G4S Secure Solutions India Private Limited vs Sterne India Private Limited

The Petitioner/Operational Creditor is engaged in business of providing Secure Solutions, Corporate and Industrial Investigations to their clients along with a team of professional, trained and well-supervised Security Officers who are responsible for security and safety of assets, personnel and property of their clients. and the Respondent/Corporate Debtor is an entity incorporated on 24.10.2016 under the Companies Act, 2013 by the name of STERNE INDIA PRIVATE LIMITED which is engaged in the business of designing, manufacturing, fabricating, assembling, trading, importing, exporting, buying, selling, stocking, supplying, wholesaling, retailing, contracting, repairing, and hiring all types of electronic and electrical goods and home appliances.

In the year 2022, the Corporate Debtor approached the Operational Creditor with a proposal for seeking the deployment of their Security Services at various locations. The Operational Creditor accepted the proposal and in lieu of the same, the Operational Creditor and the Corporate Debtor entered into a Contract for Security Services dated 07.12.2022 (hereinafter “Contract”) wherein it was mutually agreed between the parties that the Operational Creditor would provide Security Services at various locations which are specified in the Schedule I of the Contract. Further, in consideration of the provisions of the Security Services by the Operational Creditor in accordance with the terms and conditions of the Contract, it was agreed that the Corporate Debtor will pay to the Operational Creditor in accordance with the terms of the Schedule I of the Contract and the Operational Creditor will accordingly raise an invoice for the Security Services rendered each month for the Corporate Debtor as per Clause 35 of the Contract.

Pursuant to Contract for Security Services, the Operational Creditor provided Security Services to Corporate Debtor at its locations at Kolkata, Raipur, Ranchi, Patna, Bhubaneswar, Bilaspur, Delhi, Gurugram, Jaipur, Punjab, Agra, Lucknow, Saharanpur, Azamgarh and Rudrapur. It was also decided that Operational Creditor will raise an invoice for the Security Services rendered each month and the same was required to be paid by the Corporate Debtor in accordance with the prescribed the Payment Terms and as per the said Payment Terms, the Corporate Debtor was under a due obligation to clear the invoices raised by the Operational Creditor within a period of 30 (Thirty) working days after the date of receipt of the Invoices. Copy of the Contract for Security Services dated 07.12.2022 is annexed as Annexure A-1. Further, in accordance with terms of Contract for Security Service dated 07.12.2024 following invoices (Annexure A-2) were raised against the Corporate Debtor: S. No. Invoice Number. Invoice Invoice Due Date date Amount

The Operational Creditor has forwarded appropriate invoices as per Clause 35 of the Contract for the Security Services provided to the Corporate Debtor and has continuously reminded the Corporate Debtor via various emails to clear the outstanding payment against security services provided by Operational Creditor. The Copy of various email communications between Operational Creditor and the Corporate Debtor for the payment of the outstanding dues is annexed as Annexure A-3. However, despite several reminder emails and providing services as per contract, the Corporate Debtor failed to make the requisite payments of the invoices as per the terms of the Contract which has resulted in Non- Payment of salary to the Security Personnel and has caused grave loss to the Security- Personnel associated with the Operational Creditor. It is further submitted that the Corporate Debtor has never raised any objections to the service provided or against the outstanding invoices amounting to Rs.1,04,03,778 raised by the Operational Creditor.

The Corporate Debtor vide email dated 06.12.2023 and 03.06.2024 has acknowledged its debt owed to the Operational Creditor wherein the Corporate Debtor confirmed to pay the outstanding debt. The Copy of the aforesaid email communication is annexed as Annexure A4 to the Petition.

Despite repeated reminders through telephone and email correspondence, the Corporate Debtor failed to clear the outstanding dues.

Thereafter, due to non-release of the payments on behalf of the Corporate Debtor, the Operational Creditor was left with no other alternative but to withhold the Security Services at various locations of the Corporate Debtor and the same was duly communicated to the Corporate Debtor via numerous email communications dated 25.10.2023, 01.12.2023, 15.02.2024 and 24.02.2024 respectively. The copies of email communications are annexed as Annexure A-5.

On 28.06.2024, the Operational Creditor issued a Demand Notice in Form-3 under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, for an outstanding amount of Rs.1,20,33,959 which includes the principal amount of Rs.1,04,03,778 along with the interest amount of Rs.16,30,181 and calling upon the Corporate Debtor to clear outstanding dues. It is further submitted that the Corporate Debtor had failed to respond to the Demand Notice or make payments of the outstanding dues owed to the Operational Creditor. A copy of the Demand Notice dated 28.06.2024 and postal acknowledgment is annexed as Annexure-A-6 and A-7.

Despite multiple acknowledgments and assurances, the Corporate Debtor has failed to clear its dues. Further, the Petitioner has demonstrated the debt due is above the threshold limit of Rs. 1 Crore and is within the purview of the Code since there is a demand duly raised and there is a debt due and the Corporate Debtor is in default for not clearing its balance refundable to the Operational Creditor, therefore the Corporate Debtor is liable under Section 9 of the Insolvency and Bankruptcy Code, 2016.

That the Respondent/Corporate Debtor is engaged in trading of electronic goods, and also renders logistics services which requires considerable sum of Working Capital for which the Corporate Debtor has raised more than Rs.450 Cr in external capital from venture capital investors in last 6 years journey. It is further submitted that Corporate Debtor is a loss-making entity since its incorporation and has incurred a loss of Rs.62 Crore as stated in the Audited Financial Statement of the Corporate Debtor for year ending March 31, 2023, Copy whereof is Annexure B1.

That Respondent/ Corporate Debtor has been facing severe financial distress, resulting in a significant loss particularly due to nature of the business which requires continuous raising of Capital. The Corporate Debtor was in the process of raising additional capital by end of 2023, but discussions did not materialise given bad market conditions which significantly affected its liquidity position and therefore the Corporate Debtor was left with negligible cash by end of 2023 to run its operations. By November 2023, the Corporate Debtor started defaulting on its debt repayments and other vendor outstandings in the market. It is further submitted that the Corporate Debtor’s business model has not delivered the expected results, and despite attracting external equity investments, the Corporate Debtor has struggled to pivot or adapt to evolving market dynamics and the lack of a sustainable business model that could generate consistent revenue streams has hindered the Corporate Debtor’s ability to break even. Furthermore, market volatility, economic downturns and shifts in consumer behaviour have compounded these challenges, making it difficult to turn around the business and meet creditor obligations.

The Corporate Debtor submitted that the inability to make payments arises from financial constraints and without the ability to raise fresh capital, the Corporate Debtor has no means to meet its creditor obligations, further confirming that it will be unable to pay its debts. It is further submitted that the Corporate Debtor had tried to clear the dues of the Petitioner but the general economic and financial conditions of the market hampered the business of the Company and hence the Corporate Debtor could not make the payments towards its creditors, including the Petitioner in a timely manner.

Thus, the Respondent submitted that they are presently not in a position to clear any dues and hence acknowledge and admit that there is an Operational Debt due to the Petitioner to the extent of Rs.1,17,39,803, and the Respondent is in default. It is also stated that this default has arisen as the Corporate Debtor has suffered huge financial losses and was unable to raise capital from the market for the reasons mentioned in the above paras.