2017 (6) TMI 500 - Tri - Insolvency and Bankruptcy

Section 9 of Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as Code) praying for initiating Corporate Insolvency Resolution process against the Respondent/Corporate Debtor - Held that - As per the provisions of 5(6) of the Code dispute has defined to include a suit or arbitration proceedings relating to (a) The existence of the amount of debt; (b) The quality of goods or service; or (c) The breach of a representation or warranty. The terminology Dispute cannot be given a rigid interpretation or be limited to pendency of a suit or an arbitration proceeding. The justification of withholding the entire outstanding amount is not within the scope and jurisdiction of the Bench to appreciate, as the invoking the provision of this Code is not for a Recovery of Debt. Whether the Corporate Debtor is entitled to adjust liquidated damages without actually proving is also not for this Bench to consider. Suffice it to say that there is some material placed before us to reflect the dissatisfaction of the work awarded. A sum of ₹ 63,99,062/- has already been paid by the corporate debtors. The Corporate Debtor has claimed adjustment towards removal of the snags by third parties during the defect liability period, liquidated damages and payment of rent without being operational for want of the project being completed on time. The facts of the case do not call for Initiation of Insolvency Resolution Process to be set in motion against the corporate debtor.

Summary

Issues:
Initiating Corporate Insolvency Resolution process under Section 9 of Insolvency and Bankruptcy Code, 2016 against a Corporate Debtor.

Analysis:
The petitioner, an Operational Creditor, sought to initiate the Corporate Insolvency Resolution process against the Corporate Debtor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The petitioner had been awarded a contract for civil work at the respondent's premises to be run as a restaurant. The value of the work initially awarded was ?95 lakhs, but it increased to ?1,44,86,564 due to changes in specifications and additional work. Despite delays in receiving necessary permissions and drawings from the Corporate Debtor, the petitioner completed the work and submitted a final bill for ?88,87,502, which remained unpaid. The Operational Creditor followed the necessary procedures under the Code, including sending a demand notice and filing the petition with supporting documents.

The Corporate Debtor did not respond to the notice under Section 8 of the Code and initially did not appear before the Tribunal. However, upon direction from the Bench, the Corporate Debtor was represented in court. The Corporate Debtor contested the petition, claiming dissatisfaction with the work done by the petitioner. They argued that there was no approval for the increased contractual amount and highlighted delays in execution, additional rent incurred, and liquidated damages due to the petitioner's alleged failure to complete the work on time.

The Corporate Debtor presented emails expressing dissatisfaction with the work and engaged a third party to address the alleged snags left by the petitioner. The Corporate Debtor contended that they were entitled to adjust liquidated damages against the final bill due to losses incurred. The Bench noted the dispute raised by the Corporate Debtor regarding deficiency in service through various emails.

The Bench emphasized that the term "dispute" under the Code is not limited to pending suits or arbitration proceedings but includes issues related to the amount of debt, quality of goods or services, and breach of representation or warranty. While acknowledging the dissatisfaction with the work awarded, the Bench found that the facts of the case did not warrant initiating the Insolvency Resolution Process against the Corporate Debtor. The Bench rejected the petition, considering the payments already made by the Corporate Debtor, claims for adjustments, and dissatisfaction with the work done as factors in the decision.