Xanadu Realty Limited vs T Bhimjyani Realty Private Limited

Per: Ms. Lakshmi Gurung, Member (Judicial)

This Petition has been filed by Xanadu Realty Limited (‘Operational Creditor’) against T Bhimjyani Realty Private Limited (“Corporate Debtor) to initiate Corporate Insolvency Resolution Process (“CIRP”) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Operational Creditor is a registered real estate agent having registration number A51900000593 under the provisions of RERA, 2016. The Operational Creditor entered into a service agreement dated 21.10.2022 for providing and rendering real estate sales, marketing and project management consultancy services (referred to as ‘2022 Agreement’) with the Corporate Debtor. The Corporate Debtor had availed the services of the Operational Creditor for its project Neelkanth Woods (Verraton) registered with MahaRERA bearing registration number PS 1700021698 (‘the Project’) as per the Agreement. Subsequently, invoices were generated for the services provided by the Operational Creditor to the Corporate Debtor including the retainer fee and service fee as envisaged in the Agreement.

The Operational Creditor had raised 13 (thirteen) invoices on the Corporate Debtor during the period from 16.11.2022 to 26.12.2023 as per details given below:

The invoices dated 16.11.2022, 22.12.2022, 05.01.2023, 03.02.2023, 03.03.2023 (Sr No. 1-5) have been paid in full. However, the balance invoices are either not paid or paid in part. The balance principal amount outstanding as on 22.01.2024 is Rs. 3,73,66,865/-.

As per the invoices and Agreement terms, delayed payments would attract interest charges. Clause 2 and 3 of the remarks section of the invoices states that the payment has to be made within 30 days from the date of invoice, and in the event of any delayed payment, interest would be charged at 1% per month compounded annually. Further, Clause 8.1 under Annexure I of the Agreement envisages the service fee calculated at 5.5% of the net revenue.

Clause 4 of the remarks section of the invoices further envisages that in the case of any queries, the same has to be raised within seven working days of receipt, failing which the amount mentioned in the invoice will be deemed accepted by the Corporate Debtor.

As per the petitioner, there has been exchange of emails between the Operational creditor and the Corporate debtor in relation to outstanding balance amount, gist of which is set in below:

Despite multiple reminders, the Corporate Debtor did not release the outstanding payment. Hence, the Operational Creditor issued a demand notice dated 29.01.2024 under section 8 of the Code, demanding payment of unpaid operational debt of Rs. 4,08,10,505/- within ten days.

The Corporate Debtor on 09.02.2024 replied to the demand notice dated 29.01.2024 stating that the Corporate Debtor had raised dispute and pre-arbitration formalities have been initiated which are pending. Thereafter, the Operational Creditor has filed the present Petition.

According to the Corporate Debtor, dispute was raised on 11.12.2023, much before the issue of the demand notice dated 29.01.2024 by the Operational Creditor. It was submitted that the CEO of the Corporate Debtor had communicated to the CEO of the Operational Creditor highlighting the problem relating to the services rendered by the operational creditor. To substantiate its submission the corporate debtor has annexed email sent from [email protected] (CEO of corporate debtor) to the Chief Executive Officer of the operational creditor viz. Mr. Vikas Chaturvedi and Managing Director Mr. Anurag Singhvi on e-mail ids [email protected] and [email protected]. It was communicated that there was breach of the contract dated 21.10.2022 by the Operational Creditor by sending communication from Sales Team of the Xanadu making some financial commitments including serious commitments of refund on behalf of the Corporate Debtor which were beyond the contract and which are contradictory to the policy of the Corporate Debtor and are also in violation of RERA guidelines.

The Corporate Debtor submitted that in email dated 11.12.2023, it is categorically mentioned that though the Corporate Debtor has received reminders from the Operational Creditor's accounts team to have a meeting to resolve the issue between the Operational Creditor and the Corporate Debtor, the Corporate Debtor had made it clear that such accounts issues are subject to the resolution of issues raised by the Corporate Debtor regarding the objectionable communications made by the Operational Creditor to the customers of the Corporate Debtor.

It was submitted that the Corporate Debtor was trying to resolve the dispute in terms of the 'Clause 13.6' of the Agreement, which warranted that the in the event of a dispute, the parties would try and resolve the dispute amicably through consultation by holding meetings at CFO/CEO level which required that if the dispute is not settled within 60 days dispute shall be settled by way of arbitration. Instead of resolving the dispute through consultation, the Operational Creditor has sent the demand Notice dated 29.01.2024, while the cooling period of sixty days was yet to expire for appointment of an arbitrator.

It is the case of the Corporate Debtor that while the Dispute Resolution Clause having been invoked by the Corporate Debtor vide communication dated 11.12.2023 and meeting held on 20.12.2023, the Operational Creditor, has sent Notice under Section 8 of the Code, as a tool to undermine 'Clause 13.6' of the contract. The corporate debtor had demanded an undertaking regarding the concerns raised by it. In the said meeting, it was understood that only upon receipt of such undertaking from the Operational Creditor's side, the Corporate Debtor would be in a position to consider the request for the resolution of the outstanding amount after examining the impact and the commercial implication of the e-mails sent by the Operational Creditor to various customers of the Corporate Debtor. It was explicitly understood in the said meeting that the Operational Creditor would be providing such undertaking(s) and thereafter, a payment schedule would be agreed upon as per reconciled accounts that would be finalised in subsequent meeting(s) if required.

It was further submitted that after the said meeting, the Operational Creditor addressed an e-mail on 05.01.2024, through one, Mr. Sharad Harave, which wrongly recorded a purported "next action" to be taken by CEO, of the corporate debtor, to share a draft note for closure on the point of the disputed communication and to provide a payment schedule to the Operational Creditor in respect of accounts.

Further aggrieved by such wrong recording of the gist of the meeting dated 20.12.2023, vide e-mail dated 11.01.2024, an e-mail was sent on behalf of the corporate debtor categorically pointing out that until the dispute is satisfactorily addressed by Xanadu it is not appropriate to seek commercial settlement of the matter.

It was submitted that the Corporate Debtor having already initiated the necessary steps as required under 'The Dispute Resolution/Arbitration Clause' provided under the Contract i.e. Clause. 13.6 and the pre-arbitration formalities have already been initiated, there is clear existence of a dispute.

It was submitted that on 19.10.2018, the Operational Creditor and the Corporate Debtor had entered into a Service Agreement (‘2018 Agreement’) under which the Operational Creditor provided real estate services, including sales and marketing-related services to the Corporate Debtor. In addition to the above, the Parties had entered into a Supplemental Agreement dated 23.01.2019, Addendum Agreement dated 05.11.2019 and Amendment Agreement dated 01.09.2020.

During the term of the 2018 Agreement, the Corporate Debtor issued cheques that were dishonoured. The Operational Creditor initiated proceedings under Section 138 of the Negotiable Instruments Act of 1881 ("NI Act") in the Metropolitan Magistrates Court, Andheri. The dispute under the 2018 Agreement and the 138 Compliant was resolved on 27.09.2022 by entering into a settlement agreement.

It was further submitted that the Corporate Debtor has alleged that it has invoked the dispute resolution clause of the service agreement dated 21.10.2022 but the alleged disputed transaction is under the 2018 Agreement and cannot and not under 2022 agreement. Therefore, it cannot be asserted as a pre-existing dispute. Further even assuming there was dispute, the parties have entered into settlement terms under the 2018 Agreement therefore, no dispute remains today.

An email addressed to the Operational Creditor by the Corporate Debtor dated 22.05.2023 demonstrates that the emails exchanged between the parties indicate a reconciliation of accounts rather than a dispute over the services rendered. On 06.06.2023, the Operational Creditor emailed the Corporate Debtor, indicating a reconciliation of accounts.

Additionally, the Corporate Debtor did not raise any specific objections or disputes regarding the invoices within the seven working days outlined in the Service Agreement (Clause 14.3). This failure to raise timely objections constitutes evidence of acceptance of the debt, thereby negating the claim of a pre-existing dispute.

On 02.11.2023, the Corporate Debtor addressed an email to the Operational Creditor requesting correspondence between a customer and the representative of the Operational Creditor for the period between 22.12.2019 and 26.12.2019 regarding the cancellation of a booking unit in the name of Mr. Devendra Gulati. It is pertinent to note that the information requested pertains to the 2018 Service Agreement under which the Operational Creditor had provided services to the Corporate Debtor. The corporate debtor had issued cheques which were dishonoured resulting into initiation of proceedings under Section 138 of the NI Act which was finally settled by way of settlement agreement dated 27.09.2022.

The Operational Creditor submitted that all disputes under 2018 Agreement were settled and the invoices were raised under the Service Agreement dated 21.10.2022, which states that payments must be made within 30 days from the invoice date as per Clause 14.5 of the Service Agreement. The Corporate Debtor's failure to adhere to this payment term constitutes a default, regardless of any alleged disputes raised subsequently.

It was submitted that the Corporate Debtor is referring to disputes under a previous Service Agreement dated 19.10.2018 unrelated to the current Service Agreement and the present proceedings. The earlier disputes were resolved through consent terms signed on 27.09.2022 and cannot be invoked to negate the default under the current Service Agreement. Moreover, the Corporate Debtor did not call upon the operational creditor to rectify any alleged defects within the seven working days specified, resulting in deemed acceptance. Therefore, the Corporate Debtor cannot belatedly assert a dispute after a more than six-month lapse.

The operational creditor has illustrated the following email communications between the parties:

Heard Ld. Sr. Counsel for the Operational Creditor and Ld. counsel for the Corporate Debtor and examined the material placed on record.

Considering the submissions of the parties, the question that arises for determination is:

The Operational Creditor and the Corporate Debtor had earlier entered into a service agreement on 19.10.2018 (2018 Agreement). Upon cheques issued by the Corporate Debtor, being dishonoured, the Operational Creditor initiated criminal proceeding under section 138 of NI Act. Subsequent to these proceedings, Operational Creditor and the Corporate Debtor entered into a Settlement Agreement dated 27.09.2022 for settling the payment against the dishonoured cheques.

Thereafter the parties entered into a fresh contract on 21.10.2022 (2022 Agreement) for providing services relating to real estate marketing, sales and project consultancy services. The Operational Creditor had raised 13 (thirteen) invoices on the Corporate Debtor during the period from 16.11.2022 to 26.12.2023. The first five invoices till 03.03.2023 were paid in full. However, the balance invoices remain outstanding for aggregate amount of Rs. 3,73,66,865/-.

Ld. Sr. Counsel for the Operational Creditor submitted that according to the Service Agreement, payments against invoices were due within 30 days from the date of each invoice failing which interest at 12% p.a. would be applicable. The Corporate Debtor has failed to make payment of eight invoices despite numerous reminders, emails, and requests for payment. The corporate debtor neither raised any dispute within the time frame as per the agreement nor released the payment of the invoices. Failure to pay the Operational debt within the stipulated period, constitutes a default under Section 3(12) of the Code.

Ld. Sr. Counsel for the Operational Creditor referred to the following clauses of the Annexure I to the Agreement dated 22.10.2022:

He has further referred to the Remarks mentioned on the Invoices, relevant portion is extracted below:

It was submitted that the Corporate Debtor neither raised any queries on the invoices nor made timely payments despite repeated emails and reminders. Therefore, operational creditor issued Demand Notice dated 29.01.2024 and has complied with the provisions of Section 8 and 9 of the Code providing the Corporate Debtor with a 10-day notice. However, the Corporate Debtor did not settle the outstanding debt or raise any valid dispute within time. Thereafter present petition under section 9 has been filed for default of payment of operational debt of Rs. 3,73,66,865/-(Principal amount), plus interest amount of Rs. 26,95,177/- and TDS amount of Rs. 7,48,464/- totalling to Rs. 408,10,505/-.

Refuting the submissions of the Operational Creditor, Ld. Counsel for the Corporate Debtor submitted that there is pre-existing dispute on the date of issue of the demand notice. The Corporate Debtor, vide its email dated 11.12.2023, has raised dispute and denied its liability to pay unless the problematic issues raised by it are resolved by the Operational Creditor and that the dispute raised much prior to the receipt of the demand notice.

In the said e-mail dated 11.12.2023, the Corporate Debtor had sought copies of all such communications made by the Operational Creditor with such customers, to whom correspondences with regard to cancellation and forfeiture were addressed by the Operational Creditor. Further, it was made clear that accounts issues/ remainder invoices could only be gone into pursuant to the resolution of issues raised by the alleged Corporate Debtor regarding the objectionable communications made by the Operational Creditor to the customers of the Corporate Debtor.

It was submitted that the Operational Creditor has belatedly addressed a response which did not remotely satisfy the Corporate Debtor’s concern i.e. not a single e-mail attached by the Operational Creditor contained a copy of any communication with an actual customer associated with the Corporate Debtor. It was further submitted that there being no acknowledgement of liability by the Corporate Debtor in view of the said email dated 11.12.2023, there existed a genuine dispute, in view of which present petition is not maintainable.

Per contra, Ld. Sr. Counsel for the Operational Creditor submitted that a pre-existing dispute must be genuine, timely raised, and must pertain to the claim. Since the dispute raised by the Corporate Debtor concerns a resolved issue of the 2018 Agreement, it cannot be leveraged to postpone payment under the 2022 Agreement.

Ld. Sr. Counsel for the Operational Creditor relied upon the case in Lata Construction and Others v. Dr Ramesh Chandra Ramniklal Shah and Another (2000) 1 SCC 586 on the principle of novation and contended that if the terms of two contracts are inconsistent and cannot coexist, the subsequent contract cannot be considered a substitute for the earlier one. It was submitted that once the consent terms are signed and the 2018 Agreement is concluded, the same cannot be asserted in the 2022 Agreement as it was a new agreement and had no connection to the earlier deal.

It was further submitted that the Corporate Debtor never raised any objections or disputes regarding the invoices or services under the 2022 Agreement during the period they were due. They failed to comply with the contractual requirement of raising objections within 7 days of receiving the invoice. According to Clause 14.3 of the 2022 Agreement, any dispute or query regarding the invoices must be raised within 7 days of receipt, failing which the invoice is deemed accepted. The Corporate Debtor did not raise any dispute within the required timeframe and there is no record of arbitration or legal action to resolve any dispute.

Ld. Counsel for the Corporate Debtor submitted that whether or not the dispute pertains to the year 2018 or under the agreement 2022 agreement is itself a disputed question of fact and triable issue which can only be decided by an arbitrator / Civil Court and further submitted that it has raised more than plausible disputes disputing the services provided by the Operational Creditor which require further investigation and cannot be decided in a summary proceeding under section 9 of the Code.

It is to be noticed that the Corporate Debtor had sent email on 11.12.2023 about certain problematic situation due to certain communication sent by Operational Creditor to the customers of the corporate debtor which was contrary to the policy of the corporate debtor and also not as per RERA guidelines and the Corporate Debtor demanded the copies of all such communications from the operational creditor. It would be relevant to reproduce the said email.

The Operational Creditor on 05.01.2024 replied to the Corporate Debtor stating as follows:

The Corporate Debtor in response sent an email dated 11.01.2024 stating:

The Operational Creditor on 11.01.2024 sent an email to the Corporate Debtor stating as follows:

From the perusal of above emails, it is clear that before the issue of the Demand Notice dated 29.01.2024 under Section 8 of the Code, the Corporate Debtor vide its email dated 11.12.2023 had raised certain concerns about problematic situation. While replying to the said email of the corporate debtor, the Operational Creditor vide email dated 05.01.2024, had thanked the Corporate Debtor to take out time to discuss open issue and also admitted for sharing of a draft note for closure on this point, indicating that some issue required to be closed between the parties.

We further note that the Corporate Debtor vide its email 11.01.2024 has stated that until dispute is satisfactory addressed it shall not initiate commercial settlement.

The Operational Creditor has submitted that the dispute raised by the Corporate Debtor is not genuine on account of the following reasons:

The Operational Creditor, in its rejoinder at Para 3.2 (ii) has stated that the alleged dispute is unrelated to the current proceedings. The relevant paragraph is reproduced herein under:

We also perused the details relating to the Settlement Agreement dated 27.09.2022. The cheques issued by the corporate debtor had dishonoured leading the Operational Creditor to initiate criminal proceeding under section 138 of Negotiable Instrument Act. Subsequent to the criminal proceedings under NI Act, the corporate debtor entered into a Settlement Agreement dated 27.09.2022 with the Operational Creditor for settling the payments towards the dishonoured cheques. There is nothing on record to suggest that the disputes raised by the corporate debtor on 11.12.2023, were settled vide Settlement Agreement dated 27.09.2022.

Whether or not the dispute raised by the corporate debtor pertains to 2018 Agreement or 2022 agreement and whether the dispute was resolved through Settlement Agreement dated 27.09.2022 or not itself are triable issues which need investigation and detailed trial and this Tribunal having summary jurisdiction under the Code cannot adjudicate on such triable issues.

Referring to Clauses 2, 3, 4 of the invoices and clause 14.3 of Annexure to the Agreement, the operational creditor has submitted that after the invoice having become due and payable and the corporate debtor not having raised any dispute within given timeframe under the contract, could not raise dispute and belated act of raising dispute is spurious and illusory. Relevant clauses are given below:

In the same very document of 2022 Agreement, we find clause on dispute resolution which reads as follows:

Thus, it is undisputed that the 2022 agreement envisages a dispute resolution mechanism, which provides that dispute be settled amicably by negotiations between the Parties through consultation and further by appointing a panel consisting of CFO/CEO level. If the dispute is still not settled, then the dispute or claim shall be finally settled by arbitration in accordance with the Arbitration and Conciliation Act, 1999.The Corporate Debtor has placed on record communication between the CEO of the Operational Creditor and Corporate Debtor and their efforts for closure of the issue and submitted that they had initiated the dispute resolution process in terms of clause 13.6 of the contract 2022 Agreement by initiating consultation process at CEO level, vide its email dated 11.12.2023.

The Operational Creditor has not placed any evidence to show that the parties had settled the issue amicably in terms of clause 13.6 of the contract while the Corporate Debtor has placed on record emails to show consultation at CFO and CEO levels. The Operational Creditor without waiting for 60 days issued demand Notice to the Corporate Debtor under section 8 of the Code which was replied within 10 days pointing out the dispute between the parties raised through emails before issue of demand notice. Therefore, we agree with the submission of the Corporate Debtor that as there is unsolved issue pending between the parties, which amounts to pre-existing dispute.

In SFO Technologies Pvt Ltd vs Vanu India Private Limited, the Hon’ble NCLAT has observed:

Another aspect needs to be noticed. The Corporate Debtor submitted that the accounts of the Operational Creditor and Corporate Debtor were under reconciliation which itself qualifies as a pre-existing dispute. We note that the Operational Creditor had sent an email dated 20.05.2023 to the Corporate Debtor seeking reconciliation which has been admitted by the Operational Creditor in its rejoinder. The said email is set herein under:

The Corporate Debtor, in response, sent an email dated 20.05.2023 stating as follows:

The Corporate Debtor once again vide its email dated 24.05.2023 had requested the Operational Creditor to reconcile accounts stating as under:

The Operational Creditor vide email dated 06.06.2023 replied to the email dated 24.05.2023 stating that they have reconciled the data sent by the Corporate Debtor. The email dated 06.06.2023 is reproduced herein under:

Without commenting whether the reconciliation was achieved or not, suffice to say that above emails are also indicative of reconciliation process and plotting of differences.

We also note that the Operational Creditor in the present case has relied on Vishal Vijay Kalantri v. DBM Geotechnics and Constructions Private Limited and Another (2021) 17 SCC 820 and Mobilox Innovations Pvt Ltd vs Kirusa Software Pvt Ltd (2017) (2018)1 SCC 353 to contend that the dispute raised should not be spurious, illusory and hypothetical.

The above cases do not aid the case of the Operational Creditor. The adjudicating authority has to ascertain the nature of dispute depending on the facts of each case and segregate the grain from the chaff.

In M R Logiostics (India) Private Limited Company Appeal (AT) (Insolvency) N0. 667 of 2020 the Hon’ble NCLAT, after referring to the Supreme Court judgment in Mobilox Innovations Private Limited v. Kirusa Software Private Limited [2018 (1) SCC 353] held as follows:

In East India Udyog Ltd vs. SPML Infra Limited ((2023) ibclaw. in 201 NCLAT) , the Hon’ble NCLAT held as follows:

In recent judgment delivered by Hon’ble NCLAT in M/s Morex Corporation Limited vs Jindal Poly Films Ltd. Company Appeal (AT)(Ins) No. 768/2024 dated 24.07.2024, it was observed:

Coming to facts of the present case we find the Corporate Debtor had vide letter dated 09.02.2024 replied to the demand notice dated 29.01.2024 giving notice of the dispute already raised by it. The relevant paragraphs from the reply of the corporate debtors are reproduced below:

In reply to the demand notice dated 09.02.2024 the Corporate Debtor had given notice of dispute stating that, Until the dispute was satisfactorily addressed by the Operational Creditor it was not appropriate to seek commercial settlement. The Corporate Debtor had further clearly stated that all the necessary steps as required under the Dispute Resolution/ Arbitration Clause as provided under the Contract i.e. Clause. 13.6 and the pre-arbitration formalities have already been initiated. On plain reading of the reply to demand notice it is clear that the notice of dispute has been received by the Operational Creditor and condition under Section 9(5)(ii)(d) is met with.

The provisions of Code can never be used as recovery proceedings. The Code is the last resort for resolution of insolvency of corporate debtor in case of clearly established debt and default. This Tribunal cannot enter into the field of adjudication of triable issues which need further investigation. It is not for the adjudicating authority under section 9 of the Code to examine the merits of the dispute raised by the corporate debtor and whether the corporate debtor will succeed or not. If the corporate debtor has successfully demonstrated a triable issue surrounding the dispute and notice of dispute was given to the operational creditor in reply to the demand notice, then the adjudicating authority shall reject the application as per section 9(5) (ii)(d) of the Code.

As held in Mobilox Innovations Private Limited v. Kirusa Software Private Limited [2018 (1) SCC 353] in section 9 application, the Adjudicating Authority has to examine whether there is a plausible dispute which requires further investigation and that such dispute is not spurious, hypothetical or illusory argument or an assertion of fact unsupported by evidence. In the present case, it is the admission of the operational creditor that the alleged dispute is under 2018 agreement and not under 2022 agreement, which indicates that the dispute is not patently feeble legal or spurious. As adjudicating authority need not satisfy that the defence is likely to succeed.

a. Various communications exchanged between the Operational Creditor and Corporate Debtor as extracted in the foregoing paragraphs, suggest that, efforts were made at CEO/CFO level to resolve the dispute/ differences in accordance with Clause 13.6 of the 2022 Agreement.

b. The Corporate Debtor had raised dispute vide email dated 11.12.2023 prior to issue of demand notice dated 29.01.2024.

c. Notice of dispute has been given to the Operational Creditor in reply dated 09.02.2024 response to Operational Creditor’s demand notice dated 29.01.2024 under Section 9 (5) (ii) (d) of the Code.

d. Whether the dispute raised by the Corporate Debtor pertains to the 2018 Agreement or 2022 Agreement itself requires detailed investigation and cannot be adjudicated in summary proceedings under Section 9 of the Code.

For all the reasons discussed above, the present Company Petition is rejected.