South Delhi Municipal Corporation vs MEP Infrastructure Developers Limited

Per: Chandra Bhan Singh, Member (Technical)

This is an application being CP(IB) 246/MB/2021 filed by South Delhi Municipal Corporation, Operational Creditor/Petitioner, under section 9 of Insolvency & Bankruptcy Code, 2016 (Code) against MEP Infrastructure Developers Ltd., Corporate Debtor, for initiating Corporate Insolvency Resolution Process (CIRP).

In the requisite Form, under the head “Particulars of Operational Debt” the total amount in default is stated to be Rs. 788,45,20,136/-.

The Petitioner is a statutory body incorporated under the Delhi Municipal Act, 1957 having the responsibility of monitoring, upgrading and developing civic amenities which are enshrined to it under the statute as detailed in Delhi Municipal Act, 1957.

The Corporate Debtor is a public limited company, incorporated on 08.08.2002. The Corporate Debtor is classified as Non-govt company and is registered at Registrar of Companies, Mumbai. It is involved in building of complete constructions or parts thereof; road infrastructure, etc.

The Petitioner submits that the one of the main sources of revenue for the Municipal Corporations under Section 113(2)(g) of the Delhi Municipal Act, 1957 is the collection of Toll Tax from commercial vehicles entering Delhi from 124 toll points around Delhi.

Since the Corporation themselves do not have the manpower to collect Toll tax and monitor the huge daily cash collection of almost Rs. 3,00,00,000/- per day from 124 toll points around Delhi, the said work is given on a lumpsum contract to third parties. After following the due tender process, the Corporate Debtor was awarded the contract on 28.09.2017 for a period of 5 years since it was the highest bidder at Rs. 1,206 crores per annum. Accordingly, it was agreed that the Corporate Debtor will pay the lumpsum amount of Rs. 1,206 crores in 52 equal weekly instalments amounting to Rs. 23.19 crores (approx.) per week irrespective of the actual traffic or actual toll collection.

However, the Corporate Debtor started making defaults and made delayed remittances to the Petitioner from the beginning itself, for which penalties were imposed on the Corporate Debtor from time to time as per Clause 12.1A(b) of the duly signed and agreed contracts.

Thereafter several intimations of outstanding pending payment/penalty amount were issued by the Petitioner to Corporate Debtor vide letters dated 03.11.2017, 08.11.2017, 04.12.2017, 26.04.2018, 18.05.2018, 05.06.2018, 22.06.2018, 29.06.2018, 04.07.2018, 20.07.2018, 06.09.2018, 01.10.2018, 08.11.2018, 19.11.2018, 01.02.2019, 22.02.2019, 12.04.2019, 12.06.2019, 31.07.2019 and 24.10.2019. in response the Corporate Debtor vide its letters dated 29.05.2018, 01.06.2018 and 07.06.2018 made categorical assurance to pay outstanding dues and further promised that outstanding dues will not exceed that the performance security available with the Petitioner. Some of the letters in this regard were issued by the Corporate Debtor on 26.11.2018, 02.02.2019, 25.02.2019, 13.05.2019, 21.05.2019, 19.06.2019, 05.08.2019, 04.10.2019 and 09.10.2019.

Thereafter, the Petitioner issued a demand notice for Rs. 450.69 crores on 18.11.2019. Subsequently, vide letter dated 19.11.2018, the Corporate Debtor acknowledged that the cheques were given as additional security and requested the Petitioner to withhold deposit of said cheques and confirmed that the weekly remittance will be made through RTGS/NEFT on regular basis. Thereafter, several letters giving clear cut acknowledgement of making agreed weekly remittance were sent by the Corporate Debtor to the Petitioner, but the Corporate Debtor continued repeated defaults in making agreed remittance to the Petitioner. The Corporate Debtor also requested the Petitioner not to take coercive action against it but at the same time the Corporate Debtor never kept its promises.

The Petitioner mentions that the Corporate Debtor resorted a series of litigations before the Hon’ble High Court of Delhi:

The Corporate Debtor filed various motions before the Delhi High Court till the learned Single Judge in W. P. 2241 of 2020 passed an interim order dated 12.06.2020 on an application for modification of order dated 02.03.2020, holding that the termination notice dated 16.03.2020 was null and void mainly on the ground that the Bank Guarantees were available to be encashed by SDMC as on 09.03.2020 and 15.03.2020 and such as non-payment by MEP could not be held as default/ violation of order dated 02.03.2020. also, that the first instalment was due only on 17.03.2020 and that the termination notice dated 16.03.2020 was wrongly issued a day earlier. Though there were another default committed by the Corporate Debtor i.e., not depositing PDCs. The issues raised before the Hon’ble High Court vis-à-vis the question of fact was liable to be adjudicated before a Civil Court, however, the Corporate Debtor has maliciously commenced several bouts of litigation at Delhi High Court in an endeavour to deny statutory dues to the Petitioner and others.

It is most pertinent to highlight here that what transpired through the above spate of litigations was most exclusively relating to circumstances arising post COVID-19, more particularly the issue of force majeure which has been acknowledged in the interim order of the Ld. Single Judge. However, all the liabilities of the Corporate Debtor under the Agreement, arising pre COVID-19, stand as it is. There is no dispute in respect of such pre COVID -19 amounts which have become due at different points in time before 25.03.2020 and the Corporate Debtor continues to be in default of such payments without demur.

The Petitioner mentions that the Petitioner as well as the Corporate Debtor challenged the interim order dated 12.06.2020 in LPA No. 165 of 2020 and LPA No. 167 of 2020 before the Division Bench of Hon’ble High Court. The Ld. Division Bench, upholding the said order of the Ld. Single Judge, permitted the LPA No. 165 of 2020 to continue operating the 124 toll points with the sole intention to avoid public inconvenience. However, the LPA No. 165 of 2020 in complete disregard to its obligations, was still remitting meagre amount of Rs. 2.75 lakhs a day towards toll tax, and it is only after SDMC made efforts through various random surveys to assess the actual collection is being deposited as per direction of Hon’ble Court.

The Petitioner mentions that although, Ld. Division Bench has upheld the direction of the Ld. Single Judge that Corporate Debtor be allowed to deposit the actual Toll tax it collects less 7.5% completely ignoring the terms of the contract. Yet, the Petitioner adds that there is no change in the position in respect of the collections done before 25.03.2020. the said collections are still regulated by the unchallenged order of the Ld. Single Judge dated 26.11.2019.

The orders passed by the Ld. Single Judge as well as Division Bench in W. P. No. 12483 of 2019 and No. 2241 of 2020 with the LPA bearing No. 165 of 2020 and 167 of 2020 have time and again been blatantly disregarded and not complied with despite clear extant directions. The Petitioner mentions that none of the said orders have absolved the Corporate Debtor of its underlying financial obligations under the contract including any penal interests and statutory obligations such as ECC.

The Petitioner submits that the Corporate Debtor has enjoyed the benefits of all the orders dated 26.11.2019, 02.03.2020 and 20.04.2020 passed by Ld. Single Judge and the orders dated 20.03.2020, 25.06.2020 and 28.07.2020 passed by the Hon’ble Division bench of the High Court but has deliberately and knowingly defied the conditions imposed by each of these orders for collections made before 25.03.2020.

The Petitioner also mentions that the Corporate Debtor continues to avoid its clear obligations to pay the amounts due, more particularly claimed in Form 3 for the period pre-COVID 19. In response to the said notice has issued a callous reply claiming a dispute where none exist. The exception claimed by the Corporate Debtor in their reply to Form 3 notice citing dispute is completely misplaced and liable to be disregarded. Therefore, the Petitioner is compelled to approach this Hon’ble Tribunal under Section 9 of Insolvency and Bankruptcy Code, 2016.

The Corporate Debtor filed a reply and an Interlocutory Application No. 1670 of 2021 challenging the maintainability of the petition for the purported operational debt of Rs. 788,45,20,136/-. The Corporate Debtor in its reply and in Interlocutory Application No. 1670 of 2021 raised the following contentions:

a. This Bench lacks jurisdiction to decide the present petition. This petition is filed by the Petitioner as if it is an operational creditor. Bare perusal of the facts and documents executed between the parties clearly demonstrate that the present petition is not for an operational debt as the Petitioner is not an operational creditor.

b. The Petitioner has failed to demonstrate that the claim made in the present petition is an operational debt. Section 5(20) of the Code, defines an “operational creditor” to mean “a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.” In turn, Section 5(21) defines an “operational debt” to mean “a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central government, any State Government or any local authority.” Therefore, an operational debt is essentially a claim in respect of the following:

If the claim by way of debt does not fall under any of the three categories as mentioned above, the claim cannot be categorised as an operational debt, even though there may be a liability or obligation due from the Corporate Debtor to the creditor. Hence, such a creditor is disentitled from maintaining a petition for initiation of Corporate Insolvency Resolution Process of the Corporate Debtor.

c. There is no case of goods or services being rendered to the Respondent by the Petitioner. Further, the purported claim is not arising under any law for the time being in force that is payable any local authority, but a claim under a contract. As far as the Government or local authority is concerned, they can only approach this Bench if the dues are payable under any law and not otherwise. Whereas, it has been specific case of the Petitioner before the Hon’ble Delhi High Court that this is a claim arising out of a contract which has been and is riddled by disputes. Even otherwise there is no liability of tax against the Respondent.

d. The Respondent submits that the claim of the Petitioner comprises of different heads which are illegally clubbed in one petition, which is otherwise not permissible. These claims comprise of disputed contractual dues without considering the claims of the Respondent against the Petitioner which is much higher in number. Toll charges under the contract. These claims also wrongly include Environment Compensation Charge and disputed amount of penalty on account of delay in deposition of toll or environmental cess, NHAI toll, RFID tag charges etc. These claims are separate and distinct arising out of separate transactions or arrangements. Some of them are not even entitlement of Petitioner, still they have been clubbed in same petition, though they have different causes of action. In these circumstances, the petition deserves to be dismissed on this ground itself.

e. According to the Petitioner the debt has fallen due on 02.10.2017 and therefore, the petition filed after the period of 3 years is barred by law of limitation. The payments made by the Respondent were made under protest and under orders of the Hon’ble Delhi High Court and therefore, the same cannot be considered as part payment to revive the period of limitation. It is admitted by the Petitioner in its own demand notice that the default occurred in 2017. Having failed to take any steps within the period of limitation prescribed, there is default on the part of the Petitioner. There is no acknowledgement of any outstanding amount on the part of Respondent and in fact, the Respondent has in series of correspondence contended that it is not liable to pay any amounts. Further, it was also contended by the Respondent in its correspondence with the Petitioner that in fact it is entitled to recover substantial amounts from the Petitioner and any payment made by the Respondent under protest or under the orders of the Court cannot be considered as an acknowledgement of debt.

f. There is no default on the part of the respondent herein. In fact, there is a breach of contract and default on the part of the Petitioner, which is a subject matter of dispute. In view of the above, the petition deserves to be dismissed.

g. The Petitioner in the present petition is guilty of a gross misrepresentation of facts as it has sought to portray to this Bench that its claim in the captioned petition is a crystallised and an undisputed sum. h. On the date of issuance of notice and on the date of filing of petition, Writ petition No. 2241 of 2020 filed by the Respondent challenging the demand notice dated 14.02.2020 was pending before Hon’ble Delhi high court in which in there were interim orders operating. Apart from this, there are multiple proceedings filed by both Petitioner and respondent before the Hon’ble Delhi high Court and Hon’ble Apex Court which would clearly demonstrate that there are genuine and pervasive disputes which have arisen between the parties and such disputes ought to be adjudicated by a civil court or by an arbitral tribunal after conducting a trial.

j. Similar observations were made by the court in its order dated 09.04.2021, while disposing of Writ petition (C) No. 2241/2020, wherein the court took the view:

k. The multiple proceedings pending with respect to the alleged operational debt and the observations of the Hon’ble Delhi High Court makes it apparent that there are disputes which have arisen between the parties, and that these disputes are yet to be adjudicated by a Civil Court. In these circumstances, any attempt by the Petitioner to portray to this bench that there is a crystallised, undisputed operational debt payable by the Respondent and that this position follows from an order dated 26.11.2019 of the Hon’ble Delhi High Court in nothing but an attempt to mislead.

l. Prior to dealing with the grounds on which the captioned petition ought to be dismissed, the Respondent would like to place on record the facts and events that transpired between the parties herein, which are pertinent for adjudication of the present petition.

m. The parties to the present petition had entered into a Toll Collection Agreement dated 28.09.2017. while the Respondent’s role under the contract was collect toll, it was also entitled to collect certain penalties. Needless to state, the Respondent by then was one of the foremost till-booth operators and infrastructure developers in the country. Even today, the Respondent continue to successfully manage the iconic Bandra-Worli Sea/Link in Mumbai. However, only a few months into contract with the Petitioner, several glitches arose which curtailed the amount of toll that the Respondent would have collected.

n. The Respondent submitted that from December, 2017 till date, on multiple occasions, the Respondent has raised various claims for the losses suffered by it as a result of the dereliction of obligations on part of the Petitioner. The Respondent also has raised claims to the tune of Rs. 48,38,05,67,569/- by their letters dated 15.07.2021. The said letters set out in details the computation for loss of revenue accrued to the Respondent as a result of various reasons inter alia leakage of traffic due to usage of free lane by commercial vehicles, evasion of toll tax at 13 border points by commercial vehicles, and also due to the COVID-19 pandemic. The claims raised by the Respondent are amply substantiated by the computations provided with the aforementioned letters.

o. The petition under Section 9 need not be entertained by this Bench where there are pre-existing dispute in relation to the operational debt claimed. The Hon’ble Apex Court has in fact taken a view that the court does not need to be satisfied that the defence is likely to succeed and does not need to examine the merits of the dispute.

p. There are pre-existing disputes in relation to the purported operational debt claimed by the Petitioner and in light thereof, the captioned petition is not maintainable.

The Petitioner filed a rejoinder to the reply filed by the Respondent and a reply to Interlocutory Application No. 1670 of 2021 reply to made submissions as follows:

a. The claim of the Respondent that the dues claimed by the Petitioner are not “operational debt” is wholly misplaced. The power of toll collection ultimately flows from Section 113 of the Delhi municipal Corporation Act, 1957.

b. The Delhi Municipal (Toll tax) Byelaws, 2007 (2007 Bye laws) were promulgated. Clause 4 of the said byelaws provide as follows:

c. The Delhi Municipal Corporation has power under Section 455 of the DMC Act vide which the Corporation can recover any sum due to the DMC on any account under DMC Act or any byelaw thereunder as an arrear of tax.

d. The aforesaid provision read with Section 156 of the DMC gives the power to the Commissioner to recover such sums in the nature of arrears of tax. The same understanding has been very categorically laid out in the Agreement dated 28.09.2017 between the Petitioner and the Respondent.

e. The sums dues from Respondent to the Petitioner are payment of dues arising under the DMC Act and payable to SDMC. Accordingly, the claims of the Petitioner are very well operational debt under IBC.

f. The claims arising out of toll and penalty relating thereto are only considered, even then the said claims are much above the threshold limit of rupees one crore.

g. The various writ petitions and LPAs filed by Respondent are nothing but a moonshine to save itself from CIRP. In this line of litigations raised by Respondent, the LPA No. 145/2021 before the Division bench of Hon’ble High Court in nothing but another frivolous litigation. The frivolity of it is highlighted by the fact that the respondent itself doesn’t find any way merit in the matter and has already moved for withdrawal of the same vide application dated 30.04.2021.

h. The Petitioner had raised its initial demand of Rs. 450.69 crore vide demand notice dated 18.11.2019 already annexed as Annexure I-1 to the main petition, Respondent has neither refuted not paid a single penny to the Petitioner. All proceedings and orders thereafter are nothing but mere interim arrangements inter se the parties towards continuing the possession of the toll plazas. The amount payable on 18.11.2019 is pre-pandemic and squarely undisputed. This fact alone makes the petition under Section 9 of INC admissible against Respondent who has unequivocally raised moonshine disputes in an endeavour to avoid paying the fiscal liability arising out of the agreement.

This Petition has been filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 by the South Delhi Municipal Corporation (SDMC) against MEP Infrastructure Developers Limited (MEPL). The Petitioner’s claim of operational debt is under a Toll Tax Collection Agreement. Under this Agreement, toll taxes are to be collected by the Respondents from commercial vehicles entering Delhi from the 124 toll points around Delhi. This debt arises under a contract. The total amount under this contract is for a period of 5 years. The operational debt claimed by the Petitioner under Part-IV of Form 5 of the Petition is about Rs. 788,45,20,136/-.

The Bench is beset with mainly two sets of issues for consideration. The first one being whether the amount being claimed falls in the realm of the ‘operational debt’. The second issue for consideration under this Petition is whether the claim is a crystallized and undisputed sum.

The Bench notes that it has to be demonstrated by the Petitioner that the claim is an operational debt as defined in Section 5(21)

Therefore, it is to be seen in this case that this operational debt claimed by South Delhi Municipal Corporation is a claim in respect of at least one of the following :-

a. Provision of goods; or

b. Provision of services, including employment; or

c. A debt arising under any statute and payable to Government/ Local Authority.

The claim is based on an Agreement where the Petitioner has appointed the Respondent as a “Contractor” to collect toll tax from commercial vehicles. This is evident from Clause 1 of the Agreement which reads as under: -

(emphasis supplied)

Therefore, it is clear to the Bench that Petitioner is not providing any goods or services to the Respondent and to that extent is not covered under the definition of Operational Debt u/s 5(21).

That the Petitioner is not providing any service to the Respondent is also made clear by several Judgments of Hon'ble NCLAT. In this regard the Respondent has referred to the Hon'ble NCLAT Judgment of 20.08.2020 in the matter of “Andal Bonumulla v/s Tomato Trading LLP”;

Another Judgment which this Bench can refer to and as given by the Respondent in their submissions relate to Hon'ble NCLAT Judgment on 24.01.2019 in the matter of “Kavita Anil Taneja v/s ISMT Limited”;

However, let us see whether the operational debt claimed in this case, is with regard to payment of dues arising under any law and payable to Central Government/ State Government or any other local authority under Section 5(21) of IBC.

It is to be noted here that if the claim does not fall into any of these categories, then the claim cannot be categorised as an ‘operational debt’. In the present case, the Petitioner has not pleaded any supply of any goods or services being rendered by the Petitioner. However, the Petitioner claims that the debt falls under the ambit of ‘operational debt’ in respect of payment of dues arising under any law for the time being in force and payable to Central Government or any State Government or any Local Authority. The Petitioner mentions that just because the Operational Creditor and Corporate Debtor had entered into a contract, does not render the dues as a due not arising out of a law.

It is the claim of the Petitioner that in the instant matter the contract is an outcome of a specialised legislation, that is, Delhi Municipal Corporation Act (DMC Act). To buttress its claim, the Petitioner mentions that under Section 455 of the DMC Act, the Petitioner has power to recover any sum due to the DMC on any account under the DMC Act or any bye-law thereunder as an arrear of tax.

The Petitioner mentions that the claim amount is a debt due under a statute. This, it mentions, is on the basis of Section 455 of DMC act which reads as under: -

Here the Bench notes that these dues do not fall within the category of “any charge, costs, expenses, fees, rates or rent or any other account”. However, the Petitioner mentions that its claim is covered as “recoverable from any person from whom such due is due as an arrear of tax under this act”. In this regard it is very pertinent to see whether the phrases (a) dues which are recoverable as arrears of tax are the same as (b) dues which are tax arising under the statute. The Bench is of the view that there is a distinction that Section 455 is indicating regarding the recovery mechanism which exists for recovering taxes which can be used for recovering such dues. Therefore, the words as “an arrear of tax” and not “dues which are tax”.

The Bench is of the view that, amount recoverable as ‘arrears of tax’ is quite different from ‘tax arising under statute’. The Bench is of the view that what is covered in Section 5(21) is ‘tax arising under the statute’ which is not the same thing as any due which only for the recovery mechanism is termed as “an arrear of tax”.

The Bench is also of the view that the word “recoverable from any person from whom such sum is due as an arrear of tax under this Act” introduces deeming fiction that the dues can be recovered as an arrear of tax to take benefit of the machinery under the DMC Act. However, this does not make a contractual due which is the case in the instant matter, as a due converted into a tax. The distinction remains between (a) dues which are recoverable as arrears of tax, and (b) dues which are tax, arising under the statute. The Bench is of the view that, what is covered under Section 5(21) is the dues which are arising under the statute and not dues which are recoverable as arrears of tax. Emphasising upon this distinction, reliance has been placed by the Respondents on Judgment SICOM Limited & Ors v/s State of Maharashtra (this judgement relies on Builders Supply Corporation vs Union of India, (1965) 2 SCR 289)

Similarly, in the Judgment of Paramjeet Singh Patheja v/s ICDS it has been held as under:-

The Bench notes that in the above Judgment Hon'ble Supreme Court has observed that the legal fiction is not intended to convert an Award into a Decree for all purposes under all statutes - whether State or Central. In this case, the deeming fiction is restricted to the DMC Act and cannot be extended to cover another Act. In light of the above the Bench is of the view that the operational debt claim is not covered as “a debt in respect of payment of dues arising under any law for the time being in force”.

The Bench therefore is of the considered view based on the above that the claim of the Petitioner as “operational debt” does not meet the criteria as set out in Section 5(21) of IBC i.e. the claim of the SDMC does not fall in either if the following;

a. Claim in respect of goods and services;

b. Debt in respect of dues arising under any law in force and payable to the Government or any local authority.

The Bench notes that there are pre-existing ongoing disputes between the Petitioner and the Respondent pending before the Hon'ble High Court at Delhi in which there are several interim orders are currently under operation. There are multiple proceedings filed by both the Petitioner and the Applicant which points towards the fact that there are pre-existing disputes which have arisen between the parties and such disputes are to be adjudicated in a Civil Court or any other forum. Under IBC, 2016, at the Admission stage the Adjudicating Authority is to see whether there is a plausible contention which requires further investigation. Even if there is nascent cross-claim on substantial grounds the same is sufficient to dismiss the Petition of any Operational Creditor.

On the issue of pre-existing disputes, the Bench would like to refer to the often-quoted Hon'ble Supreme Court Judgment in the Mobilox Innovations Private Limited vs Kirusa Software Private Limited which reads as under:-

Similarly, the Bench would refer to another Judgment of the Hon'ble Supreme Court in the matter of Kay Bouvet Engineering Ltd. V. Overseas Infrastructure Alliance (India) Private Limited dated 10.08.2021 in which the apex Court held as under: -

The Respondent side in their submissions has quoted the Judgment and Order dated 06.11.2020 of the Division Bench of Delhi High Court which reinforces serious disputes between the parties. The relevant paras of the Hon’ble Division Bench of Delhi High Court reads as held as under:-

In this extant case, the Bench notes on 09.04.2021 Single Judge of the Delhi High Court had dismissed a Writ Petition of the South Delhi Municipal Corporation on the ground of maintainability without going into the merits. The Single Judge in its finding had mentioned that the parties would have to resolve the disputes in appropriate Civil proceedings;

Further on record there are several letters addressed to the Petitioner on issues such as (1) leakages on account of specified commercial vehicles using free lanes to escape payment of tax, (2) opening of eastern peripheral expressway and loss caused due to the same.

In fact, the Delhi High Court on 09.04.2021 has observed that these two parties, i.e., DMC and the MEP (Petitioner-Respondent) would have to resolve the disputes and enforce their respective rights in accordance with the Contract Act in appropriate Civil proceedings before an appropriate Court. In view of the above, the Bench has no doubt in its mind that this Petition filed u/s 9 deserves “dismissal”.

Based on the above facts, the Petition CP No. 246 of 2021 filed under Section 9 of the IBC is ‘Dismissed’. Consequently, the I.A. No. 1670 of 2021 filed by the Respondent in CP No. 246 of 2021 on maintainability of petition stands ‘Allowed’.