TMI Blog2022 (1) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the Operational Creditor that there is no Existence of Dispute prior to the issuance of Demand Notice - The Operational Creditor only accepted the debit of ₹ 1,25,80,121/- against 5% entry tax which was also accordingly been deducted in calculating the principal amount of Operational Debt of ₹ 13.69 Crores. Except these debits, none of the debits have been accepted or consented to by the Operational Creditor . It is also their case that fraudulent debit notes were raised by the Corporate Debtor as Purchase Orders were placed with Power Former Engineer for repairs of centrifugal machine, which was never part of the scope of work of the first Respondent. On 29.03.2014, it is the case of the Corporate Debtor that the Operational Creditor had abandoned the site and therefore, the Corporate Debtor had to take over the Project and make all the relevant payments to the vendor. The material on record shows that on 28.04.2014 another letter was addressed by the Corporate Debtor to the Operational Creditor citing all the inadequacies in the performance of the contract. On 19.06.2014, the Operational Creditor once again raised the payment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member (T)] 1. Aggrieved by the Order dated 12.02.2020 in CP (IB) No. 1422/KB/2018 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata), M/s. Hindustan Petroleum Corporation Ltd. , preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as the Code ). By the Impugned Order, the Learned Adjudicating Authority has allowed the Application preferred by M/s. S.S. Engineers Anr. (hereinafter referred to as the Respondent/ Operational Creditor ), and observed as follows: 16. Thus, considering the legal framework as a whole, i.e., provisions of section 3(23) along with other provisions of the IBC, 2016, in our considered view, in the present context, the term person in our considered view would include sole proprietorship firm as well being eligible to file petition under section 7 or 9 under IBC 2016. We further observe that these aspects and legal provisions were not argued in cases relied on by the Corporate Debtor while deciding the issue as regards to maintainability of the application by the sole proprietorship firm, hence, we most humbly submit that such decisions ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor. As an adjudicating authority in the proceedings, we are not suppose to do this kind of working, but to find out the genuineness of the claim of pre-existing dispute, and amount of outstanding debt, it was necessary in the facts and circumstances of the case, hence, it has been so analysed on the basis of the provisional statement prepared and filed by the Corporate Debtor itself. At the cost of repetition, we again state that this statement takes into consideration all these disputes raised by the Corporate Debtor, hence, the amount payable by the Corporate Debtor remains in positive which is more than one lakh ultimately that too when we have considered the project as a whole against the claim of Operational Creditor of undisputed dues of supply portion only. We have also gone through the emails which have been taken into consideration while preparing this provisional statement. Hence, on the basis of material on record, it cannot be said that any other dispute remains to be considered. Apart from this, the fact which is crucial to note is that the Corporate Debtor has awarded new work orders to the Operational Creditor subsequently which means that all the disputes relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... layed the execution of the project and rendered inferior and substandard quality of work and finally withdrew from the Project abandoning the site as can be seen from the correspondence and the Minutes of the Meetings held with the Operational Creditor . In support of his contention, the Learned Counsel placed reliance on Annexure 8 and Annexures 16-93. It is on account of abandoning of the project by the Operational Creditor that the Corporate Debtor had suffered huge losses and made excess payments to the sub-contractors. The Corporate Debtor had cleared all outstanding dues in a timely manner as was agreed to by the first Respondent in the Minutes of the Meetings. The Corporate Debtor invoked the Arbitration clause seeking to refer the disputes for adjudication by an Arbitrator . Two Demand Notices were issued by the first Respondent one on 30.08.2017 and the other on 25.07.2018, both raised a demand for payment in relation to the very same 8 Purchase Orders seen in the letter dated 09.07.2016. The Learned Counsel placed reliance on the ratio of Hon ble Supreme Court in the following Judgments: Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd. (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is sought to be adjusted against the bill amount is a counter claim for alleged damages and cannot be adjusted against the admitted claim. Further, there is no defense as against the sum which has been retained against the Purchase Orders. The Arbitration Notice issued on 09.07.2016 was for the recovery of the amount as there was an Arbitration clause in the tender and does not in any manner bar any initiation of Insolvency Proceedings. The Corporate Debtor did not reply to the Notice dated 09.07.2016. There is also no Reply to the first Notice under Section 8 of the Code, which is dated 30.08.2017. The second Notice was replied to by letter dated 07.08.2018, in which counter claim for damages was made which is wholly a malafide and a frivolous attempt by the Corporate Debtor and is also otherwise barred by Limitation . Assessment: 4. A perusal of the Tender Enquiry dated 27.06.2012, the Instructions to bidders , General Conditions of Contract and Special Conditions of Contract , show that the tender is for design, engineering, manufacture, procurement, supply, transportation to site, transit and storage, insurance, storing at site, project management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Judgment of the Hon ble Apex Court in Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd. (2018) 1 SCC 353: 51. It is clear, therefore, 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. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor , instead of paying the due amounts, raised these baseless allegations and disputes. It is the case of the Operational Creditor that there is no Existence of Dispute prior to the issuance of Demand Notice. In their email dated 08.04.2013, in relation to the Minutes of the Meeting, the Operational Creditor had clarified that work progress is subject to prompt payments. July 31, 2013 was decided as the commissioning date subject to immediate and prompt payment made by the Corporate Debtor . The Operational Creditor had always shown their willingness to commission and perform their obligations and their senior personnel were stationed at the site of the Corporate Debtor and additional staff always visited from time to time. It was only because of pendency of payment of the dues that the Operational Creditor had faced difficulties in executing the ongoing Project. The Corporate Debtor was making ad hoc payments but not as per the bills raised. The Learned Counsel relied on the emails dated October 12, 2013, November 2, 2013 and November 14, 2013 to buttress his contention that despite repeated reminders, the Corporate Debtor never responded. The Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor continued to raise various debit notes unilaterally without any supporting documentation, for which the Operational Creditor cannot be held responsible. 15. The Operational Creditor vide email dated 02.02.2014 i.e. one month after the aforenoted letter sought for release of payment. Once again the Corporate Debtor on 04.02.2014 and on 28.02.2014 reiterated the poor performance of the Operational Creditor on account of which huge losses were incurred. 16. On 29.03.2014, it is the case of the Corporate Debtor that the Operational Creditor had abandoned the site and therefore, the Corporate Debtor had to take over the Project and make all the relevant payments to the vendor. The material on record shows that on 28.04.2014 another letter was addressed by the Corporate Debtor to the Operational Creditor citing all the inadequacies in the performance of the contract. On 19.06.2014, the Operational Creditor once again raised the payment for ₹ 13.34 Crores. 17. Section 8 of the Code reads as hereunder: 8. Insolvency resolution by operational creditor.-(1) An operational creditor may, on the occurrence of a default, deliver a demand notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor has stated that there is an outstanding of ₹ 18,12,21,452/- and has further stated that they are ready to settle the disputes through Arbitration. A brief perusal of the documents on record evidence that the Operational Creditor admitted that the contract was on lumpsum turnkey basis and stated in the Arbitration Notice that the Corporate Debtor had raised issues relating to non-adherence of the terms of the contract. 20. The Hon ble Apex Court in K. Kishan Vs. Vijay Nirman Co. (P) Ltd. (2018) 17 SCC 662, has observed as follows: 19. After referring to Section 8, the judgment in Mobilox Innovations case went on to hold that what is important is that the existence of the dispute and/or a 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 may be. 20. The adjudicating authority, therefore, when examining an application under Section 9 of the Code, will have to determine the following: (Mobilox Innovations case, SCC p. 394, para 34) 34. ... (i) Whether there is an 'operational debt as defined exceeding ₹ 1 lakh? (See Section 4 of the Act.) (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. 22. Following this judgment, it becomes clear that operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardise an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations, being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of rupees two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. We repeat that the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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