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TMI Blog2020 (2) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of it is no more re sintegra is not tenable. Whether the alleged debt in question is dispute or not? - HELD THAT:- The Code sections 3(6) 8B(11) of the Code, defined 'Claim and Debt. Debt means a liability or obligation in respect of a claim, which is due from any person and includes a financial debt and operational debt; and claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured - the right to claim, in the instant case, arise on the Agreement in question, which was not properly executed in accordance with law. It is a settled position of law that the provisions of the Code can be invoked where fundamental issues like debt, default, are not in dispute as it is summary proceedings in nature. Relevant issues to be examined in a Petition filed U/s 9 of the Code is whether there are debt and default in question and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the last decade. the Operational had developed VFX services for several blockbuster movies including Megadheera, Endhiran (Robot), Bhag Milkha Bhag, Baahubali 1 2, Pulimurugan, Mahanati, 2.0 etc. It also developed its proprietary software/script/programs in 2010 for the movie Anagananga O dheerudu ('Once upon a warrior' - Co -produced by Walt Disney and Abode) for which it won several accolades and appreciation including AP State 'Nandi' Award and Industry Media Award. It has won acclaimed President's National Award for 'Best Visual/Special Effects' for the year 2004 and also shared it in 2009. AP State recognized 'Nandi' Award during the year 2009 and 2011. It has, over a period of a decade, has earned an impeccable reputation in the segment of Visual Effects' and successfully completed projects for Renowned Indian Films, foreign films and also innumerable local assignments. It had had developed Visual Effects for the biggest Indian Blockbuster ever Baahubali (Part 1 2) and had won appreciation from its Director Sri. Rajamouli and worldwide audience for its VFX work. (4) It is stated that the Petitioner had developed yet another prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e location of shooting in India; (b) its whole team along with various other outsourced groups to accomplish these milestones considering the huge volume of work to be accomplished. The Petitioner had delivered the output during the duration of the Agreement and the final part of delivery of the approved output by Director was done by the Applicant between 01.12.2014 and 04.12.2014. (7) The following invoices with the gross amounts were raised by Petitioner (Firefly) on Rockline Entertainments (CD): i. ₹ 4,49,44,000/- (Rupees Four Crores Forty-Nine Lakhs Forty-Four Thousand Only) [Post-discount] inclusive of Service Tax @ 12.36% per annum, as per the invoice, dated 05.12.2014, which was as per the original contractual agreement. ii. ₹ 4,88,76,600/- (Rupees Four Crores Eight-Eight Lacs Seventy-Six Thousand and Six-Hundred only) [Post-discount] inclusive of Service Tax @ 12.36% per annum as per the revised invoice, dated 10/03/2015, which is as per the actual work done and after a further discount extended. iii. Further, on the account of Tax default by Respondent dragging Firefly to Court by levying unsubstantial claims, the amount for conditional discount wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of contract for a discount on the rate of services and thus reposing trust, the Applicant had extended a discount of 12.85% for Visual Effects and 7.4% for all other work done for De-ageing. Thus the total budget of service of ₹ 4 crore was already discounted and was less the standard rate charged for complex VFX works for the services of Applicant. The CD has intentionally failed to make payment towards service tax i.e 12.36% since 2014. The Agreement signed by CD and Applicant clearly specifies that service tax is a separate amount to be paid by the CD. (10) The Corporate Debtor further had deducted 10% TDS out of the total invoice amount of ₹ 4 crore contracted but failed to make payment to the Government exchequer. Thus the Applicant had failed to claim tax benefit/refunds and in spite of several email reminders till date, CD has failed to furnish TDS certificates for the same. The Service Tax Department had issued notice to the Applicant to pay service tax. Reminder mails on such an escalation had been duly done to CD by Applicant but to of no avail. The CD further deferred paying the fees billed for excess work or the additional number of shots worked upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge or dilute any of Applicant's assets or acting in any manner detrimental to the interest. The present Applicant filed an application to vacate the said order which came to be vacated on 03.11.2017. Further the Applicant had filed detailed objections in the said proceeding and the entire proceeding in AA 231/2017 came to be dismissed on 06.07.2018. (15) The CD and the Applicant had an informal meeting along with the Director at Chennai in the presence of Super Star Rajnikanth, in two separate meetings on or about 9th April, 2015. The CD agreed to pay the outstanding statutory dues in the meeting, however by the same evening, Mr. Venkatesh TN, Director of CD changed his stance and indulged in verbal abuse and confrontation with the Applicant's Company Director. The Applicant has sent several emails between April, 2015 and June, 2016, however have failed to receive any response from the Applicant. Subsequently, the Applicant issued a comprehensive invoice dated 29.05.2017 disallowing the discounts and billing the additional work done for CD. The invoice amount was raised (by including all the discount amount in the invoice) to ₹ 6,81,91,988/-(Rupees Six Crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot survive or exist as would cascade on the economy of the country at large besides distressing several interested persons and entities. Therefore, the requirement to approach this Tribunal is incapability to pay dues, while refusal to pay the dues on a legally admissible contest will never be a ground to seek corporate liquidation. (4) There is nothing that fits into any admitted or legally dischargeable liabilities towards the Applicant by the Respondent. There is absolutely nothing that falls within the ambit of either Operational or any other kind of credit that could be recovered under the Code. After having failed in its extortive tactics, the Applicant has now chosen this forum to abuse the process of law for wrongful gains. It is rather this Respondent that has rights of recovery against the Applicant and in that pursuit Arbitration Proceedings were invoked. However, the Respondent is still on the process of recovery against the Applicant, which is well within the knowledge of the Applicant. In order circumvent and ambush the Respondent's efforts of recovery, the present application are filed wickedly and the same don't bear even a thin nerve of bona fides in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stress and depression due to the ill-quality and inordinately delayed deliveries by the Applicant, which even posed a clear threat of release of movie which was strategically planned on the birthday of Shri Rajanikanth. (7) It is submitted that despite repeated anxious demands for the quality maintenance and timely work, the Applicant was evasive. Over and above, even after receiving the huge payments as could be reckoned from various documents the Applicant was clearly evasive. As the date of the release of the movie started nearing and the post-production was largely dependent upon the Applicant's deliveries, Mr. Rockline Venkatesh had to involve the Director of the movie to deal with the Applicant. Finally after much pressure, the Applicant delivered the works assigned, which was not even of a middle quality than what was promised and number of good scenes was to be dropped due to the same. It was later learnt that the Applicant in fact had sub-delegated the works of the movie Linga to various other entities without the permission of Mr. Rockline Venkatesh and got them done at a price much lesser than what was billed for. (8) It is stated that due to dropping of many ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hamber of Commerce, Industry heads and at common junctions in order to create a component of pressure over the Respondent. Therefore, under compulsion, the Respondent to seek for the temporary relieves as provided under section 9 of the Act, pending the redressal of the dispute by way of judgment and decree for recovery of excessive payments made, interests thereon and for damages and compensation through Arbitration under the provisions of the Indian Arbitration Act. Later due to a technical reason, the Arbitration proceedings could not take off and this Respondent contemplated to switch other legal methods. In the meanwhile the present mischievous application has been filed before this Hon'ble Tribunal which is unsustainable for several valid reasons. (11) It is stated that there was no proper notice served upon the Respondent as required under law and moreover the Applicant lacks legal title and rights to invoke remedies under the code. Entire contents of their demand notice are false and unsustainable for the reasons explained above and there is no legal dischargeable liability much less the Operation credit as it averred. The total amount of so-called debt as mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code and the law on the issue. 5. Shri Manu Kulkarni, learned Counsel for the Petitioner, after arguing the case at length, has further filed written arguments dated 4th December, 2019, by inter-alia contending as follows: (1) The Respondent has partially paid for the services rendered by Petitioner. They have paid ₹ 5 lakhs on 23.04.2014 and further amounts on 01.07.2014, 26.08.2014 and subsequently in order to render services. The Agreement dated 25.08.2014 was entered after four months of commencing the services in question. And this agreement was also relied upon the Respondent in Arbitration case (AA No. 231 of 2017 before Civil Court. Therefore, the agreement cannot disputed/question by the Respondent on the ground of non-registration of the Document as per law. Moreover, both the parties have acted upon the terms of Agreement. Therefore, they cannot approbate and reprobate on the issue. (2) The Agreement was not executed in Karnataka and it was signed in Hyderabad, where the Petitioner office is situated, and thus provisions of Karnataka Stamp Act, 1957 do not apply to the Agreement. (3) The Respondent, at no point of time, raise any disputed about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant which is wholly dependent upon the said document shall fail under law. (2) Argument of the Applicant that this Respondent relied upon the said Agreement in a case earlier instituted by it (AA 231/2017) and hence, cannot now dispute the same etc., cannot rescue the Applicant's case from the lacuna of it being unstamped document and not admissible in evidence for the simple reason that, the issue raised by this Respondent now is not that of inexistence of the agreement, but its inadmissibility by operation of law. Just because the reliance placed upon the said Document by this Respondent on an earlier occasion was either not objected or observed, it does not give a label of admissibility or exemption. An illegality cannot become legal just because it was overlooked. Doctrine of Equality and Parity are positive rights and it cannot be played to shield an illegality as per the settled law. (3) Further argument of the Applicant that since the AA No. 231/2017 instituted by this Respondent earlier was withdrawn unconditionally, a legal handicap stands smeared upon this Respondent to lodge or contend its claims before this Tribunal etc., is also not acceptable for two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65B of the Indian Evidence Act. It is well settled law that by virtue of Section 65B(4), an electronic record being used or relied upon cannot be considered unless accompanied by a certificate. (6) A conjoint reading of sections 3(6), 3(10) 3(11), 3(12), 5 (20) and 5(21) of the I and B Code 2016 makes it amply clear that to maintain application under Code, an existence of clear operational debt should be established and a mere claim will not suffice for it. 7. In the light of above facts and circumstances of the case, it is necessary to examine whether debt, default in question is established without there being any dispute raised by the Respondent, in the light of pre-requisite conditions, as prescribed under section 9 of Code, under which the present Petition/Application is filed. 8. The first issue to be considered is whether the basic document, on which entire cause of action arise is 'Firefly Agreement dated 25th August, 2014(FF Agreement-RL-01 Linga-VFX D Aging-Budget-Vo6) is an agreement enforceable under law or not. It is not in dispute that the said Agreement was not properly stamped either under Karnataka Stamp Act, 1957 or the Indian Stamp Act. The onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000,000 7 8 Sub Total (3+6) 40,000,000 9 Service Tax (12.36%) 4,944,000 10 Total 44,944,000 Operating Terms Any addition/Reduction in the duration in Scenes/De Agining the price will also be added/reduced accordingly. Scenes budget does not include De-Aging budget in it. All the De-Aging work in the film duration will be calculated separately. Firefly will execute all De-Aging shots through digital painting and its proprietary projection technique. For Scenes Visual Effect Firefly will be executing cleanup, Camera Tracking, FX, Digital Sets, Character animation and compositing. Firefly will publish Post-Production Schedule based on the edit received and Film release date. All the Edit, Raw inputs, Briefs and approvals need to be supplied as per the Post-Production schedule. Any delay or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no office in Bangalore, they have executed in Hyderabad and it did not say whether the Respondent has come down to Hyderabad, and signed there. And there is no date of execution under signature of the parties. Moreover, the Petitioner itself said the said Agreement was signed after lapse of four months, after substantial work was already done. Therefore, we agreed with the contention of Learned Senior Counsel for the Respondent that the Agreement in question cannot be enforced in a court of law. Moreover, the questions revolved around the Agreement in question, cannot be gone into in the instant summary proceedings. Therefore, there is no debt arise in the instant case basing on valid legal document. Moreover, whether the Adjudicating Authority being the Authority to examine the issue summarily, could not go into the details of the validity of the Agreement in question. Therefore, the validity of the Agreement can be examined by competent Civil Court, after adducing relevant evidence. Since the terms of Agreement are acted upon by the Parties and thus validity of it is no more re sintegra is not tenable. 10. The next question is whether the alleged debt in question is dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount of ₹ 5,70,24,200/- (excluding service tax) to be paid to Firefly to compensate for all the damages caused to it. Subsequently, the Telugu Film Chamber of Commerce, in turn has addressed a letter dated 27.10.2015, to the Corporate Debtor to furnish the reply immediately to the Telugu Film Chamber of Commerce. However, the matter kept pending since the Respondent approached Civil Court, under Arbitration Act. The Corporate Debtor has also addressed a letter dated 26.07.2016 to the Petitioner by inter-alia demanding to pay them a sum of ₹ 10,00,00,000/- (Rupees Ten Crores only) towards refund of excess payments, damages and losses suffered by them due to their deceitful and unscrupulous business practices and also communicated to them to initiate arbitration proceedings against them as per the Indian Arbitration and Conciliation Act at Bangalore by appointing Arbitrator/s by consent or through the Hon'ble High Court of Karnataka. 12. Subsequently, the Corporate Debtor has filed an Application (AA.No.231/2017) before the Hon'ble Principal City Civil and Sessions Judge at Bangalore, U/s 9 of Arbitration and Conciliation Act, 1996, against the Petitioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor, it is clear that the Company is solvent and is having Assets of ₹ 83,22,73,787/- as at 31.03.2018 and Profit and Loss for the year ending 31.03.2018 is ₹ 1,20,11,394/- and total net worth of the Company is ₹ 16,89,69,046/- for the Financial Year 2017-18. The Company is also a going concern having so many people dependent on it. 15. It is a settled position of law that the provisions of the Code can be invoked where fundamental issues like debt, default, are not in dispute as it is summary proceedings in nature. Relevant issues to be examined in a Petition filed U/s 9 of the Code is whether there are debt and default in question and whether any pre-existing dispute is there or not. It is relevant to point out the observation of Hon'ble Supreme Court of India vide judgment dated 3rd December, 2019 passed in Civil Appellate Jurisdiction in the case of M/s. Embassy Property Developments (P.) Ltd. v. State of Karnataka [2019] 112 taxmann.com 56 (SC) wherein, under para 29, has inter alia held as follows: Para 29: The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of Code of Civil Procedure to try all suits of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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