2022 (9) TMI 1500 - AT - Insolvency and Bankruptcy

Maintainability of Section 9 application - application rejected on the ground that for breach of settlement agreement, application - dues arising out of settlement may not be an operational debt - HELD THAT - Present is a case where the Appellant was awarded the contract to carry on construction and structural work and the dues claimed by the Appellant are operational debt. The Memorandum of Understanding entered between the parties was only with regard to mode and manner of payment, that too after final bill certificate which was duly signed by both the parties - Adjudicating Authority did not consider the nature of transaction between the parties and has erroneously come to the conclusion that section 9 application was not maintainable. The judgement of Adjudicating Authority cannot be sustained. The appeal is allowed by setting aside the order of Adjudicating Authority directing the Adjudicating Authority to pass an order of admission and other consequential order within a period of four weeks from the date of receipt of this order.

Summary

Issues:
- Appeal against rejection of application u/s 9 for an amount claimed by the Appellant.
- Whether breach of settlement agreement affects the maintainability of the application u/s 9.
- Determination of the nature of the dues claimed by the Appellant.
- Consideration of the Memorandum of Understanding in relation to the final bill certificate.
- Assessment of the Adjudicating Authority's judgment and its sustainability.

Analysis:
1. The appeal was filed against the rejection of the application u/s 9 by the Adjudicating Authority concerning an amount claimed by the Appellant. The Adjudicating Authority had rejected the application citing that for a breach of settlement agreement, the application u/s 9 might not be maintainable as the dues arising from the settlement may not qualify as 'operational debt.'

2. The Appellant argued that they were an Operational Creditor awarded a contract by the Corporate Debtor for civil and structural work. A final bill for payment was prepared and signed by both parties, followed by a Memorandum of Understanding on 30.09.2019, stipulating payment of Rs. 11 crores to the Appellant for work done under the contract. The Appellant contended that due to breach in payment, the application u/s 9 was filed and wrongly rejected.

3. The Adjudicating Authority's order was supported by the Respondent's Counsel, acknowledging the Corporate Debtor's failure to make payments as per the Memorandum of Understanding and the final bill certificate. The Tribunal noted that the Appellant had been awarded a contract for construction work and that the dues claimed were operational debt, with the Memorandum of Understanding governing the payment terms post final bill certification.

4. The Adjudicating Authority's decision was based on previous orders and concluded that the Applicant did not fall under the category of an Operational Creditor, thus deeming the application not maintainable. However, the Tribunal found that the Adjudicating Authority erred in not considering the transaction's nature and wrongly concluded that the section 9 application was not sustainable.

5. Ultimately, the Tribunal allowed the appeal, setting aside the Adjudicating Authority's order and directing them to admit the application and issue consequential orders within four weeks. The judgment emphasized the contractual nature of the dues claimed by the Appellant and the erroneous reasoning behind the rejection of the application u/s 9.