Shekhar Sarawagi vs Ghanaram Infraengineers Pvt. Ltd.

[Per: Arun Baroka, Member (Technical)]

This Appeal, under Section 61(1) of Insolvency and Bankruptcy Code, 2016 (IBC), challenges the Order dated May 7, 2024 (Impugned Order) issued by the National Company Law Tribunal, New Delhi Bench-V (NCLT) in Company Petition (IB) No. 298 of 2022 (Company Petition). The Adjudicating Authority dismissed the Appellant's petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The instant Appeal seeks the setting aside of the order passed by the Adjudicating Authority on 07.05.2024 whereby the petition filed under Section 9 of the Code was rejected on the contentions of the Corporate Debtor that there lies a pre-existing dispute between the Parties. This Appeal requests a reversal of the Impugned Order.

The underlying dispute arises from two agreements between the Appellant and the Corporate Debtor (Respondent) pertaining to a barrage project. Superintending Engineer, Flood Works circle Department of Irrigation Govt. of U.P. Bareilly had awarded the Corporate Debtor ("Ghanaram Infraengineers Pvt. Ltd."), the work of "Construction of Ramganga Barrage, Upstream & Downstream Guide Bund and Main Canal Head Regulator. (Main Contract).

In turn, on 08.12.2011, the Corporate Debtor (“Ghanaram Infra Engineers Pvt. Ltd.”) entered into a Sub-Contract Agreement (Supply Agreement) with the Appellant concerning the Design, Fabrication, Supply with Rope Drum Hoist and Counter Weight, etc. The Corporate Debtor also entered into another Sub-Contract Agreement (Erection Agreement) with the Appellant for the execution of part of the above works concerning to erection and commissioning of Vertical Lift Steel Gates of other Barrage ways of Bareilly Barrage H.M works i.e. transportation, erection & Commissioning of Structural Steel Vertical Lift Gates with Rope Drum Hoist and Counter Weight etc.

The Appellant contends that it had fulfilled its contractual obligations by duly supplying the materials and completing the installation work as per the agreements. Invoices reflecting the agreed-upon charges were submitted to the Respondent. Despite partial payments, the Respondent failed to settle the invoices in full, resulting in a significant outstanding debt owed to the Appellant.

The Appellant initiated communication to address the outstanding payment. Emails were sent to the Respondent highlighting their own ledger entries that confirmed the outstanding amount. Meetings were also held to discuss the issue. On 11.05.2017 and 13.05.2017, two emails were sent by the Appellant to the Corporate Debtor whereby the Appellant requested the Respondent to release the outstanding payment on priority/ immediately. On 07.07.2017, the Respondent sent an email to the Appellant with the subject "Account Statement," wherein a copy of the Appellant's ledger account maintained by the Respondent for the period 01.04.2016 to 31.03.2017 was shared. As per this ledger account, as of 27.03.2017, an outstanding amount of Rs. 5,20,70,840/- was due and payable by the Respondent to the Appellant. On 11.07.2017, the Respondent sent another email to the Appellant with the subject "Account Statement 2017-18," wherein a copy of the Appellant's ledger account maintained by the Respondent for the period 01.04.2017 to 03.07.2017 was shared. This ledger account reveals that as of 24.06.2017, an outstanding amount of Rs. 5,92,95,099/- was due and payable by the Respondent to the Appellant. This email constitutes an explicit admission of the outstanding "operational debt" that has become due and payable, the payment of which has been defaulted upon by the Respondent. On 16.08.2018, the Respondent sent yet another email to the Appellant with the subject "Account Statement 2017-18," wherein a copy of the Appellant's ledger account maintained by the Respondent for the period 01.04.2017 to 03.07.2017 was once again shared. A perusal of the said ledger account reveals that as of 24.06.2017, admittedly outstanding amount of Rs.5,92,95,099/- was due and payable by the Respondent to the Appellant.

Despite the Appellant's attempts to reach an amicable resolution, the Respondent did not settle the outstanding debt. On 23.05.2018 there was a meeting conducted between the Appellant and the Corporate Debtor whereby the Appellant informed the Corporate Debtor that it will be filing an application for initiation of Corporate Insolvency Resolution Process, if the payments are not released. On 08.09.2018, the Appellant herein sent an email to the Respondent requesting a time for a meeting to finalize the account of the Appellant and releasing the balance payments, which was decided in an earlier meeting held in August 2018 itself. On 11.09.2018, the Respondent sent an email to the Appellant stipulating:

The email dated 11.09.2018 raises an entirely baseless claim about an alleged excess payment made to the Appellant, which contradicts the Respondent's own previous admissions and ledger statements reflecting the outstanding debt owed to the Appellant. Along with the email the Respondent mentioned some random percentages against multiple heads, veracity of which is disputed by the Appellant.

On 17.09.2018, the Appellant responded to the email dated 11.09.2018 sent by the Corporate Debtor. The impugned order has relied upon emails dated 11.09.2018 and 17.09.2018 and erroneously proceeded with a finding that these constitute evidence of a pre-existing dispute. These emails are mere correspondences pertaining to the release of outstanding payments which were already admitted by the Respondent, devoid of any mention or allusion to a pre-existing dispute. The Respondent's claim of excess payment in an email dated 11.09.2018, was also promptly and categorically refuted by the Appellant in its response dated 17.09.2018. Further, none of these emails contain a whisper about any deficiency in the work performed or any failure to complete the agreed-upon work. The Adjudicating Authority erroneously relied on these emails to come to a conclusion that there exists a pre-existing dispute.

Following the above response, the Respondent ceased responding to the emails from the Appellant. The Respondent failed to respond to the email dated 25.09.2018 wherein the Appellant requested for scheduling a meeting and also intimated that he has been continually trying to contact the Respondent through phone which the Respondent has failed to respond as well. Consequently, the Appellant sent an email dated 08.10.2018 to the Respondent, requesting the release of the outstanding amount owed.

On 03.12.2021, the Appellant was compelled to send a legal notice demanding payment of the outstanding balance from the Respondent. The Respondent, however, did not respond to this notice. Subsequently, the Appellant issued a statutory Demand Notice dated 27.12.2021, in accordance with the provisions of the Code, which was duly received by the Respondent on 04.01.2022.

Thereafter, the Respondent replied to the statutory Demand Notice dated 27.12.2021 vide Reply dated 07.01.2022 wherein the Respondent claims it be false and frivolous narrative of a dispute against the demand raised by the Appellant herein.

Perusal of the reply to the demand notice demonstrates that all the points as mentioned in the reply to the demand notice were either an afterthought or an attempt to evade the amount that has become due and payable.

Thereafter, on 21.02.2022, a petition under Section 9 of the Code was filed by the Appellant whereby the following amount was mentioned: (Principal: Rs. 5,92,95,099/- + Interest of INR 2,64,30,993/-).

The said petition was listed before Adjudicating Authority on 22.04.2022 whereby the matter was heard on the point of issuance of notice and the orders were reserved. On 11.05.2022, the Ld. Adjudicating Authority dismissed the Petition filed under Section 9 of the Code by the Appellant on the ground of limitation.

Thereafter, the Appellant herein preferred an Appeal against the said order dated 11.05.2022 before this Hon'ble Appellate Tribunal bearing Company Appeal (AT) (Insolvency) No. 911 of 2022, and this Hon'ble Appellate Tribunal was pleased to issue notice on the said Appeal vide Order dated 17.08.2022. The Respondent herein filed their reply dated 20.09.2022 to the Company Appeal (AT) (Insolvency) No. 911 of 2022. Vide order dated 26.09.2022, this Hon'ble Appellate Tribunal was pleased to allow the Appeal and revive the Section 9 Application filed by the Appellant and recorded that:

Upon revival of the Section 9 Petition, the Respondent filed their reply dated 13.10.2022 to the Section 9 Petition and the Appellant herein filed its Rejoinder dated 22.11.2022 to the said Reply filed by the Corporate Debtor. Additionally, it is imperative to mention that the Respondent has raised false and frivolous grounds in their reply in order to create the false narrative of a pre-existing dispute which have been vividly countered in the Rejoinder filed by the Appellant herein. It is further pertinent to mention that the Corporate Debtor allegedly terminated the Contract vide termination letter dated 13.02.2018. However, the said alleged termination letter was never received by the Appellant and the Respondent has failed to bring on record any document stating that the said letter was received by the Appellant herein.

In the Rejoinder the Appellant has clarified that the Respondent has raised a concern with respect to the incomplete work on the Project, and the Operational Creditor is requesting to pay for the work already completed. However, the incomplete work has nothing to do with the operational debt of which the default is being claimed by the Petitioner, and the same relates to admitted, undisputed, and partially paid invoices.

It is apposite to mention that multiple applications were filed by the Respondent in the above captioned petition which were not considered by the Ld. Adjudicating Authority.

The Learned Adjudicating Authority incorrectly dismissed and disposed of the Petition filed by the Appellant herein bearing CP (IB) No. 298 of 2022 by placing reliance on the false and frivolous contentions of the Respondents herein.

Appellant requests to set aside the order of the Adjudicating Authority and the Corporate Debtor be admitted in to CIRP since there is admitted debt in default.

In the fiscal year 2011-2012, the Respondent company was awarded a contract by the Ministry of Irrigation, Government of Uttar Pradesh, for the construction of the Ram Ganga Barrage. This contract included the construction of 30 steel gates, as per Agreement No. 05/S.E./2011-12.

To fulfil the contractual obligations, the Respondent entered into two sub-contracts for the supply, erection, and commissioning of the steel gates. The Appellant was awarded a contract for 17 gates, while Kay Iron Work (Yamunanagar) Pvt. Ltd. was awarded a contract for the remaining 13 gates. These sub-contracts were formalized through separate agreements executed on December 8, 2011, and December 16, 2011, respectively.

Both sub-contracts outlined a payment schedule in Clause 7, stipulating that 85% of the contract value was payable at certain stages of the project, and the remaining 15% was to be paid upon the complete commissioning of the project. It is undisputed that the Appellant did not complete the entire project, having only finished 11 out of 17 gates by July 2017, when they abandoned the site.

Consequently, the project was never fully completed or commissioned. In fact, the Department of Irrigation, U.P. Govt. subsequently identified defects in the project, further delaying its completion and commissioning.

The Appellant initiated insolvency proceedings against the Respondent by submitting allegedly false documents to the National Company Law Tribunal (NCLT). The Appellant claimed to have completed the entire work assigned by the Department of Irrigation and to have received full payment. However, this claim is contradicted by the fact that the Appellant abandoned the project in July, 2017 after completing only 11 steel gates. The Appellant also presented a purported letter indicating acceptance of the work and payment, which the Respondent alleges is forged. The Department of Irrigation has filed a criminal complaint against the Appellant based on this allegation.

The Respondent raised a dispute regarding the work completed by the Appellant through a communication dated September 11, 2018. After verifying the work done, the Respondent determined that the Appellant had been overpaid by approximately Rs. 2,12,35,200.

The Appellant acknowledged receipt of the Respondent's communication on September 17, 2018, and requested a meeting to resolve the outstanding issues. This response indicates that the Appellant did not admit to any debt and that a dispute existed prior to the initiation of insolvency proceedings.

The Appellant's claim of a debt amounting to Rs. 5,92,95,098 is inconsistent with the fact that the Respondent had to pay Rs. 9,25,10,038 to a third party, Hoisto-Structures and Equipment's Pvt Ltd, to complete the remaining work.

The Appellant has concealed crucial documents and based their appeal on two primary arguments:

The Appellant filed a false affidavit with the petition, claiming an admitted debt despite the dispute raised on September 11, 2018. Under Section 3(12) of the IBC, a debt is defined as unpaid when it is due and payable. Given the terms of the sub-contract agreement and the pre-existing dispute, the alleged debt is not due.

The demand notice is barred by limitation due to the existence of a dispute raised before its issuance. The last invoice is dated 24.06.2017 whereas the statutory demand notice was issued dated 27.12.2021 by the OC which was duly replied on 07.01.2022. The present petition has been filed on 21.2.2022, and is therefore, clearly barred by limitation. Respondent places reliance on the judgement of Hon'ble Apex Court in Sagufa Ahmed & Orts Vs. Upper Assam Polywood Products Pvt Ltd in [(2021)2 SCC 317]. This judgment clarified that the period of limitation and delay cannot be condoned by the extension granted in Suo Moto Writ Petition No. 3 of 2020. Operational Creditor is not entitled to the benefit of orders of the Hon'ble Apex Court in Suo Moto Writ Petition No.3 of 2020 which extended limitation only as reported in the subsequent judgment reported Sagufa Ahmed (supra).

Heard Ld. Counsels for the Appellant as well as the Ld. Counsel for the Respondent and perused the averments made in the appeal. The relevant documents annexed with the submissions have also been examined.

The underlying dispute arises from two agreements between the Appellant and the Corporate Debtor (Respondent) pertaining to a barrage project awarded to the Corporate Debtor by the Superintending Engineer, Flood Works Circle Department of Irrigation, Govt. of U.P., Bareilly for the "Construction of Ramganga Barrage, Upstream & Downstream Guide Bund and Main Canal Head Regulator", which was partly subcontracted by the CD to the Appellant.

The Appellant contends that it fulfilled its contractual obligations by duly supplying the materials and completing the installation work as per the agreements. Invoices reflecting the agreed-upon charges were also submitted to the Respondent. Despite partial payments, the Respondent failed to settle the invoices in full, resulting in a significant outstanding debt. Communication efforts were made by the Appellant to address the outstanding payment, including emails dated May 11, 2017, and May 13, 2017, requesting the Respondent to release the outstanding payment. It is claimed that the Respondent acknowledged the outstanding amount in their email dated July 7, 2017, and shared the ledger account showing an outstanding amount of Rs. 5,20,70,840/- as of March 27, 2017. This amount increased to Rs. 5,92,95,099/- as per another ledger account shared on July 11, 2017. Despite these acknowledgments, the Respondent raised a claim of excess payment in an email dated September 11, 2018, which was promptly refuted by the Appellant in their response dated September 17, 2018. Following the non-responsive stance of the Respondent, the Appellant sent a legal notice demanding payment on December 3, 2021, and a statutory Demand Notice on December 27, 2021. The Respondent replied to this notice on January 7, 2022, raising disputes over the claimed amount. Subsequently, a petition under Section 9 of the Code was filed by the Appellant on February 21, 2022, mentioning the outstanding principal amount of Rs. 5,92,95,099/-plus interest. The Adjudicating Authority dismissed the petition on the grounds of limitation, which was later set aside by this Appellate Tribunal, reviving the Section 9 Application.

Per contra, the Respondent contends that the project was never fully completed or commissioned due to defects identified by the Ministry of Irrigation, UP Govt. The Respondent alleges that the Appellant abandoned the project in July 2017 after completing only 11 out of 17 gates, resulting in the reassignment of the remaining work to Hoisto-Structures and Equipment's Pvt Ltd. The Respondent had raised a dispute regarding the completed work on September 11, 2018, determining that the Appellant was overpaid by approximately Rs. 2,12,35,200 after verifying the work done. Further the Respondent challenges the authenticity of documents submitted by the Appellant, including a purported acceptance letter, alleging it to be forged. The Appellant’s claim of a debt amounting to Rs. 5,92,95,098 is inconsistent with the fact that the Respondent paid Rs. 9,25,10,038 to a third party, viz, Hoisto-Structures and Equipment’s Pvt Ltd, to complete the remaining work.

The main issue before us is whether there is a Pre-existing dispute with respect to the amount claimed to be due in the present appeal or not.

The Appellant’s argument that the Respondent admitted the debt in communications dated July 11, 2017, and August 16, 2018, is based on ledger statements of invoices, not an admission of debt. Payments were to be made at various stages as per Clause 7.1, which the Appellant failed to achieve. The payment schedule stipulated in the sub-contract agreements clearly indicates that final payment is contingent upon project completion and commissioning, which was not achieved. The admissibility of further payments is therefore questionable and the question of debt doesn't arise.

The Respondent had also raised the dispute regarding the quality of work and overpayment, evidenced by their communication dated September 11, 2018, which is reproduced as follows:

The Appellant's acknowledgment of this dispute in their response dated September 17, 2018, further confirms the existence of a dispute much prior to the initiation of insolvency proceedings. The email is as follows:

The Appellant had acknowledged the Respondent's communication on September 17, 2018, and also accepted the matter of foreclosure of erection contract and requested a meeting to resolve outstanding issues. The emails exchanged between the parties on September 11, 2018, and September 17, 2018, indicate a pre-existing dispute regarding the alleged overpayment and the quality of work completed by the Appellant. It is to be noted that the Respondent raised the dispute on September 11, 2018, well before the demand notice issued under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC) on December 27, 2021. All this goes to confirm a pre-existing dispute before the insolvency proceedings.

Furthermore, both sides have made allegations of Forgery against each other. The Appellant presented a letter indicating work acceptance and payment, which the Respondent alleges is forged. It appears that the Department of Irrigation, U.P. Govt. had also filed a criminal complaint against the Appellant. This has also been noted by the Adjudicating Authority in the impugned order.

Appellant has raised the issue of forgery of termination notice. The Appellant claims that the termination notice dated February 13, 2018, is forged and was never served. However, from this email quoted supra the Appellant had accepted the matter of foreclosure of erection contract and giving of this balance work to other contractor. The remaining work was then assigned to Hoisto-Structures and Equipment’s Pvt Ltd, as acknowledged by the Appellant into the verified dated September 17, 2018 (supra). Thus, the claim of forgery regarding the termination notice contradicts the Appellant’s own communications and conduct.

The Respondent's allegation of forged documents and the Appellant's failure to complete the work further support the existence of a pre-existing dispute, which doesn’t appear to be a moonshine. The Respondent's actions, such as reassigning the remaining work, align with the termination of the contract, contradicting the Appellant's claim. Without looking into the genuineness of claims and counter claims of forgery by both parties, we still come to the conclusion of the pre-existing dispute basis other facts on record as noted in the previous paragraphs.

The Respondent's reply to the statutory demand notice dated January 7, 2022, further substantiates the existence of a pre-existing dispute. The Respondent highlighted issues such as alleged substandard material and incomplete work, which were not addressed by the Appellant satisfactorily.

If the issue on hand is examined from the perspective of the contractual obligations and payments, we note that the sub-contract agreements stipulated payment schedules contingent upon the completion and commissioning of the project. It is to be noted that sub-contract agreement at Clause 4.2 provides for date of completion of works to be 31.12.2013. Admittedly, from the material on record, it is clear that there has been delay in completion of the work. As the work was not completed in time, Respondent engaged someone else which is admitted by the Appellant in their email dated 17.09.2018. Furthermore, Clause 7.1 of the same sub-contract agreement provides for payment schedule which is as follows:

It is to be noted that both sub-contracts specified a payment schedule in Clause 7, stating that 85% of the contract value was payable at certain stages, and the remaining 15% was payable upon full commissioning of the project. The Appellant did not complete the project, finishing only 11 out of 17 gates by July 2017, when they abandoned the site. Therefore, we cannot conclude that the Appellant's claim for the outstanding amount aligns with the contractual terms, as the project was not completed or commissioned. Since there were claims and counter claims leading into a dispute. These cannot be gone into by us under the framework of the Code. We leave it open for both parties to agitate them in appropriate forum.

Respondent has also raised the issue of limitation and claims that petition is barred by limitation, as the statutory demand notice was issued on December 27, 2021, well beyond the prescribed period from the date of the last invoice. The issue of limitation was taken up by the Adjudicating Authority in its order dated 11.05.2022 in which it was noted that since the first default had occurred in April 2013 and the present application is filed on 23^rd February 2022 and where as in terms of Article 137 of the limitation Act, the applicant is required to file an application within 3 years, when the right to apply accrues. Since the invoices had been raised from 2013 and the applicant claims that the amount was also defaulted in the year 2013. Therefore, the first date of the default was in the year 2013, when the payment of the invoices was due and not paid period. Hence the present application is barred by limitation and was dismissed. The same was challenged by the Appellant before this Tribunal vide order dated 26.09.22 had ordered that:

The issue of the limitation was settled by this Tribunal in its earlier order as noted above and had not gone into the merits of the case. Now since the Adjudicating Authority has gone into the merits of the case and they find sufficient material evidence on record that there is a pre-existing dispute, only this aspect needs to be considered by us while deciding the fate of the appeal.

We find that the main ground basis which the Appeal cannot be accepted is existence of Pre-existing dispute which is not a moonshine which is noted in earlier part of this judgement. For such situations of pre-existing disputes, Hon’ble Supreme Court in Mobilox Innovation Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC 353 at para 40 had held as under:

The Corporate Debtor had raised a plausible contention about a pre-existing dispute, which in the instant case is not a moonshine or feeble legal argument. Therefore, the Adjudicating Authority was not incorrect to reject the application filed under Section 9 of the Code.

The Appellant has placed reliance on Soham Polymers Pvt. Ltd. Vs. Flocksur India Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 924 of 2021) of this Hon'ble Tribunal which in its order dated 14.02.2022 has held that a dispute raised by the Corporate Debtor solely with an intent to create a smokescreen of the dispute would not constitute as "pre-existence of dispute" under the scheme of IBC, 2016. The facts of that case are different as in that case there was no dispute raised prior to the issuance of Section 8 notice period. But in this case lot of disputes have risen before the issuance of Section 8 notice. Therefore, this case may not of help to the Appellant.

On the basis of the materials on record, it can be observed that in the instant case there were agreed-upon tasks which remained incomplete, and dispute regarding the payment amount existed prior to issuance of Demand Notice by the Petitioner to the Respondent. Based on the detailed analysis and appraisal of the facts and contentions presented, it is evident that there exists a pre-existing dispute between the Appellant and the Respondent, which is not moonshine. Consequently, the Appeal is rejected, and the Impugned Order dated May 7, 2024, passed by the NCLT dismissing the petition filed under Section 9 of the IBC is upheld.

The Appeal is dismissed. The Order dated May 7, 2024, of the National Company Law Tribunal, New Delhi Bench-V, in Company Petition (IB) No. 298 of 2022, is hereby affirmed. No order as to costs.