M/s Surya Day Private Limited vs M/s Sunrun Solar Ventures (UP) Pvt. Ltd.

The present Application was filed on 20.02.2019 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as “the Code/IBC”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred as “the Rules”) by M/s Surya Day private Limited (hereinafter referred as "Applicant/Operational Creditor") to initiate the Corporate Insolvency Resolution Process (hereinafter referred as "CIRP") against M/s Sunrun Solar Ventures (UP) Pvt. Ltd.(hereinafter referred as "Corporate Debtor") due to its failure to pay the total outstanding operational debt of Rs. 1, 68, 00,000/- (Rupees One Crore and Eight Lakh) being the principal amount. In addition to above amount, interest of Rs.13,57,808/- (Rupees Thirteen Lakh Fifty Seven Thousand Eight Hundred and Eight Only) has also been taken into account till 17/10/[email protected]% per annum for arriving at the total outstanding debt. The Applicant has sought following reliefs: -

As stated in the Application, the Operational Creditor is engaged in the business of design, procurement, installation, construction and maintenance of solar power projects. Whereas the Corporate Debtor is engaged in the business of supplying solar power to customers.

In 2017, the Corporate Debtor approached the Operational Creditor and informed that it had entered into a Power Purchase Agreement with M/s Lucknow Metro Rail Corporation (hereinafter referred to as “LMRC”) for the development of a 1000 kwp Solar Power PV Project at the Lucknow Metro Rail Depot, Transport Nagar, Lucknow.

Pursuant to the said Agreement, the Corporate Debtor expressed its intention to engage the Operational Creditor for carrying out the engineering, procurement, construction, testing, and commissioning works, including designing, execution, and commissioning of the solar power plant of 1000 kWp capacity at the aforesaid location.

Upon reviewing the scope of work specified for the LMRC project, as detailed in Schedule 1 of the EPC Contract and based on the disclosures made by the Corporate Debtor, the Operational Creditor entered into an “Engineering, Procurement and Construction Contract” (hereinafter referred to as “EPC Contract”) with the Corporate Debtor on 29.11.2017. Copy of the EPC has been annexed as Annexure 2 with the Application.

As per the terms of the EPC Contract, the Operational Creditor initiated the work during January 2018, under intimation to the Corporate Debtor. Amongst the other agreed terms of work to be done, the Corporate Debtor and Operational Creditor had also agreed that Corporate Debtor would adhere to the payment obligations as provided under Schedule 2 of the said EPC and the same is reproduced below:

The Corporate Debtor informed the Operational Creditor that it was in the process of securing a loan from the Indian Renewable Energy Development Agency (herein after referred to as “IREDA”). The Corporate Debtor urged the Operational Creditor to hasten the delivery of materials, as the LMRC had set a project completion deadline of 16.3.2018, communicated vide letter dated 29.12.2017. Consequently, despite the Corporate Debtor's failure to adhere to the agreed payment schedule, the Operational Creditor agreed to continue the work to support the Corporate Debtor's interests. A copy of letter sent by LMRC to the Corporate Debtor dated 29.12.2017 has been annexed as Annexure 3 with the Application.

It is submitted in the said letter that the Operational Creditor completed the project within the deadlines set by the LMRC for the Corporate Debtor and in accordance with the EPC Contract timelines, despite receiving delayed payments from the Corporate Debtor. The Operational Creditor further mentioned in the said letter that according to their information, the Corporate Debtor has already claimed a subsidy from LMRC for the project, which was to be disbursed only after the project's commissioning, as stated in LMRC's letter dated 29.12.2017. It is further stated by the Operational Creditor that reliable sources indicate that the Corporate Debtor is continuously billing LMRC for solar power supplied from the Solar Power PV System, thereby profiting at the expense of the Operational Creditor. Therefore, as contended by the Operational Creditor that this suggests that the Solar Power PV System is fully commissioned, and the Corporate Debtor is unjustifiably withholding payment to the Operational Creditor. The Operational Creditor pointed out that it rendered the agreed supply and services successfully in accordance with the EPC Contract and raised invoices accordingly. Said invoices had been sent both in hard copy as well as via electronic means to the Corporate Debtor. Details of invoice raised by the Operational Creditor are given in tabular form as below :-

With regard to the payment, the Operational Creditor has submitted that the Corporate Debtor has paid only Rs.3,82,00,000/- (Rupees Three Crore Eighty Two Lakh only) against the above mentioned invoice raised. Despite the repeated reminder, the Corporate Debtor has failed to pay the remaining amount. A Copy of invoice dated 31.03.2018 and Copy of bank statement of ICICI Bank, Senior Mall Sector 18 Branch, situated at K-1, Senior Mall, Sector 18, Noida UP- 201301, depicting the payment received till 13.02.2018 from the Corporate Debtor along with the Copy of the ledger of Corporate Debtor maintained by the Operational Creditor from 01.04.2017 to 20.09.2018 have been annexed as Annexure 4, Annexure 5 and Annexure 6 respectively with the Application.

The Operational Creditor further pointed out that EPC Contract explicitly stipulates that payments must be made according to the agreed terms. However, the Corporate Debtor has consistently failed to comply with these terms of the EPC contract. The Operational Creditor fulfilled its obligations by providing the agreed supplies and services, and the project's commissioning was verified by the final customer, i.e LMRC. As per the Operational Creditor, despite fulfilling all the terms and doing the work as per the EPC contract, the Corporate Debtor repeatedly defaulted on making payments as per the agreed schedule.

As further stated by the Operational Creditor that on 23.05.2018 the Corporate Debtor raised concerns about the performance of the Solar PV Power Plant. Nevertheless, despite the outstanding payments, the Operational Creditor, recognizing the public interest involved, completed the assigned work by investing additional funds from its own resources. On the same day, i.e 23.05.2018, the Operational Creditor sent emails to the Corporate Debtor confirming that the LMRC solar plant was fully operationalised. Additionally, vide an email dated 11.6.2018, the Operational Creditor reiterated the project's completion and urged the Corporate Debtor to settle the outstanding payments, enabling the Operational Creditor to clear dues owed to its vendors for materials purchased to execute the services and supplies required under the EPC Contract. A copy of mail dated 23.5.2018 sent by Corporate Debtor to Operational Creditor regarding concerns in performance of the Solar PV Power Plant and copy of email dated 23.05.2018 and 11.6.2018 sent by Operational Creditor detailing the completion of work and requesting the Corporate Debtor to pay the outstanding payment have been annexed as Annexure 7 and Annexure 8 respectively with the Application.

Despite repeated emails dated June 15, 2018; June 18, 2018; May 10, 2018; July 11, 2018; July 13, 2018; and July 16, 2018 sent by the Operational Creditor to the Corporate Debtor urging payment of the outstanding dues, the Corporate Debtor responded to only a handful of these emails. In those replies, as submitted by the Operational Creditor, objections raised by the Corporate Debtor regarding the quality of work performed by the Operational Creditor were baseless, not supported by any substantive evidence. Copy of reminder email dated 10.05.2018, 15.06.2018,18.06.2018, 11.07.2018 and 13.07.2018 and 16.07.2018 have been annexed as Annexure 9 (Colly) with the present petition under consideration.

As per the Operational Creditor, the Corporate Debtor according to the Payment Schedule explicitly agreed to release payments to the Operational Creditor upon achieving specific milestones. As outlined in Schedule-2 of the EPC Contract, 95% of the total payment was due upon completion of the supply, with the remaining 5% payable upon project commissioning. However, the Corporate Debtor has paid only 66% (approx.) of the total contract amount. Despite this default in adhering to the payment schedule, the Operational Creditor supported the Corporate Debtor during the period when delays occurred in getting funds by it from IREDA. This demonstrate that the Corporate Debtor has acted in bad faith by failing to clear the outstanding balance.

All supplies under the contract were completed before 16.03.2018, and the project was commissioned on that date, entitling the Operational Creditor to receive 100% of the payment as per Clause 12 and Schedule 2 of the EPC Contract. the Corporate Debtor has never raised any issues regarding incomplete supplies. Despite this payment clause as per which, it was obligated to pay 95% of the EPC Contract Value upon supply completion, the Corporate Debtor only paid approximately 69.46% of the Contract Value. This demonstrates that the Corporate Debtor has deliberately withheld the payment to the Operational Creditor due for the completed supply of materials under the contract.

Due to failure of the Corporate Debor to pay the outstanding amount, the Operational Creditor issued demand notice dated 22.10.2018 under Section 8 of the Code through its advocate to the Corporate Debtor calling upon it to make the payment of outstanding dues of supply and services amounting to Rs.1,68,00,000/-(Rupees One Crore and Sixty Eight Lakh Only)/- along with interest calculated @14.75% p.a. i.e. Rs.13,57,808/- (Rupees Thirteen Lakh Fifty Seven Thousand Eight Hundred and Eight Only)/- however, the Corporate Debtor failed to repay the amount due to the Operational Creditor. A Copy of the demand notice issued on 22.10.2018 by Operational Creditor through its advocate has been annexed as Annexure 10 with the Application.

The said notice was sent to the Corporate Debtor by speed post, which was delivered to him on 27.10.2018. A copy of postal receipt and the tracking report about the status of the notice sent to the Corporate Debtor and directors of Corporate Debtor have been annexed as Annexure 11 (Colly) with the present Application.

The Corporate Debtor neither replied to the said demand Notice nor made any payment towards the unpaid operational debt. The Operational Creditor filed its bank statement from 14.02.2018 till 31.12.2018 of the account maintained with ICICI Bank Senior Mall Sector 18 Branch, situated at K-1, Senior Mall, Sector 18, Noida UP- 201301 confirming that there is no payment received for the unpaid operational debt from 14.02.2018 till 31.12.2018 from the Corporate Debtor. Copy of bank statement has been annexed as Annexure 12 with the present Application.

The Corporate Debtor has failed and neglected to pay the said admitted sum of Rs.1,68,00,000/- along with interest of Rs.13,57,808/- computed till 17.10.2018 @14.75% per annum or any portion thereof, and therefore the present application under section 9 of the Code has been filed, for initiating CIRP against the Corporate Debtor.

In response to the instant application, the Corporate Debtor has filed its reply denying the contents of the applications and submitting that the application deserves to be dismissed on preliminary objections raised itself and also filed para-wise reply to the application as discussed below.

The Applicant Operational Creditor has filed Rejoinder dated 14.8.2019 in response to the objections filed by the Corporate Debtor wherein the following averments have been made:-

The Applicant Operational Creditor has also filed Additional Affidavit in Rejoinder to the reply filed by the Corporate Debtor on 31.12.2020 wherein it is averred by the applicant that the Corporate Debtor has raised false allegations regarding pre-existing dispute. It is contended that the Corporate Debtor never served any notice of dispute to the applicant Operational Creditor prior to issuance of Section 8 demand notice. Now, the Corporate Debtor is raising the claim of a pre-existing dispute to evade its outstanding dues to the Operational Creditor/Applicant.

It is also contended by the applicant Operational Creditor that the veracity of the Corporate Debtor's claim in its reply dated 21.5.2019, regarding the non-commissioning of the solar power plant can be assessed by noting that the Corporate Debtor has been billing the Lucknow Metro Rail Corporation (LMRC) for electricity generated from the solar power plant installed by the applicant Operational Creditor at LMRC's depot in Lucknow, Uttar Pradesh. The Corporate Debtor has been benefiting from the expenditure incurred by the applicant Operational Creditor for the plant's installation without settling the lawful outstanding dues as per the agreed terms of the EPC contract. This is evident from the disclosure of revenue under the category "Revenue from Operations," amounting to Rs. 53,33,550/- as reported on page 9 of the Financial Statement for the year ending 31.03.2019.

Further, it is contended that one of the prerequisites for releasing payment by the Corporate Debtor for the services provided by the applicant Operational Creditor was the commissioning of the solar power plant. It is submitted that the Corporate Debtor has already received a subsidy from the Ministry of New and Renewable Energy (MNRE), as disclosed by the Corporate Debtor in its financial statement for the year ending on 31.03.2019, on page 12 under the heading "Reserve & Surplus" as Capital Reserve (Subsidy), amounting to Rs. 1,50,00,000/-. The authenticity of this figure is supported by its audit and certification by an independent chartered accountant, Seth & Associates. This fact inherently confirms the commissioning of the solar power plant, thereby refuting the Corporate Debtor's claim that the project has not been commissioned and that there were issues with the services provided by the applicant Operational Creditor. Copy of Financial statement for financial year ended on 31.03.2019 has been annexed as Annexure AR1 to this additional affidavit.

Based on the aforementioned facts, it is clear that the Corporate Debtor has failed to substantiate any pre-existing dispute prior to the demand notice issued under Section 8 of the Insolvency and Bankruptcy Code. The Corporate Debtor has raised baseless and frivolous arguments to evade its obligation to settle the outstanding dues, which do not qualify as pre-existing dispute. Therefore, the application may be admitted for admission.

CREDITOR

The Corporate Debtor has filed reply to the Additional Affidavit on 11.01.2021 wherein he has denied the allegations made in the Additional Affidavit and it is contended that the Corporate Debtor raised significant disputes through emails dated 08.11.2019, 08.2.2018, 28.2.2018, 23.3.2018, 13.4.2018, 23.5.2018, and 09.7.2018, asserting that no payment is due to the Operational Creditor due to incomplete work. These issues remained unresolved and are pending up to this day. Furthermore, it is alleged by the Corporate Debtor that the Operational Creditor’s workers in a grossly negligent and irresponsible manner, refused to complete the work and abandoned the construction site.

It is further submitted by the Corporate Debtor that as far as the issue regarding the Section 8 notice is concerned, the same has been settled by the Hon'ble NCLAT in its judgment dated 24.02.2020 in Neeraj Jain Vs Cloudwalker Streaming Technologies Private Limited. The Operational Creditor has failed to provide any material in support of the amount mentioned in the application and the Section 8 notice, which has been discussed exhaustively in the reply as well as the Written Submissions filed by the Corporate Debtor. Copy of the judgment of the Hon'ble NCLAT in Neeraj Jain Vs Cloudwalker Streaming Technologies Private Limited has been annexed as Annexure A with this Reply.

The Corporate Debtor has filed a reply to the affidavit filed by the Operational Creditor, which they have filed on the basis of a letter received from U.P. Metro Rail Corporation Limited (UPMRC Ltd.) to support its claim that the solar plant installed by it has been completed. In this reply, the Corporate Debtor refuted the claim of the Operational Creditor on the basis of further clarification obtained through RTI application from UPMRC Ltd.

The Corporate Debtor has denied all the allegations raised in the Affidavit filed by the Operational Creditor and submitted that according to the reply of the UPMRC Ltd. provided by the Applicant Operational Creditor, the full subsidy amount has not been released due to incomplete tasks, including the remote monitoring system, cable dressing, manual, and documentation. These details have been materially concealed by the Operational Creditor. Copy of RTI application dated 13th January 2021 and the reply dated 12.2.2021 by the UPMRC Ltd. in this regard have been annexed as Annexure - I and Annexure - II to this Reply filed by the Corporate Debtor in response to the affidavit dated 11.01.2021 filed by the Operational Creditor.

According to the reply of the UPMRC Ltd., the project beneficiary, the work at the site remains incomplete, resulting in the withholding of the full subsidy payment to the Corporate Debtor. The Corporate Debtor has consistently raised disputes with the Operational Creditor and strongly contests the alleged outstanding amount claimed by the Operational Creditor. The project’s incomplete status and its failure to operate at the full installed capacity of one megawatt are corroborated by UPMRC Ltd.’s own statements. Furthermore, the Operational Creditor has failed to provide a breakdown justifying the claimed amount of Rs. 4,30,50,000/-. It is an undisputed fact that the Corporate Debtor has already paid Rs. 3.82 crores.

It is furthermore submitted that the Operational Creditor never provided any additional invoices or quotations to the Corporate Debtor. The EPC contract specifies only a rate and does not represent the final contract price, as claimed by the Operational Creditor, especially since the plant is not operating at its agreed capacity. The Corporate Debtor has raised significant disputes in this regard, which are substantiated by the letter from the UPMRC Ltd. It is further submitted that the non-issuance of a completion certificate by UPMRC Ltd. demonstrates that the Corporate Debtor is bearing the financial burden of the incomplete work performed by the Operational Creditor, which is also adversely impacting its market reputation.

30.11.2021.

This Tribunal during the course of hearing held on 30.11.2021 sought query from the learned counsel whether payments were required to be made in terms of milestones for such projects or on any other consideration. In compliance of the same order, a supplementary affidavit dated 14.12.2021 has been filed making the following averments:-

a. That the solar power project was commissioned and in fact the Commercial Operations started on 14th March 2018 with installed capacity of 1MWp;

b. That Electrical Inspector certificate has been obtained evidencing commissioning of said project.

c. That payments under the solar power project are being done by UPMRC to the Corporate Debtor.

d. That subsidy has been received from Ministry of New & Renewable Energy for said solar power project.

OPERATIONAL CREDITOR ON 14.12.2021

The counter filed by the Corporate Debtor is as under: -

It is further argued that the Corporate Debtor way back in the month of February 2018 i.e. much prior to the date of notice, had raised its concern regarding the procurement of materials their prices and thereafter, continuous correspondences were made with the applicant Operational Creditor in the month of March, April, May and July 2018 all way before the date of notice regarding the quality of services provided by applicant which itself shows that the pre-existing dispute had already been raised by the Corporate Debtor. In this regard, e-mails dated 08.02.2018, 23.03.2018, 13.04.2018, 15.05.2018, 23.05.2018 and 09.07.2018 have been referred, copies of which have already been attached with the Reply filed in May 2019.

This Tribunal vide order dated 19.5.2023 while hearing the arguments was of the view that a flowchart detailing step by step implementation/completion of construction, execution and commissioning of 1000 kwp solar power plant at Lucknow Metro Rail Depot, Transport Nagar, Lucknow be filed by way of affidavit. In compliance of the said order dated 19.05.2023, the Operational Creditor filed an affidavit dated 01.07.2023 giving the details of date wise activities carried out by the Operational Creditor for completing the project and payments becoming due on completion of such activities totalling to the contract value of Rs. 5,50,00,000/- out of which, Rs. 3,82,00,000/- have already been paid by the Corporate Debtor. In response to the said Affidavit of the Operational Creditor, the Corporate Debtor filed a counter on 27.07.2023 pointing out again that no details of materials supplied have been given for arriving at the contract value of Rs. 5,50,00,000/- and even in the invoice dated 31.03.2018, no details of works executed and materials supplied have been given for the value of Rs. 4,30,50,000/- shown in the said invoice. It is also pointed out that on the basis of e-way bill supplied by the Operational Creditor, total amount of the material supplied comes to Rs. 3,27,00,000/- against which the Corporate Debtor has already paid Rs. 3,82,00,000/-.

During the course of hearing on 19.10.2023, the Ld. Counsel of the Applicant Operational Creditor sought time to place on record the specific scope of work based upon which the project was to be executed by the Operational Creditor on the work order given by the Corporate Debtor for the purpose of commissioning of the project at the site under the control of the Lucknow Metro Rail Corporation.

In compliance of the said order dated 19.10.2023, the Applicant Operational Creditor, M/s. Surya day Private Limited, has filed affidavit on 07.12.2023 wherein a copy of email dated 12.10.2017, sent by the representative of Operational Creditor to the engineer of LMRC, annexed as Annexure-2 and a copy of email dated 08.03.2018 along with attachments annexed as Annexure-3 has been placed on record.

It is stated that the EPC Contract stipulates the specific scope of work based upon which the project was to be executed by the Operational Creditor for the purpose of commissioning of the project. The scope of work is reproduced hereinbelow:

The EPC Contract fully outlines Operational Creditor 's scope of work, encompassing design, procurement, execution, and commissioning of the solar power plant. Upon successful commissioning on March 14, 2018, as acknowledged by the Lucknow Metro Rail Corporation (LMRC), Operational Creditor completed all its obligations under the contract, with no further responsibilities remaining.

The Applicant Operational Creditor submits that the Corporate Debtor is responsible for the operation and maintenance of the solar power plant for LMRC for a 25-year period. This includes regular repairs and operational adjustments to ensure optimal performance. Operational Creditor, being the contractor, has no role in these ongoing activities, as its involvement ended with the project's commissioning on 14.3.2018.

Subsequently, when the matter came up for hearing on 23.4.2024, this Tribunal directed both the Ld. Counsels representing the parties to place on record affidavit clarifying the value/cost of the item/equipment to be supplied and commissioned thereafter to make it fully operational under the contract executed inter se between the parties. The details of the value/ cost of the amount of contract and the percentage of the amount paid so far in terms of the total value of the contract within a period of two weeks.

The Applicant Operational Creditor has filed an affidavit on 18.07.2024 in compliance with the aforesaid order wherein it is stated that EPC Contract was based on the lump sum price contract and the value /cost of the item /equipment to be supplied and commissioned thereafter, is not explicitly stated in the EPC Contract. The model of the EPC Contract was lump sum price which covered supply of items and equipment, installation and commissioning without bifurcating the individual cost of components.

The Corporate Debtor has also filed an affidavit on 02.12.2024 wherein it has denied the allegations raised in aforesaid affidavit filed by the Operational Creditor and it has been specifically stated that there is no default in repayment of the amount due to the Operational Creditor. As per the Corporate Debtor, it has made an excess payment of Rs. 54,00,000 to the Operational Creditor. The Corporate Debtor raised concerns regarding quality of the services and procurement of supplies vide emails dated 8th Feb. 2018, 23rd March, 2018, 13th April 2018, 15^th May 2018, 23^rd May 2018 and 9th July 2018 which are on the record and have been annexed with the reply filed in May 2019.

Further, it is also submitted by the Corporate Debtor that it is stated in the instant application filed by the Applicant that an amount of Rs. 1,19,50,000/- is un invoiced which means that no invoices, whatsoever, was raised by the applicant for this amount. The Applicant issued only one invoice on 31.3.2018 of Rs. 4,30,50,000 to the Corporate Debtor without mentioning description of the materials and the Corporate Debtor already made an advance payment of Rs. 3,28,00,000/-.

Furthermore, it is also stated by the Corporate Debtor that for commissioning of the project, it had to procure the materials from the 3^rd parties which were the essential equipments as per the EPC contract and amounted to essential ingredient for measuring the cost. Copy these bills have been annexed as Annexure – 2 with this affidavit.

Written submissions have been filed by both the parties wherein they have made the same objections and contentions as mentioned in aforesaid paras of this order and therefore, the contents of the written submissions are not reiterated here for the sake of brevity.

We have heard the arguments of Learned Counsels appearing for both Applicant Financial Creditor and Respondent Corporate Debtor and perused the pleadings, records, written submissions and exhibits/annexures marked thereto in respect of the present application. On perusal of the records, exhibits/annexures and after considering arguments advanced by respective Learned Advocates, the issue which is before us to be decided in respect of the present Application is whether there is any pre-existing dispute in this case or not, which will be having any bearing on the admission of this Application for the purpose of initiation of CIRP against the Corporate Debtor.

It is vehemently argued by the Ld. Counsel for the applicant Operational Creditor that as per the Schedule -2 of the EPC Contract, 10% of total amount of contract of Rs. 5,50,00,000/-coming to Rs. 55,00,000 was to be paid in advance upon execution of PPA Agreement between the Corporate Debtor and UPMRC. The applicant Operational Creditor received only Rs. 53,00,000 in instalments by 15.11.2017.

Further, as per Schedule-2 of the EPC Contract, upon delivery of the Module Mounting Structure and other accessories by the Operational Creditor at the solar project site, the Respondent Corporate Debtor was under obligation to make a further payment of 10% of the agreed contract value of Rs. 5,50,00,000/-i.e., an amount of Rs. 55,00,000/. However, it received only sum of Rs. 50,00,000/- from the Corporate Debtor. Furthermore, upon delivery of modules, the Corporate Debtor was under an obligation to pay 60% of an agreed contract amount of Rs. 5,50,00,000/- coming to Rs. 3,30,00,000 but Corporate Debtor paid only Rs. 2,79,00,000/-. Upon delivery of inverters, the Corporate Debtor was required to make payment of Rs. 55,00,000 i.e. 10% of Rs. 5,50,00,000/- However, it failed to pay the said amount on due date. As submitted by the Operational Creditor, the supply of substantive materials at the Project Site was completed on 04.03.2018 by the Operational Creditor. However, the Corporate Debtor failed to make any payment upon delivery of the Inverters. Thus, out of the agreed amount of Rs. 5,50,00,000/-, an amount of Rs. 4,95,00,000/- (90% amount of total consideration) became due and payable but only Rs. 3,82,00,000/- was paid by the Corporate Debtor. Now, as the project has been commissioned and is fully operational as per the Operational Creditor, it has to be paid Rs. 5,50,00,000/-, the full contract amount but only Rs. 3,82,00,000/- has been paid so far, thus Rs. 1,68,00,000/- along with the applicable interest has become due and payable as operational debt to be paid to the Operational Creditor by the Corporate Debtor as it been shown in the Part IV filed by the Operation Creditor under section 9 application.

As submitted by the Operational Creditor, the Corporate Debtor has raised frivolous disputes in order to evade its liability under the EPC Contract. It is contended by the Operational Creditor that EPC Contract laid down the scope of work containing design, procurement, execution and commissioning of work according to which payment milestones were set out in Schedule-2 of the ECP Contract. It is further argued by the Ld. Counsel that the project was commissioned on 14.03.2018 as per the reply of RTI given by the UPMRC on 07.01.2021 in response to the RTI Application of the Applicant. The project was commissioned before the deadline i.e. 16.03.2018 stated by the UPMRC.

Therefore, in terms of the Schedule-2 of the EPC Contract, the Corporate Debtor was liable to pay the 100% amount as per the EPC Contract. Out of the 5,50,00,000/-, the Corporate Debtor had paid only, Rs. 3,82,00,000/- and has defaulted in payment of Rs. 1,68,00,000. In this regard, the Operational Creditor sent various emails dated 10.05.2018, 15.06.2018, 18.06.2018, 11.07.2018 and 13.07.2018 and 16.07.2018 demanding the payment of the outstanding amount.

In response to the emails sent by the Operational Creditor, the Corporate Debtor vide an email dated 23.05.2018 raised certain issues regarding the operation of the solar power plant which are reproduced below:-

Pertaining to issues raised in emails regarding the capacity of modules and operation of solar power plant, the Operational Creditor has averred that all these allegations regarding the functioning of the solar power plant or supply pending from Operational Creditor was raised at the time of meeting held to ensure meeting of the deadline of the project.

The Applicant Operational Creditor issued a Demand Notice dated 22.10.2018 in Form 3 under Rule 5 under Section 8 of the Code to the Respondent Corporate Debtor i.e M/s Suryarun Solar Venture (UP) Pvt. Ltd. Lucknow demanding a payment of the unpaid operational debt with total amount of Rs. 1, 68, 00,000/-outstanding due being the Principal amount and in addition interest of Rs.13,57,808/- till 17/10/2018 @14.75% per annum, within the period of ten days. Due to non-receipt of notice of dispute u/s 8(2)(a) from the Respondent Corporate Debtor and any payment towards the Operational Debt, the Applicant filed this application on 20-02-2019. Further, it is also argued by the Ld. Counsel representing the Applicant that there is no pre-existing dispute between the parties.

Countering the allegations of the applicant Operational Creditor, the Corporate Debtor pointed out that there is a pre-existing dispute in respect of the performance of the solar power plant and inadequate supply of materials relating to the work done by the Operational Creditor as raised by the Corporate Debtor before the Operational Creditor vide emails dated 08.2.2018, 23.5.2018, 13.4.2018, 15.5.2018, 03.7.2018 which are reproduced as below.

The contentions raised by both the parties regarding pre-existing dispute, it is relevant to mention here that once the Operational Creditor delivers a demand notice of unpaid operational debt, the Corporate Debtor is under an obligation to bring to the notice of the Operational Creditor any payment of unpaid operational debt (S.8 (2) (b)) or existence of dispute between the parties (S.8(2)(a)) within a period of 10 days of the receipt of notice or copy of invoice. In this case, no such notice of dispute has been raised by the Corporate Debtor.

However, a pre-existing dispute can be considered during Section 9 proceedings, even if not initially raised under Section 8(2)(a) but during the course of Section 9 proceeding, it is to be seen by the adjudicating authority that the dispute must be a genuine one that had arisen before the Section 8 demand notice was issued and its existence has to be only confirmed but not adjudicated upon its merits. The burden is on the Corporate Debtor to provide evidence to show that the dispute was genuine and pre-existing.

This position of law has been confirmed by the Hon’ble NCLAT in its decision in case of Greymatter Entertainment Private Limited vs Pro Sportify Private Ltd dated 09.02.2023 holding that even if the Corporate Debtor does not reply to the statutory demand notice u/s 8 issued by the Operational Creditor, it is not precluded from raising the question of pre-existing dispute or establishing by way of reply to the applicant under section 9 that there is a pre-existing dispute between the parties. The relevant part of this judgment is reproduced as under: -

It is further recently held by the Hon’ble NCLAT in the matter of Anil Kumar Seth v. Valplast Technologies Pvt. Ltd. and Anr., (2025) ibclaw.in 399 NCLAT that even if no reply is filed to notice issued under Section 8 of IBC, NCLT is obliged to look into the material produced before it by Corporate Debtor for proving that there was a pre-existing dispute between the parties before the issuance of demand notice. The relevant extract of the order is reproduced below: -

After considering the above position of law as laid down by the Hon’ble NCLAT in respect of examining the pre-existing dispute, we proceeded to examine the details of emails produced before us by the Corporate Debtor written to the Operational Creditor in respect of the deficiencies in the project work executed by the Operational Creditor to ascertain whether any pre-existing dispute genuinely existed or not in terms of the provision of the Code.

The dictum laid down in respect of ascertaining the existence of pre-existing dispute by the Hon’ble Supreme Court in the case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 has also been followed by Hon’ble NCLAT in catena of judgments wherein it is clearly held that the existence of the dispute must be pre-existing i.e., it must exist before the receipt of the demand notice under section 8. In the absence of any 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, the application cannot be rejected under section 9 on the ground of pre-existing dispute and is required to be admitted as per section 9(5)(i). Further, it is to be ensured that the said dispute should not rest on weak defences or just being a moonshine and unsupported by material evidence. An ‘Adjudicating Authority’ is to be subjectively satisfied that there exists a ‘Dispute’ and the same is not a frivolous or vexatious one while rejecting the section 9 application u/s 9(5)(ii).

In this case, we have found that before the issuance of demand notice by the Operational Creditor on 22.10.2018 which was delivered to the Corporate Debtor on 27.10.2018, several emails were exchanged between both the parties starting from February 2018 in respect of deficiencies in supply of materials and dispute over completion of the project and its successful commissioning by the Operational Creditor.

Due to such ongoing dispute between parties on the issue of deficiencies and satisfactory completion of the project as highlighted in the emails reproduced in aforesaid paras of this order, the Corporate Debtor withheld the payment of any further amount to the Operational Creditor after paying Rs. 3,82,00,000/- in advance. In order to release further amount, the Corporate Debtor demanded from the Operational Creditor the details of material procured and works executed and services rendered by way of raising of the invoices by the Operational Creditor for the full project work of Rs. 5,50,00,000/-. As vehemently argued by the Ld. Counsel of the Corporate Debtor, no such details of materials supplied and services rendered as per the EPC contract have been provided by the Operational Creditor despite being demanded repeatedly by the Corporate Debtor for making the balance payment after satisfying itself about the contractual project work having been executed to the full extent of Rs. 5,50,00,000/-. On insistence of the Corporate Debtor, when a partial invoice of Rs. 4,30,50,000/- was issued by the Operational Creditor on 31.03.2018, no such details of materials supplied and works executed have been mentioned therein and for balance amount of the contractual work of Rs. 1,19,50,000/-, no invoice so far has been issued.

In view of the above dispute between the Corporate Debtor and the Operational Creditor on the issue of completion of the contractual project work to the satisfaction of the Corporate Debtor and inability of the Operational Creditor to provide the details of the materials supplied and works done relating to the said contractual project work, the Corporate Debtor has not made any payment further taking a view that the advance payment made by it to the extent of Rs. 3,82,00,000/- covers the entire payment for the material supplied and work executed by the Operational Creditor and any further payment will be done only when the required details would be furnished by the Operational Creditor which the Operational Creditor has not provided so far, and hence the Corporate Debtor denied any liability for payment to the Operational Creditor in absence of any such details provided by the Operational Creditor as demanded by the Corporate Debtor.

To substantiate its allegations regarding pre-existing dispute, the Corporate Debtor has relied on the emails dated 08.02.2018, 23.03.2018, 13.04.2018, 23.05.2018 and 09.7.2018, regarding the procurement of material for completion of project in a timely manner, functioning of cleaning system, supply of water pipes, fixing of cable trays, battery modules and invertor operations which is causing delay in generation of power plant.

We find that the issues raised by the Corporate Debtor with respect to deficiencies in carrying out the project work has started when an email dated 8^th February 2018 has been sent by the Corporate Debtor expressing dissatisfaction on procurement of several materials by the Operational Creditor without discussing and obtaining approval of the Corporate Debtor and it has been requested to seek prior approvals in writings in order to purchase remaining materials to avoid any misunderstanding between “EPC Contractor” i.e. the Operational Creditor and “the undersigned” i.e. the Corporate Debtor for smooth implementation of the project when more than 90% of time has elapsed in different kinds of hurdles crossed already. In this letter regarding payments for the project work also, it is mentioned that after making unapproved payments earlier, now payments will be made after purchase of materials made with the approval of the Corporate Debtor. As the request made by the Corporate Debtor has not been adhered to by the Operational Creditor, a detailed email dated 23^rd March 2018 has been sent raising various issues with respect to materials and equipments supplied and their unsatisfactory operation as well as certain works still remained unfinished pointing out that finishing touches of project which include cleaning system, SCADA, testing of complete project are doing underperformance etc remaining jobs haven't been done despite several reminders to earlier staff-on-site- of the Operational Creditor now-missing and several information requested haven't been provided by the Operational Creditor to the Corporate Debtor as demanded by IREDA the funding agency of the project, giving project underperformance in generation of solar power much below the expected lines resulting in lower power generation and continued revenue losses to the Corporate Debtor despite several verbal requests made to the Operational Creditor on handing over & completing the project. Further, it is mentioned that the project head of the Operational Creditor is missing from the site without any prior information to the Corporate Debtor or its representative since last more than week, technically all inverters are not performing also technically as per specifications of OE for which site inspections were done by the Operational Creditor earlier before commencing ground work and discussing with LMRC on few occasions. Looking to such detailed email of the Corporate Debtor sent at the time when the project was expected to have been completed and commissioned, clearly shows that the Corporate Debtor was not fully satisfied with the work done by the Operational Creditor for which it raised various issues/concerns in this email but these issues/concerns were not addressed by the Operational Creditor, and therefore certain emails dated 13.04.2018, 23.05.2018 and 03.07.2018 were further sent pointing out unsatisfactory operation of the solar plant installed by the Operational Creditor and certain works were not completed such as the cleaning system including pipes etc are not installed properly, water supply pipes are missing and also several modules have been uprooted during the storm causing damage to modules which have to be properly fixed, cable trays not completely fixed yet including SCADA system uninstalled for online monitoring and the Corporate Debtor had to purchase water lifting Crompton Greaves Motors as water lifting was not happening since more than a month causing dirtiness to module lowering generation capacity etc.

We find that the Corporate Debtor sent series of emails to Operational Creditor as it was not satisfied with the project work done by the Operational Creditor as discussed above and the Operational Creditor in turn instead of addressing these issues took the view that its responsibility of EPC contract is over after the project is commissioned by it and all the problems faced by the Corporate Debtor are required to be addressed by it alone and started sending reminders vide emails dated 10.5.2018, 15.6.2018, 18.6.2018, 11.7.2018 and 13.7.2018 and 16.7.2018 for payment of the outstanding debt as project in its view was commissioned on 14.3.2018 before the due date i.e 16.03.2018 and all the supplies of materials was completed as per the EPC Contract and as per clause 2 r/w Schedule 2 of the EPC Contract 100% payment was to be made upon commissioning of the Project.

As regards the dispute on completion of the project and its successful commissioning, both parties relied upon the information obtained from UPMRC through RTI. The Operational Creditor relied upon the letter dated 07.01.2021 of UPMRC as per which the commercial operation of the solar power plant installed by the Operational Creditor under EPC contract has started from 14.03.2018 and subsidy has been released, and hence it is emphasised by the Operational Creditor that project was successfully commissioned by it on 14.03.2018. However, the Corporate Debtor obtained further clarification from UPMRC under RTI regarding the completion of the project and its successful operation and in this regard, it furnished the letter dated 12.02.2021 of UPMRC stating that only 90% of subsidy has been released and balance subsidy amount has not been released due to leftover works like remote monitoring system, cable dressing, manual and documents etc. and one inverter is not working since July 2019. Therefore, on the above information provided by the UPMRC, it has been emphasised by the Corporate Debtor that the project was not fully completed by the Operational Creditor resulting into disbursement of subsidy to it only to the extent of 90% and it is also not running satisfactorily due to deficiency in materials supplied for which no details and documents were provided by the Operational Creditor to enable them to run them properly.

After taking into consideration all the arguments of the Operational Creditor as well as the Corporate Debtor as discussed above, we find from the above extracts of emails exchanged between the Operational Creditor and Corporate Debtor that there is existence of dispute pertaining to the procurement, design, construction and commissioning of the project executed for installing the solar plant for UPMRC. There is clear evidence of existence of dispute regarding quality of materials supplied, completion of plant and its satisfactory operation after commissioning. Though with the letter of UPMRC, it has become clear that plant has been commissioned on 14.03.2018 but it is not completed fully as certain materials are still not supplied and there are operational problems also due to non-supply of manual and documents of materials supplied which the Corporate Debtor kept on constantly demanding by sending series of emails before the completion of plant and its commissioning. The issue of not providing the details of material supplied by the Operational Creditor was raised before us also during the hearing but the Operational Creditor on our specific query in this regard replied that in EPC contract, such material wise details are not possible to be provided. Therefore, we find that there is clear pre-existing dispute as regards the supply of material which is causing operational problems for the solar plant installed by the Operational Creditor resulting into loss to the Corporate Debtor and also the full subsidy amount not being released to it. Such pre-existing dispute was raised by the Corporate Debtor, by sending series of emails from February 2018 before a demand notice u/s 8 dated 22.10.2018 was issued by the Operational Creditor.

Under the Insolvency and Bankruptcy Code (IBC), a court or tribunal determines only the existence of a pre-existing dispute, not the merits of that dispute. Such dispute must have existed before the demand notice was issued. The role of the adjudicating authority is to assess if a genuine dispute exists based on the evidence presented, which must be bona fide and not frivolous. If any such dispute is found to be in existence, its adjudication cannot be done in IBC but it needs to be addressed separately in a different forum as in the present case, it would be required to be addressed by the Arbitral Tribunal as per clause 19.2 and 19.3 of the EPC Contract dated 29.11.2017. Under IBC, if a genuine pre-existing dispute is found to be in existence while considering the section 9 Application, it has to be rejected as per the provision of section 9(5)(ii) as it has been held in catena of judgments pronounce by the Hon’ble NCLAT after the judgment of Hon’ble Supreme Court in case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353.

In the case of Law & Kenneth Saatchi & Saatchi Pvt. Ltd. v. Patanjali Paridhan Pvt. Ltd., (2024) ibclaw.in 739, confirming the decision of this tribunal on the issue of deciding about the pre-existing dispute based on series of emails exchanged between Corporate Debtor and Financial Creditor before the issuance of section 8 notice, as regards the quality of materials supplied and services rendered and because of such ongoing dispute, full payment not made by the Corporate Debtor after paying substantial amount as advance, the Hon’ble Appellate Tribunal held as under:-

In the aforesaid cited judgements, it is clearly held that correspondence like emails and letters exchanged between the Corporate Debtor and the Operation Creditor before issuance of the Section 8 demand notice can be considered to ascertain the existence of any pre-existing dispute between the parties. The court may look at whether the emails clearly show a dispute over the debt amount, quality of goods, or other terms, even if the Operational Creditor denies the existence of any dispute in their response.

In view of our findings as discussed in aforesaid paras and considering the above judgment of the Hon’ble NCLAT in respect of an order passed by this tribunal, we find that there is a pre-existing dispute which is evident from the series of emails exchanged between the Corporate Debtor and Operational Creditor regarding the materials supplied, completion and commissioning of the project being not satisfactory resulting into Operational problems and subsequently, issue of payments raised by the Operational Creditor in various emails sent by it but denied by the Corporate Debtor taking the plea of project being not complete. As being an Adjudicating Authority under IBC while dealing with section 9 application, we cannot go into the merits as to whether project was fully and satisfactorily completed or not and whether all the materials were supplied as per the requirements of the project or not but the emails discussed by us in foregoing paras including the letters obtained by parties from UPMRC under RTI clearly demonstrate that there is dispute between parties on these issues which existed prior to much before the issuance of Section 8 notice by the Operational Creditor. The factum of their being a per-existing dispute goes beyond any doubt and therefore, the present petition under section 9 is not maintainable. We therefore, dismiss the Present Petition filed under section 9 of the IBC, taking into account the provision of section 9(5)(ii).

Accordingly, the Application CP (IB) No.91/ALD/2019 filed by the Operational Creditor u/s 9 of the Insolvency & Bankruptcy Code, 2016 is hereby dismissed. Ordered Accordingly.