M/s. Teemage Builders Pvt Ltd vs Ayyanna IT Park LLP

This Petition is filed under Section 9 of Insolvency and Bankruptcy Code (hereinafter to be referred as “Code”), read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking admission of the application for initiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon, contending that the Respondent defaulted in the payment of alleged debt of Rs. 10,10,51,707/-(Rupees Ten Crores Ten Lakhs Fifty One thousand seven hundred and seven only).

The gist apropos to the Petition in brief is: -

It is averred that M/s. Seenaiah Constructions Private Limited (SCPL) had initially undertaken to “produce” and “erect” pre-cast elements for the Corporate Debtor’s building. However, due to some differences between the parties, the project was abandoned midway by SCPL. As such, the Corporate Debtor approached the Operational Creditor herein for completing the remaining work and sought the materials and services of the Operational Creditor herein, pursuant to which the parties entered into an Agreement dated 16-07-2019 (herein referred to as “Agreement”).

The Operational Creditor stated that the Agreement dated 16-07-2019 included both sale of material and service of assembling those materials at the project site at Rs.26,93,48,450/- (Rupees Twenty Six Crores Ninety Three Lakhs Forty Eight Thousand Four Hundred and Fifty only), excluding GST on plinth area rate basis and architectural drawings given in Annexure I and Annexure II of the Agreement. The Agreement clearly provided payment schedules, wherein payment was to be made for each slab and also upon interim RA bills raised by the Operational Creditor.

That the Operational Creditor started the contract work promptly in July, 2019. On 20-07-2020 and the Corporate Debtor paid a mobilization amount of Rs.1,90,00,00,000/- (Rupees One Crore Ninety Lakhs only) as per the Agreement, against Bank Guarantee of Rs.1,00,00,000/- (Rupees One Crore only) provided by the Operational Creditor. It is submitted that invoices for materials supplied and work done as per the contract were raised by the Operational Creditor and the same are received by the Corporate Debtor. The Operational Creditor raised periodic bills between 31-07-2019 and 25-03-2020, for a total sum of Rs.31,78,92,002/- for which net receivable amount is Rs.29,60,04,195/-.(Rupees Twenty Nine Crores Sixty Lakhs Four Thousand One Hundred and Ninety Five only). The bills/invoices were due and payable from (10) ten days of submission of the bills/invoices. The net receivables are exclusive of an amount of Rs.2,18,87,807/- which was retained by the corporate debtor as security for performance.

It is averred that the major works in the building including complete erection was completed on 05-09-2020, despite a lot of hindrances and difficulties that arose due to Covid-19 pandemic related issues. On the assurance given by the corporate debtor that the pending bills would be paid, the Operational Creditor completed the entire works of the contract including the snag list that was given by the Corporate Debtor on 05-08-2020 by December, 2020. It is further stated that the Corporate Debtor acknowledged the completion of the work by the Operational Creditor.

Out of the total net receivable amount, the Corporate Debtor has only paid an amount of Rs.22,05,48,255/- (Rupees Twenty Two Crores Five Lakhs Forty Eight Thousand Two Hundred and Fifty Five only) and therefore has defaulted on a total amount of Rs.7,54,55,940/- (Rupees Seven Crores Fifty Four Lakhs Fifty Five Thousand and Nine Hundred and Forty Only) and also an amount of Rs.1,58,94,600/- (Rupees One Crore Fifty Eight Lakhs Ninety Four Thousand and Six Hundred only) as retention money deducted from the invoice amounts. It is averred that since the Corporate Debtor has defaulted on payment of these invoices every time, a total interest of Rs.2,94,27,514/- (Rupees Two Crore Ninety Four Lakhs Twenty Seven Thousand Five Hundred and Fourteen only) is also payable by the Corporate Debtor as interest on defaulted amounts till 31-01-2022. It is further averred that, the Operational Creditor has agreed for a debit of Rs.1,96,35,670/- towards SCPL elements used and other permitted deductions.

Despite issuing reminders by Operational Creditor, the Corporate Debtor has failed to service the outstanding amount due to the Petitioner. Hence, the Operational Creditor sent a demand notice under Section 8 of the IBC, 2016 for payment of the total debt amount of Rs.10,10,51,707/- (Rupees Ten Crores Ten lakhs Fifty One Thousand Seven Hundred and Seven only) on 14-02-2022 and the same was received by the Corporate Debtor on 22-02-2022. However, the Corporate Debtor filed reply on 05-03-2022, that too after more than 10 days of receipt of the demand notice under Section 8 of the IBC, 2016, raised the following issues for the first time: -

With regard to the above dispute raised by the Corporate Debtor in its reply to Demand Notice, the Operational Creditor stated that the snag list showing only minor items worth not more than Rs.25,00,000/- (Rupees Twenty Five Lakhs only) was given by the Corporate Debtor in August, 2020 and the same was completed by December 2020; therefore, the averment that project was abandoned by the Operational Creditor midway is a moonshine defense raised for the first time after issuance of the demand notice, as such the same not to be considered as a reply under the Code.

It is submitted that the debt amounts fell due on different dates after 10^th day from the day of receipt of Operational Creditor’s invoices and specifically on 25-03-2020 when the final invoice was raised by the Operational Creditor.

The calculation of the total outstanding debt of the Corporate Debtor in respect of the invoices raised by the Operational Creditor and the interest accrued on the outstanding invoices are detailed in computation sheet filed by the Operational Creditor, which is marked as Annexure-6 to the Application. Thus submitting, the Corporate Debtor is due and liable to pay an amount of Rs.10,10,51,707/- (Rupees Ten Crore Ten Lakhs Fifty One Thousand Seven Hundred and Seven only) to the Operational Creditor.

The Corporate Debtor filed counter, denying the averments made in the Petition and contended as under: -

That the Petition is liable to be rejected at the very threshold as there is a “Pre-Existing Dispute” between the parties, and the Petitioner has suppressed the material facts relating thereto.

It is contended that as per the Agreement Dt: 16.07.2019, the detailed scope of work assigned to the Operational Creditor are as per Section/Clause-1 of the Agreement. As per the same, the Scope of the work of the Operational Creditor starts from Cellar 1 to 9^th Floor, including lift machine rooms, staircase head rooms concreting, transportation, unloading at site and erecting the precast elements to the respective floors and aligning, grouting, terrace water proofing wherever required and make screed concrete over the precast elements complete. The Corporate Debtor has relied on the following clauses of the said Agreement: -

It is stated that in terms of the Agreement, the Operational Creditor started the work, and the Corporate Debtor had arranged for mobilization advance of Rs.1,90,00,000/- (Rupees One Crore Ninety Lakhs only) to the Operational Creditor.

It is contended that the Operational Creditor had not adhered to the timelines of the Agreement and the above works were executed with delay, and the before the completion of the entire work as per the scope of the Agreement between the parties, the work-site was abandoned by the Operational Creditor. The details of work description and construction schedule is tabulated hereunder: -

According to the Corporate Debtor, the Operational Creditor in the petition claimed that the work was completed on 05.09.2020, with snag list of works also completed before December 2020. But the final invoice was raised on 25.03.2020 i.e. well before the completion of the entire scope of the work under the Agreement and in addition the Operational Creditor is also claiming interest.

The Corporate Debtor has detailed the correspondences between the parties for continuance and completion of the work as per the Agreement Scope, copies of which are annexed as Annexure-1.

It is stated that despite requests by the Corporate Debtor for completion of the work, the Operational Creditor was defiant and never obliged. Since huge capital of the Corporate Debtor was invested in the said project, the Corporate Debtor, undertook completion of the project on its own as they were left with no alternative and unless the same is completed, the Corporate Debtor cannot realize its investment.

The Corporate Debtor also denied the contention of the Operational Creditor that it had completed the work by December, 2020, including the works under the snag list. The joint verification of the pending works done by the team consisting of the representatives of Operational Creditor and Corporate Debtor on 04.12.2020, substantiates that the Operational Creditor had not completed the assigned work. A certified copy of the Joint verification report Dt: 04.12.2020, signed on 23.12.2020, is annexed and marked as Annexure-2.

The Corporate Debtor further relied on the email dated 27.12.2020 received from the Technical-Head of the Operational Creditor to buttress its case that there is a difference of opinion/dispute between the parties on the completion of the work as per the Agreement. A copy of the mail is annexed and marked as Annexure-3.

The further contention of the Corporate Debtor that, the operational creditor failed to notify the Corporate Debtor of the Completion of the work as per Clause/Section 6 (b) of the Agreement, had it completed the entire works in accordance with the provisions of the Agreement between the parties.

The Corporate Debtor further relied on the letter dated 03.07.2021 addressed to the Corporate Debtor and its reply dated 14.07.2021 to show that there is existence of dispute between the parties.

It is stated that the Operational Creditor had lodged a complaint against the Corporate Debtor with M/s. Telangana State Real Estate Regulatory Authority [RERA], Hyderabad, vide its letter Dt: 17.07.2021, and the M/s. Telangana State Real Estate Regulatory Authority [RERA], Hyderabad, vide its letter Dt: 02.09.2021, sought certain clarifications from the Corporate Debtor, which was provided by the Corporate Debtor vide letter dated 01.10.2021, Copies of the letter received from RERA and the reply of the Corporate Debtor, are attached as Annexure-6 and Annexure- 7, respectively.

According to the Corporate Debtor, there exists a dispute between the parties on the extent of completion of the work in accordance with the term of the Agreement, which has been suppressed by the Operational Creditor in the Petition.

The Corporate Debtor further contends that there is a glare variation in the retention money amounts as claimed by the Operational Creditor at Point No.1.3 i.e., Rs.2,18,87,807/- of the Application and as claimed herein i.e., Rs.1,58,94,600/-. The deductions made by the Corporate Debtor from the Operational Creditor on account of Security Deposit, amounts to Rs.1,22,91,091/- (Rupees One Crore Twenty Two Lakhs Ninety One Thousand Ninety one only). A statement of the Security Deposit, is annexed and marked as Annexure – 8. In response to the adjustment for the material of the previous contractor, the Corporate Debtor stated that under the agreement, the Operational Creditor agreed to use the materials of the previous contractor and as such they are bound to give the adjustment.

As regards the claim for interest the Corporate Debtor states that the Agreement between the parties do not provide for payment of any interest, in respect of the delayed payments by the Corporate Debtor, nor there was any specific understanding between the parties on a particular rate of interest. As a regular practice, the Operational Creditor has mentioned the rate of interest @ 21 % for the delayed payments, which was never agreed by the Corporate Debtor herein. Further for the delayed payments in respect of the Bill No.6 to Bill No.9, for which complete payments have been received by the Operational Creditor, there has been no claim for interest, after payment of the invoice amounts, and the claim for the interest for such payments and pending bills, has now come, as an afterthought on the part of the Operational Creditor while filing the present application before the Adjudicating Authority.

In so far as the delayed response to the Demand Notice by the Corporate Debtor, the Corporate Debtor rely on the judgements passed by Hon’ble NCLAT in many cases, wherein it was observed that “the statutory scheme under Section 8 and 9 does not indicate that in an event Reply to Notice is not filed within 10 days by Corporate Debtor or no Reply to Notice under Section 8(1) have been given, the Corporate Debtor is precluded from raising the question of dispute”.

The Corporate Debtor further relied on the correspondence dated: 03.07.2021, wherein the Operational Creditor itself had accepted that they had stopped the work. It is further stated that the Corporate Debtor has placed on record relevant correspondence to substantial the pre-existing dispute among the parties, in relation to the extent of completion of work under the scope of the Agreement between the parties. Thus submitting, prayed the Tribunal to dismiss the Petition.

In the light of the contest as above, the points that emerge for our consideration are;

Whether an Operational Debt of a sum over rupees one crore is due and payable by the Corporate Debtor exists in favour of the Operational Creditor? If so, whether the Corporate Debtor defaulted in repayment of the same?

Whether there is a pre-existing dispute between the parties or the record of the pendency of a suit or arbitration proceedings filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

We have heard Shri M.S. Prasad, Ld. Senior Counsel assisted by Ms. Ms. A. Satyasiri, Advocate and the Shri D.V.K. Phanindra, Ld. PCS for perused the record and Case Law.

Whether there is a pre-existing dispute between the parties or the record of the pendency of a suit or arbitration proceedings filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

At the outset, it may be stated that the present Application being one under Section 9 of the Insolvency & Bankruptcy Code, 2016, it is imperative for the Operational Creditor to show that an Operational Debt of a sum over Rs.1,00,00,000/- is due and payable by the Corporate Debtor and that the Corporate Debtor has defaulted in repayment of the same. However, if the Corporate Debtor is able to establish that there is a pre-existing dispute between the parties or the record of the pendency of a suit or arbitration proceedings filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute exists, the Tribunal shall reject the application.

This legal position can be traced from the ruling of the Hon’ble Supreme Court of India, in re., Mobilox Innovations Private Limited vs. Kirusa, has held that;

Hon’ble Supreme Court of India, in re, Mobilox, supra, also, held that;

Since the Corporate Debtor herein, contends that there is a pre-existing dispute between the parties and the Operational Creditor has denied the said plea, we wish to first discuss the issue relating to pre-existing dispute, on the basis of the above legal frame coupled with a factual matrix of the subject dispute.

Admittedly, the parties herein have entered into an Agreement Dt: 16.07.2019, and the salient clauses of the said Agreement are as below: -

According to the Ld. Senior Counsel for the applicant/operational creditor, major works under the above contract were completed by 05.09.2020 and the snag list of works were also completed by December 2020. Ld. Senior Counsel further stated that despite raising the final invoice in respect of the subject work on 25.03.2020, the Corporate Debtor failed to pay the balance amount of Rs. 7,54,55,940/-, hence the applicant got issued the demand notice dated 14.02.2022 in terms of Section 8(2) of IBC, 2016, and for the first time in the reply notice the corporate debtor falsely claimed that there is a pre-existing dispute regarding the work done, as such the defense is liable to be rejected and the application be allowed.

Ld. PCS, for the Corporate Debtor relying inter alia, on the correspondence and the joint inspection report refuted the aforesaid contentions. According to the Ld. PCS, the corporate debtor a clear dispute as to the nature as well as the quantum of work done besides the claim of completion of entire work by end of December 2020 has been in existence even prior to the receipt of the demand notice from the operational creditor, as such in the presence of a pre-existing dispute between the parties herein, the application is not maintainable.

Needless to say, that in terms of clause 6 of the Agreement, the operational creditor shall complete the work 198 days from 15.07.2019 and upon completion of the work, and shall notify in writing to the Corporate Debtor or his representative about completion of the work. Upon being so notified, the Corporate Debtor within 3 days from the date of notification, shall send his representative to remain present at the time of carrying out necessary handover by the Operational Creditor. Though the operational creditor has claimed that it had completed the entire work by the end of December 2020 it failed to plead compliance of clause 6 of the Agreement. In this regard it is pertinent to refer to the following, post 05.09.2020 emails exchanged between the parties.

Letter dated 03.07.2021 from the Operational Creditor

Reply Letter dated 14.07.2021 from the Corporate Debtor.

That apart, the joint verification of the pending works done post 5.09.2020 by the team consisting of the representatives of Operational Creditor and Corporate Debtor on 04.12.2020, substantiates that the Operational Creditor had not completed the assigned work and in every floor some works remain undone. The Joint verification report Dt: 04.12.2020, signed on 23.12.2020, is as below;

Thus, a bare perusal of the above correspondence besides the joint inspection report, clearly shows existence of dispute between the parties, as regards the quantum as well as the quality of the work done, payments made and the time lines, much prior to the receipt of the demand notice by the corporate debtor. Moreover, having raised the final invoice on 05.09.2020, it is preposterous for the operational creditor to contend that the entire work has been completed by December 2020. In the light of the ambiguity on the part of the operational creditor as to the date of completion of the entire work, the plea of the corporate debtor that the failure on the part of the operational creditor in adhering to the time schedule resulted in heavy losses to the corporate debtor assumes significance. The Operational Creditor had lodged a complaint against the Respondent with M/s. Telangana State Real Estate Regulatory Authority [RERA], Hyderabad, vide its letter Dt: 17.07.2021, and the M/s. Telangana State Real Estate Regulatory Authority [RERA], Hyderabad, vide its letter Dt: 02.09.2021, sought certain clarifications from the Corporate Debtor, which was stated to have been provided by the Corporate Debtor vide letter dated 01.10.2021. Therefore, in view of our discussions as above, we are of the firm view that a dispute as regards work done by the Petitioner exists between the parties herein, even before receipt of the demand notice by the corporate debtor.

Having found that a pre-existing dispute exists between the parties herein, we have applied Mobilox , supra, in order to find whether the dispute in this case can be construed as a pre-existing dispute in terms of section 8 (2) of under IB Code, and found that it is a plausible contention which requires further investigation and that the same is not a patently feeble legal argument or an assertion of fact unsupported by evidence, in view of the correspondence and the documents we referred to, supra. We are satisfied that the above dispute truly exists in fact and it is not spurious, hypothetical or illusory. However, we hereby make it clear that at this stage we have not examined the merits of the dispute except to the extent indicated above.

In the light of our finding that there is a pre-existing dispute between the parties herein, it is not permissible under law to admit the Corporate Debtor into CIRP.

The Point 2 is answered accordingly.

Whether an Operational Debt of a sum over rupees one crore is due and payable by the Corporate Debtor exists in favour of the Operational creditor? If so, whether the Corporate Debtor defaulted in repayment of the same?

Hon’ble Supreme Court of India, in re Mobilox, supra, held that, “The adjudicating authority, when examining an application under Section 9 of the Act will have to determine:

In our discussion on Point 2 above, we have held that there is a pre-existing dispute between the parties herein, which finding itself is sufficient to reject this application. Hence no discussion on this point is required.

The point is answered accordingly.

In the light of our finding on Point 2 above, we hereby reject this Company Petition, however, without costs.