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TMI Blog2022 (7) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a notice inviting Tender on 14.07.2014 for Civil Works in Mercure Hotel at Site No. C.P. 8, Oragadam, Survey No. 23P, 24P, 25P, Kachipuram District, Sriperambudur Taluk, Chennai. The Operational Creditor participated and won the bid. The Corporate Debtor issued a Letter of Intent on 17.10.2014 and the Operational Creditor accepted the same. ii. That the Operational Creditor entered into a Civil Work Agreement with the Corporate Debtor. Certain pertinent clauses of the Notice issued by the Corporate Debtor include: * Clause 3.1: the contractor (i.e; the Corporate Debtor herein) shall pay a sum of Rs. 10,32,70,048 (Rupees Ten Crore Thirty-Two Lakh Seventy Thousand and Forty-Eight) to the workers (i.e; Operational Creditors herein) in case of satisfactory work in the manner prescribed by Schedule II. The contractor shall not be liable to pay any additional amount over and above the Contract Price unless otherwise stated in the agreement. * Schedule II Clause l.ii. - Running Bill: The contractor shall submit the monthly running account bill for the work in the previous month. Ad hoc payment @50% of the bill value of the running bill shall be released within 15 working days aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Bank Guarantee (2.5% valid till first 6 months and 1.5% valid for next 6 months). vii. That as per the EWD Agreement the Operational Creditor had raised RA Bills of Rs. 25,43,669 and as per the said agreement the Corporate Debtor was to retain 5% of the RA Bill amount raised. The Corporate Debtor retained Rs. 4,24,337 that was payable to the Operational Creditor after a period of one year from the date of Virtual Completion. viii. That on 12.09.2016 the Corporate Debtor had requested the Operational Creditor to perform certain additional works in the Project i.e. for IPS Flooring, Shahbad Stone Laying and also external plastering work. The Operational Creditor completed this work by 03.03.2017. ix. That the Operational Creditor had completed all the work and on 14.05.2016 issued a Virtual Completion Certificate along with handling over documents and manuals. This was admitted by the Corporate Debtor on the same day. A Practical Completion and Handling Over Certificate was issued on 03.03.2017 and the Operational Creditor completed the snag work on 25.04.2017. x. That although a period of one year from the virtual completion lapsed on 14.05.2017, the Operational Creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e registered email address of the Corporate Debtor, but the Operational Creditor did not receive any reply from the Corporate Debtor to the said demand notice within 10 days. xxi. That the said behavior of the Corporate Debtor is extremely unethical and wrongful. The Corporate Debtor has grossly defaulted in making payment of the outstanding dues, amounting to INR 28,14,754/- (Rupees Twenty-Eight Lakh Fourteen Thousand Seven Hundred and Fifty-Four only) of the Operational Creditor and therefore, the Applicant has filed the present application under section 9 of the Insolvency and Bankruptcy Code, 2016 to initiate the Corporate Insolvency Resolution Process of the Respondent. xxii. That the corporate debtor has allegedly not disputed the factum of receipt of demand notice from the operational creditor. 2. In compliance of Section 9(3)(b) of the Insolvency and Bankruptcy Code, 2016, the Operational Creditor has filed affidavit dated 24.08.2021 stating that no notice of any preexisting dispute has been received by the Applicant from the Corporate Debtor relating to the dispute of the un-paid Operational Debt. The Operational Creditor has also stated in the said affidavit that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delay of supply were raised, however to no avail. Hence, the dispute. Further, the respondent company had to spend an additional cost of Rs. 68,45,000/- for renewal of its license, due to non-delivery of drawing. 6. The Corporate Debtor argued that during the period of 2014-17, various RA bills were raised by the Applicant towards the civil works and the external development works and the Company made regular payments from time to time after retaining 5% of the amount of each RA bill, in accordance with the provisions of the CWA and the EDWA, respectively. 7. The Corporate Debtor argues that, subsequently, the Applicant issued a letter dated 16 May, 2017, to the Company, thereby, demanding payment of a sum of INR 49,01,533 (Indian Rupees Forty-Nine-Lakh One Thousand Five Hundred and Thirty-Three Only) towards retention money. Thereafter, pending a reconciliation exercise, the Company, in good faith, made payment of an amount of INR 10,00,000/- (Indian Rupees Ten Lakh Only) to the Applicant on 27 February, 2018. 8. Pursuant to a detailed reconciliation exercise carried out by both the parties, it was agreed by the parties that as on 6 August, 2018, the total amount payable towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid issues could be resolved by re-polishing the floor with proper technique at INR 25 per sq ft plus CIST. The Corporate Debtor argues that such correspondence itself shows that there was a dispute between the parties with respect to the works carried out by the Operational Creditor and thus the Application is liable to be dismissed on this ground alone. 14. The Corporate Debtor responded to the aforesaid email on 29 March, 2018, thereby, clearly informing the Operational Creditor that on perusal of item wise descriptions provided by the Operational Creditor it was clear that the same explicitly included polishing of the floor stone as well. The Corporate Debtor further state that the floor stone had not been polished and only grinding was done which had left marks on the floor. Thus, the Corporate Debtor questioned the Operational Creditor's proposal for charging additional amounts for polishing the floor stone when the same formed part of the scope of work under the CWA and again requested the Applicant to have the floor stone polished. 15. The Operational Creditor vide its email dated 30 March, 2018, inter alia, stated that it would be willing to get the floor stone polis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he polishing work of the floor stone, the Corporate Debtor again mailed the Operational Creditor on 12 November, 2018, thereby, inter alia, reiterating its earlier request for completion of the work. The Corporate Debtor further clearly informed the Applicant that it would clear the balance payments once the work was completed by the Operational Creditor. However, the aforesaid work remains incomplete even as on date. 22. The Corporate Debtor relied on Hon'ble Supreme Court's decision in Mobilox Innovations Private Limited PS. Kirusa Software Private Limited (2018) 1 SCC 353, wherein it was held that "once the Applicant has filed an application, which was otherwise complete, the Adjudicating Authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the Applicant or there was a record of dispute in the information utility. It was clear that such notice must bring to the notice of the Applicant the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute was pending between the parties. Therefore, all that the adjudicating Authority was to see at this stage was whether there was a plausible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and observed, "In a recent judgment of this Court in Mobilox Innovations (P) Lad. v. Kirusa Software (P) Ltd., this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked....". 26. It is the counter-argument of the Operational Creditor that the argument of the Corporate Debtor that the Application filed by the Operational Creditor is not maintainable is a result of erroneous interpretation of the notification dated 24.03.2020 issued by the Ministry of Corporate Affairs. The Operational Creditor argues that the notification dated 24.03.2020 cannot as a matter of law operate retrospectively. Even Section 4 of the Code does not empower the Central Government to change the minimum amount of default with retrospective effect. It has also been held by the Hon'ble Supreme Court of India that once a default occurs, Article 137 of the Limitation Act, 1963 prescribes a period of three years as the period of limitation to institute proceedings under Section 7 or Section 9. 27. The Operational Creditor argued that the Corporate Debtor's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration proceeding relating to a dispute is pending between the parties..." 31. The Operational Creditor argues that the Corporate Debtor did not send any notice of Dispute to the Operational Creditor. On the other hand, the debt was admitted in writing. 32. Under the Civil Works Agreement dated 25 November, 2014, the Civil Works stood completed on 14.05.2016. Further, the Corporate Debtor acknowledged with a handwritten notation on the letter dated 16.05.2017 that the work had been completed. It was also acknowledged that the retention money under the agreement would be returned to the Operational Creditor after one year of the date of virtual completion (This was as per Schedule II of the Civil Works Agreement dated 25 November 2014). 33. After the issuance of the completion certificate and the efflux of one year thereafter - which was duly acknowledged by the Corporate Debtor, the performance of the contract stood completed. The only remaining part of the performance of the contract was the payment of the retention money. The Operational Creditor argued that the exchange of emails regarding floor work between the two parties is subsequent to the completion of the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pre-existing dispute. As per the records shown by the Corporate Debtor, the work of the Operational Creditor has not been satisfactory despite repeated requests for rectification by the Corporate Debtor. Infact, the issue of polishing of the stone floor has remained unresolved. It appears that the Operational Creditor is using this forum as a recovery mechanism for retention money which is not the purpose or intention of the IBC 2016. This has been held by the Hon'ble Supreme Court in cases such as Parker Hannifin India Pvt. Ltd. v. Prowess International Pvt. Ltd., and M/s. Kuntal Construction Pvt. Ltd. v. M/s. Bharat Hotels Ltd. in Company Appeal (AT) (Insolvency) No. 542 of 2020 (para 18). Additionally, the threshold requirement for debt default given under S. 4 of the Insolvency and Bankruptcy Code 2016 is not satisfied in this case. It has been held by the Company Appeal AT) (Ins.) No. 813 of 2021, titled as Jumbo Papers Products Vs. Hanaraj Agrofresh Private Limited that it is the date of filing of application for initiation of Corporate Insolvency Resolution Process (CIRP) that matters to determine that if a case at hand will be determined as per the enhanced default li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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