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TMI Blog2021 (10) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor' against Central Railside Warehouse Company Limited (hereinafter referred to as the 'Corporate Debtor'). 2. The Adjudicating Authority while dismissing the Section 9 Application observed as hereunder:- "5. We have gone through the details of the case and heard the arguments of both sides at length. The issue to be decided and to be adjudicated on the present application is whether there is a pre-existence of dispute as between the parties even before issue of the Section 8 demand notice by the Petitioner, because the existence of such a dispute will make the present application non maintainable taking into consideration the scheme of the code and well laid down judicial precedents since coming into force of IBC, 2016. 6. The Respondent it is seen had sent a letter dated 01.11.2012 to the Applicant stating that they have detected huge shortages on account of storage of stock at RWC, Hatia and to recover such huge losses they have also withheld payment of about 42 lakhs. As per tender clause VIII and custody and indemnity bond executed between the two, the petitioner is solely responsible for the losses suffered by CRWC on account of handling and storage of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5,00,000/- as Security Deposit. On 28.11.2011, a second contract was entered into for another two years, the terms of which were similar to the first contract and the 'Operational Creditor' paid Rs. 10,00,000/- as Security Deposit. The Learned Counsel drew our attention to the relevant clauses of the Agreement which are detailed as hereunder:- "BRIEF DESCRIPTION OF THE WORK: Unloading/loading of food grains, fertilizers, cement, Salt, Sugar, etc. or any other notified commodities from/into railway wagons/trucks etc., stacking them inside the RWC godowns/Platform/Ground, bagging/re-bagging, weighment, standardization, cleaning, salvaging of the stocks and transporting from/to RWC to/from various storage godowns. The Service Provider shall also be required to keep Rail Side Warehouse Complex and its operational area/premises neat and clean at all times for which no extra remuneration would be payable. The tenderers in their own interest must get themselves fully acquainted with the area of operations and nature of work involved before submission of tenders. Tenderers are required to quote rates for all items of works described in the Appendix-IV-A, IV-B & IV-C. In cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 51,65,270/-, but the 'Corporate Debtor' did not choose to give any reply. * The Adjudicating Authority dismissed the Application on the ground of 'Pre-Existing Dispute' based on the premise that there was the Custody and Indemnity Bond excluded by the 'Operational Creditor' and also the letter dated 01.11.2012, whereby the 'Corporate Debtor' had held the 'Operational Creditor' liable for shortage of 335 MT of stock of boiled rice of FCI on account of storage. * The Learned Counsel drew our attention to Safe Custody and Indemnity Bond. The relevant Clause II is reproduced as hereunder:- "Custody and Indemnity Bond for Service Provider Contract at RWC, Hatia (RANCHI). "...............2. We shall be entirely responsible for the safe custody and protection of the said goods materials at our risk till the same are duly delivered/dispatched to your various customers OR as may be directed by you from time to time or any time and shall Indemnify you against any loss, damage, or deterioration suffered by you or shortages whatsoever in respect of said goods from time to time under said Agreement while the same remain in our custody. We furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; mutually arrived at a settlement and agreed to share the loss at 50:50 and hence the same cannot be fastened on the 'Operational Creditor' herein. * The 'Corporate Debtor' never made out any case of 'transit losses' and never pleaded that the 'Operational Creditor' did the storage of goods of FCI. * The settlement deed dated 13.08.2014 mentions that the 'transit loss' included a missing Railway Wagon, the 'Corporate Debtor' attributed all its losses to the 'Operational Creditor' merely because the 'Operational Creditor' signed the Indemnity Bond. Such an Indemnity Bond would come into the picture only for the work done by the Appellant, whereas the 'Corporate Debtor' had unfairly deducted the amount from the outstanding dues for the fault in the work which was not done by the Appellant at all. Hence, it is strenuously argued that the 'Corporate Debtor' had raised patently feeble argument unsupported by any shred of evidence. 4. Submissions on behalf of Learned Counsel appearing for the Respondent:- * The Learned Counsel for the Respondent strenuously contended that there was a storage loss to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e already received by the 'Operational Creditor' on 16.02.2016 and hence, this Appeal deserves to be dismissed. * The Learned Counsel placed reliance on the Judgement of the Hon'ble Supreme Court in 'Kay Bouvet Engineering Ltd.' Vs. 'Overseas Infrastructure Alliance (India) Private Limited' reported in CA No. 1137 of 2019. Assessment:- 5. The brief point which falls for consideration in this Appeal is whether there is any 'Pre-Existing Dispute' between the 'Operational Creditor' and the 'Corporate Debtor'. A perusal of Agreement entered into between CRWC Ltd. (the 'Corporate Debtor') and the 'Operational Creditor' is with respect to unloading/loading of food grains, fertilizers, cement, salt, sugar, etc. or any other notified commodities from/into Railway Wagons/Trucks etc. stacking them inside the RWC godowns/platform/ground, bagging/re-bagging, weighment, standardization, cleaning, salvaging of the stocks and transporting from/to RWC, to/from various storage godowns. As per the Agreement, the liability of Service Provider for losses suffered by 'Corporate Debtor' is covered under Clause VIII(a) reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t storage losses up to 0.5% was normal and the letter dated 12.02.2013 depicts that the percentage of so-called storage losses was 0.473% which is less than 0.5%. These storages were for the period 01.02.2011 and 27.11.2012. 10. The same is reiterated in the Settlement Agreement dated 13.08.2014. Apart from the issue of storage losses, the Agreement also deals with Transit Losses (T/L) in the second Table. For ready reference the relevant portions of the Settlement Agreement is reproduced as hereunder:- 11. It is seen from the record that last part payment was received on 16.02.2016 and the Section 8 Demand Notice was dispatched on 01.02.2018. Admittedly, the 'Corporate Debtor' received the Demand Notice but did not reply to the same. It is the case of the Appellant that this aspect of 'transit loss' was never raised by the 'Corporate Debtor'. A perusal of the Settlement Agreement entered into between the FCI and the 'Corporate Debtor' dated 13.08.2014 shows that the storage loss between February 2011 till March 2012 was less than 0.5% and hence, was regularized. It was the 'transit loss' which was not waived. 12. The Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, a being. All that exists. (P. 894, Oxford English Dictionary)." 14. The Hon'ble Apex Court in 'K. Kishan' Vs. 'Vijay Nirman Company Pvt. Ltd.' [2018] 150 SCL 110 (SC), has observed as follows:- "13. Following this judgment, it becomes clear that operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardize an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the Arbitral Award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the Award. Such a case would clearly come within para 38 of Mobilox Innovations (supra), being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of Rs. two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. We repeat that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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