2020 (8) TMI 492 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT - This Tribunal is of the considered opinion that the Corporate Debtor had accepted that all the works have attended by the Operational Creditor and further requested the Operational Creditor to attend to the work as a Special case request. From the reading of the e-mail, the request made by the Corporate Debtor is not part of the original work and it is a Special Request made to the Operational Creditor to do the work. There are no record or document to establish that there exists any dispute nor raised any dispute by the Corporate Debtor, hence, we conclude that there is no pre-existing of dispute. The Operational Creditor had awarded the work and the retention money cannot be treated as separate money. The retention money is a part of main bill which was retained by the Corporate Debtor as per the terms of the Work Order and the same shall be released after completion of the work and issuance of the Completion Certificate. The Respondent No. 1 being a Corporate Debtor is due and payable retention money which is part of the main Bill thereby the Operational Creditor is well within the definition of Section 5(20) IBC - In the present case, the Demand Notice dated 01.03.2018 was received by the Corporate Debtor on 09.03.2018. However, they fail to bring to the notice of the Operational Creditor with regard to existence of dispute in their reply or even shown existence of dispute prior to the issuance of Demand Notice. The Respondent No. 1 had not raised any dispute which is existing prior to the issuance of Demand Notice. Further Section 3(2) of IBC define default. As per said Section, the default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the Debtor or Corporate Debtor as the case may be. The debt has been defined in Section 3(11) means a liability or obligation in respect of a claim which is due from any person and includes a Financial Debt and Operational Debt - In view of the definition of debt and default, the retention money, which is part of the main bill, comes under the definition of debt and default. The Respondent No. 2 falls under the category of Operational Creditor and the debt is an Operational Debt as per law, which is due and payable - there is no pre-existence of dispute and Application is not barred by limitation - Appeal dismissed.

Summary

Issues Involved:
1. Definition of Retention Money as Operational Debt.
2. Pre-existence of Dispute.
3. Limitation Period for Filing the Application.
4. Status of Operational Creditor.

Issue-wise Detailed Analysis:

1. Definition of Retention Money as Operational Debt:
The appellant contended that the retention money does not fall within the definition of "Operational Debt" as defined in Section 5(21) of the Insolvency and Bankruptcy Code (IBC). They argued that retention money should be raised only after the successful completion of work. However, the tribunal held that the retention money is part of the main payment and is retained as per the terms of the work order. The tribunal concluded that the retention money is indeed an operational debt, as it is a claim in respect of the provision of services rendered by the operational creditor to the corporate debtor.

2. Pre-existence of Dispute:
The appellant claimed that there was a pre-existing dispute regarding the quality and completion of work. However, the tribunal found no substantial evidence of any dispute raised by the corporate debtor before the issuance of the demand notice. The tribunal noted that the corporate debtor's communications, including emails, acknowledged the completion of work and requested additional services as a special case, which were outside the original contract. Therefore, the tribunal concluded that there was no pre-existing dispute.

3. Limitation Period for Filing the Application:
The appellant argued that the application was barred by limitation, citing the Supreme Court's judgment in "B.K. Educational Services Pvt. Ltd. vs. Parag Gupta & Associates," which held that the Limitation Act applies to applications under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if the default occurred over three years prior to the application, it would be barred by limitation. The tribunal, however, determined that the right to recover retention money accrued on 27.07.2015, when the corporate debtor acknowledged the completion of work and requested additional services. Thus, the application filed on 27.04.2018 was within the limitation period.

4. Status of Operational Creditor:
The appellant contended that the respondent does not fall within the definition of "Operational Creditor" as defined in Section 5(20) of IBC. The tribunal, however, held that the respondent, being owed retention money as part of the main bill, falls within the definition of an operational creditor. The tribunal emphasized that the operational creditor had rendered services, and there was no dispute regarding these services.

Conclusion:
The tribunal concluded that the respondent falls under the category of an operational creditor, and the debt in question is an operational debt as per law, which is due and payable. The tribunal found no pre-existing dispute and determined that the application was not barred by limitation. The retention money was deemed part of the main bill, constituting an operational debt. Consequently, the tribunal upheld the order of the adjudicating authority, admitting the application under Section 9 of the IBC, and dismissed the appeal.