2022 (5) TMI 435 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - Operational Creditors - whether there were any Pre-Existing Disputes between the Corporate Debtor and the Appellant herein/Operational Creditor and whether the Adjudicating Authority was justified in dismissing the Section 9 Application? - HELD THAT - It is clear that the Corporate Debtor was undergoing financial crunch on account of which the end user M/s. IOCL has undertaken to make the payment to the tune of Rs.42,41,947.64/- against completion of erection of the racking system and the balance would be released after the completion of the job in totality, with due certification by the Corporate Debtor. It is the case of the Corporate Debtor that this communication signifies that it is the end user IOCL which has undertaken to pay the amounts for and on behalf of the Corporate Debtor and hence no liability can be fastened upon them. The material on record evidences that on 03/05/2018, a Comfort Letter was requested to be issued by the Appellant to IOCL against the Purchase Order for the supply of instalment of Multitier Racks for Heavy Duty Shelving. The correspondence dated 16/08/2018 between the Appellant and IOCL further strengthens the argument of the Respondent that the payment would be realized by IOCL after complete erection of system and the balance after completion of entire racking system - It is the case of the Respondent/Corporate Debtor that even for the Review Meeting the Corporate Debtor was not present and it was held between IOCL and EIL and the Appellant herein. The Minutes too do not record the presence of the Corporate Debtor . From the aforenoted communication, this Tribunal is of the considered view that the payments were to be made, as per the Comfort Letter, by IOCL to the Appellant herein. Whether there is any Pre-Existing Dispute existing between the parties prior to the issuance of the Notice mandated under Section 8 of the Code? - HELD THAT - The definition of the word dispute, is in fact, illustrative, the Corporate Debtor is not left with the only option of showing the existence of dispute by way of a pending Suit or Arbitration but can exercise its right to show that goods and/or services supplied were substandard and deficient in quality - The dispute between the parties is on account of the shortcomings observed in the quality of the racking materials supplied to IOCL. The letter dated 30/11/2018 addressed to the Appellant specifies that there are discrepancies and the test certificates of all plates/materials is absent. This Tribunal is of the considered view that there is a Pre-Existing Dispute and the aforenoted correspondence establishes that a dispute truly exists in fact between the Parties, which is not a patently feeble legal argument or an assertion of facts, unsupported by evidence. There is no illegality of infirmity in the Order of the Adjudicating Authority - Appeal dismissed.

Summary

Issues Involved:
1. Pre-existing disputes between the parties.
2. Clubbing of claims from different work orders.
3. Payment terms and obligations under the contracts.
4. Role of IOCL in the payment process.

Detailed Analysis:

1. Pre-existing disputes between the parties:
The Tribunal found that there were genuine pre-existing disputes between the parties prior to the issuance of the demand notice. The Appellant had admitted in a letter dated 20.12.2018 that there were serious problems with the racking system installed, which had not undergone a safety audit and was non-certified. The Petitioner had recommended IOCL not to use the racking system due to its condition. The Tribunal emphasized that an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) must be dismissed if genuine disputes exist, as supported by the Supreme Court's judgment in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. and Kay Bouvet Engineering Ltd. v. Overseas Infrastructure Alliance (India) Private Limited.

2. Clubbing of claims from different work orders:
The Tribunal noted that the Appellant had clubbed payments from two separate projects (Haldia and Bongaigaon) under different work orders into a single petition. The Tribunal referred to the NCLAT's decision in International Road Dynamics South Asia Pvt. Ltd., which held that claims arising from different agreements or work orders with different amounts and default dates cannot be clubbed together. Therefore, the joint application by the Appellant was deemed defective and not maintainable.

3. Payment terms and obligations under the contracts:
The Appellant argued that the Corporate Debtor had not made the outstanding payments despite several requests. The Tribunal acknowledged the payment terms outlined in the purchase orders and work orders, which included advance payments, payments against letters of credit, and final payments upon commissioning. However, the Tribunal found that the project had not been completed, and the Appellant had abandoned the Haldia project without rectifying the defective work. Consequently, the Appellant could not claim payment for incomplete and defective work.

4. Role of IOCL in the payment process:
The Tribunal examined the Comfort Letter issued by IOCL, which undertook to release payments to the Appellant due to the Corporate Debtor's financial difficulties. The Tribunal noted that the correspondence between the Appellant and IOCL indicated that IOCL had taken responsibility for making payments directly to the Appellant. This correspondence included emails and letters discussing payment terms and discrepancies. The Tribunal concluded that the payments were to be made by IOCL, and the Corporate Debtor could not be held liable for these payments.

Judgment:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision to reject the Section 9 application due to the existence of pre-existing disputes and the improper clubbing of claims from different work orders. The Tribunal emphasized that the disputes were not spurious or hypothetical and required further investigation, aligning with the Supreme Court's guidance in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.