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2020 (12) TMI 242 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - dishonor of Cheque - service of demand notice. Dishonor of Cheque - 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 - HELD THAT - This plea goes against the Corporate Debtor because if after considering the disputes, a cheque is issued which is dishonoured for insufficient funds this goes to show that the Corporate Debtor, being issuer of the cheque, issued the cheque and delivered the cheque after fully analyzing the issues that this amount was, in fact, payable in spite of such disputes - this application is liable to be admitted. 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 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 have been attached nor any other evidence such as deduction for the same by end client (Government of Andhra Pradesh) from the bills of Corporate Debtor has been brought on record. It is further noted that even contractual provisions are not mentioned under which such deductions/recoveries have been made except in case of retention money. Having said so, it may not be out of place to mention that from the perusal thereof it appears that such deductions have been worked out just to justify the non-payment as no steps for the recovery of the same have been taken - 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. Operational Creditor abandoned the project in between even without informing the Corporate Debtor on 25.01.2017 as mail written on 03.03.2017 - HELD THAT - We are unable to accept this fact that Corporate Debtor had no knowledge of such abandonment until it received such mail for the reason that Corporate Debtor is Principal Contractor and it is supervising, coordinating, monitoring and controlling the project. Further, Corporate Debtor after such abandonment has made substantial payments to the Operational Creditor, issued work done certificate as well and did not file any claim for damages, penalties etc. against the Operational Creditor, hence, its plea that it resulted into adverse consequences remains shallow. Further, abandonment as such has no bearing on the admissibility of this application, because what is claimed by the Operational Creditor is the amount due and payable in respect of work done by the Operational Creditor and consequences of such abandonment, if any, have to be dealt in accordance with the terms and conditions of the contract between the parties and, as stated earlier so, no material has been brought on record to show that any action has been taken by the Corporate Debtor against the Operational Creditor on this score. Thus, such plea has got no bearing on the present 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 Insolvency and Bankruptcy Code, 2016 - The extent of ascertainment/examination of such parameters defines the scope of exercise of jurisdiction by Adjudicating Authority. It has been pleaded that Adjudicating Authority has limited jurisdiction as compared to a Trial Court and Civil Court. We do not have any quarrel or dispute with this proposition. However, intensity of the examination would depend upon the facts and documentary evidences produced by each of the parties in support of their claims. Having said so, it would also be an endeavor of the Corporate Debtor to prove that there is preexisting dispute to avoid its obligation. In what circumstances a fact situation can be categorized as dispute i.e. when does a disagreement or difference of opinion become a dispute - HELD 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 such differences are ascertained into a claim on which both the parties have opposite/different views and want to settle the same through some legal process or otherwise. Thus, in our view, routine correspondence in commercial relationship cannot automatically or necessarily be considered and admitted as dispute unless such stage is reached. 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 - It has also not been established that any payment had been withheld by the Government in respect of work done by Operational Creditor. Further, if these facts are considered with work experience certificate issued by the Corporate Debtor and subsequent payments made by the Corporate Debtor then it can be safely 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.
Issues Involved:
1. Pre-existing dispute. 2. Issuance and dishonor of cheque. 3. Work done certificate and payment. 4. Suppression of facts. 5. Abandonment of the project. 6. Payment terms related to receipt from the end client. 7. Admissibility of the application under Section 9 of IBC, 2016. Detailed Analysis: 1. Pre-existing Dispute: The Corporate Debtor argued that there was a pre-existing dispute based on emails exchanged between 01.02.2016 and 03.04.2017. They relied on the Supreme Court's decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which emphasized that the Adjudicating Authority's jurisdiction is limited to determining if a dispute exists, without delving into the merits. The Tribunal found that the disputes raised were not substantial and were more of routine correspondence. The Tribunal concluded that the disputes were resolved, and the outstanding amount was due, thus rejecting the claim of pre-existing disputes. 2. Issuance and Dishonor of Cheque: The Operational Creditor claimed that a cheque of ?50 Lacs issued by the Corporate Debtor was dishonored, which by itself was sufficient to admit the application. The Tribunal agreed, stating that the issuance and dishonor of the cheque indicated an acknowledgment of debt by the Corporate Debtor, making the application admissible. 3. Work Done Certificate and Payment: The Operational Creditor presented a work done certificate dated 17.04.2017, which the Corporate Debtor confirmed on 23.10.2018, stating the work value at ?69.19 crores. The Tribunal noted that the Corporate Debtor's claims of typographical errors were unsubstantiated and that the work done certificate was valid. The Tribunal found that the Corporate Debtor had acknowledged the work done and the amount due, thus supporting the Operational Creditor's claim. 4. Suppression of Facts: The Corporate Debtor accused the Operational Creditor of suppressing facts by not disclosing emails and the reply to the demand notice. The Tribunal found no merit in this claim, stating that the Operational Creditor had complied with the requirements of Section 8 of IBC, 2016, and had not suppressed any material facts. The Tribunal emphasized that the Corporate Debtor's reply was beyond the stipulated 10 days, making the suppression claim invalid. 5. Abandonment of the Project: The Corporate Debtor contended that the Operational Creditor abandoned the project on 25.01.2017 without informing them. The Tribunal dismissed this claim, noting that the Corporate Debtor continued to make payments and issued work done certificates even after the alleged abandonment. The Tribunal concluded that the abandonment had no bearing on the admissibility of the application. 6. Payment Terms Related to Receipt from the End Client: The Corporate Debtor argued that payments to the Operational Creditor were contingent upon receipt from the end client (Government of Andhra Pradesh). The Tribunal noted that the Corporate Debtor admitted to receiving payments from the government and that there was no contractual bar preventing the Corporate Debtor from paying the Operational Creditor from its own resources. Thus, this argument was found to have no bearing on the case. 7. Admissibility of the Application under Section 9 of IBC, 2016: The Tribunal emphasized that the application was complete, defect-free, and complied with the requirements of IBC, 2016. The Tribunal reiterated the importance of adhering to timelines prescribed under the Act, particularly the 10-day period for the Corporate Debtor to respond to the demand notice. The Tribunal found that the Corporate Debtor failed to establish a bona fide dispute and that the outstanding amount was more than ?1 Lakh, thus admitting the application. Conclusion: The Tribunal admitted the application filed by the Operational Creditor under Section 9 of IBC, 2016, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. A moratorium was declared, and an Interim Resolution Professional (IRP) was appointed to conduct the CIRP. The Tribunal ordered the necessary public announcements and compliance with the relevant provisions of IBC, 2016.
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