2022 (9) TMI 953 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - whether payment to the Operational Creditor/Respondent No. 1 as per work order is triggered in the present case giving rise to an operational debt? - existence of debt and default or not - whether the said operational debt exceeds an amount of Rs. 1 lakh and is an undisputed debt? - HELD THAT - While Corporate Debtor/Appellant has claimed to have paid Rs. 92,62,856/- (Rupees ninety two lakhs sixty two thousand eight hundred fifty six only), the Respondent No. 1 has claimed to have received only Rs. 83,93,717/- (Rupees eighty three lakhs ninety three thousand seven hundred seventeen only). It is pertinent to note that the Corporate Debtor/Appellant has admittedly held back an amount of Rs. 23,72,215/- (Rupees twenty three lakhs seventy two thousand two hundred fifteen only) on the ground that 15% payment was to be released after installation and 5% amount as defect liability to be released after 6 months - Respondent No.1 was entitled to receive 62% payment from out of the retained amount, on pro-rata basis for the completed installations. If that be the case, then payment to the tune of Rs 14.70 lakhs had become due and payable as per payment terms and for which invoices had also been raised. The contention of the Appellant that payment was to be made only after full installation was completed in the respective towers and not on flat-wise completion cannot be acceded to for the following reasons. Firstly, it fails to explain why composite payment was not insisted upon tower-wise for the 80% amount for material delivery and RA bills were accepted. Secondly, from a plain reading of the payment terms, we do not find any embargo having been placed on the Operational creditor from claiming flat-wise payments as long as the installation was complete. Merely placing of conditions prior to release of payment, does not alter the colour and character of the operational debt and does not detract from its having become due and payable. Whether there is existence of dispute between the parties? - HELD THAT - There is nothing on record to suggest that the Corporate Debtor/Appellant raised any such dispute before receipt of invoices or at any period prior to the issue of demand notice. There is nothing credible to substantiate the pre-existence of dispute. The Corporate Debtor/Appellant has defaulted in the payment of operational debt, of an amount exceeding Rs 1 lakh, which amount had clearly become due and payable, and further in the absence of any pre-existing dispute, there are no error has been committed by the Adjudicating Authority in admitting the application under Section 9 of IBC and initiating CIRP - Appeal dismissed.

Summary

Issues Involved:
1. Existence and due payment of operational debt.
2. Completion of work as per work orders.
3. Admission of debt and default.
4. Pre-existing dispute.
5. Adjudicating Authority's decision and its correctness.

Issue-wise Detailed Analysis:

1. Existence and Due Payment of Operational Debt:
The appeal arises from an order admitting a Section 9 application under the Insolvency and Bankruptcy Code (IBC), 2016, initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor issued multiple work orders to the Operational Creditor for supplying and installing UPVC profiles of doors and windows. The payment terms included various stages: 30% advance, 50% after delivery, 15% after installation, and 5% retention after six months. The Operational Creditor claimed Rs. 56,38,850 as operational debt. The Corporate Debtor argued that the debt was not due as the work was incomplete and defective. The Adjudicating Authority found a clear indication of an operational debt and default, with no pre-existing dispute, and admitted the application.

2. Completion of Work as per Work Orders:
The Corporate Debtor contended that the Operational Creditor did not complete the installation work entirely, thus payment terms were not triggered. They claimed that 80% of the invoice amount was paid, and the remaining 20% was withheld due to incomplete work. The Operational Creditor argued that 80% of the work was completed and material was delivered, thus payment was due. The Tribunal noted that the Corporate Debtor admitted 62% completion of installation work, entitling the Operational Creditor to pro-rata payment. The Tribunal rejected the argument that payment was due only after full installation in respective towers, as the payment terms did not restrict flat-wise payments.

3. Admission of Debt and Default:
The Corporate Debtor admitted owing Rs. 2,26,258 to the Operational Creditor but claimed it was not demanded as final settlement. The Tribunal found this excuse insufficient to deny payment of an admitted debt. The Tribunal concluded that the operational debt exceeding Rs. 1 lakh had become due and payable, meeting the conditions laid down in the Mobilox judgment.

4. Pre-existing Dispute:
The Tribunal examined whether there was any pre-existing dispute before the issuance of the statutory demand notice. The Corporate Debtor raised issues of defective work and incomplete installation post issuance of the demand notice. The Tribunal found no credible evidence of disputes raised prior to the demand notice, thus failing the third test of the Mobilox judgment. The Tribunal emphasized that disputes raised post demand notice lacked credibility and did not affect the operational debt's status.

5. Adjudicating Authority's Decision and Its Correctness:
The Tribunal upheld the Adjudicating Authority's decision, finding no error in admitting the Section 9 application and initiating CIRP. The Tribunal referred to the Vidarbha Industries Power Limited judgment, highlighting that Section 9 applications by Operational Creditors must be admitted if the debt is undisputed and due. The Tribunal dismissed the appeal, confirming the initiation of CIRP against the Corporate Debtor.

Conclusion:
The Tribunal found that the Corporate Debtor defaulted in paying an operational debt exceeding Rs. 1 lakh, which was due and payable, with no pre-existing dispute. The Adjudicating Authority's decision to admit the Section 9 application and initiate CIRP was upheld. The appeal was dismissed, and the Tribunal advised the applicant in I.A. No. 2585/2022 to file an appropriate application before the Adjudicating Authority.