TMI Blog2020 (5) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... of the terms of the Addendum, the operational creditor was empowered to raise Invoices on the corporate debtor and payment to be made soon after raising of Invoices. The operational creditor is relying on the Addendum shown as Annexure-7 starting from page 105 of the Paper Booklet. The corporate debtor is a party to this Addendum. Terms of Addendum are binding on the corporate debtor. It is an amendment to the Advisory Agreement. The raising of Invoices on the corporate debtor by the operational creditor is in terms of the Clauses of the Addendum. There is neither illegality nor irregularity in raising Invoices in the name of the corporate debtor. The operational creditor has relied on the unpaid Invoices, six in number, raised on the corporate debtor, shown as Annexure-8, at pages 119-124 of the Paper Booklet filed by the operational creditor. All the Invoices are raised in the name of the corporate debtor. It is also not the case of the corporate debtor that the amount under Invoices was paid by the Fund Manager. The operational creditor can proceed only against the corporate debtor, because the Addendum has expressly provides raising Invoices in the name of the Fund Subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly connected to the services rendered to the corporate debtor by the operational creditor. Therefore, we do not agree with the contention of the corporate debtor that there was a pre-existing dispute. The contention of the learned counsel is that mere fact that deduction of TDS does not mean that there was an admission of liability - HELD THAT:- The fact is that deduction of TDS affords an additional ground that raising Invoices is proper and that they are raised in connection with the services rendered to the corporate debtor. There is no transaction other than the transaction between the corporate debtor and the operational creditor, which is of rendering services by the operational creditor to the corporate debtor. Therefore, deduction of TDS can be safely held to be in connection with raising Invoices. Thus, the operational creditor is able to establish that the corporate debtor committed default of operational debt and the petition deserves to be admitted. The Adjudicating Authority admits this Petition under section 9 of IBC, 2016, declaring moratorium for the purposes referred to in Section 14 of the Code. - CP (IB) No.243/9/HDB/2019 - - - Dated:- 4-2-2020 - Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, the operational creditor raised invoices amounting to ₹ 4,67,13,343/- which the Corporate Debtor agreed to pay within 30 days from the date of respective invoices. (5) According to the Petitioner, services were provided to the Corporate Debtor which were never disputed by the Corporate Debtor. The TDS amount deducted was also paid to the Government by the Corporate Debtor thereby issuing TDS certificate to the Operational Creditor. (6) It is further the case of the petitioner that the Corporate Debtor only cleared ₹ 50,00,000/- out of ₹ 4,67,13,343/-. The debt fell due on various dates and the last date of default being 10-3-2019 i.e. after 30 days of all the invoices. The remaining balance of ₹ 4,17,13,343/- is still outstanding. (7) Having left with no other alternative, the Operational creditor was bound to send demand notice under section 8 of I B Code, 2016 on 20-3-2019. The Corporate Debtor gave reply on 29-3-2019 accusing the Operational Creditor with baseless allegations only to avoid payment of debt. The Operational Creditor issued reply notice to the Corporate Debtor on 4-4-2019 denying the allegations as false. Despite requests, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Respondent that there is liability/debt cast upon Fund Manager to pay if any, to the Petitioner as per the Advisory Agreement and not that of Fund Subsidiaries including the Respondent. This arrangement was made for ease of payment. As such it cannot be treated as debt and Respondent cannot be treated as Corporate Debtor according to I B Code. (3) The second objection raised by the Respondent herein is that the Petitioner's claim is a contingent claim as it is subject to approval of invoices by the Fund Manager, which is still pending. The Respondent relied on clause 2.2 of the Addendum Agreement. It means any payment made by the Respondent herein is not payment of money due from the Respondent to the Petitioner, but it is for the payment of any money due from the Fund Manager to the Petitioner. This arrangement is said to have been made by parties for ease of payment and that it cannot be treated as a liability cast on the Respondent. (4) The Respondent further cited various instances/acts of wilful negligence and gross defaults and constant failure on the part of Petitioner in performing its obligations under the Agreement which resulted in rent loss and sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Petitioner advised the Respondent not to proceed legally against the said tenant and instead sell the asset to them when tenant did not have any other option to close the transaction. This illegal and dishonest inducement of Fund Manager by the Petitioner led into loss making transaction which is put to approximately ₹ 42 crores. The Petitioner acknowledged the failure to perform its part of the contract and decided at a meeting held between the Petitioner and the Fund Manager on 23-8-2018 that any amounts payable to it, to be paid by the Fund Manager out of the consideration received against the proposed sale transaction between a Fund Subsidiary and Vivo. Aggrieved by the poor performance of the Petitioner, a Term Sheet dated 27-8-2018 for 100% acquisition of shares by Vivo for a sum of ₹ 37 crores was executed by MN Life Science (Pragnapur) Pvt Ltd, Respondent herein, Fund Subsidiaries and Vivo. (8) Having resorted to serious breaches, which purportedly led to issuance of notice dated 29-10-2018 by the Fund Manager calling upon the Petitioner to immediately transfer the Intellectual property illegally misappropriated by the Petitioner. This notice is said to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of invoices by the Fund Manager, respectively. Further, according to the Petitioner only after receipt of confirmation from the Corporate Debtor, the following invoices were raised upon the Corporate Debtor : (i) Invoice dated 30-3-2018 amounting to ₹ 1,40,00,000/- was raised on the Corporate Debtor. However, it was submitted only after receipt of confirmation e-mail dated 26-4-2018. Copies of said Invoice and e-mail communication are at ANNEXURE-1 (page 10). (ii) Invoices dated 6-6-2018 amounting to ₹ 44,71,565/- and ₹ 35,60,000/- were raised on the Corporate Debtor after receipt of email dated 5-6-2018. Copies of said Invoices and e-mail communication are at ANNEXURE-3 (page 41). (iii) Invoice dated 23-10-2018 amounting to ₹ 84,91,117/- was raised on the Corporate Debtor after receipt of email dated 22-10-2018. Copies of said Invoice and e-mail communication are at ANNEXURE-4 (page 46). (iv) Invoice dated 23-1-2019 and Additional Invoice dated 7-2-2019 were raised for ₹ 84,91,117 and ₹ 9,12,135/- respectively. E-mail message were exchanged between the operational creditor and the corporate debtor regarding Invoices. Copies of said I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, the Petitioner failed to comply with the conditions as raised in the email dated 11-3-2019 by the Fund's representative which is much before the issuance of demand notice under IBC, as such the disputes to be resolved by arbitration only. 7. We have heard the learned counsel for the operational creditor and the learned counsel for the corporate debtor. The learned counsel for the operational creditor as well as the learned counsel for the corporate debtor filed written submissions. The points raised in the written submissions will be dealt with in the course of the order. 8. The operational creditor has filed the present petition under section 9 of the Insolvency Bankruptcy Code, 2016 against the corporate debtor to initiate Corporate Insolvency Resolution Process (CIRP) for the alleged default of operational debt of ₹ 4,17,13,343/-. The averments in the application filed in Form-5 and averments in the reply including the averments in the additional affidavit as well as rejoinder and reply to the additional affidavit are all stated as above. 9. The learned counsel for the applicant would contend that the operational creditor is real assets focussed private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was issued to the corporate debtor on 4-6-2018. The corporate debtor on the other hand confirmed the rental details for raising invoice through E-mail dated 5-6-2018 marking a copy to the Fund Manager. The operational creditor raised invoice on 5-6-2018 and 6-6-2018 basing on the information submitted by the corporate debtor. The learned counsel contended that the corporate debtor committed default in paying the amount. Similarly, again the operational creditor requested the corporate debtor to submit details for raising Invoices for the quarter ending September 2018 and the information was furnished by the corporate debtor and invoice was raised. The learned counsel contended again the operational creditor requested the corporate debtor to furnish details for the quarter ending December 2018. The same was furnished by the corporate debtor. The details of Invoices were furnished. 14. The learned counsel contended that the corporate debtor in fact, deducted TDS in respect of Invoices under section 194J of the Income-tax Act, 1961. The account of the corporate debtor was operated by a person nominated by the operational creditor and another person nominated by the Fund Manager. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of breach, to the operational creditor dated 29-10-2018. Thus, the operational creditor suppressed the Notice of Breach issued prior to the Demand Notice. The learned counsel contended that the operational creditor committed breach of using brand name 'MN', which was raised way back on 17-2-2017, through E-mail. The learned counsel for the corporate debtor would contend that the operational creditor addressed letters to the Fund Manager dated 12-7-2018 and 24-10-2018 requesting payment against Invoices. They are shown at pages 44-46 and 41-43, in reply to the Additional Affidavit. The learned counsel contended that Notice of Breach and Dispute was issued to the operational creditor dated 29-10-2018 by the Fund Manager for and on behalf of its subsidiaries including the corporate debtor. They are shown at pages 21-22 of the reply. An E-mail was also sent to the operational creditor to settle the dispute which was prior to the Demand Notice. There was Notice of Termination dated 22-3-2019. 16. The learned counsel contended that the operational creditor failed to perform its duties under the Advisory Agreement. Payment was to be made to the operational creditor by Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the operational creditor to be approved by the Fund Manager before payment. The learned counsel for the corporate debtor contended that the operational creditor is appointed by the Fund Manager and the operational creditor to render services to the Fund Manager. It is the Fund Manager, who has to make payment to the operational creditor. Fund Manager can defer payment till the end of the life of the Fund, which is on 2-9-2020, which is further extendable by two years. There was Notice of Breach issued to the operational creditor dated 29-10-2018. The Fund Manager made it clear to the operational creditor through E-mail dated 11-3-2018 that payment will be released subject to defaults being cured by the operational creditor. One more letter was addressed by the Fund Manager dated 16-10-2018 stating that the Advisory Fee is deferred till the end of the life of the Fund. The learned counsel contended that there is a clear admission by the operational creditor that payment under the Invoice to be made after approval by the Fund Manager. When there is dispute between the Fund Manager and the operational creditor the question of payment does not arise. The learned counsel also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Fund Manager at the first instance and there is no proof that the Fund Manager has approved the Invoices, and as such the Invoices cannot be enforced against it, and (iii) There was a prior dispute as the operational creditor has violated the terms of the Advisory Agreement in respect of Trade mark and that the Fund Manager has raised dispute by issuing notice of breach dated 29-10-2018. The admitted fact is that the operational creditor entered into Advisory Agreement with the Fund Manager. The operational creditor has relied on the Advisory Agreement dated 5-9-2016 shown as Annexure-6, at page 64 onwards of the Paper Booklet. The operational creditor relied on the terms of the Advisory-Agreement shown as Clauses '(A)', '(B)' and '(C)' at page 65. They are as follow: (A) The Fund Manager has been retained by LC Cerestra Core Opportunities Fund (the 'Fund') in relation to the management, of the Investments of the Fund. (B) The Fund Manager wishes to engage the Asset Advisor to avail itself of the advice and assistance of the Asset Advisor with respect to, inter alia, the provision of non-binding investment recommendations and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal creditor is relying on the Addendum shown as Annexure-7 starting from page 105 of the Paper Booklet. The corporate debtor is a party to this Addendum. Terms of Addendum are binding on the corporate debtor. It is an amendment to the Advisory Agreement. 24. The operational creditor relied on various clauses of the Addendum. Clauses (A), (B) and (C) (at page 111) are as follow: (A) The Fund Manager has been retained by LC Cerestra Core Opportunities Fund (the 'Fund') in relation to the management, of the Investments of the Fund. (B) The Fund owns controlling shareholding and interests in the Fund Subsidiaries. The Fund Subsidiaries along with their Corporate Identification Numbers as listed in Annexure (C) The structure of ownership of the Fund (directly and through its wholly owned subsidiaries) in each of the Fund Subsidiaries and the assets owned by each of the Fund Subsidiaries is described below: Sl. No. Name of the Fund Subsidiary % of Fund ownership Particulars of the Assets held by the Fund Subsidiaries 1. MN Science Technology Park Pvt Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of doubt, where an amount equal to the Advisory Fees is paid by the Fund Subsidiaries to the Fund Advisor, no further amounts shall be due and payable by the Fund Manager to the Fund Advisor pursuant to the Advisory Agreement. 2.3 The Advisory Fees shall be paid on the basis of the Invoices raised by the Asset Advisor to the Fund Subsidiaries from time to time for the services rendered under the Advisory Agreement. Such Invoices shall be approved by the Fund Manager before payment of the Advisory Fees. 2.4 All other provisions contained in the Advisory Agreement (including Annexure II to the Advisory Agreement, subject to clause 2.2 above), inter alia, for payment of Advisory Fees shall remain in full force and effect. 27. By virtue of the terms of Addendum, fee to the Assets Advisory, viz. the operational creditor to be paid by the Fund Subsidiaries. The corporate debtor and other entities are all Fund Subsidiaries and therefore, the Advisory Fee is to be paid by the subsidiaries, which includes the corporate debtor, towards Advisory Fee for the operational creditor. This is very clear in clause 2.1. If an equal amount towards Advisory Fee is paid by the Fund Subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o establish that it has raised Invoices for the services rendered to the corporate debtor. 29. The next contention of the corporate debtor is that there is no debtor-creditor relationship between it and the operational creditor. It is also the case of the corporate debtor that the Fund Manager may defer the fee to be paid to the Estates Advisor/operational creditor to the end of the life of the Fund and hence it is only a contingent fee. The Fund Manager was appointed to manage the Fund invested in the corporate debtor. The operational creditor is providing services for investment to be made by the corporate debtor. The ultimate beneficiary is the corporate debtor for the services rendered by the operational creditor. Invoices to be raised only on the corporate debtor as per the Addendum, but not on the Fund Manager. So the relationship of debtor- creditor is existing between the corporate debtor and the operational creditor. When the corporate debtor being a party to the Addendum gave liberty to the operational creditor to raise Invoices, then it falls within the definition of 'operational debt'. So it can never be said that there was no operational debt and that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is applicable to the services rendered by the operational creditor to the corporate debtor. 33. Payment of ₹ 50,00,000/- as well as deduction of TDS mandatorily required to be approved by the Fund Manager through on-line banking system. Therefore, TDS was deducted and part-payment was made. It cannot be said that there was no prior approval of the Invoices by the Fund Manager. 34. The contention of the corporate debtor that TDS was paid at the instance of one Vikas Malpani. However, TDS Certificate was issued by Shri Atul Bhardwaj, which is shown at page 141 of the Paper Booklet. Shri Atul Bhardwaj is still with the corporate debtor as CEO. The record shows that he is the representative of the Fund Manager. Thus, we do not accept the contention of the corporate debtor that there was no prior approval of the Invoices by the Fund Manager. There was no correspondence by the corporate debtor with the operational creditor questioning the liability on the ground that there was no prior approval of the Fund Manager. Had it been the case that the Invoices were not approved by the Fund Manager, the immediate reaction from the corporate debtor was to raise objection. It is very s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, if any, over Trade Mark is neither directly nor indirectly connected to the services rendered to the corporate debtor by the operational creditor. Therefore, we do not agree with the contention of the corporate debtor that there was a pre-existing dispute. 36. The contention of the learned counsel is that mere fact that deduction of TDS does not mean that there was an admission of liability. In this connection the learned counsel for the corporate debtor has relied on the decisions cited supra. On the other hand the operational creditor has produced relevant forms filed with the Income-tax Department to show that TDS is under section 194J of the Income-tax Act, 1961, which deals with the services rendered. This TDS is deducted in connection with the Invoices, which is not in dispute. So the amount deducted towards TDS is directly connected to the Invoices. The fact is that deduction of TDS affords an additional ground that raising Invoices is proper and that they are raised in connection with the services rendered to the corporate debtor. There is no transaction other than the transaction between the corporate debtor and the operational creditor, which is of rendering servic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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