M/s. S.S. Construction Co. vs Gammon India Limited

This Company petition is filed by M/s. S.S. Construction Co., a Sole Proprietary Concern through its Sole Proprietor Mr. Subal Sasmal (hereinafter referred to as "Operational Creditor") seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Gammon India Limited (hereinafter referred to as "Corporate Debtor") under Section 9 of the Insolvency and Bankruptcy code, 2016 (hereinafter called "Code") read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Company Petition was filed on 11.04.2017 claiming an amount to be in default of Rs.44,86,124/- (Rupees Fourty Four Lakhs, Eighty-Six Thousand, One Hundred and Twenty-Four Only) as on 08/11/2015 and interest computed at the rate of 18% p.a. from 08/11/2015 to 07/06/2017 coming to INR 12,78,545/-, thereby aggregating the claim to INR 57,64,669/- (Rupees Fifty-Seven Lakhs, Sixty-Four Thousand, Six Hundred and Sixty-Nine Only).

The details of the transactions leading to the filing of this Application as averred by the Operational Creditor in the application are as follows:

a. The Operational Creditor had issued a Notice u/s 8 of the Code. However, the same was not in Form 3 as required under Rule 5(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Also, no invoices were attached to the Demand Notice, which is again a mandatory requirement under Form 4. The Operational Creditor has not specified in the Notice the Form under which it is being issued. Further, the Operational Creditor has failed to mention the details of transaction on account of which the debt fell due, the date on which the default occurred and the workings for computation of default in tabular form which is required under Rule 5(1)(a) of the above-mentioned rules. In view thereof, the pre-requisite for filing the above Application u/s 9 of the Code cannot be said to have been complied with by the Applicant and therefore, the Application is not maintainable in law and deserves to be rejected on this ground alone.

b. The Operational Creditor has not annexed any invoice issued against the Work Orders to substantiate his claim and also failed to show that the debt is due and subsisting. The Operational Creditor has also not specified in the Application, the date on which the debt fell due. In the absence of these details, there is nothing on record, save and except the mere statements in regard to the alleged claim, to substantiate the claim of the Operational Creditor against the Corporate Debtor. Hence, the instant Application deserves to be dismissed with cost.

c. The Operational Creditor has placed reliance only on undated letter as an alleged proof of admission of liability by the Corporate Debtor. The Corporate Debtor submits that the said undated letter cannot be said to be a conclusive proof of admission of liability as it is unclear and ambiguous since it is undated and also it is subject to the condition that the said letter is subject to the clearance of the Stores, Head Office and Audit Department. The Operational Creditor has failed to show that the aforesaid condition has been fulfilled. Hence, the said undated letter cannot be relied upon. Also, oral evidence needs to be adduced to prove the details of the execution of undated letter. As the proceedings before the Adjudicating Authority are summary in nature, the present application requiring the proof of execution of document by way of oral evidence is not maintainable. The contract of the Corporate Debtor was terminated on 13^th July, 2015 and no contractual work was carried out by the Corporate Debtor beyond 13^th July, 2015. It is surprising that the undated letter mentions the work done as on 29^th September, 2015, which is beyond the date of termination when no contract work was carried out. This, therefore, creates a doubt in respect of the genuineness of the undated letter and requires extraneous evidence to prove the same.

d. The Corporate Debtor has denied that the alleged undated letter has been issued by it to the Operational Creditor. The Corporate Debtor also denies that it has admitted an amount of INR 22,12,667/- towards running account bill and INR 23,23,457/- towards the retention amount as alleged. There was no specific clause in the Agreement which attracts interest on delayed payment. Therefore, the averment on levying the interest and issuing debit notes is wholly illegal and therefore, the same cannot constitute debt under the Code. The Corporate Debtor has prayed for the dismissal of the petition.

a. The Operational Creditor in his rejoinder has stated that the Demand Notice sent to the Corporate Debtor contains all the materials as required in law and form is mere directory. Further, it is well settled that the Courts/Tribunal should be known for doing justice and not for discarding any Application/Proceedings on the grounds of technicality. The Corporate Debtor is merely raising technical objections to avoid the consequences of CIRP. At no point of time when the notice was sent to and received by the Corporate Debtor, the debt has been denied or disputed.

b. Since the documents of the Operational Creditor pertaining to the transactions with the Corporate Debtor were washed away in floods in Chennai in the year 2015, the Operational Creditor has relied upon the Balance Confirmation letter issued by the Corporate Debtor admitting its liability.

c. The contention raised by the Corporate Debtor that the confirmation letter was issued subject to the clearance of the Stores, Head Office and Audit Department of the Corporate Debtor is an afterthought and further, till date, no evidence is produced by the Corporate Debtor to refute the claim of the Operational Creditor, which speaks volume and shows the malafide intent of the Corporate Debtor.

We have heard the learned counsel for both the parties and have perused the material available on record.

The Counsel for the Operational Creditor has submitted that the Corporate Debtor has committed a default of Rs.44,86,124/- (Rupees Fourty Four Lakhs, Eighty-Six Thousand, One Hundred and Twenty-Four Only) in respect of the invoices raised against the Work Orders for the work done by the Operational Creditor of supplying the labour force to the Corporate Debtor for its Chennai Metro Rail Project. In order to prove the existence of operational debt due and payable by the Corporate Debtor, the Counsel for the Operational Creditor has drawn our attention to the Balance Confirmation (annexed as Annexure ‘II’ to the Petition) allegedly issued by the Corporate Debtor admitting its liability of INR 22,12,667/- towards the R.A. bill and INR 23,23,457/- towards the Retention Money in respect of the work done by the Operational Creditor as on 29.09.2015 at Chennai Metro Rail Project.

On the other hand, the Corporate Debtor has vehemently denied the above-stated balance confirmation in toto and has doubted its genuineness on two grounds namely:

On perusal of the Balance Confirmation Letter annexed at Annexure ‘II’ to the Application, we find that it is undated and the said Balance Confirmation is subject to the Stores & HO, CCU clearance, as stated therein. Even if the Balance Confirmation is taken into consideration, it indicates that the liability of INR 45,36,124/- was acknowledged by the Corporate Debtor as on 29.09.2015. It is well settled that an acknowledgement, as per Sec.18 of the Limitation Act, 1963 has to be made within the prescribed period i.e. before the expiration of the limitation period prescribed under the Schedule to the Limitation Act. However, in this case, since the Operational Creditor has not placed on record any invoice, work order or any contract to prove the terms and conditions of payment and further as to when the operational debt became due, it would be an arduous task to ascertain as to exactly when the claim amount became due. In the absence of documents like invoices, etc., it is not at all established from the record produced by the Operational Creditor that there has been any operational debt becoming due within a period of three years preceding the Balance Confirmation letter as on 29.09.2015.

The Counsel for the Applicant/Petitioner has also drawn our attention to the payment of INR 50,000/- received by the Operational Creditor from the Corporate Debtor on 23.12.2015 to show that the debt was due and was within limitation. However, even the said payment does not help the cause of the Petitioner. A fresh period of limitation u/s 19 of the Limitation Act, 1963 is to be computed from the time when the payment was made provided that such payment was made before the expiration of the prescribed period (i.e. 3 years) by the person liable to pay the debt. As we are unable to ascertain from the records as to when the debt became due and payable, the acknowledgment by way of part payment of INR 50,000/- is hardly of any consequence to establish the existence of debt and further that the Petition is within time.

The Counsel for the Corporate Debtor has argued that no work order or invoice has been annexed by the Operational Creditor in his petition. In the rejoinder affidavit, the Operational Creditor had stated that there were heavy floods in Chennai during the year 2015 and almost all documents were washed away. Hence, no invoices or work orders could be brought on record and the Operational Creditor has solely relied upon the Balance Confirmation, as discussed above. In this regard, we find that the fact that the documents and records of the Operational Creditor in respect of the work done for the Corporate Debtor in Chennai were washed away in deluge was neither pleaded in the application except in the rejoinder. Further, the Operational Creditor has not brought any document on record to show that the documents were washed away in the floods. Hence, we are unable to accept this plea and the possibility of it being an afterthought cannot be ruled out.

We also find that the Demand Notice dated 08^th June, 2017 issued by the Operational Creditor to the Corporate Debtor u/s 8 of the Code is not in the prescribed Form 3 or Form 4. Under Rule 5(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, an Operational Creditor is required to deliver to the Corporate Debtor either a Demand Notice in Form 3 or a Copy of an Invoice attached with a notice in Form 4. After perusing the copy of Notice u/s 8 dated 08^th June, 2017 annexed at Annexure ‘IV’ to the Petition, we find that the said Notice has failed to substantially comply with the requirements of Form 3/Form 4 as required under Rule 5(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for the reasons that the said Notice does not give the details of transactions on account of which the debt fell due and the date from which such debt fell due. Further, as stated above, no invoice or work order has been annexed to the said Notice. Even the date on which the default had occurred has not been stated in the said Demand Notice. The same particulars are missing in the Petition at Part IV also. Therefore, we are of the considered view that the Demand Notice dated 08^th June, 2017 issued by the Operational Creditor to the Corporate Debtor u/s 8 of the Code is also defective and invalid and the present Application u/s 9 of the Code is liable to fail for want of a valid demand notice.

The Counsel for the Petitioner has relied upon the decision of Hon’ble NCLT Chennai in Order dated 21.04.2017 in the matter of M/s. Alcon Laboratories (India) Private Limited v/s M/s. Vasan Health Care Private Limited in CA/1/IB/2017. In the above-referred matter, the Hon’ble NCLT had held, inter-alia, as

As a result of above discussions, we hold that the Petitioner has failed to establish the existence of operational debt and its default by the Corporate Debtor and further that the petition is filed within limitation. Therefore, this Petition fails and is hereby dismissed with no order as to costs.