M/S. Starlog Enterprises Limited vs M/s Sarens Heavy Lift India Private Limited

The present application is filed under Section 9 of Insolvency and Bankruptcy Code, 2016 (for brevity ‘IBC, 2016’) read with Rule 6 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) by M/s Starlog Enterprises Limited (for

brevity ‘Operational Creditor’) through its authorized representative Mr. Rajnish Shukla ,who is duly authorized vide Board resolution dated

31.08.2018,with a prayer to initiate the Corporate Insolvency process against M/s Sarens Heavy Lift India Private Limited (for brevity ‘Corporate

Debtor’).

The Operational Creditor namely M/s Starlog Enterprises Limited is a company incorporated on 15.12.1983 under the provisions of Companies Act,

1956 having CIN No. L63010MH1983PLC031578.

The company is having its registered office at 141, Jolly Maker Chambers II, 14th Floor, Nariman Point, Mumbai-400021.

The Corporate Debtor namely M/s Sarens Heavy Lift India Private Limited is a company incorporated on 31.03.2009 under the provisions of

Companies Act, 1956 with CIN No. U29253DL2009PTC189026.

The company is having its registered office at F-90/25, Okhla Industrial Area, Phase-I, Delhi- 110020.

The Authorised Share Capital of the respondent company is Rs. 1,72,50,00,000/- and Paid Up Share Capital of the company is Rs. 1,72,50,00,000/-

as per Master Data of the company.

It is the case of the Operational Creditor that Corporate Debtor was desirous of hiring a 250 MT Crawler Crane from the Operational Creditor at

Nabinagar, Bihar. Subsequently, the Operational Creditor vide an email dated 14.07.2017 submitted the quotation for hiring a 250 MT Crawler Crane

to the Corporate Debtor. In pursuance to it, a work order bearing No. 501/23/17/0929 dated 27.07.2017 was executed by the Corporate Debtor in

favor of the Operational Creditor to hire a 250 MT Crane, Fushun QUY250A.

The terms of the said Work Order dated 27.07.2017 are briefly discussed below:

Clause 1: Hire Period â€" One Month (can further extended by 10- 15 days).

Clause 3: The dismantling, loading, unloading, assembly of crane shall be in the scope of Saren (hereinafter referred to as Corporate

debtor).

Clause 7: The payments shall be made within 30 days from submission of Original invoice along with Original Log sheet duly signed by

Corporate Debtor’s site in charge.

Clause 8: Mobilization/demobilization- Corporate Debtor’s scope. (In case Operational Creditor doing the demobilization, it will be

reimbursed by Corporate Debtor for a maximum distance of 250kms).

Clause 11: All insurance i.e. Crane insurance policy, Workmen compensation policy, Product liability policy and others in any shall be in

Operational Creditor’s scope.

Clause 12: Rental will be paid based on the daily log sheet duly signed by Corporate debtor’s supervisor.

Clause 23: The transport responsibility in Operational Creditor’s scope, Corporate Debtor will arrange to provide the documents,

check post/ RTO are responsibility of transporter.

The Corporate Debtor had hired the services of the transporter Pali Translines Pvt. Ltd. for the purposes of transportation of the crane from NTPC

site to Nabinagar, Bihar. On 15.08.2017, the trailer carrying the cabin/car body of the Crane met with an accident at Kautti Kodarma JH, Madhya

Pradesh resulting in toppling of the cabin/ car body of Crane and severely damaging the same. In addition to this, some of the other trailers carrying

other parts of Crane stationed at the NTPC site also met with an accident. Consequently, an engineering company, Mcnally Bharat Engineering

Company, working at the NTPC Site issued debit note of Rs. 1,30,000/- on behalf of NTPC on the Operational Creditor for repairing charges at

various areas of the NTPC site damaged by their trailers.

The Operational Creditor requested the Corporate Debtor to transport the damaged parts of the Crane from the accident site i.e. Koderma, MP to

the Gadarwara yard of the Operational Creditor, MP for repair. This damaged cabin/ car body was sent by the Corporate Debtor at Gadarwara yard

of the Operational Creditor on 02.11.2017. In the meantime, the parts which were in good working condition were transported by the Corporate

Debtor to its own yard and as claimed by Operational Creditor the same are retained by Corporate Debtor till date.

The Operational Creditor could manage to arrange another Crane at the Corporate debtor’s site on 06.01.2018 so that the Corporate Debtor

can initiate the transportation of the damaged parts of Crane back to operational creditor. However, till date the damaged parts of the Crane have not

been transported to the Gadarwara yard of Operational creditor by the Corporate Debtor.

The Operational Creditor sent a demand notice dated 24.07.2018 to the Corporate Debtor seeking payment of Rs. 2,83,78,085/- on account of

damages to the cabin/ car body of the Crane. It is further submitted that the estimate of loss is based on a quote received from FUWA Global towards

refurbishment of the damaged crane cabin/car body dated 24.08.2017.

The Corporate Debtor replied to the said demand notice vide its letter dated 10.08.2018 where they disputed the claimed amount of the

Operational Creditor.

The Operational Creditor further sent another demand notice dated 04.09.2018 demanding payment of hire charges of first crane. It was further

claimed by Operational Creditor that till the damaged crane is put back into full working condition after renovation/ repair/replacement at Corporate

Debtor’s risk, the hire charges shall continue to be levied upon the Corporate Debtor as per the terms of the work order.

The Operational Creditor further sent two more demand notices to the Corporate Debtor wherein first notice dated 04.09.2018 was regarding the

payment of Hire charges amounting to Rs. 1,14,00,000/- caused due to stationing of another Crane for unloading the damaged parts of Crane and

second notice dated 07.09.2018 was regarding the payment of damages caused due to the accident at the NTPC site amounting to Rs. 1,30,000/-.

The Corporate Debtor vide its email dated 06.09.2018 and 18.09.2018 disapproved the replacement and return of the damaged Crane and the loss

suffered by the Operational Creditor due to the loss of business opportunities owing to stationing of Crane sent for lifting the damaged crane parts.

The Operational Creditor has issued the demand notice dated 21.09.2018 under Section 8 of the Code, raising its demand for payment for an amount

of Rs. 4,16,68,035/- along with 18% interest.

The Corporate Debtor vide its letter dated 29.09.2018 replied to the said demand notice dated 21.09.2018 issued under Section 8 of the Insolvency

and Bankruptcy Code, 2016 and disputed the amount claimed by the applicant.

The applicant has stated that total debt due and payable by the Respondent to the applicant is Rs. 4,16,68,035/- (Rupees Four Crores Sixteen

Lakhs Sixty- Eight Thousand and Thirty -five only) being monthly hire charges for 12 months amounting to Rs. 1,14,00,000/- and debit note of Rs.

1,30,000/- and revenue loss to the operational creditor amounting to Rs. 17,60,000/-, hence totaling to Rs. 4,16,68,035/- along with interest of 18% on

the said amount.

The defence adopted by the Corporate Debtor is that Operational Creditor has no basis in contract or otherwise to claim the transportation of

Crane since it is the responsibility of Operational Creditor. It is submitted that Crane was damaged during its transportation, which was clearly the

responsibility of the applicant, hence the Corporate Debtor is not liable for any loss or damage that has been caused to the Crane or for any losses

suffered by the Operational Creditor as a consequence of such damage.

The Corporate Debtor further states that Operational Creditor’s claim for the damage caused to and for repair of Crane was rejected by the

insurance company i.e. ICICI Lombard General Insurance Company Limited on the ground that - “any loss or damage arising out of transit where

weight of cargo exceeds registered laden weight as mentioned in registration certificate of the vehicle will not be covered by the policy availed by the

applicantâ€. Therefore, it is submitted that this claim is only an afterthought because the insurance company has rejected the claim of the Operational

Creditor.

It is further submitted that Operational Creditor has also claimed an amount that was charged by Mcnally Bharat Engineering Limited for the

repair work at various areas of NTPC site being damaged. This claim is outside the purview of Section 5 (21) of the Code which defines

‘Operational Debt’. The settled position of law is that damages/compensation in any respect is not an ‘operational debt’ defined under

Section 5(21) of the Code.

It is further submitted by the Corporate Debtor that Operational Creditor has also claimed for hiring charges in relation to crane, sent for lifting the

damaged parts of crane. It is submitted that there is no contract in existence between the Operational Creditor and the Corporate Debtor with respect

to any liability of such contingent incident as accident, to be borne by Corporate Debtor. This claim is merely an estimate which is not in the nature of

debt but is in the nature of a claim for damages which is also not the ‘operational debt’. So also, is the interest claimed on it.

A rejoinder to the reply has been filed by the Operational Creditor reiterating the submissions made in the application and controverting the

assertions in the reply.

The basic question arises is that, whether the Operational Creditor proved that the claim made by them is covered under the category of

‘Operational debt’ as defined under Section 5 (21) of the Code,2016 as:

“A claim in respect of the provisions of goods or services including employment or debt in respect of the payment of dues arising under

any law for time being in force and payable to the Central Government any State Government or any Local Authorityâ€​.

Nowhere in the application any document has been produced to support that the alleged Work Order has been completed and the payment towards

the same has become due and is unpaid as claimed by the applicant in part IV of Form No. 5. The claim made by the applicant in Form 5 titled as

Repair/ Renovation/ refurbishment charges of the Crane, Monthly Hire charges as per standard rentals and Revenue loss to the operational creditor

cannot be considered as ‘operational debt’. The claim made by the applicant is untenable without any supportive evidence reflecting the

performance of contract and completion of work as per the terms of Work Order. The claim made by the applicant that it being ‘Operational

creditor’ as defined under Section 5(20) is totally unacceptable.

The corporate debtor has further submitted that debt is disputed and not payable as the Work Order has not been completed till date. Considering

the arguments of the Corporate Debtor which primarily rests on the ground of a pre-existing dispute prior to the filing of the application and in the

circumstances the application should be dismissed as not maintainable, it is necessary to ascertain the definition of ‘dispute’. In relation to Code,

2016, dispute has been defined in Section 5(6) as follows:

Dispute"" includes a suit or arbitration proceedings relating toâ€"(a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the

breach of a representation or warranty.

Further the Hon’ble Supreme of India in Mobilox Innovations Private Limited vs. Kirusa Sortware Private limited has observed that-

“The adjudicating authority, when examining an application under Section 9 of the Act will have to determine:

(i) Whether there is an “operational debtâ€​ as defined exceeding Rs.1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been

paid? and

(iii) Whether there is 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 of the unpaid operational debt in relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have to be rejected.

Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of

Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the

Act.â€​

As per the reply filed by the Corporate Debtor, it can be inferred & concluded that the dispute raised by the corporate debtor falls well within the

definition of dispute as reproduced above.

It is further seen that the demand notice in the present case was issued under Section 8 (1) of the Code on 21.09.2018. Respondents have placed

their earlier correspondences dated 26.12.2017, 10.08.2018, 06.09.2018 and 18.09.2018 raising dispute and issues with respect to delivery and

performance of contract. It is thus seen that the dispute was brought to the notice of the applicant prior to the issuance of the demand notice dated

21.09.2018 issued under Section 8 (1) of the Code.

In an application filed under Section 9 of the Code, Tribunal is not supposed to examine the merits of the dispute nor the adequacy of the dispute is

to be seen. However, in matters under Section 9, the tribunal is only to see that a dispute pre-exists and that the dispute is not vague, got up or raised

for the first time to evade the liability. The documents on record clearly show that the dispute was raised by the respondent prior to the demand notice

issued under Section 8 (1) of the Code.

Section 9 (5) of the Code provides that adjudicating authority shall reject the application if notice of dispute has been received by the operational

creditor or there is a record of dispute in the information utility. As a sequel to the above discussion, this application fails and the same is hereby

rejected and dismissed.

It is made clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy and the

right of the applicant before any other forum shall not be prejudiced on account of dismissal of the instant application.

Let the copy of the order be served to the parties.