2018 (4) TMI 350 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - non-payment of mobilization advance - Held that - Non-payment of advance cannot give rise to a claim under Section 5(21) of IBC,2016 as an Operational Debt will arise only when the Petitioner/Operational Creditor is able to establish that there is a debt due and payable arising out of provision of goods or by rendering of services which is not the case here as the said stage has not according to the Corporate Debtor arisen at all. At best, non-payment of mobilization advance even if there has been full mobilization on the part of the Operational Creditor can give rise to breach of the contract and the amount payable under the said contract as well as the damages can be quantified in a Civil Court and not by this Tribunal. This is particularly so in relation to the work contract. As rightly stated by Ld. Counsel for the Corporate Debtor that there is a plausible dispute between the parties which can be agitated as well, by the parties before the Civil Court and not before this Tribunal as the provisions of IBC,2016 contemplate the insolvency of the Corporate Debtor and the consequences arising thereunder are for the benefit of the entire body of creditors and that no creditor is going to be benefitted and on the other hand the claim of advance and non-payment of the same cannot be considered as an Operational Debt , this Tribunal is not satisfied with the claim as put forth by the Operational Creditor as beyond the pale of plausible dispute.

Issues Involved:
1. Claim of Operational Debt under Section 9 of Insolvency and Bankruptcy Code, 2016.
2. Non-payment of mobilization advance.
3. Classification of the claim as an Operational Debt.
4. Existence of a pre-existing dispute.

Detailed Analysis:

1. Claim of Operational Debt under Section 9 of Insolvency and Bankruptcy Code, 2016:
The petition was filed by M/s KLA Construction Technologies Pvt. Ltd. (Operational Creditor) against M/s CKG Reality Pvt. Ltd. (Corporate Debtor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016). The Operational Creditor claimed a default amount of ?11.00 lakhs due to non-payment of an advance required for mobilizing machinery and equipment at the construction site for a project valued at ?7,41,35,813.32.

2. Non-payment of mobilization advance:
The Operational Creditor argued that a sum of ?11.00 lakhs was agreed to be paid as mobilization advance before starting the construction work. Despite the agreement and subsequent demand for ?21.00 lakhs (inclusive of ?11.00 lakhs), the Corporate Debtor did not make the payment. The Operational Creditor issued a demand notice under Section 8 of IBC, 2016, which was duly served but elicited no response from the Corporate Debtor.

3. Classification of the claim as an Operational Debt:
The Corporate Debtor contended that the mobilization advance was subject to the completion of the mobilization process by the Operational Creditor, which was not completed. They argued that the claim does not constitute an 'Operational Debt' under Section 5(21) of IBC, 2016, as no goods were supplied or services rendered. The Tribunal noted that the construction work, being a composite contract involving both supply of materials and rendering of services, had not commenced, and hence, the claim of advance payment could not be classified as an Operational Debt.

4. Existence of a pre-existing dispute:
The Corporate Debtor claimed that the site was not ready for concreting due to water logging and that the Operational Creditor had not fully mobilized the required equipment. The Tribunal observed that there was no independent report or certificate to substantiate the Operational Creditor's claim of full mobilization. The Tribunal emphasized that the non-payment of mobilization advance, even if full mobilization had occurred, could only give rise to a breach of contract, which should be adjudicated in a Civil Court, not under the summary jurisdiction of the Tribunal.

Conclusion:
The Tribunal concluded that the petition was not maintainable as the claim did not qualify as an Operational Debt under IBC, 2016. The Tribunal found credence in the Corporate Debtor's arguments that non-payment of advance cannot give rise to a claim under Section 5(21) of IBC, 2016. The Tribunal dismissed the application without cost, allowing the parties to approach other forums if advised.

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