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TMI Blog2020 (9) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... Operational Creditor? - HELD THAT:- There was ample time and opportunity on the part of the Corporate Debtor to cancel the work order in case the work was deemed to be substandard. This was not done. Even after demobilisation by the Operational Creditor from the work site, this aspect of abandonment has never ever been raised by the Corporate Debtor with the Operational Creditor. Further, it is also observed from the records that the site was duly handed over by the Operational Creditor to the Corporate Debtor on 19.11.2015 with due notice. Therefore, it is difficult for us to hold that there was any deemed abandonment of the project by the Operational Creditor. Whether there is a default of the Operational Debt due and payable by the Corporate Debtor in favour of the Operational Creditor? - HELD THAT:- The device of attempting to invoke the arbitration clause in the Work Order on the very day that the petition came to be dismissed with liberty by the Adjudicating Authority, can only be seen as a last-ditch effort to stave off the proceedings under section 9 of the IBC by claiming that the second petition cannot be admitted because it is blighted by the pre-existing dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the case of the Operational Creditor is as follows: - (a) The Operational Creditor is engaged in the business of the construction of buildings. The Corporate Debtor hired the services of the Operational Creditor by a Work Order dated 25.05.2014 ( Work Order ) for General Civil Works for a proposed residential building having stilt+6 upper floors known as Rose Villa on CTS Nos.725, 725/1, 725/2 of Village Ambivali at Caeser Road, Andheri (West), Mumbai 400 058. The Work Order is placed as Exhibit 7 at p.56 of the Petition. The gross value of the Work Order was ₹2,54,60,567/-; (b) The Operational Creditor carried out the work to the complete satisfaction of the Corporate Debtor; (c) Pursuant to this, a total of twenty invoices between 18.07.2014 and 06.11.2015 (both dates inclusive) were raised, which have been placed on record at pp.69-105; (d) The Corporate Debtor then requested for additional works to be performed by the Operational Creditor. For such additional works, the Operational Creditor was to raise additional invoices. Accordingly, a total of five invoices were raised for such additional work, four of them dated 28.12.2015 corresponding to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Operational Creditor issued Demand Notice dated 02.12.2017 under the IBC claiming a sum of ₹1,94,62,148/- from the Corporate Debtor. The Demand Notice also included certain amounts claimed towards damages (pp.234-237 of the petition). This Demand Notice has been duly served on the Corporate Debtor on 04.12.2017. 7. The Corporate Debtor replied to this Demand Notice on 13.12.2017, which is placed at pp.241-243 of the petition. In the reply, the Corporate Debtor has stated that the Operational Creditor has been paid in full for the additional work carried out by them and therefore, they reject any amount claimed in the demand notice. The Corporate Debtor raised the issue of substandard work for the first time in the reply to the Demand Notice (para 3 at p.241 of the petition). 8. Thereafter, Company Petition (IB) No. 1823 (MB)/2017 was filed against the Corporate Debtor on 28.12.2017. At this stage, the Operational Creditor noticed certain errors in the Demand Notice, which were repeated in the Petition. The error concerned the amount received by the Operational Creditor from the Corporate Debtor. The Corporate Debtor filed its affidavit in reply to this petition where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its Notice of Dispute /reply dated 03.09.2018 which categorically states that the alleged claim of the Petitioner is not payable, and it is disputed. The Corporate Debtor further submitted that a 'dispute' was adequately raised by the Corporate Debtor and the present petition is liable to rejected ab initio under section 9(5)(ii)(d) of the Code (para 6 of the Affidavit in Reply on behalf of the Corporate Debtor at p.2); (b) The Operational Creditor in his email dated 04.12.2014 (annexed at p.111 of the petition) has accepted that electricity charges have been paid by the Corporate Debtor on behalf of the Operational Creditor. However, the Operational Creditor has failed to give the equivalent credit in respect of the monies paid by the Corporate Debtor on behalf of the Operational Creditor in respect of the electricity charges to the extent of ₹5,87,150/- in the present petition (para 11 of the Affidavit in Reply on behalf of the Corporate Debtor at p.4); (c) The Corporate Debtor has also paid MVAT to the tune of ₹2,28,716/- on behalf of the Operational Creditor for which credit has not been given (para 12 of the Affidavit in Reply on behalf of the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition was not maintainable as damages are not covered under the provision of the IBC (At Page 454/Vol-II) [para (viii) of the Written Submissions on behalf of the Corporate Debtor at p.7]; (k) The Corporate Debtor further states that any claim for any purported 'additional work' is maintainable only as per Clause 20.02 of the said Work Order and only if (a) there is any deviation/revision in the drawings; (b) such estimate of claim is mutually agreed upon in advance; and (c) invoicing (with necessary proof of costs) is made at cost of actual material and labour+15% . As for the purported additional work claimed by the Operational Creditor; (a) there was no deviation/revision in drawings; (b) there was no mutual understanding/ agreement as to such Claims between the parties; (c) invoicing was not made as per requisite manner (i.e. cost + 15%) nor substantiated/proved the costs of material and labour (para 34 of the Affidavit in Reply on behalf of the Corporate Debtor at p.20 of the Reply); (l) The Corporate Debtor stated that the purported additional work performed by the Operational Creditor is nothing but rectification of several defects (such as re-plastering etc.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst petition vide order dated 13.03.2018 and the issue of the second demand notice dated 23.08.2018 to the Corporate Debtor should be treated as pre-existing dispute within the meaning of section 5(6) of the IBC; (b) If the answer to the above is No then whether there is a debt due and payable by the Corporate Debtor in favour of the Operational Creditor; and (c) Whether there is a default of the Operational Debt due and payable by the Corporate Debtor in favour of the Operational Creditor; The issues are answered ad seriatim in the subsequent paragraphs. Issue No.1: Whether the invocation of the arbitration clause between the withdrawal of the first petition vide order dated 13.03.2018 and the issue of the second demand notice dated 23.08.2018 to the Corporate Debtor should be treated as pre-existing dispute within the meaning of section 5(6) of the IBC. 19. The Learned Counsel for the Operational Creditor has submitted that no dispute was brought to the notice of Operational Creditor prior to the issue of the first demand notice on 02.12.2017, which was duly served on the Corporate Debtor on 04.12.2017. The first sign of dispute was raised for the first ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is any deviation/revision in the drawings; (b) such estimate of claim is mutually agreed upon in advance; and (c) invoicing (with necessary proof of costs) is made at cost of actual material and labour+15%. As for the purported additional work claimed by the Operational Creditor, there was no deviation or revision in drawings and there was no mutual understanding as to such Claims between the parties. Further, the invoicing was not made as per requisite manner nor have the costs of material and labour substantiated. 25. The Learned Counsel for the Corporate Debtor placed heavy reliance on an email dated 29.06.2015 addressed by the Operational Creditor to the Corporate Debtor, wherein it has been stated as follows: - Dear Sir, Please ask Lift Vendor to start work inside the shaft as we have completed required Civil Works. We have already started fixing plywood to avoid stagnation of rainwater on floors thus restricting mosquito breeding. We as a team have carried out inspection of all flats on 28th June. Regarding please note our observations: (a) No leakage observed on 4th, 5th and 6th Floor; As we have already treated slabs at the time of concret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed against the Operational Creditor. Therefore, this argument does not commend itself to us and we reject the same. 29. The Learned Counsel for the Operational Creditor has specifically pointed out during the course of arguments, and also drawn our attention to the specific averment in the Rejoinder to the effect that apart from invoking the arbitration clause on the same day when the 1st Company Petition bearing CP (IB) No.1823/2017, no legal remedies have been pursued by the Corporate Debtor to this date against the Operational Creditor. Therefore, Counsel for the Operational Creditor submitted that the bogey of dispute has been raised only with a view to getting out of the clutches of the IBC. 30. We find merit in this argument, since we find from the records that after the invocation of the arbitration clause, nothing has been done in the matter by the Corporate Debtor either to seek appointment of an arbitrator with mutual consent of the parties or to approach the Hon ble High Court under the Arbitration Conciliation Act, 1996, for appointment of an arbitrator. 31. The third limb of the argument of the Learned Counsel for the Corporate Debtor is that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand in the reply dated 13.12.2017 to the first demand notice to the Corporate Debtor has taken the stand that the Operational Creditor has been paid in full for the additional work carried out by it. If indeed the Corporate Debtor believe that the scope of work included everything except those excluded under clause 1.02 of the Work Order, then there was no need to take the stand in the reply dated 13.12.2017 that the Operational Creditor was paid in full for the additional work carried out. 35. Looking at the documents placed on record it appears to us that the drawings in respect of the work to be completed in terms of the work order were repeatedly changed at least on three different occasions as seen from the documents placed at pp.572, 573 and 261 of the petition. This issue has also been highlighted vide email dated 16.11.2015 (at p.259, Vol.II of the Petition) addressed by the Operational Creditor to the Corporate Debtor, in which the last para reads as follows: - Presently, whatever work is going on is additions and alterations and we don t see end to it for sample the Watchman Cabin Work, Breaking of PCC in Stilt, Lift Lintel Bottom Level etc. So as we hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k site, this aspect of abandonment has never ever been raised by the Corporate Debtor with the Operational Creditor. Further, it is also observed from the records that the site was duly handed over by the Operational Creditor to the Corporate Debtor on 19.11.2015 with due notice. Therefore, it is difficult for us to hold that there was any deemed abandonment of the project by the Operational Creditor. Issue No.3: Whether there is a default of the Operational Debt due and payable by the Corporate Debtor in favour of the Operational Creditor. 39. In the first demand notice dated 02.12.2017, the Operational Creditor raised demand for payment of a sum of ₹1,94,62,148/-. In the reply of the Corporate Debtor to this Demand Notice, there is only a proforma denial of the said amount, which led to the filing of the first company petition bearing CP (IB) No.1823/2017. 40. After the withdrawal of the said CP (IB) No.1823/2017 on 13.03.2018 and before the issue of the second Demand Notice on 23.08.2018, the Corporate Debtor issued a legal notice dated 13.03.2018 to the Operational Creditor demanding payment of a sum of ₹30,18,856/-. 41. The defence of the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e where the petition under section 9 of the IBC came to be filed on 14.07.2017 after the filing of a petition under section 34 of the Arbitration Conciliation Act, 1996. Therefore, the ratio of that judgment is clearly not applicable to the facts of the present case. (b) Judgment dated 01.02.2018 passed by the National Company Law Tribunal, Mumbai Bench, in CP (IB) No.1297/2017 in the matter of Swastic Enterprises vs. Gammon India Limited, for the proposition that where the principal amount of debt has admittedly been paid and duly accepted by the Petitioner and the claim of interest remained unsubstantiated in the absence of cogent evidence, the Operational Debt in question remained unascertainable, the petition under section 9 is not maintainable. In the present case, the claim of the Operational Creditor is not restricted to interest alone, but rather is a claim for payment for additional works carried out. We have already held in para 34 supra that there are inherent contradictions in the stand of the Corporate Debtor as to the so-called additional works. Therefore, suffice it to say here that the claim in the present petition is not on account of interest alone, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount of one lakh rupees stipulated under section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor. 46. The Operational Creditor has proposed the name of Mr Jitendra Kumar Yadav [Reg. No.IBBI/IPA-003/IP-00022/2017-18/ 10169], as the Interim Resolution Professional of the Corporate Debtor. He has filed his written communication in Form 2 as required under rule 9(1) of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 along with a copy of his Certificate of Registration, which is placed at pp.659-660 of the Petition. 47. It is, accordingly, hereby ordered as follows: - (a) The petition bearing CP (IB) 3753/MB/C-IV/2018 filed by M/s Malharshanti Enterprises, a sole proprietorship concern represented by its proprietor, Mr Sunil Pande, the Operational Creditor, under section 9 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mobile: +91 9699024004], is hereby appointed as Interim Resolution Professional (IRP) of the Corporate Debtor to carry out the functions as per the IBC. The fee payable to IRP or, as the case may be, the RP shall be compliant with such Regulations, Circulars and Directions as may be issued by the Insolvency Bankruptcy Board of India (IBBI). The IRP/RP shall carry out his functions as contemplated under sections 15, 17, 18, 19, 20 and 21 of the IBC. The IRP/RP shall file periodical progress reports with this Adjudicating Authority. (g) During the CIRP Period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within a period of one week from the date of receipt of this Order, in default of which coercive steps will follow. (h) The Operational Creditor shall deposit a sum of ₹ 3,00,000/- (Rupees three lakh only) with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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