In The Matter Of Southern Power Distribution Company Of Andhra Pradesh Ltd

This is an application under section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) by the Operational Creditor seeking Corporate

Insolvency Resolution Process (CIRP) against the Respondent alleging default in payment of an operational debt.

The Petitioner Company is a producer and supplier of Iron Pipes and Valves etc. The Respondent, a Power Distribution Company, issued a

purchase order under contract No. 5100001064 dated 29.06.2012 for supply of 25,000 Cl Earth Pipes along with bolts and nuts to be supplied between

31.07.2012 and 30.04.2013. The Petitioner supplied the materials between 07.09.2012 and 17.04.2013 and raised periodical invoices respectively as

and when the materials were supplied. The Respondent honoured the invoices by withholding performance security of 10% aggregating to Rs.

58,34,349/-. The amount however, was not paid. The Respondent ultimately under its proceeding dated 27.06.2016 refused to make the payment and

forfeited the same. The Petitioner issued the notice dated 23.03.2019 under section 8 of the Code demanding payment of outstanding dues. The notice

was delivered to the Respondent on 30.03.2019. The Respondent did not furnish any reply thereto. The Petitioner accordingly came up with the

present petition on 14.06.2019 before the NCLT Hyderabad Bench. It was transferred to this Bench upon is establishment.

The Respondent after being noticed appeared and contested the claim by filing a counter. It is contended that the petition is not maintainable. The

amount claimed is neither due nor payable. It is further submitted that the Petitioner has agreed to supply 25,000 Cl Earth Pipes with given

specifications as per the purchase order dated 29.06.2012 valid till 30.10.2014. The Petitioner under purchase order 510001820/13-14 dated

18.06.2013 had also agreed to supply 9.000 nos. of Cl Earth Pipes. The Petitioner was supposed to deliver the pipes at the destination specified in the

purchase order. As per the terms of the purchase order the Respondent was authorised to withhold 10 per cent of the bill amounts raised by the

Petitioner towards retention charges to be paid after two years of the conclusion of the contract period. During October, 2015 it came to light that the

Petitioner in collusion with some officials of the Respondent had raised a false bill against supply of 1000 nos. Pipes without actually delivering at the

destination Store. On enquiry it was unearthed that the Assistant Divisional Engineer, District Stores at Gunadala, Vijayawada of the Respondent had

colluded with the Petitioner in covering up the non-supply of 1000 Pipes out of the 9000 agreed upon. A show-cause notice was issued. The Petitioner

in its reply dated 14.11.2015 admitted the misfeasance by one of its employees and pleaded against any coercive measures. Accordingly the

Respondent by its proceeding dated 27.06.2016 forfeited the retention charges of both the contracts/purchase orders and blacklisted the Petitioner.

The Petitioner having not taken any steps to revoke the order, a proceedings under section 9 of the Code would not be maintainable. The Respondent

following due procedure under the contract had forfeited the amount due. Thus the amount would not come within the ambit of an operational debt.

The petition is liable to be rejected.

The Petitioner in its rejoinder decried the averments made in the counter. It is submitted that the retention amount of 10% was supposed to be

released in April, 2015. Withholding the same was in clear violation of the terms and conditions of the purchase order dated 29.06.2012. The show

cause notice of non-supply of 1000 Pipes had no nexus with the extant purchase order. The same being unrelated to the present claim, the petition

under section 9 of the IBC could not be held to be premature. The withholding/forfeiting of the claim amount of Rs.58,34,349/- was unilateral, arbitrary

and without any justification.

Basing on the rival pleadings the following issues emerge for consideration.

I. Whether Company Petition is maintainable?

II. Whether the Respondent owed an operational debt to the Petitioner?

III. Whether the said debt is due and payable?

IV. To what relief the Petitioner is entitled?

Issue Nos. II & III:

Both the issues being interlinked and vital for the decision on the Petition are taken up together earlier to the rest. The Petitioner entered into a

contract with the Respondent for supply of 25,000 Cl Pipes as per purchase order dated 29.06.2012. As invoices appended to the Petition would

indicate, the materials were supplied and delivered between 07.09.2012 and 17.04.2013 at the District Stores of the Respondent at different locations.

The Respondent made the payments against the invoices and kept the retention amount of 10% aggregating to Rs.58,34,349/-. There is no material on

record nor is there any pleading that he materials agreed to be supplied under the purchase order dated 29.06.2012 /ere not supplied. Rather the

invoices would indicate that the contracted materials were duly supplied. No dispute has at any time been raised as to their quality as well. The

payment terms of the purchase order indicated that 100% payment would be made by Bank Transfer on or before 30 days from the date of delivery

of materials at the destination stores or after submissions of bills in full shape whichever is later, subject to furnishing performance security to the

extent of 10% of the contract price covering a period of 6 months over and above the period of performance guarantee against defective supplies.

The contract dated 29.06.2012, however, doesn't specify as to the period for which the retention amount of 10% shall be withheld. It is pleaded by the

Respondent and admitted by the Petitioner that the performance security amount could be retained for a period of 2 (two) years. The supplies were

made between 07.09.2012 and 17.04.2013. Therefore, the retention amount could latest be released by 16.04.2015. The Respondent by its order dated

27.06.2016 forfeited the 10% retention amount. The relevant portion of the order may profitably be quoted.

“Under the circumstances explained by the firm M/s. R.S. Valve & Products, Secunderabad and APSPDCL is constrained to black list the firm

M/s. R.S. Valve & Products, Secunderabad for a period of 2 years i.e. from 27.06.2016 to 26.06.2018.

Further the amount available with APSPDCL towards 10% retention amounts of Rs. 17,61,940/- against this purchase order and also Rs. 57,64,950/-

against P.O. No. 5100001064/12-13, dt: 29.06.2012 is hereby forfeited.â€​

Admittedly the shortfall of 1000 Cl Pipes related to the purchase order No. 510001820 dated 18.06.2013 is distinct from the extant contract. The

Respondent accordingly could not have forfeited the retention amount relating to contract dated 29.06.2012. In addition, the Respondent did not issue

any reply to the notice under section 8 of the Code received by it on 30.03.2019. The Respondent accordingly owed an operational debt to Rs.

58,34,349/-, i.e. 10% of the value of the goods supplied by the Petitioner. Issue no. II is answered in the affirmative.

As already indicated the amount debt to the tune of Rs. 58,34,349/- was due and payable at least by 16.04.2015. The present Application was made

on 14.06.2019 more than 4 years after the due date. The Hon'ble Supreme Court in the case of Gaurav Hargovindbhai Dave v. Asset Reconstruction

Company (India) Ltd. & Anr. (rendered on 18.09.2019 in Civil Appeal No. 4952 of 2019) observed that a petition under the Code being in the nature

an Application would fall within the residuary Article 137 of the Limitation Act under which the limitation for filing an Application is 3 years. The

Hon'ble Court held as follows.

“Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to

suits. The present case being an application which is filed under Section 7, would fall only within the residuary article 137. As rightly pointed out by

learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed under

Section 7 would clearly be time-barred. So far as Mr. Banerjee's reliance on para 7 of B.K. Educational Services Private Limited (supra), suffice it to

say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts

which are already time-barred.â€​

Considering the clear mandate of the Hon'ble Apex Court the present Application was required to be filed on or before 16.04.2018. The same

having not been filed within the prescribed period of limitation the amount claimed cannot be held to be payable on the date of the Petition. Issue no III

is the answered in the negative.

Issue Nos. I and IV:

In view of the forgoing findings the petition would not be maintainable in the present forum. The Petitioner accordingly would not be entitled to any

relief by this Authority under the Code. These issues are answered in the negative. Hence ordered.

ORDER

The Petition be and the same is rejected on contest. There would however be no order as to costs.