Gati Limited vs Balaji Operation And Maintenance Service Pvt. Ltd

Abni Ranjan Kumar Sinha, J

The present petition is filed under Section 9 of Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016 by the Applicant/ operational creditor, i.e. "M/s. Gati Limited" for initiation of Corporate Insolvency Resolution Process against the Respondent/ Corporate Debtor Company "Balaji Operation and Maintenance Service Pvt. Ltd.".

The Applicant M/s. Gati Limited is a Pioneering Express Distribution services in India, since 1989.

The Respondent/ Corporate debtor is a private limited company registered under the Indian Companies Act.

Brief Facts of the petition are:

i. The learned counsel for the petitioner stated the applicant operational creditor sought to avail service of the respondent for construction of civil work road laying at its office at Samalkha and pursuant thereto, it held a discussion with the corporate debtor on 27.02.2019 and thereafter corporate debtor forwarded a copy of BOQ to the applicant quoting a sum of Rs. 1,97,50,000/- the total price for the work.

ii. Further stated that the Corporate debtor thereafter raised a tax invoice of. Rs. 1 Cr. to the applicant vide tax invoice dated 02.03.2017.

iii. Further stated that the Applicant thereafter on 05.03.2019 and 06.03.2019 transferred the aforesaid sum of Rs. 1 Cr. after deducting a sum of Rs. 2 Lakhs towards TDS.

iv. Further stated that after remitting the aforesaid payment, the applicant issued a purchase/ work order to the Corporate debtor. The Applicant sought the delivery of materials on 05.04.2019 at its site.

v. Further stated that while placing work order, the applicant mentions the site and sought delivery of goods at the mentioned site and therefore, the say of Corporate debtor that since the applicant did not hand over the site therefore, it did not commence the work is completely erroneous.

vi. Further stated that Clause d & e of purchase order specifically lays down a condition that in case supplier fails to supply the goods in a given time, the company shall be at liberty to terminate the purchase order forthwith without any notice, costs or compensation, whatsoever. As the Corporate Debtor failed to comply the purchase order, the applicant terminated the purchase order. Therefore, termination of purchase order is in accordance with the terms and conditions of the purchase order itself. The Applicant is thus entitled to its advance admitted payment from the Corporate Debtor.

vii. Further stated that admittedly, the Corporate Debtor failed to deliver the goods on or before 05.04.2019, after accepting the advance amount. The applicant, therefore, decided to terminate its purchase order and accordingly, it terminated its purchase order by sending a notice dated 15.05.2019 to the Corporate debtor and sought refund of its amount of Rs. 1 Cr. Paid as advance.

viii. Further stated that the applicant thereafter issued IBC demand notice dated 04.07.2019 through its lawyer to the Corporate debtor along with computation of default amount, which the Corporate debtor received it on 05.07.2019.

ix. Further stated that the applicant received a reply from the Corporate debtor to its termination notice dated 15.05.2019 wherein the Corporate debtor admitted a receipt of Rs. 1 Cr. but contended that it was nonrefundable amount and therefore, it is not liable to refund.

x. Further stated that the Corporate debtor instead of making the aforesaid amount, replied the applicant's IBC notice vide its reply dated 15.07.2019 disputing the claim of the applicant for refund of the aforesaid amount.

The amount claimed to be default is Rs. 98 lakhs along with 2% interest per month. The date of default is 05.03.2019 and 06.03.2019 onwards.

The Corporate debtor contended the following in its reply dated 12.10.2019:

i. The Petitioner at Pg. 2 of the petition clearly admits that an amount of Rs. 1 Crore was non-refundable.

ii. Despite being fully aware of the terms and conditions of the proposal dated 28.02.2019, the Petitioner transferred the amount of Rs. 98,00,000/- deducting the applicable taxes and after being fully satisfied that the said amount is a non-refundable mobilization advance.

iii. The petitioner had never raised any objection against proposal submitted by the Respondent against the terms and conditions of the proposal dated 28.02.2019.

iv. Petitioner had never made any averment in its letter dated 15.05.2019 qua any breach or default committed by answering Respondent in performance of its obligations under the Contract. However, baseless averments of breach of obligations had been raised for the first time only in the Notice of demand dated 04.07.2019, which was only an afterthought to raise a false claim against the Respondent.

v. The amount of Rs. 98,00,000/- had been rightly forfeited by the Respondent in terms of the Agreement and no contractual default is being committed by the respondent.

vi. The work has already been subcontracted by the Respondent to M/s. SEW Infrastructures Ltd. vide work order dated 07.03.2017 for a total contract value of Rs. 1,66,13,116/-. The Respondent had already paid an amount of Rs. 81,00,000/- in favour of M/s. SEW Infrastructure Ltd. on 08.03.2019 after deducting applicable taxes.

vii. The Respondent also reserved its rights to raise its counter claim against the expenditure incurred towards overheads expenses and tax component etc. since the Petitioner has failed to deposit the amount of Rs. 7,62,712/- paid by the Respondent towards CGST and Rs. 7,62,712/- paid by Respondent towards SGST.

viii. There is no termination clause under the works order, which entitles the Petitioner to terminate the Contract.

ix. The Purchase order dated 06.03.2019 was never signed and executed by the Petitioner. The same is never signed and accepted by the Respondent.

x. Even the alleged Purchase order dated 06.03.2019 came to be issued by the Petitioner only on 06.03.2019 i.e. after the advance payments had already been released by the Petitioner on 05.03.2019 and 06.03.2019 in terms of proposal dated 28.052.2019.

xi. The petitioner had never handed over the site for carrying out the requisite works to the Respondent. However, in violation of the terms and conditions of the proposal dated 28.02.2019, abruptly terminated the works vide its letter dated 15.05.2019, without even assigning any reason for its decision.

xii. That the Corporate Debtor in its reply to the demand notice dated 15.07.2019 disputing the claim raised by the applicant stating that the petitioner have accepted quotation along with all the conditions mentioned to therein and confirmed the same by tendering the nonrefundable advance amount.

xiii. The petitioner has nowhere discloses that any default has occurred on the part of the Respondent. Thus, no amount of debt is due and payable by the Respondent towards the petitioner.

xiv. The total amount of the invoice included GST @ 18% and the total invoice value was to the tune of Rs. 1,18,00,000/-.

We have heard the Ld. Counsels for both the parties.

Ld. Counsel for respondent in course of arguments submitted that in short, there are two questions involved in this pleadings, whether to mention of certain sums in the contract as earnest money or non-refundable, does that certain sums, which are huge and more than 50 per cent of the total value of the contract automatically become liable to be forfeited or non-refundable and whether this adjudicating authority in view of the facts alleged by the respondent has the jurisdiction to decide the issue or not.

He further submitted that petitioner also placed reliance upon the decisions and the same is quoted below:-

(i). Company appeal (AT) No. 582 of 2018, Overseas Infrastructure Alliance (India) Pvt. Ltd. Vs. Kay Bouvet Engineering Ltd, decided on 21.12.2018

(ii). CP No. 1548/IBC/NCLT/MB/MAH/2017 M/s. Auspiece Trading Pvt. Ltd. Vs. M/s. Global Proserv Limited, decided on 23.02.2020.

In the light of the aforesaid decisions, the petitioner submitted that respondent is not entitled to forfeit the amount and he further submitted that the respondent fails to show that any loss is caused, when the work has allotted to mobilize the resources, whereas the Ld. Counsel for respondent submitted that before issuance of Section 8 demand notice vide letter dated 15.05.2019, terminated the work order and demanded an amount of Rs. 1 Crore from the respondent and respondent vide letter dated 04.07.2019 raised the dispute. He further submitted that in the Mobilox Innovations Pvt. Ltd Vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 held that even if the application is complete and if notice of dispute has been received by the Operational Creditor then Section 9 of the IBC is not maintainable. He further submitted IBC is not intended to be substitute to a recovery forum. The moment there is existence of a dispute, the corporate debtor gets out of the clutches of the code.

He further submitted that Section 9(5)(ii) of the code clearly mandates that Adjudicating Authority shall reject the application, when notice of dispute has been received by the Operational Creditor. The respondent also placed reliance upon the decisions and the same is quoted below:-

Innoventive Industries Ltd. Vs. ICICI Bank and Anr. (Civil Appeal Nos. 83378338 of 2017)

Duke Spounge and Iron Pvt. Ltd Vs. Laxmi Foils Pvt. Ltd.

He further submitted that petitioner at page 2 of the petition clearly shows that an amount of Rs. 1 crore was non-refundable and the respondent vide letter dated 06.03.2019 stated that advances would be non-refundable and the balance payment was made by the petitioner only after the receipt of such e-mail. He further submitted that the petitioner never raised any objection against the terms and conditions of proposal dated 28.02.2019. He further submitted that work had already been subcontracted by the respondent to M/s. SEW Infrastructures Ltd. vide work order dated 07.03.2019 for a total contract value of Rs. 1,66,13,116/- and the respondent has already paid an amount of Rs. 81 lakhs in favour of the company. He further submitted that since there is an existence of dispute, the petition may be rejected. He also placed reliance upon the decisions in Overseas Infrastructure Alliance (India) Pvt. Ltd. vs. Kay Bouvet Engineering Ltd. which is referred by the petitioner at page no. 5.

Now, in light of submissions made by the parties, we have gone through the averments made in the application, reply filed by the respondent and written synopsis filed by both the parties and we find that even during the course of arguments and even in the written submissions, the petitioner formulated the questions regarding the forfeiture of the amount mentioned in the application and in order to substantiate their claim, the petitioner placed reliance upon the decision to convince us that the respondent is not entitled to forfeit the amount even if it is mentioned in the agreement. The question is whether this adjudicating authority is competent to decide the question regarding the point raised by the petitioner in a proceeding, which is initiated under Section 9 of the IBC. Therefore, we would like to refer Section 8 & 9 of the IBC and the same is quoted below:-

"Section -8.

(1) An operational creditor may, on the in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor--

(a) existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;

(b) the payment of unpaid operational debt--

(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Explanation.--For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred.

Section-9

(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under subsection (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

(2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shall, along with the application furnish--

(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;

(c) a. copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt 1 [by the corporate debtor, if available;

(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and

(e) any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.

(4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order--

(i) admit the application and communicate such decision to the operational creditor and the corporate debtor if--

(a) the application made under sub-section (2) is complete;

(b) there is no [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.

(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if--

(a) the application made under sub-section (2) is incomplete;

(b) there has been [payment] of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or

(e) any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section ".

Mere plain reading of the provisions shows that on the occurrence of a default, Operational Creditor is required to deliver a demand notice under Section 8(1) of the IBC of unpaid operational debt copy of an invoice demanding payment of the amount involved in the default to the corporate debtor and the default is defined in Section 3(12) and debt is defined in Section 3(11) and the same is quoted below:-

(12) "Default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;

(11) "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;

Mere plain reading of the provision shows that 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. Since the present application is filed under Section 9 of the IBC, therefore, the claim of the petitioner is under operational debt defined Section 5(21) and the same is quoted below:-

(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

Mere plain reading of the provision shows that operational debt means a claim in respect of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and the petitioner claimed that he is claiming the amount which is due under the law.

At the juncture, we would also like to refer the arguments advanced on behalf of the petitioner, who claimed that even if it is mentioned in the agreement that it is non-refundable amount but the same is liable to be refunded. As we have already discussed in aforementioned paras in support of that petitioner has placed reliance upon the decisions referred above and on the basis of the provisions, which we have discussed in aforementioned paras, we find that the scope of Section 9 of the IBC is very limited, it can be invoked only when

(i). on occurrence of a default, operational creditor deliver a demand notice under Section 8(1) of the IBC of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor

(ii). And corporate debtor within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor

(iii), existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute.

(iv). The payment of unpaid operational debt.

The moment there is existence of a dispute, the corporate debtor gets out the clutches of the code the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd Vs. Kirusa Software Pvt. Ltd. (2018) I SCC 353 held that:

"24. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on nonpayment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing - i.e. it must exist before the receipt of the demand notice or invoice, as the case may be........."

"25. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:

(i) Whether there is an "operational debt" as defined exceeding Rs. 1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and

(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act."

When we shall consider the case in hand, in the light of the aforesaid decisions, then we find that the demand notice was issued on 04.07.2019 and reply to the demand notice was sent on 15.07.2019 and we further find that at page 4, the applicant has not enclosed, tracking report of the delivery of the demand notice to show when the demand notice was delivered, of course, it is dated 14.07.2019 but in the absence of the delivery report and tracking report to show, when it was delivered, we had no option but to hold that the reply of the demand notice is filed within 10 days from the date of receipt of demand notice and this fact has not been disputed by the petitioner.

At this juncture, we would also like to refer letter dated 04.07.2019 sent by the Corporate Debtor to the Operational Creditor which is at page 39 of the application filed on behalf of the petitioner in which he referred at e-mail dated 06.03.2019 which shows that it is stated that aforesaid Rs. 1 crore advance and GST of 18 per cent totalling of Rs. 1.18 crores would not be refundable under any circumstances whatsoever and applicant is claiming that amount and that is the reason in course of arguments, he raised the issue that whether the amount deposited can be forfeited or not. On the basis of that arguments, we find that this letter and e-mail mentioned in that e-mail, by which he raised the dispute was sent prior to the delivery of the demand notice. Therefore, on the basis of that Ld. Counsel for respondent submitted that he raised the dispute prior to the delivery of demand notice and as per agreement, he forfeited the amount which the applicant claimed by filing this application as defaulted amount. Therefore, for the reasons discussed above, we find that respondent has raised the dispute prior to the delivery of demand notice. In view of Section 9(5)(ii) which we have quoted above, when we have consider the case in hand, then we find to:-

(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if--

(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility;

Therefore, the Adjudication Authority has no option but to reject the application.

At this juncture, we would like to refer the contention of the Ld. Counsel for petitioner in view of aforesaid decisions for which he placed reliance, the respondent is not entitled to forfeit the amount as we have already discussed the provisions contained in IBC in aforementioned paras and on the basis of that we are of the considered view while considering the application under Section 9 the Adjudicating Authority is not competent to examine whether the dispute is according with the law or not. These are the facts which are required to be decided by the Court having the jurisdiction to try the suit, while exercising under Section 9 the Adjudicating Authority is required to see only whether there is existence of dispute between the parties or the record of pendency of suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute or not.

Word "dispute" has been defined in Section 5(6) of the IBC and the same is quoted below:-

(6) "dispute" includes a suit or arbitration proceedings relating to--

(a) the existence of the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;

According to the definition, it related to existence of the amount of debt or quality of goods or service or breach of a representation or warranty.

Therefore, we are unable to accept the submission of the Ld. Counsel for petitioner that this adjudicating authority is competent to decide the point which has been raised by the Ld. Counsel for petitioner in course of arguments, whether the respondent is competent to forfeit the amount in terms of forfeiture clause or not? Since, there is existence of dispute which has been raised before the issue of demand notice and the documents which enclosed with the application, shows that there is existence of dispute. Therefore, in view of Section 9(5)(ii), the present application is not maintainable. Accordingly, we hereby reject the prayer of the application. Hence, the application is dismissed.

The office is directed to send free copy of this order to both the parties.