIRP is not properly authorised as the business of the sole proprietorship is not a legal entity. The 'Corporate Debtor' acts as the extended limb of the Central Government and cannot be put under CIRP. 3. ....
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....re was an Arbitration clause in the tender and does not in any manner bar any initiation of Insolvency Proceedings. The 'Corporate Debtor' did not reply to the Notice dated 09.07.2016. There is also no Reply to the first Notice under Section 8 of the Code, which is dated 30.08.2017. The second Notice was replied to by letter dated 07.08.2018, in which counter claim for damages was made which is wholly a malafide and a frivolous attempt by the 'Corporate Debtor' and is also otherwise 'barred by Limitation'. Assessment: 4. A perusal of the 'Tender Enquiry' dated 27.06.2012, the 'Instructions to bidders', 'General Conditions of Contract' and 'Special Conditions of Contract', show that the tender is for 'design, engineering, manufacture, procurement, supply, transportation to site, transit and storage, insurance, storing at site, project management, civil work, mechanical works, electrical works, instrumentation work, erection, installation, interfacing, testing, commissioning, performance testing, putting into successful commercial operation and handing over additional equipment goods, and material centrifugal section including civil foundation for enhancing the boiling house capaci....
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....perational 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." 11. In the instant case, the correspondence on record evidences that there indeed was a delay in the performance of the Contract and the final Notice was issued on 01.12.201....
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....e commissioning date subject to immediate and prompt payment made by the 'Corporate Debtor'. The 'Operational Creditor' had always shown their willingness to commission and perform their obligations and their senior personnel were stationed at the site of the 'Corporate Debtor' and additional staff always visited from time to time. It was only because of pendency of payment of the dues that the 'Operational Creditor' had faced difficulties in executing the ongoing Project. The 'Corporate Debtor' was making ad hoc payments but not as per the bills raised. The Learned Counsel relied on the emails dated October 12, 2013, November 2, 2013 and November 14, 2013 to buttress his contention that despite repeated reminders, the 'Corporate Debtor' never responded. The 'Corporate Debtor' engaged contractors on their own to commission the plant after the receipt of all the supplied material from the 'Operational Creditor' without their approval or consent and made exorbitant payments to such contractors. No consent has been given to the 'Corporate Debtor' to make such payments to the subject contractors directly and therefore such an act was at their own risk. Letters dated May 05th, 2014 and ....
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....n account of which huge losses were incurred. 16. On 29.03.2014, it is the case of the 'Corporate Debtor' that the 'Operational Creditor' had abandoned the site and therefore, the 'Corporate Debtor' had to take over the Project and make all the relevant payments to the vendor. The material on record shows that on 28.04.2014 another letter was addressed by the 'Corporate Debtor' to the 'Operational Creditor' citing all the inadequacies in the performance of the contract. On 19.06.2014, the 'Operational Creditor' once again raised the payment for Rs. 13.34 Crores. 17. Section 8 of the Code reads as hereunder: 8. Insolvency resolution by operational creditor.-(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor- (a) existence of a dispute, [if any, or] record of the pendency of ....
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....K. Kishan' Vs. 'Vijay Nirman Co. (P) Ltd.' (2018) 17 SCC 662, has observed as follows: "19. After referring to Section 8, the judgment in Mobilox Innovations case went on to hold that what is important is that the existence of the dispute and/or a 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. 20. The adjudicating authority, therefore, when examining an application under Section 9 of the Code, will have to determine the following: (Mobilox Innovations case, SCC p. 394, para 34) "34. ... (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 operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart fr....
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....amount of say, two lakhs of rupees, cannot possibly jeopardise an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations, being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of rupees two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. We repeat that the object of the Code, at least insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a real dispute between the parties as to the debt owed does not exist.................................................................. 27. We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing....