2022 (3) TMI 638 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - privity of contract between the Operational Creditor and Corporate Debtor or not - HELD THAT - When perusal of Letter of Assurance issued by the Corporate Debtor, it is clear that the Corporate Debtor undertook to make payment directly to the Operational Creditor w.e.f. 01.09.2014 which was subject to receipt of invoices duly certified by M/s FCIPL and EIL. Thus, certification of invoices by M/S FCIPL and EIL was condition precedent for making payment. Said Letter of Assurance cannot be stated to be a letter by which the Corporate Debtor substituted itself in the shoes of FERNAS. The assurance was for limited purpose and Corporate Debtor was liable to adhere to the assurance as per assurance given in the said letter. The present is the case where Corporate Debtor shall not be treated to be substituted in place of the Original Contractor and limited liability to make payment was accepted by the Corporate Debtor subject to certification of the bills by the Original Contractor. Before the Adjudicating Authority itself, the Corporate Debtor has filed detailed reply where with regard to all items of the claim made by the Operational Creditor detailed reply was given - it is clearly pointed out in the reply that the bills which are claimed by the Appellant could not be paid due to non-certification of invoices. Retention of money - HELD THAT - he retention money has not been deducted by the Corporate Debtor and there is no claim of payment of retention money. The claim of TDS has been dealt duly. From the invoices which are on the record, it is clear that invoices were issued to the FCIPL and invoices were not directly issued to the Corporate Debtor. The invoices were issued to the FCIPL only for the purpose of due certification by FCIPL and EIL, so that the Corporate Debtor may make the payment. In facts of the case, the Adjudicating Authority has not committed any error in rejecting the Section 9 Application filed by the Operational Creditor. Appeal dismissed.

Issues Involved:
1. Privity of Contract between Operational Creditor and Corporate Debtor.
2. Certification of Invoices by FCIPL and EIL.
3. Liability of Corporate Debtor for Payment of Bills.
4. Retention Money and TDS Claims.

Issue-wise Detailed Analysis:

1. Privity of Contract between Operational Creditor and Corporate Debtor:
The Adjudicating Authority held that there was no privity of contract between the Operational Creditor and the Corporate Debtor. The Authority observed that the letters of assurance from the Corporate Debtor merely stated that payments due for work done by the main contractor (FCIPL) through the Operational Creditor would be made directly to the Operational Creditor. This arrangement required various formalities to be completed before payment could be released. As such, the letters of assurance did not create a direct contractual relationship between the Operational Creditor and the Corporate Debtor. The Authority concluded that in the absence of privity of contract, no liability could be imposed on the Corporate Debtor based on the letters of assurance.

2. Certification of Invoices by FCIPL and EIL:
The Corporate Debtor's liability to make payments was contingent upon the certification of invoices by FCIPL and EIL. The assurance letters from the Corporate Debtor specified that payments would be made directly to the Operational Creditor upon receipt of certified invoices. The Corporate Debtor argued that all bills certified by FCIPL and EIL had already been paid, and no further claims were due. The Adjudicating Authority agreed, noting that the certification of invoices was a condition precedent for payment. The Authority found that since the required certification was not provided, no liability could be imposed on the Corporate Debtor.

3. Liability of Corporate Debtor for Payment of Bills:
The Operational Creditor contended that the Corporate Debtor, by issuing letters of assurance, had undertaken to honor all conditions of the contract and make all payments for work done. However, the Corporate Debtor maintained that it had only undertaken to make direct payments to facilitate the work, subject to certification of bills by FCIPL and EIL. The Adjudicating Authority supported the Corporate Debtor's position, stating that the letters of assurance did not imply that the Corporate Debtor had substituted itself in place of FCIPL. The Authority emphasized that the Corporate Debtor's liability was limited to the terms of the assurance letters, which required certification of invoices.

4. Retention Money and TDS Claims:
The Adjudicating Authority noted that the retention money had been deducted by FCIPL, not the Corporate Debtor, and was not subject to the letters of assurance. The Authority also addressed the issue of TDS claims, indicating that the Corporate Debtor had provided a detailed reply explaining the deficiencies and non-compliance with explicit conditions that prevented the processing of certain invoices. The Authority concluded that these deficiencies justified the non-payment of the disputed invoices.

Conclusion:
The Adjudicating Authority dismissed the Section 9 application filed by the Operational Creditor, finding no merit in the appeal. The Authority held that the Corporate Debtor's liability was limited to making payments for certified invoices, and there was no privity of contract between the Operational Creditor and the Corporate Debtor. The Authority also noted that the Operational Creditor had not complied with the necessary conditions for payment, and the Corporate Debtor had already fulfilled its obligations as per the assurance letters. The appeal was dismissed, affirming the decision of the Adjudicating Authority.

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