2018 (5) TMI 1613 - Tri - Insolvency and Bankruptcy

Continued Failure to make payment for services received - Default in paying Ericsson to the services rendered in terms of Managed Services Agreement (MSA) dated 25.01.2013 - Whether the debt is in existence or not? - Held that - Ericsson has stated that though the claim against these companies in its books showing more than what has been admitted by these Corporate Debtors, it has claimed only the amounts admitted by Reliance in the confirmation letter sent to the petitioner on 28.04.2017. Even thereafter also, there is not even a whisper from the Corporate Debtors side stating that the Corporate Debtors have dispute in respect to the debt amount claimed by Ericsson, or in respect to the quality of goods or services or in respect to breach of representation or warranty, in this background, the only inference that could be drawn is that debt is in existence as on the date of filing these Company Petitions. Whether occurrence of default is there or not? - Held that - the basic document for commencement of jural relationship is MSA, in that MSA itself there is a clause (24.1) saying that any alteration or modification to MSA will arise only when a new instrument has been entered into between the parties. Since no such instrument has been executed, it can never be called as novation. Moreover, mere assurance or promise of clearing liability by one party to other party can never become a novation, therefore, this novation argument propounded by the counsel of Corporate Debtors is no doubt novation but bereft of any merit - the default in making repayment has remained the same till date as before, therefore, this Bench hereby holds that Ericsson has proved that not only debt is in existence but also the default. Whether any dispute is in existence as on the date of receipt of section 8 notice by these Corporate Debtors? - Held that - there are two issues, one is the claim made by the Ericsson against the corporate debtors, another is a dispute before Arbitral Tribunal in respect to termination of MSA. Termination of MSA is subsequent to receipt of section 8 notice, the cause of action for filing Insolvency Bankruptcy cases and the cause of action for invoking arbitration are distinct and separate, the corporate debtor counsel has tried to impress upon this Bench the cause of action for these two disputes are one and the same. Factually it is incorrect because these corporate debtors have never ever disputed the claim made by Ericsson, the only grievance of the corporate debtors is the termination notice given by Ericsson to these corporate debtors saying that Ericsson would not be in a position to further provide any services to the corporate debtors under the MSA because the corporate debtors continuously failed to pay for the services rendered by Ericsson. Whether these petitions are complete as envisaged u/s 9 of IBC or not? - Held that - it is very clear that if at all secured creditors want to proceed in accordance with law either by initiation of SARFAESI proceedings or by IBC proceeding, they are at liberty to proceed, but having monetisation process through JLF is not binding upon the persons other than members of JLF. Moreover, it is an out and out sale by RCom and its group companies to RJio by bidding or may be by a sale, but what right this applicant has to say that no orders should be passed on the Company Petitions filed by Ericsson i.e. Operational Creditor. When it has been envisaged in the Code as well as held by Hon ble NCLAT and Hon ble Supreme Court stating that the non-obstante clause present in section 238 of the Code governs all other proceedings which are inconsistent with the proceedings pending under IBC - there is no merit in the application moved by SBI, as to the order of Hon ble Supreme Court, SBI is only given liberty to proceed in accordance with law, not to obstruct the proceeding initiated in accordance with law. Henceforth, the contention of this counsel on behalf of this applicant is bereft of any merit; therefore, this application is hereby dismissed without cost. Petition disposed off.

Issues Involved:
1. Existence of Debt
2. Occurrence of Default
3. Existence of Dispute
4. Completeness of Petitions under Section 9 of IBC
5. Locus Standi of SBI/Financial Creditors

Issue-wise Detailed Analysis:

1. Existence of Debt:
The Tribunal noted that the Corporate Debtors (Reliance entities) had entered into a Managed Services Agreement (MSA) with Ericsson on 25.01.2013, under which Ericsson provided managed services. The Tribunal observed that Reliance had acknowledged the debt in a letter dated 28.04.2017, confirming the outstanding dues as on 31.03.2017. The Tribunal held that the debt was in existence as the Corporate Debtors themselves confirmed the outstanding amount and never disputed the claim made by Ericsson.

2. Occurrence of Default:
The Tribunal rejected the argument that the default was extinguished due to rescheduling of payments after the issuance of Section 8 notice. It noted that the default was in existence as on the date of the Section 8 notice and that mere assurances or schedules for future payments do not negate the occurrence of default. The Tribunal emphasized that default remains until the payment is made, and no material was provided to show that the dues were not matured or payable.

3. Existence of Dispute:
The Tribunal addressed the argument that the invocation of arbitration by Reliance constituted an existing dispute. It referred to the Supreme Court's decision in Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., which clarified that a dispute must be pre-existing and not raised for the first time in response to a Section 8 notice. The Tribunal found that Reliance had never raised any dispute regarding the quality of services or the amount of debt before the Section 8 notice. The arbitration invoked by Reliance was related to the termination of the MSA, not the debt itself. Therefore, the Tribunal held that no dispute existed regarding the debt claimed by Ericsson.

4. Completeness of Petitions under Section 9 of IBC:
The Tribunal examined whether the petitions filed by Ericsson were complete as per Section 9 of the IBC. It found that Ericsson had filed the petitions after the expiry of 10 days from the delivery of the Section 8 notice, had not received payment, and had not received any notice of dispute from the Corporate Debtors. The Tribunal also noted that the petitions included the required information and supporting documents, such as the confirmation of dues and bank certificates. Therefore, the Tribunal held that the petitions were complete and fit for admission.

5. Locus Standi of SBI/Financial Creditors:
SBI, representing a consortium of financial creditors, argued that the petitions should not be admitted due to an ongoing asset monetization process under the supervision of the Joint Lenders Forum (JLF). The Tribunal rejected this argument, stating that JLF proceedings do not have any bearing on IBC proceedings. It emphasized that the non-obstante clause in Section 238 of the IBC overrides other inconsistent proceedings. The Tribunal also noted that the financial creditors' rights to proceed under other laws were not affected by the admission of the petitions. Therefore, the Tribunal dismissed SBI's application, finding no merit in their objections.

Conclusion:
The Tribunal admitted the petitions filed by Ericsson against the three Reliance entities (RITL, RTL, and RCom) for initiating Corporate Insolvency Resolution Process (CIRP). It imposed a moratorium on the institution or continuation of suits, transfer of assets, and other actions against the Corporate Debtors. The Tribunal directed the public announcement of the CIRP and stated that it would appoint an Interim Resolution Professional after confirmation.

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