TMI Blog2020 (12) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... Unqualified work done certificate was issued by the Corporate Debtor at the request of the Operational Creditor - HELD THAT:- This certificate has been given after leaving of the project by the Operational Creditor and all e-mails written by Corporate Debtor up to 07.03.2017 which have been claimed as proof of pre-existing dispute. Confirmation of certificate has been given as late as on 23.10.2018 wherein again amount of 'actual work done and actual date of completion' has been mentioned. Further, in the certificate dated 17.04.2017, it has also been certified by Corporate Debtor that the Corporate Debtor has carried out the above work satisfactorily. Thus, considering the material which has been brought on record by the Corporate Debtor itself, there remains no substance or merit in the claims of the Corporate Debtor that it is a case of preexisting dispute, thus, for this reason also, this petition is liable to be admitted. Corporate Debtor had made an excess payment to the tune of ₹ 2.07 crores approximately - HELD THAT:- The deductions for defective work in structure and lining stand at ₹ 10 lacs and 3 lacs respectively. Most of other deductions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings. 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 - HELD THAT:- 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 completed and achieved by Operational Creditor which has been subject of billing and invoicing in all 14 running account bills raised by the Operational Creditor. Thus, this plea also has got no bearing on the admissibility of the application filed by the Operational Creditor. Pre-existing dispute or not - HELD THAT:- It may not be out of place to state that first core aspect of admission of an application u/s 9 is prima facie whether there is any dispute or otherwise. If it is shown that there exists a dispute between the Operational Creditor and Corporate Debtor prior to service of notice u/s 8 of IBC, 2016 then the Adjudicating Authority may reject the Application filed u/s 9 of Insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afely concluded that difference which existed earlier had already been resolved and only outstanding amount due to Operational Creditor remained pending for payment. Thus, the basis of this application is, in fact, non-payment of such amount. Demand notice - HELD THAT:- The Operational Creditor has categorically stated that he had received notice of 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. The application filed by Operational Creditor u/s 9 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, Ketan Construction Limited, is hereby admitted. - C. P. (I.B.) No. 57/9/NCLT/AHM/2019, IA 201 and 123 of 2020 - - - Dated:- 10-8-2020 - M.B. Gosavi, Member (J) and Virendra Kumar Gupta, Member (T) For the Appellant : Navin Pahwa, Ravi Pahwa, Learned Senior Counsels, Saurabh N. Soparkar, Learned Counsel, For the Respondent : Jaimin Dave, LD Counsel and Priyank Dave ORDER Virendra K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was, in fact, no dispute even for payment of this bill and for this contention, he placed strong reliance on the certificate dated 17.04.2017 issued by the Corporate Debtor to the Operational Creditor certifying that the Operational Creditor had executed actual work of ₹ 69.19 crores approximately which included the amount of bill No. 14 as well. It was also contended that veracity of this certificate was in no doubt at all. He further contended that certificate dated 17.04.2017 also acknowledged the fact that neither any fine was imposed on the Operational Creditor nor any work had been abandoned by the Operational Creditor. Learned senior counsel further contended that the so called claim of pre-existing dispute was having no substance as these e-mails were simply of the nature of routine correspondence in the capacity of main contractor. To further buttress this point, the learned senior counsel submitted that payments of ₹ 4 crores, 1.99 crores and 1 crore approximately were made on 25.04.2017, 23.10.2017 and 16.01.2018 subsequently even after abandonment of the project on 25.01.2017. This fact also showed that there was no dispute at any point of time. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and, therefore, the Adjudicating Authority is having limited jurisdiction just to see that there was a dispute or not and, at this stage, merits of the case were not to be examined. Thereafter, the learned senior counsel referred to para 25 of notice of dispute as well as page 318 and 319 of its reply to show that excess payment had been made by the Corporate Debtor and a sum of ₹ 2.07 crores approximately was recoverable from the Operational Creditor. Thereafter, he took us to the significant terms and conditions of the letter of award (sub-contract) dated 27.03.2015 to emphasize on the fact that the Corporate Debtor was liable to pay the Operational Creditor only after receipt of payment from end client. In this regard, he drew our attention to Clause 2(i) of the sub-contract. The learned senior counsel, thereafter, contended that this application was also liable to be rejected/dismissed for the reason that it was a case of suppression of facts i.e. reply to Demand Notice by the Corporate Debtor was not disclosed nor any e-mails which were exchanged between the parties were brought to the notice of this Authority. It was contended that that sub-contract, in fact, was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuance of cheque being an evidence or fact of outstanding dues relied on by the Operational Creditor were distinguishable on facts as there was no pre-existing dispute in those cases as compared to the present case at hand. As regard to the reliance placed by the Operational Creditor on the decision of NCLT in the case of Sangeeta Goel (supra) vs. Riodec India Chemicals Private Limited, it was contended that this decision was not correctly interpreted by the Operational Creditor as in that case it was held that affidavit u/s 9(3)(b) was not required when the notice of dispute had been sent by the Corporate Debtor whereas in the present case the issue was submission of false affidavit u/s 9(3)(b) of IBC, 2016. 7. In the rejoinder, the learned senior counsel mainly reiterated earlier submissions made by him and also emphasised on the point that considering the total circumstances of the case, the undisputed due amount was more than ₹ 1 Lakh, hence, this petition was liable to be admitted and also the reliance on such e-mails stood nullified by the subsequent payment made by the Corporate Debtor as well as certificate issued by the Corporate Debtor as regard to actual work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay. The corporate debtor has also made substantial payments subsequent to parting of ways. The work execution certificate has also been issued by the corporate debtor subsequently wherein satisfaction has been shown as regard to performance of the operational creditor. 10. In the background of above basic facts, we shall deal with each of contentions raised by the parties. However, the contention of the Corporate Debtor that there is a case of pre-existing dispute which is based upon e-mails written by the Corporate Debtor will be dealt in the later part of the order as it relates to the scope of examination of such claims/counter claims by the Adjudicating Authority and also of the aspect of nature of the term 'dispute' itself. 11. The Operational Creditor has firstly claimed that cheque for ₹ 50 Lacs was issued by the Corporate Debtor which was dishonoured and returned by the Bank on 17.01.2018 and this action of the Corporate Debtor was in itself sufficient to make this application admissible as value of cheque was of more than the threshold limit of ₹ 1 lakh and issuance of this cheque was an admission of its liability to pay. Learned senior counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein again amount of 'actual work done and actual date of completion' has been mentioned. Further, in the certificate dated 17.04.2017, it has also been certified by Corporate Debtor that the Corporate Debtor has carried out the above work satisfactorily. Thus, considering the material which has been brought on record by the Corporate Debtor itself, there remains no substance or merit in the claims of the Corporate Debtor that it is a case of preexisting dispute, thus, for this reason also, this petition is liable to be admitted. 13. One contention which has been raised by the Corporate Debtor is that the Corporate Debtor had made an excess payment to the tune of ₹ 2.07 crores approximately. The working of the same has been placed at page 385 and 386 of their reply. From the perusal of this statement, it is apparent that the deductions for defective work in structure and lining stand at ₹ 10 lacs and 3 lacs respectively. Most of other deductions are for non-submissions of documents or some charges to be recovered by the Corporate Debtor which cannot be termed as a dispute much less than pre-existing dispute for the simple reason that no back up documents ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated at ₹ 69.19 crores. The amount work certified by the Corporate Debtor has been stated at ₹ 65.50 crores. The variation between these two has been sated as 3.69 crores which becomes payable in view of the certificate of work experience dated 17.04.2017 given by the Corporate Debtor. If net excess paid amount of ₹ 2.07 crores is deducted from this amount then an undisputed amount payable to the Operational Creditor stands at ₹ 1.67 crores, being the difference between 3.69 crores and 2.07 crores. Thus, considering the facts as stated above, claim of amount excess paid by corporate debtor becomes null and void and such working of the Corporate Debtor itself leads to an inevitable conclusion that there is an undisputed outstanding balance which is payable by the Corporate Debtor to the Operational Creditor which is more than ₹ 1 Lac. 14. Next line of defence was taken that the Operational Creditor abandoned the project in between even without informing the Corporate Debtor on 25.01.2017 as mail written on 03.03.2017. However, we are unable to accept this fact that Corporate Debtor had no knowledge of such abandonment until it received such mail fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here exists a dispute between the Operational Creditor and Corporate Debtor prior to service of notice u/s 8 of IBC, 2016 then the Adjudicating Authority may reject the Application filed u/s 9 of Insolvency and Bankruptcy Code, 2016. The term 'dispute' is defined u/s 5(6) of IBC, 2016 as under: Dispute includes a suit or arbitration proceedings relating to-- (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty; From the perusal of above, it noted that it is an inclusive definition. It is further noted that three situations of dispute covered above may be subject matter of a suit or arbitration proceedings. Thus, dispute may have various dimensions/aspects which may not related to above three situations only. For example, in case of Mobilox, breach of term relating to non-disclosure agreement was considered as dispute. Further, disputes relating to situations mentioned in clause (a), (b) and (c) of Section 5(6) may not be in the form of suit of arbitration only as such disputes though existing in reality might not have been referred for such process as yet. However, a referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or unliquidated damages which does not become crystallized until legal proceedings are fled, and none have been filed so far. The period of limitation for filing such proceedings has admittedly not yet elapsed. Further, the appellant has withheld amounts that were due to the respondent under the NDA till the matter is resolved. Admittedly, the matter has never been resolved. Also, the respondent itself has not commenced any legal proceedings after the e-mail dated 30th January, 2015 except for the present insolvency application, which was filed almost 2 years after the said e-mail. All these circumstances go to show that it is right to have the matter tried out in the present case before the axe falls. 18. Thus, the parameter to ascertain as to whether there is a dispute or otherwise can be summarized as under: i) The dispute should have prima facie bona fide and exists naturally in a given fact; ii) The grounds for alleging the existence of a dispute should not be spurious, hypothetical, illusory or misconceived; iii) The existence of a dispute need not require further to be proved; iv) The dispute should be natural and not a made to believe disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term 'dispute' as under: A conflict or controversy, esp. one that has given rise to a particular law suit. 19.2. West's Encyclopedia of American Law, edition 2 describes the term dispute as under: A conflict or controversy; a conflict of claims or rights; an assertion of a right, claim, or demand on one side, met by contrary claims or allegations on the other. The subject of litigation; the matter for which a suit is brought and upon which issue is joined, and in relation to which jurors are called and witnesses examined. A labor dispute is any disagreement between an employer and his or her employees concerning anything job-related, such as tenure, hours, wages, fringe benefits, and employment conditions. 19.3. The term 'dispute' as per U.S. Legal.com is described as under: Dispute means a controversy. It refers to an allegation of fact by one person denied by another person, both acting with some show of reason. 20. Thus, at a glance itself, it can be said that a threshold or stage is to be crossed to convert a difference/disagreement into dispute. In other words, normally commercial/legal differences per se are not dispute unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view to promote entrepreneurship and credit culture. Having said so, we also put a rider that Operational Creditor would have to justify its claim by adducing sufficient documentary evidence that all issues had been resolved and in spite of that payment was not made by the Corporate Debtor which led to filing of proceedings IBC, 2016. 22. Coming to the facts of the case, it is noted that in this case the Corporate Debtor is a principal contractor who has given the subcontract or practically assigned contract on back to back basis to the Operational Creditor. The Operational Creditor would bear the liquidated damages, penalties and could face other legal actions which can be imposed on the Corporate Debtor for the failure of Operational Creditor. Thus, the risk and rewards are shared and, therefore, it may not be out of place to mention that Operational Creditor, being sub-contractor face severe consequences for nonperformance. However, the corporate debtor is responsible for execution of contract which also provides for supervision, coordination, monitoring and control for efficient execution of the project by the Corporate Debtor. Therefore, the principal contractor is obliged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in paper book at pages 191-202). These e-mails (demand notices) are subsequent to the mails written by the Corporate Debtor on 07.03.2017 except first mail which was written on 06.03.2017. These mails have not been disputed by Corporate Debtor by adducing any material on record except that in the belated reply to notice of demand served by the Operational Creditor u/s 8 of IBC, 2016 these have been disputed but no cognizance of the same can be taken as it is after the delivery of notice of demand u/s 8 of IBC, 2016 by the Operational Creditor. 24. Now, we will deal with the rests of the contentions raised by the Corporate Debtor. One such contention is that in this case, the Operational Creditor has suppressed the facts by not disclosing such e-mails or bringing fact of existence of such e-mails to the notice of this Authority. We do not find any substance in this plea as this is an obligation on the part of the corporate debtor as per the provisions of Section 8(2)(a) of IBC, 2016. As per Form 3 the Operational Creditor required the Corporate Debtor to bring the notice of dispute or Court case, if any, or the payment has been made to the notice of the Operational Creditor. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiation of CIRP against the Corporate Debtor, such mechanism has been provided which not only gives a window/opportunity to the Corporate Debtor to establish fact of bona fide dispute but also to settle the matter before an application u/s 9 is filled but also saves Corporate Debtor from stripping off with the management of the company. Law is absolutely clear in this regard and, therefore, corporate debtor on subsequent stage cannot take shelter even of Rule 11 of NCLT Rules, 2016. We are further of the view that if the requirement of reply to notice u/s 8 within the stipulated time is waived then provisions of Section 9(5)(ii)(c) r.w. Section 8(2) would become redundant. In this regard, we draw strength from the observations of the Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited vs. Kirusa Software Private Limited wherein the Court has held that time lines prescribed under the Act are sacrosanct and must be adhered to. The relevant findings of the Hon'ble Supreme Court in para 24, 25, 26, 27 are reproduced hereunder: 24. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor. Apart from this information, the other information required under Form 5 is also to be given. Once this is done, the adjudicating authority may either admit the application or reject it. If the application made under subsection (2) is incomplete, the adjudicating authority, under the proviso to subsection 5, may give a notice to the applicant to rectify defects within 7 days of the receipt of the notice from the adjudicating authority to make the application complete. Once this is done, and the adjudicating authority finds that either there is no repayment of the unpaid operational debt after the invoice (Section 9(5)(i)(b)) or the invoice or notice of payment to the corporate debtor has been delivered by the operational creditor (Section 9(5)(i)(c)), or that no notice of dispute has been received by the operational creditor from the corporate debtor or that there is no record of such dispute in the information utility (Section 9(5)(i)(d)), or that there is no disciplinary proceeding pending against a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of demand notice or copy of invoice to either point out that a dispute exists between the parties or that he has since repaid the unpaid operational debt. If neither exists, then an application once filed has to be disposed of by the adjudicating authority within 14 days of its receipt, either by admitting it or rejecting it. An appeal can then be filed to the Appellate Tribunal under Section 61 of the Act within 30 days of the order of the Adjudicating Authority with an extension of 15 further days and no more. 27. Section 64 of the Code mandates that where these timelines are not adhered to, either by the Tribunal or by the Appellate Tribunal, they shall record reasons for not doing so within the period so specified and extend the period so specified for another period not exceeding 10 days. Even in appeals to the Supreme Court from the Appellate Tribunal under Section 62, 45 days time is given from the date of receipt of the order of the Appellate Tribunal in which an appeal to the Supreme Court is to be made, with a further grace period not exceeding 15 days. The strict adherence of these timelines is of essence to both the triggering process and the insolvency res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurrence of a default, deliver a demand notice which must then be replied to within the specified period. What is important is that at this stage, if an application is filed before the Adjudicating Authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected. Thus, the Hon'ble Supreme Court has reiterated time and again that adherence to the time line of 10 days for reply to demand notice is a must. Thus, any reply beyond the period of 10 days will not save the Corporate Debtor from the consequences as mentioned in Section 9(5)(ii)(c) of IBC, 2016. 26. Now, we shall briefly deal with the case laws relied on by the Corporate Debtor. In the case of B.R. Construction vs. G.R. Infraprojects Ltd. the undisputed fact is that engineer chief had not certified the work done, however, in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the main arguments made by the Corporate Debtor as well as Operational Creditor. Hence, this IA stands deposed of as considered in the course of disposal of main petition. 30. We admit this application and order as under: ORDER i. The application filed by Operational Creditor u/s 9 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, Ketan Construction Limited, is hereby admitted. ii. We declare a moratorium and public announcement in accordance with Section 13 and 15 of IBC, 2016. iii. Moratorium is declared for the purposes referred to in Section 14 of the Insolvency Bankruptcy Code, 2016. The IRP shall cause a public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims u/s 15. The public announcement referred to in clause (b) of sub-section (1) of 15 of Insolvency Bankruptcy Code, 2016 shall be made immediately. iv. Moratorium u/s 14 of the Insolvency Bankruptcy Code. 2016 prohibits the following . (a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including exec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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