2024 (2) TMI 972 - AT - Insolvency and Bankruptcy

Maintainability of section 9 application - initiation of CIRP - existence of pre-existing disputes between the parties prior to the issue of demand notice issued under Section 8 of the Code by the Respondent No. 1 to the Corporate Debtor on 16.08.2019 or not - arbitration case pending before the Hon ble High Court of Delhi has any impact on Section 9 application under the Code by the Respondent No. 1 which is subject matter of the present appeal before this Appellate Tribunal or not - work completion certificate dated 09.05.2019 was rightly relied upon by the Adjudicating Authority or not. Whether there were any pre-existing disputes between the parties prior to the issue of demand notice issued under Section 8 of the Code by the Respondent No. 1 to the Corporate Debtor on 16.08.2019? - HELD THAT - It is noted that prior to issue of demand notice, no formal letter has been written by the Corporate Debtor to the Respondent No. 1 regarding raising any specific disputes on aspect of quality and quantity of work executed under the contracts. In this connection, reply dated 29.08.2019 filed by the Corporate Debtor to demand notice is noted. From the said reply, it seems that the Corporate Debtor has referred to various communications and Minutes of Meeting (in short MoM ), wherein the Corporate Debtor is stated to have raised the issues regarding slow progress of work, non-mobilisation of adequate manpower etc. In fact, the Corporate Debtor in demand notice 8 has referred to several e-mails and letters regarding their concerns about slow progress of work and thereby invoking clause 33 of GCC for termination of contract which, however was withdrawn and original contract was reinstated. From the letter dated 22.01.2016 written by the Corporate Debtor to the Respondent No. 1, it is seen that letter was written on mobilisation work w.r.t. progress of the work and nowhere any other aspect of disputes have been mentioned. In the response to the same, the Respondent No. 1 replied the Corporate Debtor vide e-mail dated 23.01.2016, refuting the content and indicating action taken to mobilise resources and further raised the issue regarding pending payments to be released by the Corporate Debtor to the Respondent No. 1. This was followed with the communication from the Corporate Debtor on 23.01.2016, giving outcome of discussion with the Respondent No. 1 relating to payment to be made by the Corporate Debtor and mobilisation of manpower and tools and plants to be made available by the Respondent No. 1. The content of the letter was confirmed by the Respondent No. 1 vide their letter dated 25.01.2016 and finally the Corporate Debtor withdrew the termination letter. The issue was regarding release of payment by the Corporate Debtor and in turn mobilisation of resources especially manpower and tools and plant by the Respondent No. 1 for which the termination letter was issued and subsequently withdrawn - No issue raised by the Corporate Debtor regarding quality or quantity of services resulting into pre-exiting disputes hence, on the contention of the Appellant that the work was terminated indicates pre-existing disputes, there are no much substance to this argument of the Appellant. In fact, the termination letter was withdrawal by the Corporate Debtor and original contract was restored. Thus, this Appellate Tribunal do not find any error in the finding of the Adjudicating Authority on the aspect of pre-existing dispute. Whether the arbitration case pending before the Hon ble High Court of Delhi has any impact on Section 9 application under the Code by the Respondent No. 1 which is subject matter of the present appeal before this Appellate Tribunal? - HELD THAT - The Corporate Debtor raised issues regarding slow progress and less mobilisation of manpower, tools and plants whereas in reply to the Corporate Debtor, the Respondent No. 1 has been categorically stated that due payment in order to mobilise resources at site has not been paid by the Corporate Debtor. Hence, what is to be seen here whether delay was on account of only one party and whether such delay effected the project - It is also needed to factor into consideration if finally, project was completed to satisfaction of the Corporate Debtor and whether the same was accepted by the Corporate Debtor without any caveats and qualification. In the instant appeal it is noted carefully that the Corporate Debtor issued the completion certificate (already discussed in detailed by us earlier) without any reservation and to full satisfaction to the Corporate Debtor. In such background, the alleged delay during course of execution of contracts, cannot be treated as an issue which may adversely affect rights of the Operational Creditor under Section 9 of the Code - the position on delay/ slow progress during contract period clarified accordingly. Whether, the work completion certificate dated 09.05.2019 was rightly relied upon by the Adjudicating Authority? - HELD THAT - The completion certificate was unqualified and without raising any issue regarding quality or quantity or progress of the work by the Respondent No. 1. Merely the fact that the certificate was issued at the request of the Corporate Debtor, the existence and validity and impact of the same cannot be denied at this stage by the Corporate Debtor. Thus, the work completion certificate was rightly taken into consideration by the Adjudicating Authority in their analysis and there are no error on the same. There are no error in the Impugned Order - appeal dismissed.

Summary

Issues Involved:

1. Pre-existing disputes between the parties.
2. Impact of arbitration case pending before the Hon'ble High Court of Delhi on Section 9 application.
3. Reliance on the work completion certificate dated 09.05.2019.

Summary:

Pre-existing Disputes:

The Appellant argued that there were pre-existing disputes between the parties, citing various communications and minutes of meetings regarding the slow progress of work and non-mobilization of adequate manpower. However, the Respondent No. 1 contended that these disputes were not substantial and were raised only in response to the demand notice. The Adjudicating Authority found that the Corporate Debtor had not raised any substantial objection or dispute pertaining to the work performed by the Operational Creditor prior to the issuance of the demand notice dated 16.08.2019. The Tribunal concluded that mere allegations regarding less mobilization of manpower or delay during the contract, which was ultimately completed to the satisfaction of the Corporate Debtor, do not constitute a pre-existing dispute under Section 5(6) of the Code.

Impact of Arbitration Case:

The Appellant argued that the arbitration award, which was challenged under Section 34 of the Arbitration Act, should impact the Section 9 application under the Code. However, the Respondent No. 1 clarified that the demand notice and Section 9 application were based on unpaid invoices, not the arbitral award. The Tribunal noted that the arbitration proceedings initiated after the demand notice cannot be considered as evidence of a pre-existing dispute. The Tribunal referred to the judgment in K. Kishan v. Vijay Nirman Co. (P) Ltd., which emphasized that a pre-existing dispute must be substantial and genuine, not speculative or illusory.

Work Completion Certificate:

The Appellant challenged the admissibility of the work completion certificate dated 09.05.2019, arguing that it was not part of the original pleadings and was issued with a caveat. The Respondent No. 1 maintained that the certificate was unqualified and issued to the full satisfaction of the Corporate Debtor. The Tribunal found that the completion certificate was rightly relied upon by the Adjudicating Authority, as it indicated that the work was completed satisfactorily and without any grievances. The Tribunal dismissed the Appellant's argument that the certificate should not be relied upon due to its issuance at the request of the Respondent No. 1.

Conclusion:

The Tribunal dismissed the appeal, finding no error in the Adjudicating Authority's order. The Tribunal concluded that there were no substantial pre-existing disputes, the arbitration proceedings did not impact the Section 9 application, and the work completion certificate was rightly considered. The appeal was dismissed with no costs, and any interlocutory applications were closed.