2019 (4) TMI 1128 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - grant of moratorium - appointment of Interim Resolution Professional - default in making repayment - retention money - amount not became due as on date - existence of debt or not? - Section 9 of Insolvency and Bankruptcy Code, 2016 - whether delay occurred on account of Corporate Debtor? - HELD THAT - Admittedly, Corporate Debtor was given contract for completing the project for Majalgaon Lift Irrigation System on Turnkey Basis and equipment was transported to the project site. At that stage authorities of Government of Maharashtra issued order suspending the work. It is an unforeseen event. Parties to the Purchase order did not visualize such an event will take place. In the normal course if there is no suspension order, Operational Creditor can erect, commission and trial run the equipment. In case in the normal course, delay occurred on account of Corporate Debtor for completing the project on any ground other than the ground now referred to, then it can be said the retention money becomes due up to 20% and if not paid it amounts to default. The situation is otherwise. Without any fault from the side of Corporate Debtor concerned authorities of Government of Maharashtra issued order of suspension of the project work. The Corporate Debtor cannot be blamed for the suspension order passed by the authorities of Government of Maharashtra. The suspension order does not show that it was issued on account of failure on the part of Corporate Debtor to perform its part of the contract given to it by the Government of Maharashtra. The Operational Creditor becomes entitled to retention money of 25% or 20% as the case maybe only if it completes the terms of purchase order, especially erection, commissioning and trial run. This part of the contract was not completed. The amount becomes due only if Operational Creditor completes the remaining part of the Purchase Order. Till then, the amount does not become due. When the amount does not become due, then there is no question of default. Operational Creditor failed to establish that there is a debt due and payable and it was committed default. As far as IBC is concerned, the Operational Creditor to establish debt as well as default. When these two are not established, then petition cannot be admitted - petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Whether the Corporate Debtor defaulted in repaying the operational debt.
2. Whether the claim of the Operational Creditor is premature.
3. Whether the suspension of work by the Government of Maharashtra affects the claim.
4. Whether the Operational Creditor is entitled to the retention money.

Detailed Analysis:

1. Whether the Corporate Debtor defaulted in repaying the operational debt:
The Operational Creditor, M/s Jyoti Limited, claimed that the Corporate Debtor, M/s Prasad and Company (Project Works) Limited, defaulted in repaying ?2,97,79,977.24 as of 10.12.2016. The Operational Creditor issued a Demand Notice on 24.05.2018, but the Corporate Debtor did not reply within the mandatory 10 days. Instead, an email and letter dated 31.05.2018 from Prasad-Shreehari (JV) stated that the claim was premature due to non-erecting and commissioning by the Operational Creditor. The Corporate Debtor contended that 75% of the value as per the purchase order was paid and the remaining 25% was retention money against erection and commissioning, which had not been completed due to the suspension of work by the Government of Maharashtra.

2. Whether the claim of the Operational Creditor is premature:
The Corporate Debtor argued that the claim was premature as the Operational Creditor had not completed its part of the contract, specifically the erection, commissioning, and trial run of the equipment. The Operational Creditor countered that the delay was due to the Corporate Debtor's inability to complete the project, and thus, it was entitled to recover the retention amount. The Tribunal found that the suspension of work by the Government of Maharashtra was an unforeseen event beyond the control of the Corporate Debtor, and therefore, the claim was premature.

3. Whether the suspension of work by the Government of Maharashtra affects the claim:
The Corporate Debtor stated that the suspension of work by the Government of Maharashtra was beyond its control and not due to any fault on its part. The Tribunal agreed, noting that the suspension order did not indicate any failure on the part of the Corporate Debtor. Consequently, the Tribunal concluded that the Corporate Debtor could not be blamed for the delay caused by the suspension order, and thus, the retention money was not due until the completion of the contract.

4. Whether the Operational Creditor is entitled to the retention money:
The Tribunal examined the terms of the purchase order, which stipulated that 25% of the payment was retention money to be paid after the erection, commissioning, and trial run of the equipment. Since the Operational Creditor had not completed these tasks due to the suspension of work, the Tribunal found that the retention money was not yet due. Therefore, there was no debt due and payable, and consequently, no default.

Conclusion:
The Tribunal concluded that the Operational Creditor failed to establish that there was a debt due and payable and that the Corporate Debtor had committed a default. As a result, the petition was rejected.