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TMI Blog2024 (2) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... isting 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about slow progress of work and thereby invoking clause 33 of GCC for termination of contract which, however was withdrawn and original contract was reinstated.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ler and generator ( in short BTG ) for an amount of Rs.180 Crores. 6. It has been brought out that the total contract was enhanced from time to time and was increased to Rs. 224.13 Crores. 7. The Corporate Debtor also issued another work order to the Respondent No. 1 dated 22.11.2012 for amount of Rs. 12.56 Crores for various items under OBTG and both the combined contracts/ work orders i.e., OBG and OBTG will be referred hereinafter as contracts . 8. It has been submitted that the Respondent No. 1 issued 77 running accounts bill (in short RABs ) along with Final bill for BTG and issued 19 RABs along with final bill for OBTG. The total combined work done by Respondent No. 1 is stated to be of Rs. 208.33 Crores against which the Corporate Debtor made the payment of Rs. 146.14 Crores leaving Rs. 62.19 Crores as outstanding balance. 9. For seeking payment of outstanding dues from the Corporate Debtor amounting to Rs. 62.19 Crores, the Respondent No. 1 issued demand notice under Section 8 of the Code on 16.08.2019 which was replied by the Corporate Debtor on 29.08.2019 denying the averments made in the demand notice. 10. It has been brought out that in meanwhile, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant also referred to several judgements in support of his averments i.e., Umesh Saraf Vs. Tech India Engineers Pv.t Ltd. passed by this Appellate Tribunal bearing Company Appeal (AT) (Insolvency) No. 548 of 2020, Karpara Project Engineering Private Limited Vs. BGR Energy Systems Ltd. in Company Appeal (AT) (Insolvency) No. 622 of 2018, M/s. Raunaq EPC International Ltd. Vs. M/s. Hiranmaye Energy Ltd. in Company Appeal (AT) (Insolvency) No. 439 of 2020, Major (Retd.) Inder Singh Rekhi Vs. Delhi Development Authority [(1988) 2 SCC 338] and Sundaram Finance Ltd. Vs. NEPC India Ltd. [(1999) 2 SCC 479]. 16. It is the case of the Appellant and that his appeal should be allowed primarily on the following grounds :- a) There have been pre-existing disputes between the parties. b) The Adjudicating Authority erred in assuming that the Corporate Debtor has not filed any application under Section 34 of the Arbitration Act, challenging the Arbitral Award dated 22.04.2022. c) The completion certificate dated 09.05.2019 relied upon by the Adjudicating Authority was dismissed earlier by the Adjudicating Authority vide order dated 17.01.2020. 17. The Appellant alleged that the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated by the Corporate Debtor in order to avoid payments to be paid to Respondent No. 1. The Respondent No. 1 submitted that the Corporate Debtor tried to raise the issues which were not relevant for the execution of the work or regarding quantity or quality of the work executed and completed by the Respondent No. 1. 25. The Respondent No. 1 also denied alleged slow progress work levelled by the Corporate Debtor. The Respondent No. 1 further referred to counter claims made by the Corporate Debtor only in response to the demand notice which are without any basis and was done by the Corporate Debtor only to derail the entire CIRP process. 26. The Respondent No. 1 strongly objected to the allegations made by the Appellant regarding non- admission of completion certificate dated 09.05.2019 issued by the Appellant. In this connection, the Respondent No. 1 submitted that the Adjudicating Authority rejected C.A. No. 503 of 2019 which was made with a request to place additional document, only on the ground that this document was not legible. The Respondent No.1 alleged that the Appellant concealed the fact before this Appellate Tribunal that the work completion certificate dated 09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 itself. 33. The Respondent No. 1 stated that allegation of the Corporate Debtor regarding alleged forum shopping by the Respondent No. 1, is nothing but false and stated that he was compelled to approach the Hon ble High Court of Delhi under Section 9 of the Arbitration Act to protect illegal encashment of PBG by the Corporate Debtor. The Corporate Debtor failed to return PBG of the Respondent No. 1 despite several reminders and incidentally the Hon ble High Court of Delhi gave the verdict in the favour of Respondent No. 1. 34. The Respondent No. 1 submitted that the judgment cited by the Appellant specifically of K. Kishan (Supra) is not applicable since that case was based on Arbitral award which is not the case herein. The Respondent No. 1 amplified that in the matter of K. Kishan (Supra), the demand notice under Section 8 of the Code was issued by the Operational Creditor on the basis of final award delivered by the Arbitral Tribunal in favour of the Operational Creditor, whereas in the present case the Respondent No. 1 filed the application under Section 9 of the Code based on unpaid invoices and therefore, the same has got no relevance in the present case. 35. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 petition against an arbitral award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 has taken place. (Emphasis Supplied) In this connection we will like to take into consideration the background of the case which has been captured in initial paras. This judgment was passed by Hon ble Supreme Court of India in the matter of K. Kishan Vs. Vijay Nirman Company Private Limited [(2018) 17 SCC 662], which reads as under :- M/s Vijay Nirman Company Pvt. Ltd. (the respondent) entered into a subcontract agreement with one M/s Ksheerabad Constructions Pvt. Ltd. (KCPL) on 1-2-2008, to undertake 50% of Section 2 work of Construction and widening of the existing two-lane highway to four lanes on NH 67 at km 190000 to km 218215 admeasuring a total of 28.215 km for and on behalf of KCPL. Apart from this Agreement, a separate agreement of the same date was entered into between the said KCPL and one M/s SDM Projects Pvt. Ltd., Bangalore, as a result of which, a tripartite memorandum of understanding was entered into on 9-5-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Sec 34 has expired and no application is made or such application having been made has been rejected That means, the arbitral award reaches finality after expiry of enforceable time under Sec. 34 and/or if application under Section 34 is filed and rejected (Emphasis Supplied) The above cited case referred to the situation where decree based on Arbitral Award could have been executed only after the time for filing Section 34 has expired. In the present appeal Section 9 was not filed based on the Arbitral Award as discussed earlier was pressed for unpaid invoices after completion of work for which completion certificate was issued by the Corporate Debtor. 42. We also note another judgements passed by Hon ble Supreme Court in the matter of Union of India Vs. Cipla Ltd., [(2017) 5 SCC 262] in this regard which reads as under :- 155...The decisions referred to clearly lay down the principle that the Court is required to adopt a functional test vis- -vis the litigation and the litigant. What has to be seen is whether there is any functional similarity in the proceedings between one court and another or whether there is some sort of subterfuge on the part of a litigant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpletion of work as per certificate of Engineering in-charge . Since, the work was completed on 31.03.2018, the DLP period could have been upto 31.03.2019. After this date, the Respondent No. 1 became entitled to get back his to PBG given to the Corporate Debtor. We note from the averments that the Respondent No. 1 has been requesting the Corporate Debtor to return his PBG but the Corporate Debtor instead of returning was insisting to extend the same and the Respondent No. 1 was apprehensive that the PBG might be illegally encashed by the Corporate Debtor. In order to protect such action by the Corporate Debtor, the Respondent No. 1 moved the petition under Section 9 of the Arbitration Act before the Hon ble High Court of Delhi and stay of invocation of PBG was granted on 20.08.2019. We find merits in the arguments of the Respondent No. 1 that after the DLP Period was over on 31.03.2019 and for non-returning of PBG by the Corporate Debtor, the Respondent No. 1 had to move petition before the Hon ble High Court of Delhi as independent contractual remedy and this cannot be termed as forum shopping. 47. As regards, the financial viability of the Corporate Debtor, we have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as claimed by the Respondent No. 1 herein before the Arbitral Tribunal. The Arbitral Tribunal also awarded a cost of Rs. 3 Crores in favour of the Respondent No. 1 to be paid by the Corporate Debtor. We also note that in the earlier Interim Order dated 29.07.2020 prayer of the Respondent No. 1 was accepted w.r.t. return of performance bank guarantee by the Corporate Debtor by the Arbitral Tribunal. 50. It may also be observed that a suit for arbitration process taken up subsequent to demand notice filed under Section 9 of the Code this cannot be and should not be considered as existence of dispute and therefore, the plea of the Appellant that the arbitration proceedings which has been challenged by the Appellant before the Hon ble High Court of Delhi and therefore, the Section 9 should not be entertained, is devoid of any legal basis. 51. At this stage, we would like to observe that in the Section 7 (5) (a) of the Code the word may has been used 7(5)(a) as contrast to the word shall in Section 9 (5) (a) which clearly indicates legislative intention i.e., discretion has been given to the Adjudicating Authority in case of Section 7 application whereas Section 9 applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils 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. 54. We will refer to detailed discussion in the Impugned Order on the aspect of pre-existing dispute which are reproduced as under :- 6. On the other hand, the corporate debtor filed a detailed reply submitting that there were pre-existing disputes between the parties as the petition under Section 9 of the Arbitration and Conciliation Act 1996 was pending between the parties before the Hon'ble High Court of Delhi and the Arbitrator was duly appointed. Further, it is submitted that letter of charge dated 26.02.2010, for the Construction of BTG Civil and Structural Work for the Project does not pertain to Respondent as the same is signed and acknowledged by Elena Power and Infrastructure Limited . Therefore, the said documents do not pertain to Corporate Debtor and there is no privity of contract between the Operational Creditor and the Corporate Debtor. 7. Further, it is submitted that BTG contract also contains an arbitration clause and as per that, parties were to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06.2016, 09.06.2016, 17.06.2016, 23.06.2016, 30.06.2016, 07.07.2016, 19.07.2016, 04.08.2016, 11.08.2016, 18.08.2016, 27.08.2016, 01.09.2016, 07.09.2016, 22.09.2016, 01.10.2016, 13.10.2016, 27.10.2016, 03.11.2016, 10.11.2016, 01.12.2016, 08.12.2016, 22.12.2016, 01.01.2017, 12.01.2017, 16.02.2017, 23.02.2017, 09.03.2017, 23.03.2017, 13.04.2017, 04.05.2017, 11.05.2017, 25.05.2017, 08.06.2017. Thus, there were constant delay and deficiency of services on the part of the Operational Creditor in completing the project site and the Corporate Debtor was constrained to issue e-mail on 22.01.2016, however, the Operational Creditor vide e-mail dated 23.01.2016 denied their liability and requested the Corporate Debtor to withdraw their termination requests, even after repeated representations and assurance to provide best services by the Operational Creditor, the Operational Creditor still lacked in completing the work of the Corporate Debtor. The Corporate Debtor vide e-mail dated 22.02.2016 had brought to the notice of the Operational Creditor that the mobilization of manpower and machineries till date was not enough to cater the required work pace to achieve the agreed work completion plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te? 17. It is apparent from the records that the corporate debtor had rwt 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. It was on 29.08.2019 when the corporate debtor had responded for the first time in its reply dated 29.08.2019 to the demand notice issued by the Operational Creditor under Section 8(1) of I B Code raising dispute making reference to its own communications to establish that there is deficiency of services and the works were incomplete by the applicant, consequent of which that alleged operational debt is disputed. 18. As a preface to our analysis, we observe that the concerns raised by the corporate debtor in the communications referred by the corporate debtor in its reply were addressed by the applicant to the full satisfaction of the corporate debtor, resultant to which the corporate debtor had issued completion certificate dated 09.05.2019 to the applicant. It is pertinent to note here that by then the Defect Liability Period of 12 months had already expired. Further, call period of two months beyond the expiry of the Defect Liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute tantamount to be substantial, genuine and bona-fide and not spurious, speculative, illusory or misconceived. The Adjudicating Authority at the stage of admission of CIRP is not expected to hold a full trial in the matter and it must be decided whether the ground appears to be substantial. However, it is also a settled law that if such operational debt are bona-fide disputed on substantial ground, the Adjudicating Authority ought to dismiss the petition and such parties are required to seek other alternative legal recourse. 58. It is pertinent to note that both GCC and SCC provided for specific clause regarding Engineer-In-Charge whose job was to look into matter of dispute raised and the same was appointed by the Corporate Debtor as owner of the project. We have noted from the averments, that no such dispute was ever referred to such Engineer-In-Charge. This fact also goes against the cause of the Appellant, who has taken the plea of pre-existing dispute and it is felt that when such specific provision did exist in the contracts, the Corporate Debtor should have raised pre-existing dispute relating to quality of the services if any, which is not found in the present ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithdrawal by the Corporate Debtor and original contract was restored. 62. In view of detailed discussions this Appellate Tribunal do not find any error in the finding of the Adjudicating Authority on the aspect of pre-existing dispute. 63. Yet another issue which has been raised by the Appellant is regarding admissibility of the completion certificate issued dated 09.05.2019 by the Corporate Debtor to the Respondent No. 1. The Appellant has taken two-fold argument i.e., the completion certificate was not formerly part of the original pleadings before the Adjudicating Authority and the Respondent No. 1 tried to get it included by filing CA No. 503 of 2019 seeking permission from the Adjudicating Authority to file additional document of the completion certificate dated 09.05.2019, which was rejected by the Adjudicating Authority. Second argument of the Appellant is that the completion certificate was issued with Caveat that this was being issued at the request of the Respondent No. 1, therefore, cannot be relied upon. 64. In this connection, we would like to refer to the completion certificate issued by the Corporate Debtor to the Respondent No. 1 which reads as under : - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delay may happen and may be attributable to both parties. In instant case, we have seen 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. We also need 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 we note 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. We clarify position on delay/ slow progress duri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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