TaxTMI 
TaxTMI 
2025 (8) TMI 335
X X X X Extracts X X X X
X X X X Extracts X X X X
....ating Authority has admitted the Section 9 application filed by the Appellant- Operational Creditor and admitted the Corporate Debtor the rigours of Corporate Insolvency Resolution Process ("CIRP" in short). Aggrieved by the impugned order, the present appeal has been preferred by the Appellant. 2. Coming to the brief factual matrix of the case at hand, we notice that the Corporate Debtor-Pravin Electricals Pvt. Ltd. had been awarded two contracts by the Maharashtra State Electricity Distribution Company Ltd. ("MSEDCL" in short) on 07.03.2018. While one contract was for supply of equipment and material for which an Agreement for Supply was entered into for an amount of Rs 33.33 Cr., the second contract was for installation of plant and equipment for which an Agreement for Services was entered into for an amount of Rs 9 Cr. In terms of the two contracts, the project was to be completed within a span of 18 months. The contracts allowed the Corporate Debtor to sub-contract the works to another party. The Appellant-Corporate Debtor sub-contracted the work to Akshaya Engineering Works Pvt. Ltd.- Operational Creditor. The Appellant had awarded two Letters of Award ("LoA" in short) in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as completed as per terms of the contract but relied on an undated and unsigned extract of this certificate which was not even issued on letterhead of MSEDCL. In any event, the Respondent could not have obtained HOTO certificate as they had failed to erect, test and commission all the materials supplied up to the standards of satisfaction as set out by MSEDCL. Since reconciliation of running accounts was still pending with MSEDCL and financial account statement was yet to be received from MSEDCL, the balance payments of 40% and 10% amounts have been legally withheld. It has been the consistent stand of the Appellant including in their reply to the Demand Notice that they did not owe any debt to the Operational Creditor. Reliance has been placed on the judgment of Sabarmati Gas Ltd. VS Shah Alloys Ltd. (2023) 3 SCC 229 to contend that in case reconciliation has not taken place, the dues payable are liable to become a subject of pre-existing dispute. 4. Elaborating further it was submitted that it was incumbent for the Operational Creditor to meet the satisfaction of MSEDCL which it failed to fulfil. Various problems had cropped up in installation and supply including quality of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the invoices. 7. It has also been stated that in the e-mail dated 02.05.2019, the Corporate Debtor had acknowledged their liability to pay Rs 1.70 Cr. towards 7 invoices. Further, the Corporate Debtor in their own reply dated 25.02.2022 to the Demand Notice received from the Operational Creditor has admitted that they were unable to pay the Operational Creditor since they had not received payment from MSEDCL. This goes to show that the Corporate Debtor had not only admitted their liability but also conceded that their inability to pay was not on account of any dispute with the Operational Creditor but on account of non-receipt of payment from MSEDCL. It was asserted that inability on the part of the Corporate Debtor to receive payment from MSEDCL does not confer any right upon them to withhold payments due to the Operational Creditor under the sub-contract. The liabilities which arose under sub-contract was independent of the happenings in the contract between Corporate Debtor and MSEDCL. It was vehemently contended that the stand taken by the Corporate Debtor that payment to the Operational Creditor was contingent upon receipt of payment from MSEDCL under a "pay when paid" ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC 353. 12. At the outset it will be both useful and relevant to refer to paras 33, 51 and 56 of Mobilox judgment supra which is extracted as hereunder: - "33............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 maybe. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the self-same 10 days sent and 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 an operational creditor has encashed a cheque or otherwise received payment from the corporate debt [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(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e there was no protest or demur by the Corporate Debtor at the time of acceptance of the 17 bills submitted by them, it shows that the Corporate Debtor had unequivocally admitted their liability and non-payment thereof led to default on the part of the Corporate Debtor. Submission was pressed that correct finding has been returned by the Adjudicating Authority in that the Corporate Debtor had accepted their liability in their e-mail dated 02.05.2019 containing the Ledger Statement of the Operational Creditor in their own books for an outstanding balance of Rs 1.70 Cr. No contest or protest was raised on the residual amount to be paid to the Operational Creditor. 14. Coming to our findings, we notice that both the Operational Creditor and the Adjudicating Authority have primarily relied on the e-mail dated 02.05.2019 to conclude that the Corporate Debtor had acknowledged their liability to pay Rs 1.70 Cr. towards 7 invoices. Subsequent emails exchanged between the two parties have been lost sight of by the Adjudicating Authority. It would be pertinent to point out that the Operational Creditor in their e-mail dated 27.07.2021 had sought balance confirmation of their ledger as was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the Operational Creditor was accepted by the Corporate Debtor as due and payable or not. 18. Be that as it may, we now address the argument canvassed by the Operational Creditor that the inability of the Corporate Debtor to pay was not on account of any dispute with the Operational Creditor but on account of non-receipt of payment from MSEDCL. Thus, this is not a case that the debt was not due but one wherein the Corporate Debtor was unable to pay the Operational Creditor since they had not received payment from MSEDCL as is clearly manifested in the Reply to the Demand Notice sent by the Corporate Debtor on 25.02.2022. It was further contended that the contract between the Corporate Debtor and Operational Creditor created separate privity of contracts and independent obligations and cannot be enmeshed with the liabilities and obligations arising out of the contractual arrangement between Corporate Debtor and MSEDCL. Both these contracts being separate contracts in the eyes of law, parties were entitled take recourse against each other to enforce their rights under the contract in which they have privity. Hence the Operational Creditor was well within its rights to file a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eft out core issue of payment terms and the said payment terms is the moot question and crux of the said dispute as and by way of demand in the Notice under form-3 dated 14.12.2021. 12. You M/s Akshaya Engineering Work Pvt. Ltd. was issued contract by our clients M/s Pravin Electricals Pvt. Ltd. for supply installation plant and machinery as the sites of MSEDCL and you have not fulfilled the contract as a result thereof MSEDCL has penalized M/s Pravin Electricals Pvt. Ltd. and therefore, the sum of Rs. 1,54,41,823 as demanded by you being outstanding is not tenable in law primarily because of the fact that our clients has not received money against the said invoice and that MSEDCL has themselves penalized our clients to the extent of Rs. 1.88 crores for the reason of negligence and poor performance and mishandling, pertaining to the work assigned to you and the said penalty could be only attributed to your negligence and poor work progress as described and mentioned in the letter dated 01.03.2019." (Emphasis supplied) 20. When we read the above Notice of Dispute it is clear that Corporate Debtor has stated loud and clear that the payment terms is the crux of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n successful testing and commissioning of the project and issue of HOTO certificate. For contract of service, in terms of Clause 3.1, the first instalment would be 90% paid on erection, testing and commissioning subject to material reconciliation statement and final instalment of 10% on submission of certificate by Project Manager of MSEDCL that installation and commissioning has been completed successfully and that assets are created and taken over by MSEDCL. 22. It is the case of the Appellant that in terms of Clause 2.3 of the Appendix-1, only 60% payment had to be made for material supply which has already been done. The remaining 30% and 10% was payable upon submission of Certificate on Measurement Book by MSEDCL Project Manager and issue of HOTO Certificate by the Employer. Similarly for erection and installation work, as per Clause 3.1 of the Appendix-1, only 90% was to be paid which has been done while 10% was paid upon issue of HOTO Certificate. Thus, the payments having already been made in accordance with terms of payment as outlined in Appendix-1, debt and default has been disputed by the Appellant. 23. This brings us to the issue whether the MSEDCL had given thei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent. (iv) Risk & Cost- Rs 3,10,63,000/- levied due to partial termination of the contract due to very slow progress and poor performance by the Respondent. 26. Prima facie when we peruse the material on record, there is no material to support that MSEDCL had tendered its full satisfaction report with regard to work completion either to the Corporate Debtor or the Operational Creditor. Instead, we find that MSEDCL not only pointed out shortcomings in the work execution but also had to partially terminate the contract. We notice that MSEDCL had convened a meeting on 19.11.2018 to review work progress for timely completion. The Operational Creditor did not attend this meeting though invited by the Corporate Debtor over email on 17.11.2018 (page 115 of APB) to attend. On 27.11.2018, the Appellant forwarded the Minutes of the Meeting to the Respondent-Operational Creditor (page 116-118 of APB) wherein MSEDCL after review of activity wise work progress expressed extreme displeasure on the work progress. As the time stipulated for completion of the works was 28.02.2019 and timeliness was held to be the essence of the contract, we find a communication from MSEDCL dated 09.01....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Ltd. 9. ...... Infact, MSEDCL has informed our clients that huge material debits aggregating to Rs.1.88 crores is due from our clients. As a result thereof due to your mishandling the material debits of Rs.1.88 crores, our client has suffered monetarily. 10. Apparently under no circumstances can the Notice under Form- 3 be issued to our clients M/s Pravin Electricals Pvt. Ltd. and MSEDCL has verge of issuing Notice penalizing our clients M/s. Pravin Electricals Pvt. Ltd for a sum of Rs. 1.88 Crores and the said penalization was primarily because of the poor performance of your clients and also the fact that the supply installation and commissioning and all other works was not up to the standards as set out by MSEDCL. Our clients M/s. Pravin Electricals Pvt. Ltd. had to bear the brunt of such poor performance and as a result thereof our clients, has lost market goodwill and contracts has been partially terminated only on account of your clients negligence and poor performance and since you have not bothered to adhere to timely stipulations as per the contract." (Emphasis supplied) 28. When we look at the above emails and correspondences which find men....