TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 437
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....orsement Agreement' came to be executed as between the Respondent as the First party, the Appellant as the Second party and one Culture Company (P) Ltd., as the Third party. (The role of the third party to the contract is largely passive vis-à-vis the purpose of the working agreement, and except in reply to the demand notice under Sec. 8 IBC, it does not find any reference anywhere in the facts constituting the present dispute). In other words, the contractual obligations required to be performed are essentially between the appellant and the respondent herein. The salient features of the contract which are contextually relevant are: a) Clause 2 of the said Agreement declares that the term of the agreement is for two years (from 08.03.2021 and 07.03.2023). Clause 3.2 of the agreement stipulates that during this period the appellant has to make himself available for not more than two days and render his services to the respondent for which appellant was to be paid Rs. 8.10 crores in terms of Clause 5 of the Agreement. The mode of payment was detailed in Clause 5.1.1 and 5.1.2. b) In terms of Clause 5.1.1, the respondent is required to pay Rs. 4.05 crore....
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....n of the terms of the contract as to whether appellant is entitled to claim remuneration for the service not rendered on the second of the two days dedicated period, and that if at all any, the appellant can only claim damages for breach of contract, but it will not constitute operational debt under Sec. 5(21) of the IBC. 4. Holding that there exists a pre-existing dispute vis-à-vis the construction of the contract (the Endorsement Agreement), and that at the best the appellant might be entitled to damages for breach of contract which falls outside the definition of operational debt, the Adjudicating Authority chose to dismiss the appellant's petition under Sec. 9 IBC. Hence the present appeal. Appellant's Arguments: 5. The learned counsel for the Appellant argued: a) that the cause of action for the appellant to seek initiation of a CIRP involves an understanding of the contract between the parties. A plain reading of the contract and ascertaining the intent of the parties is not the same as construction of an ambiguous document. Sec. 94 and Sec. 95 of the BSA (previously Sec. 91 and 92 of the Evidence Act) forbids the admissibility of any parole evidence ....
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....yment he had received. The respondent has used the services of the appellant for one day, and if it does not use the second day, then it is the choice it has made, and it cannot be made to relate itself to the unconditional obligation to make the payment in terms of clause 5.2. d) Any unconditional obligation to make payment constitutes a debt, and when there is a default in paying it, it gives rise to a cause of action for seeking the initiation of CIRP against the corporate debtor under Sec. 9 IBC. Any right to payment including that which arises out of a breach of contract would amount to claim and as held in Pioneer Urban Land Vs Union of India [(2019) 8 SCC 416], it need not even be adjudicated by a civil court and replaces the earlier understanding that breach of contract give rise only to a claim of damages as held in UOI Vs Raman Iron Foundary [(1974) 2 SCC 231]. It would therefore constitute a debt and any default in paying the same enables the invocation of Sec. 9 IBC. e) To outmanoeuvre the logical consequence which flow from a plain reading of Clause 5.2 read with 5 and 3.6(b) of the contract, the respondent attempts to develop an argument that obligat....
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....me of IBC. After all IBC is not a recovery mechanism. Reliance was placed on the ratio in Union of India v. Ram Iron Foundry [AIR 1974 SC 1265], Tower Vision India Pvt. Ltd. v. Procall Private Limited [2012 SCC Online Del 4396], Chandrashekhar Exports Pvt. Ltd. v. Babanraoji Shinde Sugar & Allied Industries Ltd. [C.P. No. 3667/IBC/MB/2019], Chandrashekhar Exports Pvt. Ltd. v. Babanraoji Shinde Sugar & Allied Industries Ltd. [C.A. (AT)(INS) No. 1032 of 2023], Mobilox Innovations Private Limited v. Kirusa Software Private Limited [(2018) 1 SCC 353], Pioneer Urban Land and Infrastructure Ltd. v. Union of India [(2019) 8 SCC 416], Swiss Ribbons (P) Ltd. v. Union of India [(2019) 4 SCC 17]. Discussion & Decision 7. Both sides punctuated their arguments with authorities carrying precedential value. The principles however, are settled, and they are merely required to be reiterated to provide a basis for our approach to this case: a) That the existence of a debt and default, the two fundamental factors which provide a cause for initiating a CIRP, should be beyond doubt or debate. To state it differently, the debt and default should not have been embroiled in a dispu....
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....al debt, or does it merely give rise to a cause of action for claiming damages for breach of contract. 9. The quintessence of the controversy therefore, is what exactly is the intent of the parties when they entered into a contract vis-à-vis the payment of total consideration of Rs. 8.10 crores in terms of Clauses 5, 5.1.1, and 5.1.2: whether the total consideration is required to be made for the services to be rendered irrespective of the number of days over which such service is promised to be rendered, or is it merely payment for the day on which service is rendered. To be more specific, is the payment of consideration of Rs. 8.10 crores plus taxes is work specific - for one work to be rendered over a period not exceeding two days, or is it time specific, which is to mean, consideration of Rs. 4.05 crores payable for every day when the services are rendered by the appellant? 10. Since the parties are at variance on this issue, and inasmuch as the respondent has raised a dispute over it, it now becomes imperative to ascertain what the plain reading of the contract supports. It is underscored that our effort is to identify if a plausible dispute exists in understandin....
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....no default on the part of the Company, the Artist hereby agrees to make himself available for not more than two (2) days, being the Dedicated Period, to render the Services, at the date, time, places and schedules mutually agreed by and between the Parties hereto in writing " This recital does not require any decoding since its plain reading informs that the appellant is required to provide his services as an artist for the endorsement of the Website of the respondent at a time, place, and schedules to be mutually agreed to between the parties for not more than two days during the two years term of the contract (between 08.03.2021 and 07.03.2023), for a consideration. The consideration is payable only for the services to be rendered. 14. The term regarding payment of consideration is dealt with in clauses 5, 5.1.1. and 5.1.2. They are as below: "5. Consideration 5.1 In consideration of the Artist having agreed to make himself available to render the Services. the Company shall pay to the Artist, a sum of Rs. 8,10,00,000/ (Rupees Eight Crore Ten Lakhs Only) plus all taxes including, GST, etc. ("Consideration"). in the following manner: 5.....
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.... that the second instalment of the consideration has to be paid no matter that the appellant's services are not required or rendered for the second day? According to the appellant, the phrase 'whichever is earlier' under clause 5.1.2 makes evident that the respondent has undertaken to pay latest by 15.04.2021 irrespective of whether the appellant is called upon to render his contracted services for Day 2 or not. This understanding appears bit farfetched, but at any rate does not conclusively decide the issue. Even clause 5.1.1 has the same phrase, but then services were rendered for Day 1. Here, there is no stipulation in the contract that the appellant will schedule his two days for rendering his services only after the entire consideration as stipulated in clause 5 is paid. d) The respondent's contention is that the consideration has to be paid at the rate of Rs. 4.05 crores only for the day for which the appellant has performed his part of the contract, and relies on clause 5.2. This clause stipulates that if the appellant is required to render his services for any day in excess of the two days to be reserved by the appellant under the contract then the respondent is re....