TaxTMI 
TaxTMI 
2022 (1) TMI 868
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...., preferred this Appeal under Section 61 of 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 vi....
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....ces of the case, hence, it has been so analysed on the basis 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 o....
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....es of the Meetings held with the 'Operational Creditor'. In support of his contention, the Learned Counsel placed reliance 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 t....
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....laim. Further, there is no defense as against the sum which has been retained against the Purchase Orders. The Arbitration Notice issued on 09.07.2016 was for the recovery of the amount as there 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, perf....
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....efore, that once the operational creditor has filed 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. 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 adjud....
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....putes. It is the case of the 'Operational Creditor' that there is no 'Existence of Dispute' prior to the issuance of Demand Notice. In their email dated 08.04.2013, in relation to the Minutes of the Meeting, the 'Operational Creditor' had clarified that work progress is subject to prompt payments. July 31, 2013 was decided as the 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 ....
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....on, for which the 'Operational Creditor' cannot be held responsible. 15. The 'Operational Creditor' vide email dated 02.02.2014 i.e. one month after the aforenoted letter sought for release of payment. Once again the 'Corporate Debtor' on 04.02.2014 and on 28.02.2014 reiterated the poor performance of the 'Operational Creditor' on 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 d....
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....urther stated that they are ready to settle the disputes through Arbitration. A brief perusal of the documents on record evidence that the 'Operational Creditor' admitted that the contract was on lumpsum turnkey basis and stated in the Arbitration 'Notice' that the 'Corporate Debtor' had raised issues relating to non-adherence of the terms of the contract. 20. The Hon'ble Apex Court in '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....
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....e 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." 22. Following this judgment, it becomes clear that operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small 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 op....
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....rs.' AIR 2021 SC 5249 and in 'Dena Bank' Vs. C. Shivakumar Reddy and Ors.' (2021) 167 SCL 453 (SC). Though both sides have strenuously argued regarding whether 'C' Forms, issued in acknowledgement of completion of sale, would amount to 'Acknowledgement of Debt' as envisaged under Section 18 of the Limitation Act, 1963, we do not wish at this juncture, to go into those aspects as we are of the considered view that there is a 'Pre-Existing Dispute' between the parties and we allow the Appeal. 24. This Appeal is allowed and the Order of the Adjudicating Authority dated 12.02.2020 is set aside. The Adjudicating Authority will now close the proceedings. The Corporate Debtor is released from all rigours of law and is allowed to function independently through its Board of Directors with immediate effect. 25. The Registry is directed to upload the Judgement on the website of this Tribunal and send the copy of this Judgement to the Learned Adjudicating Authority (National Company Law Tribunal, Kolkata Bench) forthwith. ============= Document 1 38 ..་ད ANNEXURE-2 Exhibit-'e' 2.8 HBL BIOFUR B à¤à¤šà¤ªà¥€à¤¸à¥€à¤à¤² à....
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....n, installation interfacing, testing, commissioning, performance testing, putting into successful commercial operation and handing over additional equipments, goods, and material, essential spares as listed complete in all respect on Lumsum Turnkey basis for enhancing the capacity of Centrifugal Section for enhancing the capacity of Boiling house from 1750 TCD to 3500 TCC at Lauirya as per the attached lender documents Lumpsum /Turnkey 18406586.00 18406586.00 INCLUSIVE OF TAXES, DUTIES ASID LEVIES. Detalied break up including tax is given aelow Supply Portion Works contract portion Service portion Total 15701186.00 1581800.00 1123600.00 18406586.00 CENVAT Credit & Input Tax Credit break up is given below CENVAT Credit Input Tax Credit Total Value of PO: e. One Crore Eighty Four Laits Six Thousand Five Hundred and Eighty Six only ry Period / ieve mens from the date of above refered LO! 1878720.00 327866.00 Completion period: Delivery Location HB. Plant Laury at Village Lauinya, Laurya Bagaha Highway, Dist-West Champaran, Bihar 845453. Delayed Delivery As per tender....
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....owever, we find hardly any improvement in the situation. Your dismal performance still continues. There is no responsible SSE's representative at site till date. You have deputed recently one person for both the site. However, we find he is unable to understand the issues and we are finding him also helpless to handle your issues at both the location without having him any authority. At such a crucial juncture, you need to depute two senior level person dedicated at each site with adequate authority. No proper supply of welding rods, oxygen gas other consumables at sites. We find work is suffering many times due to non-availability of welding rod, gas cylinders and consumable at site which is ultimately causing waste of time, manpower and hours of costly equipments like Crane, hydra etc. There is no store for keeping consumable/material is made SSE till date. There is no office for sitting SSE'S supervisor etc. made by SSE till date, which is SSE'S PO obligation. There is shortage of staging structural material at both the sites. You have not even two months left for Mechanical completion and you do not have complete staging material at site. You....
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....ll 31.7.13, there was no outstanding with HBL. On the contrary there was a recovery from SSE as per revised the payment terms. We have received some bills after 31.7.13, same are under processed and reconciliation. Please be assured that balance payment if any will be released as per the payment terms of PO. 12. Please also note that we find very difficult to contact your senior persons. For ex. Before writing this letter, undersigned tried to speek to all the three senior level people Mr.Bhad, Mr.katiyar & Mr. Prakash. Left SMS messages. However, non of them bothered to return the call till writing this letter. This indicates of the level of seriousness about the commitments made by SSE. We once again regret that there is lack of seriousness on SSE's part on fulfilling their PO commitments and commitments made by them during the meetings. It is matter of serious concern that they are not serious about consequential losses which their customer, HBL is going to face on account of their failure. We once again earnestly request you to take your commitments seriously and not to take us at ransom at this critical juncture. You will appreciate that our....
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....o do the same inspite of our several warnings to you, resulting in inordinate delays and losses to us. As already conveyed to you, please once again note the following: 1. You have been raising the issue of so called outstanding payment. However, same has been made clear to you several times that payments are being made by us as per the PO terms in stipulated time. We have sent you the payment statements and proved many times that your claims of outstanding payments are false. We have noted with serious concern that you have not been honouring your offered payment terms which are reflecting in PO. 2. You were supposed to raise the bills on monthly basis as per PO clause 7.b of GTO As completion schedule, you should have not raised more than five bills/invoices for cash package. However you have not followed the same and raised several bills/ invoices, raising partial invoices for incomplete equipments in several stages. This has resulted in voluminous réconciliation and RY E Page 1 of 4 BENGAL 14934 TE 15.12.2018 OF WEST Certified to be True Copy For SS ENGINEERS 666 Document 5 6677 complications at every sta....
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....eighbouring mills & mills in Bihar have started before 13.12.2012. However you could not complete the work in packages awarded to you till date and could not start our both plants with new equipments supplied by you till date. Finally we had to start our mills with our old equipments at lesser capacity on 23rd Dec'13 & 24th Dec'13 respectively. 9. You have made incomplete supplies of many equipments and you have forced us to get the same completed by making direct payment on your risk and cost basis at both the locations For. ex. SS tubes of evaporator set and pans., Pipe lines, pipe fittings and valves, plates, structure etc. for Evaporators, pans, heaters etc. were supplied incomplete. We were forced to purchase the major portion of balance material on risk and cost basis as you have not supplied the same in time and made us land in crisis at every stage of work. This is gross violation of terms of contract and clear case of backing out on your part. Please note that material procured by us directly or on your advice and payment made directly or on your advise will be debited to you as per the provision of PO including clause no. 5.f of GTC. ....
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....usness on your part to complete the pending work and commission them. There is no follow up from your side. 14. You have provided inadequate manpower for electrical erection work. Still your electric cabling work is not complete. Cable of 1 No. Injection pump motor is laid by our elect. team to start the same. No cables have been laid to another pump till date. Similarly cabling work for many equipments are still balance at both the locations. We had to deploy additional manpower on your risk and cost basis for getting work progressing. This is the violation of clause 1.2 of SCC of PO. 15. Electrical Panels supplied by you are of poor quality. You have forced our consultant for to give you unconditional clearance but now we find there are several anomalies in panel. Even for heavy motors like Injection pump motors and raw juice pump motors there is no VFD provided. For such a size of motors, as per standard practices VFDs are necessary. You have not even kept provision for integration of MCC panels with DCS system. This is also the violation of clause 1.2 of SSC of PO. Please note that necessary deductions on account of VFDS will be made from you....
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.... for termination of POS placed on you as per the clause no. 12 of GTC. 23. Please refer clause 23 of SCC "OWNER'S RIGHT TO WITHHOLD PAYMENT", which provides us every right to hold your payment as you have committed default in making short supply and not made the same good, defective supply not rectified by you, defective work not remedied by you and violated statutory norms. There are several defaults committed by you at both the sites and not completed the work in stipulated time which has caused us huge losses. Considering your non-seriousness, finally, we had to start operating our old equipments and start crushing at low rate though same was not viable to us. We are losing recovery and huge revenue due to low power generation due to low crushing than anticipated. Please once again note that we have already lost half of the crushing season so far but still most of the equipments supplied by you are not complete and are not ready for commissioning. Please note that we have already given you the notice for commissioning and performance trial. Deadline for commissioning is already over and dead line for performance trial is expiring on 10th Ja....