TMI Blog2019 (1) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... rational Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016, read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, by inter alia, seeking to initiate Corporate Insolvency Resolution Process (CIRP) in respect of M/s. BEML Limited (Formerly known as Bharat Earth Movers Limited) (hereinafter referred to as BEML/Respondent/Corporate Debtor) on the ground that the Corporate Debtor has committed a default in payment of outstanding amount of ₹ 38,77,88,860/- (Rupees Thirty Eight Crore Seventy Seven Lakhs Eighty Eight Thousand Eight Hundred Sixty Only). 2. The case is listed for admission and hearing on various dates viz. 22.11.2017, 29.11.2017, 07.12.2017, 19.12.2017, 24.01.2018, 19.02.2018, 13.03.2018, 19.04.2018, 09.05.2018, 01.06.2018, 15.06.2018, 17.07.2018, 10.08.2018, 11.09.2018, and finally heard on 24.10.2018 and orders reserved. 3. Brief facts of the case, as mentioned in the Company Petition, are as follows: 1) M/s. IMECO Limited, (the Petitioner/Operational Creditor) is a company registered under the provisions of Companies Act, 1956. It is one of the largest engineering Organization in India, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has been discussed and agreed as under: a. BEML * All Tenders relating to the above project invited by Indian/Zonal Railways will be quoted and participated by BEML and orders will be obtained by BEML. * BEML will discuss, negotiate and finalise the contracts with Indian Railways. * BEML will place work order on IMECO, based on IMECO's offer for berths, parts aggregates specifying schedules, LD payments etc. * BEML team will execute the order and IMECO will assist in completing the contract on time. * Payments to IMECO as per the work order will be paid on Back-to-Back basis i.e. in proportion to and in relation to receipt of payment from Supply and Retrofitment of middle berths on longitudinal side wall of coaches and cushioning of berths railways. b. IMECO * IMECO will offer its services to BEML for submission of tenders wherever required or any other services BEML may require. * IMECO will purchase and supply all the new seats and bought out components and other items, and BEML will purchase whenever required for completing the work as per the schedule. * IMECO will mobilise tools and tackles, plant and machinery e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon any arbitral award rendered hereunder may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (5) The Corporate Debtor made bid for each of the tenders issued by the respective Zonal Divisional Railways on account of being the lowest, was duly accepted. For the purpose of accelerating work and completing the same, the Corporate Debtor had engaged the Petitioner/Operational Creditor for the purpose of performance of the Contract. In total 44 contracts were executed between the Petitioner and the Respondent. (6) While the scope of work in respect of the contracts awarded by the respective Zonal Railways to the Corporate Debtor was nearing completion, on 18.02.2009, the Railway Board communicated the discontinuation of the scheme for provision of middle berths, thereby proposing to terminate the Corporate Debtor's contracts. The Operational Creditor had to take up the domino effect on account of the back-to-back applicability the contracts with respect to the payment terms. (7) On 06.03.2009 the Corporate Debtor had written to the respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision to release the funds allotted to it for the works in question to BEML/Corporate Debtor with reference to its claims already made, within a period of two months from date, consequently directed the first respondent/BEML to release the same to the Operational Creditor within one month from the date of receipt of the funds. However, the judgment has been challenged by the Southern Railway Division by filing APOT No. 79 of 2012 before the Hon'ble High Court of Calcutta and the same is stated to be pending. (11) When the Respondent/Corporate Debtor failed to pay the outstanding amount, a demand notice/invoices demanding payment was issued on 09.08.2017 under Form-3 to the respondent. In pursuant to the demand notice, a reply dated 21.08.2017 was sent by the Respondent raising dispute. (12) A copy of the Certificate issued by the Axis Bank Limited, Banker of petitioner, is filed confirming that BEML has not made any payment towards the undisputed operational debt. Therefore, the present petition is filed, by inter alia, seeking to initiate Corporate Insolvency Resolution Process in respect of Corporate Debtor. 4. The Respondent has opposed the Company Petition b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of Apex court in the case of Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., wherein the Hon'ble Supreme Court has stated 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. (4) It is stated that payment terms of each of the 12 LOAs executed between the Corporate Debtor and the Operational Creditor explicitly state that the payments will be done on a back-to-back basis, i.e., as and when payments are received from the respective zonal railways. Further, the MOA dated 18.09.2007 has stressed on the back-to-back payment mechanism. The Operational Creditor is estopped from feigning ignorance about the back-to-back applicability in light of its acknowledgement of the same in several correspondences issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the North Eastern Railways-Gorakhpur (RFT 41-Rs.3,42,39,768/-) are the highest. While the former remains subjudice before the Hon'ble High Court of Calcutta, the latter has been a bone of contention from the time the materials were handed over by the Operational Creditor to the Railway authority at Gorakhpur. Several correspondences were exchanged in this regard. The payment terms of the LOA pertaining to the North East Railways explicitly mandates 100% completion of fitment in order to obtain payments. (8) As regards the remaining 10 contracts, the materials remain in the warehouse of the Operational Creditor. It is the contractual duty of the Operational Creditor to transport the same to the respective zonal Railways, however in the event of the scheme being withdrawn by the Government, there was nothing they could do to ensure the materials were transferred to the Railways. Therefore, they urged the Tribunal that the petition is liable to be rejected as it is not maintainable. 5. Heard Shri Naresh Balodia, Ms. Varsha Banerjee, Shri Ramesh Kumar Sharma and Ms. Jayashree Parthasarathy, learned Counsels for the Petitioner; Shri K.G. Raghavan, Learned Senior Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply under IBC accrued only on or after 01.12.2016 and not before the said date. Therefore, it is contended that the only criteria for rejecting the petition under Section 9 of the IBC is existence of dispute and the ground raised by the Corporate Debtor that it is allegedly solvent and CIRP cannot be initiated is contrary to provisions of law. The contention raised by the Respondent regarding the limitation is not at all tenable since the Corporate Debtor has admitted the dues of the Petitioner in writing vide its letter dated 15.05.2015, and thus it gives rise to a fresh cause of action and thus the instant application is deemed to be filed within the limitation period. The Petitioner maintains a running account, and the last payment was received on 11.02.2016. In respect of this contention, they relied upon the judgment of the Hon'ble High Court of Delhi in Bharath Skins Corpn. v. Taneja Skins Co. (P.) Ltd. [RFA(OS) No. 13 of 2002, dated 21-12-2016. (5) It is the right to apply under the IBC accrued only on 01.12.2016 when the provisions of the IBC came into effect as held by Hon'ble NCLAT in the matter of Brijesh Kumar Agarwal v. Punjab National Bank [C.A (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g No. APOT No. 79 of 2014 preferred against the order dated 18.10.2012 passed by the Hon'ble High Court at Kolkata in Writ Petition WP.No. 162 of 2012. (9) That even Clause (7) of General Conditions of the Contract, under which contract was given by Indian Railways to the Corporate Debtor, it was categorically provided that any subletting of work by the Contractor shall not establish any contractual relationship between the sub-contractor and the Railway and shall not relieve the Contractor of any responsibility under the Contract. Relevant extract of General Conditions of Contract is reproduced hereunder: Extract of Para 7 of GCC, Indian Railways Assignment of subletting of contract: The Contractor shall not assign or sublet the contract or any part thereof or allow any person to become interested therein any manner whatsoever without the special permission in writing of the Railway. Any breach of this condition shall entitle the Railway to rescind the contract under clause 62 of these conditions and also render the contractor liable for payment to the Railway in respect of any loss or damage arising or ensuing from such cancellation. Provided always that exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. 16. On perusal of the documents, we find that there is no pre-existing dispute between the 'Corporate Debtor' and the 'Operational Creditors'. 17. An outstanding in the account of a borrower (customer), is a debt due and payable by the borrower to the Creditor. The Creditor is the owner of such debt. Such debt is an asset in the hands of a Creditor, whether 'Secured Creditor' or 'Unsecured Creditor' or 'Operational Creditor' or 'Financial Creditor'. The creditor can always transfer its liability of debt to a third party. Therefore, the Appellant cannot take advantage of agreement of transfer of liability of debt of 'Corporate Debtor' to Mr. Dinesh Arora. 19. The 'Corporate Debtor' is a separate entity under Section 9 of the Companies Act, 2013. The order was given by the 'Corporate Debtor' based on which the supply was made to the 'Corporate Debtor' by the 'Operational Creditors', who received the supply on behalf of the 'Corporate Debtor' is an inter se dispute amongst the Directors and the Staff Officers or the Employees of the 'Corporate Debtor'. In abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed on the back-to-back payment mechanism. The Operational Creditor is estopped from feigning ignorance about the back-to-back applicability in light of its acknowledgement of the same in several correspondences issued by it. (3) It is stated that the correspondence dated 15.06.2015 is in fact the Corporate Debtor's response to the Operational Creditor's RTI application dated 21.04.2015. The amount of ₹ 43,08,96,214/- that has been stated to be due as on 31.03.2009 in the RTI response has been cleared in the course of the last six years as and when the payments were received and it is completely distinct from those claimed through the present insolvency proceeding. (4) It is stated that the relief sought in the present company petition sought by the Operational Creditor is also with respect to recovery of outstanding dues as against the very same contracts that were a subject matter of the said writ petition but it is with regard to two out of the 12 contracts. And the matter is still subjudice before the Hon'ble High Court of Calcutta in APOT No. 79 of 2014 against the Learned Single Judge's judgment dated 18.10.2012 in WP No. 162 of 2012. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of clarity, it would be apt to reproduce Section 9 in its entirety. 9. Application for initiation of corporate insolvency resolution process by operational creditor:- (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall he filed in such form and manner and accompanied with such fee as may be prescribed. (3) The operational creditor shall, along with the application furnish- (a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining accounts of the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al dispute, the IBC provisions cannot be invoked. Para 34 Therefore, the Adjudicating Authority, while examining an application under Section 9 of Code, will have to determine: i. Whether there is an 'operational debt' as defined exceeding ₹ 1 lakh? ii. Whether documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? iii. Whether there is existence of dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before receipt of demand notice of the unpaid operational debt in relation to such dispute? If any one of afore said conditions is lacking, the application would have to be rejected. Para 42 This being the case, is it not open to the adjudicating authority to then go into whether a dispute does or does not exist? It is important to notice that Section 255 read with the Eleventh Schedule of the Code has amended Section 271 of the Companies Act, 2013 so that a company being unable to pay its debts is no longer a ground for winding up a company. The old law contained in Madhusudan has, therefore, disappeared with the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has inter alia held that provisions of Limitation Act will apply to proceedings or appeals before NCLT/NCLAT. Section 238A of the Code make provisions of Limitation Act would apply to proceedings under the Code. 9. In the light of provisions of code, and the law as cited above, the instant case has to be examined as to whether it is a fit to initiate of Corporate Insolvency Resolution Process (CIRP) as sought for. As detailed supra, in order to participate in Tenders being floated by the Railways, a Memorandum of Agreement (MoA) dated 18.09.2017 was executed between the Petitioner and the Respondent, wherein, it is inter alia, decided that the Petitioner along with Respondent have jointly take up the contracts from the Railways involving Supply and Retrofitment of middle berths on longitudinal side wall of coaches and cushioning of berths in question. As per Article 4 of the Agreement, as mentioned above, it is BEML, who would participate and orders would be obtained as per law from the Railways. Payments to IMECO as per the work order will be paid on back-to-back basis i.e. in proportion to and in relation to receipt of payment from Supply and Retrofitment of middle berths on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire issue, has directed to pay the outstanding amount only on receipt of the amount from the Railways. Aggrieved by the order of single bench, the Railways has filed Appeal as stated supra. The contention of the Petitioner that Writ Petition relates to only 2 contracts and it do not relates to the sub-contracts/tenders as raised in the instant Company Petition is not tenable. The basis of business relationship between the petitioner and the respondent depends on the same MOA dated 18th September, 2007. As stated supra, the Hon'ble Court has inter alia held payment to the petitioner would arise only after receiving its dues from the Railways. Moreover, as per MOA stated supra, payments will be basing on back-to-back basis and by accepting the same, the Hon'ble High Court also directed the Railways to pay its dues to the BEML and thereafter, directed the BEML to pay to the petitioner herein. 12. Therefore, even though dues/claims are pending with BEML/Respondent, the same are liable to pay until and unless the Railways release its funds for the claims made by the BEML as rightly pointed out by Shri K.G. Raghavan, Learned Senior Counsel for the Respondent. Another is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In response, the Respondent has got issued a Reply No. LG/2017/6536 dated 21st August, 2017 by inter alia stating that as per MOA dated 18.09.2007 entered between the parties, that payment to the petitioner should be paid on the basis of Back-to-Back principle, the debt is neither legally recoverable debt nor operational debt from BEML to IMECO, Writ Petition was filed against the issue in question and an appeal pending before the Hon'ble High Court of Calcutta etc. Even, as per clause 31 of Letter of Acceptance vide BEML/RMJ/RFT-3/SER/2007 dated 23 November, 2007 (which are similar in all LOAs issued), states that other terms as per MOA dated 18.09.2007 and SER Tender documents basing on Back-to-Back basis . 15. Therefore, we are of considered view that there is a bona fide dispute exists in the case, as per ratio decided in Mobilox Innovations (P.) Ltd. case (supra) followed by other cases in this regard. It is settled position of law that whenever there is a bona fide dispute raised by the Respondent, the Adjudicating Authority cannot entertain the application filed under the provisions of Section 9 of IBC. Therefore, the Company Petition is not maintainable, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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