2019 (11) TMI 1540 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - It is found that the Operational Creditor has moved the application before this Bench consequent upon the alleged failure on the side of the Corporate Debtor to abide by the terms of compromise memo indicating the number of cheques vis-a-vis the amount payable by honouring the cheques. The Operational Creditor has admitted that some of the cheques were cleared. It leads us to the prima-facie conclusion that the Corporate Debtor has demonstrated their bona fide in releasing the payment towards the admitted portion of the debt. As per the submission of the Corporate Debtor regarding the cheques returned un-cleared, they had issued stop memo in respect of these cheques allegedly owing to the failure of the Operational Creditor to rectify the snag work. It is evident from the components of the Snag work that these are integral part of fire fighting work envisaged to be completed in the Hotel Project of the Corporate Debtor without which a Five Star Hotel cannot start functioning. Being an experienced contractor in fire fighting work segment in similar projects, the Operational Creditor should have taken keen interest in resolving the snag works as above and obtained a Joint Compliance Report duly signed by both the parties in order to prove their bona fide - As per the conditions for EPC contract if there are claims from either party they have to follow the procedure of trying to reach the agreement and if it is not acceptable they must approach a Dispute Adjudication Board. Evidently, there is a dispute in the instant case in respect of which the parties can at their choice approach a Dispute Adjudication Board. Petition dismissed.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Claims of Operational Debt by the Operational Creditor.
3. Alleged default and dishonor of cheques by the Corporate Debtor.
4. Dispute regarding completion of snag works.
5. Compliance with FIDIC conditions of contract.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The Operational Creditor, M/s. ETA Engineers Private Limited, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. GBJ Hotels Private Limited. The application aimed to declare a moratorium and appoint an Interim Resolution Professional.

2. Claims of Operational Debt by the Operational Creditor:
The Operational Creditor claimed a sum of ?11,45,997 along with interest at 18% as Operational Debt arising from a Works Contract for fire fighting executed for the Corporate Debtor's hotel project. The total amount claimed, including service tax and VAT reimbursements, was ?34,09,534.

3. Alleged Default and Dishonor of Cheques by the Corporate Debtor:
The Operational Creditor issued a Demand Notice under Section 8 of the I&B Code, 2016, on 14th January 2019. The Corporate Debtor had issued several cheques, some of which were dishonored. Specifically, cheques totaling ?8,52,383 were dishonored. The Corporate Debtor had issued stop payment instructions due to the Operational Creditor's alleged failure to complete snag works.

4. Dispute Regarding Completion of Snag Works:
The Corporate Debtor contended that the Operational Creditor had not completed several snag works essential for the fire fighting system in the hotel project. The Corporate Debtor provided detailed lists of pending snag works and argued that the Operational Creditor failed to address these issues despite multiple communications. The Corporate Debtor maintained that the payment of certain cheques was withheld due to the incomplete snag works.

5. Compliance with FIDIC Conditions of Contract:
Both parties accepted the FIDIC conditions of contract for construction of Buildings and Engineering Works. According to these conditions, any claims or disputes should be resolved through a Dispute Adjudication Board if mutual agreement could not be reached. The Tribunal noted that there existed a dispute regarding the completion of snag works, and the parties could approach a Dispute Adjudication Board for resolution.

Conclusion:
The Tribunal found that the Corporate Debtor had demonstrated bona fide by releasing payments for the admitted portion of the debt and issuing stop payment instructions for the disputed portions due to incomplete snag works. Given the existence of a genuine dispute and the FIDIC conditions, the Tribunal dismissed the petition without cost.