M/s Kalpataru Power Transmission Limited vs HSCC (India) Limited

PER: SH. L. N. GUPTA, MEMBER (T)

M/s Kalpataru Power Transmission Limited (on behalf of JMC Projects (India) Limited merged under Scheme of Amalgamation) (for brevity, the ‘Applicant’) has filed the present petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity, the ‘IBC 2016’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against HSCC (India) Limited (for brevity, the ‘Respondent’).

The Respondent namely, HSCC (India) Limited is a Company incorporated on 30.03.1983 with CIN U74140DL1983GOI015459 under the provisions of the Companies Act, 1956 having its Registered Office at 205, 2^nd Floor, East End Plaza, LSC, Centre – II, Vasundhara Enclave, New Delhi – 110096, which is within the territorial jurisdiction of this Tribunal. The Authorized Share Capital of the Respondent is Rs.5,00,00,000/- and the Paid-up Share Capital of the Company is Rs.1,80,01,400/- as per Master Data.

It is submitted by the Applicant that this application brings forth the mala fide, arbitrary, and unreasonable action of the Respondent of withholding a sum of Rs.17,53,95,858/- (in short, the ‘Operational Debt’) due and payable to the Applicant towards the certified Final Bill raised by the Applicant towards the successful construction and commissioning of “Kalpana Chawla Government Medical College” (in short, the ‘KCGMC’) & other associated works (in short, the ‘Project’) awarded to the Applicant by the Respondent vide Contract Agreement dated 09.01.2014 (in short, the ‘Project Contract’). The General Conditions of Contract, 2013 (in short, ‘GCC’), Special Conditions of Contract, 2013 (in short, ‘SCC’), and Notice inviting e-tenders dated 09.10.2013 formed inherent part of the Contract.

The Applicant has further submitted that in terms of the Project Contract, it successfully completed the Project, which is operational since 14.04.2017. The Project was handed over in May 2017 to the Respondent, which issued the Completion Certificate dated 27.06.2017. The Defect Liability Period of 12 (twelve) months expired in June 2018 and a further 03 months’ claim period for invoking and encashing the Performance Bank Guarantee in terms of the Clause 1(ii) of GCC expired in September 2018. The Performance Bank Guarantee and Retention Bank Guarantee furnished by the Applicant under the Project Contract have also lapsed with efflux of time on 16.02.2018 and 30.04.2018 respectively. It is pertinent to note that the Performance Bank Guarantee and the Retention Bank Guarantee and the further claim period expired without any renewal request from the Respondent even prior to the expiry of the Defect Liability Period. The retention money/Security Deposit in the sum of Rs.7,25,85,395/- was released on 21.08.2018.

After issuance of the completion certificate, the final bill was raised by the Applicant on 30.06.2017 for a sum of Rs.22,22,14,852.17/-. The outer limit of payment of the Final Bill expired on 30.12.2017 in terms of Clause 9 of the GCC. The Respondent, instead of making payment, made the Applicant revise the final bill dated 30.06.2017. As such the Applicant re-submitted a revised final bill dated 31.03.2018 (in short, ‘Final Bill’) for a sum of Rs.17,52,89,069/- on which the Final Bill was approved and certified for payment by the Respondent.

Notwithstanding extensive follow-up, the Respondent did not make the payment towards the Final Bill by 01.10.2018 in terms of Clause 9 of the GCC. Instead, the Respondent forwarded to the Applicant certain observations of a third-party consultant, Haryana Police Housing Corporation (in short, ‘HPHC’) that were sent to the Respondent by KCGMC for compliance even before the release of payment towards the Final Bill. Though the Applicant was contractually not obliged to make any compliance to any observations of the HPHC, however, having waited for a long time for the release of payment and having no other option, the Applicant was compelled to respond to the observations of the HPHC. Without prejudice to any right and contention, the Applicant responded to all the observations of the HPHC and also very fairly made some corrections in the certified Final Bill through its point-wise replies communicated to the Respondent vide its letter dated 01.03.2019. The Respondent accepted and adopted the point-wise replies of the Applicant to the observations of HPHC and communicated the same vide their letter dated 01.03.2019 to the KCGMC appending therewith a corrected copy of the Final Bill that already stood certified on 31.03.2018.

The particulars of the Operational Debt claimed by the Applicant including the total amount of default and the date of default are mentioned in Part IV of the application which, in full, is reproduced overleaf -

As per Part IV of the Application reproduced above, the Applicant has claimed the total outstanding debt of Rs.17,53,95,858/- and relied on 01.10.2018 as the date of default.

It is stated by the Applicant that it had sent a Demand Notice dated 08.05.2019 under Section 8 of IBC 2016 via Speed Post at the registered office of the Respondent, which was delivered to the Respondent on 11.05.2019. The Respondent filed the reply to the demand notice on 20.05.2019, and the same is averred in the affidavit filed under Section 9(3)(b) of IBC 2016.

On issuance of the notice, the Respondent filed its reply stating that -

The application under reply is arising out of the Agreement dated 09.01.2014 entered by and between Director, Kalpana Chawla Govt. Medical College, Karnal (‘KCGMC’/‘Employer’/‘Client’) represented by the respondent, and M/s JMC Projects (India) Ltd., as a contractor for the construction of Hospital, OPD, and other associated works of KCGMC. The respondent was acting as an agent of the disclosed principal viz. Director KCGMC. As such liability, if any, of payment to the Contractor cannot be fastened upon the Respondent.

It is an undisputed fact that in the Agreement, the Haryana Police Housing Corporation was appointed as a ‘Third Party Consultant’ by the employer for various quantity and quality control as well as supervision of the works on behalf of the employer, as such certification of the bill of the applicant was subject to the concurrence of the Third-Party Consultant. The Third-Party Consultant while doing scrutiny of the bills raised certain observations, which were duly communicated by the respondent to the applicant vide communication dated 26.04.2019. Till the date of the filing of the application, no response to the letter dated 26.04.2019 was received from the Applicant, as such the alleged money claimed in the Application cannot be termed as Debt and the respondent cannot be held liable for any such payments which are being termed as debts. Further, the respondent does not come under the purview of the definition of ‘Corporate Debtor’, and the amount being claimed as alleged debt is not an admitted liability.

It is specifically denied that the obligation to make the payment is of the Respondent. The Respondent is the ‘agency’ acting for and on behalf of a disclosed principal. It is submitted that the work belongs to the employer and in the agreement dated 09.01.2014 entered by and between Director KCGMC represented by HSSC (India) Ltd, and M/s JMC Projects (India) Ltd, it is the employer who covenants to pay the contractor (JMC) in consideration of the execution and completion of the works (Ref. clause no. 3 & 4 on page no. 104 and 105 of the application), the contract price or only such other sums as may become payable under the provisions of the contract at the times and in the manner prescribed by the contract/agreement. Hence, the obligation to pay to the Applicant is of the aforesaid Employer. The role of the Respondent under the aforesaid agreement was of the Consultant and not of the Employer.

It is specifically denied that the payment of the certified final bill has been illegally withheld by the respondent, as alleged. It is also denied that payments of other Contractors were also withheld by the respondent, as alleged. It is submitted that in the minutes of the meeting dated 13.03.2019, it is specifically admitted by the representative of the respondent that some agencies have already paid 75% payment of their R.A. and Final bills.

It is specifically denied that the Respondent is arbitrarily and mischievously using the letter dated 19.04.2019 of the Third-Party Consultant to withhold the legitimate payment of the Applicant. In this context, it is stated that unless the Final Bill is concurred by the Third-Party Consultant, the payment of the Final Bill cannot be due from the Employer.

As per the record, during the course of the hearing, on 21.08.2019, the Ld. Counsel appearing for the Respondent Mr. Saurabh Mishra stated that “the demand raised by the petitioner shall be paid as conveyed in the letter dated 07.08.2019”. The order of this Adjudicating Authority dated 21.08.2019 reads thus:

Since in the above-referred order, a reference has been made to the letter dated 07.08.2019, the said letter as available on the record, is reproduced overleaf:

During the course of the hearing on 15.09.2022, Ld. Sr. Counsel for the Applicant stated that on 05.09.2019, the Respondent had paid a sum of Rs.13,51,29,108/- to the Applicant, leaving a balance of Rs.4,02,66,750/- as an unpaid Operational debt. The fact of part payment was also confirmed by the Ld. Sr. Counsel appearing for the Respondent. The Applicant has also averred the same in its written submissions dated 19.12.2020.

Further, the Ld. Sr. Counsel appearing for the Applicant submitted that Ld. Counsel for the Respondent during the hearing on 21.08.2019 and 03.09.2019 admitted the amount of default and stated that the admitted amount shall be paid at the earliest. He further contended that the act of part payment is also an acknowledgment of liability. Per contra, Ld. Sr. Counsel for the Respondent stated that the admission vide order dated 03.09.2019, and part-payments thereto were made without prejudice of the merits of the controversy as evident from the order dated 03.09.2019.

In view of the subsequent events that happened during the pendency of the present application and as noted above, it is observed that a sum of Rs.4,02,66,750/- only is the remaining claim amount of the Applicant.

Thus, in a nutshell, during the course of hearings, the Ld. Sr. Counsel appearing for the Respondent raised the following defenses to seek dismissal of the present application -

of clause 3.17 of the Agreement dated 25.09.2012.

Per contra, the Applicant rebutted the abovesaid contentions stating the following –

It was contended by the Applicant that in view of the above, the Respondent had committed default.

During the course of the hearing, the Applicant M/s JMC Project (India) Limited vide IA-719/2023 prayed to change the name of the Applicant to “Kalpataru Power Transmission Limited” in view of the Scheme of Amalgamation approved by the NCLT, Ahmedabad Bench vide order dated 21.02.2022. The Applicant also filed the amended memo of parties, which was taken on record and the IA-719/2023 was allowed vide order dated 25.04.2023.

We heard the submissions of both parties and perused the documents placed on record, including the Written Submissions filed by them. We would like to examine the various defenses raised by the Respondent.

It has been contended by the Respondent that it does not fall under the definition of Corporate Debtor. At this stage, we refer to the definition of the term “Corporate Debtor” as given in Section 3(8) of the IBC 2016, which reads thus:

From the conjoint reading of both the aforesaid definitions, it can be inferred that a Company, which owes a debt to any person can be considered a Corporate Debtor. Therefore, we would like to examine whether the Respondent namely, M/s HSCC (India) Limited, which is a ‘Company’, owed any debt to the Applicant herein and is a Corporate Debtor. For this purpose, we refer to the relevant extracts of the Agreement dated 25.09.2012 and Annexure 1 thereto, which reads thus:

xxxx xxxx xxxx xxxx xxxx

On perusal of the above-referred extracts of the Agreement dated 25.09.2012 and Annexure 1 thereto, it emerges that the Employer (KCGMC) had engaged the Respondent (HSCC) to provide certain “services” which inter alia included the “services of Measurement of works and Payment”. Thus, for the purpose of measurement of works and payment, the Respondent was working as an extended limb of the Employer and hence, was liable to make the payment. Even otherwise, the Ld. Counsel for the Respondent during the hearing on 21.08.2019 and 03.09.2019 admitted the amount of default and stated that the admitted amount shall be paid at the earliest. As a matter of fact, during the pendency of the instant application, the Respondent (as already noted in para 12 above) made the payment of Rs.13,51,29,108/- to the Applicant, leaving a balance of Rs.4,02,66,750/- only. The fact of part-payment was also confirmed by the Ld. Sr. Counsel appearing for the Respondent. Hence, we find that the Respondent is blowing hot and cold at the same time. On the one hand, the Respondent was engaged for the services of making payment and it had been making payments, on the other, it is claiming to be not covered under the definition of Corporate Debtor since it has no liability to pay. However, in terms of the Agreement (ibid), we have no hesitation to infer that it was the Respondent who was liable to pay the dues of the Applicant, which makes it fall under the definition of Corporate Debtor.

It is further contended by the Respondent that no services were rendered by the Applicant to the Respondent and it was only acting as an ‘agent’ on behalf of KCGMC and it cannot be held liable for the non-payment. Further, all the bills were raised in the name of KCGMC only. Per Contra, it is argued by the Applicant that all the bills for the work/services rendered were certified by the Respondent and even the Work Completion Certificate dated 27.06.2017 was issued by the Respondent, which reads thus:

It is also the plea of the applicant that subsequently, the Director, KCGMC vide letter dated 21.01.2019 acknowledged that all the defects in the project were removed by the Applicant. The said letter reads thus:

Furthermore, from a perusal of the records, it is observed that Director KCGMC, vide letter dated 18.02.2019 addressed to the Respondent, released the funds of Rs. 21.87 Crore to the Respondent. The said letter reads thus:

Thus on the one hand, it is contended by the Respondent that no services were provided to it, on the other hand as we have noted earlier, the Respondent, while acting as PMC on behalf of the KCGMC certified the bills, issued the Completion Certificate of the Project dated 27.06.2017, and released the substantial payments (i.e., Rs.13,51,29,108/- as against the total outstanding debt of Rs.17,53,95,858/-) during the pendency of this petition. Hence, the Respondent cannot take the plea that it was not responsible for the payment of the unpaid amount. Further, it is noticed from the pleadings that the project was inaugurated on 14.04.2017 and is stated to be operational since then.

Even otherwise as noted above, the Respondent was acting an extended limb on behalf of KCGMC/ Employer for the purpose of measurement of sheets, making of payments etc. and was also responsible for certifying bills. Since the bills were certified by the Respondent and part payments were made by the respondent, it won't be wrong to say that the Respondent was providing services to the Applicant as well on behalf of KCGMC. At this juncture, we refer to the Judgement of the Hon’ble Supreme Court in the matter of “M/s Consolidated Construction Consortium Limited vs. M/s Hitro Energy Solutions Private Limited” in Civil Appeal No 2839 of 2020 dated 04.02.2022, (2022) ibclaw.in 09 SC, wherein the following was held:

In terms of the Judgement (supra), the operative requirement of an Operational Debt is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver. Since the Respondent in terms of the Agreement dated 25.09.2012 and Annexure 1 thereto, was supplying “services of Measurement of works and Payment” to the Applicant as well, evidently there is a nexus between the services rendered by the Respondent and the debt claimed by the Applicant. Hence, the plea raised by the Respondent that no services were provided by the Applicant to the Respondent, will not help the case of the Respondent.

Further, we refer to Section 233 of the Indian Contract Act 1873, which reads thus:

Thus, in terms of the aforesaid legal provision, since the Respondent being the PMC/Agent of the principal liable for making the payments, the Applicant can hold either the HSCC or the principal KCGMC or both of them, liable. Thus, it is clear that the liability of the Respondent/Agent, who in the present case was PMC and personally responsible for making the payments, co-exists with the principal. Indubitably, every transaction has two parts i.e., (a) providing of goods/services, and (b) payment towards the same. Thus, the transaction could not have been completed without the involvement of the Respondent/agent. Hence, in our considered view, the Respondent was liable for making the payments and the non-issuance of invoices in its name will not help the case of the Respondent.

During the hearing, it was also contended by the Respondent that it had initiated Arbitration Proceedings against the Applicant which reflects that there is a dispute between the parties. Per Contra, the Applicant had contended that the Arbitration Proceedings are initiated subsequent to the issuance of the demand notice, and even after filing of the present Section 9 Application, therefore, the same cannot be construed as a pre-existing dispute between the parties. At this stage, we refer to the Notice of the said Arbitration Proceedings, as placed on record, which reads thus:

From the notice (ibid), it is evident that the Arbitration proceedings in the instant case were initiated by the Respondent in September 2022, whereas the Demand Notice under Section 8 of IBC 2016 was issued by the Applicant to the Respondent on 08.05.2019. At this juncture, we refer to Section 8(2)(a) of IBC 2016, which reads thus:

On perusal of the aforesaid provision, it is observed that the corporate debtor is required to bring to the notice of the Operational Creditor, the existence of a dispute or record of the pendency of the suit or Arbitration proceeding filed prior to the receipt of the Demand Notice. Since in the instant case, the Arbitration Proceeding is resorted to (in September 2022) subsequent to the issue of the demand notice (i.e., 08.05.2019) and even after filing of the present Section 9 Application on 27.05.2019, the same cannot be considered to demonstrate a pre-existing dispute between the parties.

The Respondent further contended in its Written Submissions dated 16.08.2022 that there was a pre-existing dispute between the parties as evidenced by the communications dated 02.05.2019 and 14.05.2019. The relevant extracts of the written submissions filed by the Respondent are reproduced below:

In terms of the aforesaid submissions, the Respondent has contended that there is controversy regarding certain items, for which the amount has been withheld/ not released to the Applicant. When we sum up all these amounts under controversy reflected through the aforesaid tables, it comes to Rs. 3,32,75,416/-, whereas the amount of the outstanding claim of the Applicant is Rs.4,02,66,750/.

In order to examine the aforesaid contention of the Respondent, we would like to refer to the letters dated 02.05.2019 and 14.05.2019, which are reproduced below, for the immediate reference:

From the aforesaid letters, it is noticed that the communication dated 02.05.2019 was sent by the Director KCGMC to DGM, HSCC (India) Limited asking for certain documents/ information, which DGM (Civil) HSCC, in turn, forwarded vide communication dated 14.05.2019 to the Respondent/HSCC for compliance.

However, on perusal of the record of CA-1824/2019, which was an application filed by the Applicant seeking to place additional documents on record, it is noticed that post emails of 02.05.2019 and 14.05.2019, the Director of KCGMC vide their letter dated 07.08.2019 to Sr. CGM HSCC India Limited/Respondent conveyed that it had no objection to releasing the payment to JMC. Further, it is also seen that the Respondent being the PMC was responsible for the release of the payments.

In view of the subsequent communications dated 07.08.2019 of the Director, KCGMC in response to the letter of the HSCC (India) Limited/Respondent dated 30.07.2019 (which is reproduced in para 11 of this order), we see no plausible contention which requires further investigation.

Further, for the argument’s sake, even if we assume that there was a controversy with respect to the amounts of Rs.3,32,75,416/-, then also the amount for which no pre-existing dispute is pleaded by the Respondent is above the minimum threshold amount of Rs 1 lakh (the present application being filed on 27.05.2019). It is the settled law that this Adjudicating Authority is not required to calculate the quantum of debt due and the moment it is satisfied that the amount of the unpaid operational debt for which no genuine pre-existing dispute is raised is above the minimum threshold limit prescribed under section 4 of IBC 2016, it is bound to admit the application. Hence, we find no merit in the contention raised by the Respondent on account of the pre-existing disputes.

In the sequel to the aforesaid discussion and findings, the Operational Creditor has succeeded in establishing the default on the part of the Corporate Debtor in payments of the operational debt. The present petition, filed under Section 9, being complete and fulfilling all the requirements of the law, is admitted in terms of Section 9(5) of the IBC 2016. Accordingly, the CIRP is initiated and a Moratorium is declared in terms of Section 14 of the Code. As a necessary consequence of the Moratorium in terms of Section 14(1) (a), (b), (c) & (d), the following prohibitions are imposed:

Since there is no IRP proposed by the Operational Creditor, therefore, this Bench appoints Mr. Atul Mittal (Mob. No. 9871830777) having IBBI Registration No. IBBI/IPA-001/IP-P00439/2017-18/10762 and Email ID: [email protected] from the panel of IPs recommended by IBBI to this Adjudicating Authority subject to the condition that there is no disciplinary proceeding pending against the said IRP. The Adjudicating Authority further orders that:

The Operational Creditor is directed to deposit Rs.5,00,000/- (Five Lakhs) only with the IRP to meet the immediate expenses. The amount, however, will be subject to adjustment by the Committee of Creditors as accounted by the Interim Resolution Professional and shall be paid back to the Operational Creditor.

A copy of this Order shall immediately be communicated to the Operational Creditor, the Corporate Debtor, and the IRP mentioned above by the Court officer/Registry of this Tribunal. In addition, a copy of the Order shall also be forwarded by the Court Officer/Registry to IBBI for their records.