Yogesh Kundra vs Sew & Prasad Joint Venture & Anr.

[Per; V. P. Singh, Member (T)]

I had the opportunity to go through the judgement authored by my esteemed brother, Justice M. Venugopal, Member (Judicial). But with utmost humility and honour to brother Justice Venugopal, I wish to record my dissent on the following points.

Operational Creditor, i.e. SEW and Prasad JV (in short 'SPJV') (Respondent No. 1) and Corporate Debtor (in short 'CD') 'Gati Infrastructure Private Limited' (in short 'GIPL') agreed and executed an Agreement on 12 August 2006 to perform various civil and hydro-mechanical works of 99 MW power project in Sikkim. The project was to be completed by March 2009, but it was delayed and finally commissioned in 2013.

On account of delay in completion of the project, Corporate Debtor GIPL, Respondent No.1 Amrit Jal Venture Private Limited (in short 'AJVPL') along with other parties entered into a Settlement Agreement dated 14 December 2013, by which Corporate Debtor, i.e. GIPL agreed to pay ₹10,00,00,000/-(ten crores) to Respondent No.1 (SPJV) as full and final settlement of its liabilities towards Respondent No.1, i.e. SPJV. Further, Respondent No.1 also agreed not to initiate any legal proceedings against the CD. Given Agreement, 'AJVPL' decided to pay the remaining settlement amount to Respondent No.1.

The Appellants contends that under the terms enshrined in Clauses 2.3 and 2.7 of the Agreement dated 14 December 2013 mentioned above, the Corporate Debtor paid ₹10 (ten) crores to Respondent No.1, resulting in the due discharge of Corporate Debtor's liability towards Respondent No.1. However, 'AJVPL' paid only ₹ 4,38,62,120/- to Respondent No.1 and failed to pay the balance amount.

Respondent No.1 approached CD on 21 July 2014 for further payment against the withhold amount of ₹ 2.03 crores, which was to be paid after completion of work to the satisfaction of the Corporate Debtor.

On 22 March 2015, Respondent No.1, based on the Settlement Agreement dated 14 December 2013, wrote to Mr Sunil Gupta, Director of AJVPL, that the amount due from 'AJVPL' to the Respondent No.1 'SPJV' is to be paid to 'Sew Infrastructure Ltd', thereby admitting that the liability of Corporate Debtor GIPL stood satisfied in terms of Settlement Agreement.

On 20 May 2016, another 'MOU' was entered between Respondent No.1, AJVPL, Sew Infrastructure Ltd and Intercontinental Infrastructure Ltd. As per MOU, it was agreed that 'AJVPL' would clear all the outstanding dues of Respondent No. 1 (SPJV). After that, the entire dues of Respondent No. 1 (SPJV) was assigned to 'Sew Infrastructure Ltd' (in short, 'SIL').

After that, on 3 August 2017, Respondent No.1 (SPJV) changed its earlier stand and issued the demand notice U/S 8 of the I&B Code,2016 against the Corporate Debtor (GIPL), claiming default towards the payment of instalment as per the Settlement Agreement (the MOU) by AJVPL.

On 10 August 2017, Corporate Debtor sent a reply to the demand notice of Respondent No.1 (SPJV), invoking 'Arbitration' for the delay in completing the project; losses suffered by the Corporate Debtor; and the amount towards motorised door and restoration of land dump yards.

Respondent No.1 also filed an Application being CP (IB) No.8/9/HDB/2017 under Section 9 of IBC against 'AJVPL' for the same claim. However, on 17 September 2019, after admission of Petition, Respondent No.1 applied for withdrawal of the above Company Petition initiated against 'AJVPL', which was allowed by the Adjudicating Authority.

Arbitration Application No. 110 of 2017 filed by Corporate Debtor (GIPL) under Section 11 before the Hon'ble High Court was also dismissed on 4 August 2020.

After that, Respondent No. 1 (SPJV), by its letter addressed to RP of AJVPL, withdrew its claim from the said CIRP, which was also acknowledged by RP vide its email dated 14 October 2020.

The Appellant contends that the Settlement Agreement dated 14 December 2013 was entered between Corporate Debtor 'GIPL', Respondent No. 1 Operational Creditor SPJV, the holding Company of the Corporate Debtor, i.e. 'AJVPL', Mahendra Investment Advisors Private Limited (MIAPL), Arbitrators Mr Sai Ram and Mr C L Rajan.

Clause 2.3 of the said 'Agreement' explicitly provides that the Corporate Debtor (GIPL) shall pay ₹ ten crores to Respondent No.1 (SPJV). Upon payment of ₹ ten crores, the Corporate Debtor 'GIPL' shall have no further liability or obligation. Further, it was agreed that in case of default, Respondent No.1 (SPJV) could initiate action or proceeding against only the 'AJVPL' to exclude Corporate Debtor 'GIPL' from the recovery of the balance settlement amount. It is an admitted fact that the Corporate Debtor 'GIPL' paid ₹ ten crores on 24 December 2013 in terms of the settlement. Therefore, upon payment of ₹ 10 Crores, no further liability remained on the part of the Corporate Debtor 'GIPL'. Thus, there was no debtor-creditor relationship in terms of the Agreement between the Corporate Debtor (GIPL) and Respondent No.1 (SPJV) as of date.

The Appellant further contends that the Adjudicating Authority failed to consider all the relevant facts and material on record. The Appellant emphasised Clause 2.3 and Clause 2.7 of the Settlement Agreement dated 14 December 2013.

Clause 2.3 (page 107 of Appeal Paper Book) of Settlement Agreement dated 14 December 2013 reads as under;

Clause 2.7 of Settlement Agreement dated 14 December 2013 is as under;

The Appellant contends that as per Clause 2.3 of the Settlement Agreement dated 14 December 2013, the Corporate Debtor's liability was limited to ₹ 10 (ten) crores. However, it is undisputed that the said ₹ 10 (ten) crores payment was made on 24 November 2013. Thus the Corporate Debtor had no further liability or obligation regarding the Contract Agreement dated 12 August 2006 and Settlement Agreement dated 14 December 2013. Accordingly, as there is no "debt" and 'default' subsisting between the Operational Creditor, i.e. SPJV and Respondent Corporate Debtor, i.e. GIPL, a petition under Section 9 against the Corporate Debtor GIPL is not maintainable.

The Appellant has also pleaded that the debt owed to Respondent No.1 was assigned to 'Sew Infrastructure Ltd', which is evident from the letter dated 22 March 2015 as addressed by Respondent No.1 and as per Memorandum of Understanding (MOU) dated 20 May 2016. Copy of MOU is annexed with the Petition.

It is evident that the 'MOU' dated 20 May 2016 was executed between 'Sew Infrastructure Ltd'- 1^st Party, Amrit Jal Venture Private Limited (AJVPL)-2^nd Party, Intercontinental Infrastructure Ltd-3^rd Party and 'Sew-Prasad JV'-4^th Party.

The MOU reads as under;

The Learned Counsel for the Respondent-1/Operational Creditor submits that MoU dated 20 May 2016 (Annexure-4, page 17 of the Counter) was entered between the parties to transfer an amount of ₹ 8,00,00,000 (eight crores) to M/S Intercontinental Infrastructure Ltd by AJVPL, as M/S SEW Infrastructure Ltd was its Creditor. However, since AJVPL failed to pay the said amount of ₹ eight crores, the MOU has been terminated. Therefore, the said MOU as such is not in existence.

Respondent No. 1 claims that the Settlement Agreement in the form of MOU, dated 20 May 2016, stood terminated because of non-payment of ₹ eight crores as per the terms of the Agreement. It is pertinent to mention that the non-payment of the remaining amount given the terms of settlement dated 14 December 2013 is the basis of the Section 9 petition itself. The same is the situation with the terms of settlement dated 20 May 2016, wherein one of the Party to the Agreement committed breach of the terms of MOU and failed to make the payment of ₹ eight crores. How can Respondent No.1 claim that after the violation of the terms of settlement dated 14 December 2013, the said Agreement is not terminated and gives Respondent No. 1 the right to file Petition u/s 9 of the Code. Per contra breach of the terms of 3^rd MOU dated 20 May 2016 has resulted in the termination of the MOU and making it non-existent.

The Operational Creditor relies on the following email communications to demonstrate that the Respondent/Corporate Debtor had agreed to pay various amounts which were earlier agreed to be paid by AJVPL on behalf of the Respondent.

Based on the above mentioned 'MOU', the dues receivable to Operational Creditor 'Sew-Prasad JV' have been transferred/assigned to the 1^st Party, i.e. Sew Infrastructure Ltd (in short 'SIL') w.e.f. 20 May 2016. Therefore the question of maintainability of the Petition by Operational Creditor' 'SPJV' arises. Based on the assignment of debt to SEW Infrastructure Ltd, 'SPJV' does not remain an Operational Creditor of the Corporate Debtor 'GIPL'.

It is pertinent to mention that 'SEW Infrastructure Ltd' filed an Application on 7 May 2019 under Section 9 of the Insolvency and Bankruptcy Code 2016 against the holding Company of the Corporate Debtor, i.e. 'AJVPL'. The Adjudicating Authority admitted the Application, being CP (IB) No 192/7/HDB/2017. After that, on 17 September 2019, Respondent No. 1 filed an Application seeking withdrawal of CIRP initiated against AJVPL, which was allowed. The said withdrawal was acknowledged by the RP, vide its email dated 14 October 2020. On 12 October 2021, vide its letter, addressed to the RP of AJVPL, the Operational Creditor 'SIL' withdrew its claim from the said CIRP proceedings.

Based on the above, it is clear that there was no debtor-creditor relationship between Operational Creditor 'SPJV' and the Corporate Debtor' GIPL' on the date of filing of the Petition, i.e. on 21 September 2017 under Section 9 of the I&B Code, 2016.

The Appellant contends that the Petition under Section 9 of the Code is not maintainable on account of the pre-existing dispute. The Corporate Debtor's Learned Counsel submits that an Agreement dated 12 August 2006 was entered between the Corporate Debtor and Respondent No. 1 to execute various civil and hydro-mechanical works. Various disputes arose with the execution of the Agreement between the parties, i.e., rectifying, repairing, redoing the defects including compensation and delay in completion of the project by Respondent No. 1 for more than ten years, which in turn cause loss to the Corporate Debtor. However, in a unified manner, the Corporate Debtor, to resolve all the disputes, agreed to enter into a Settlement Agreement dated 14 December 2013. Clause 2.3 of the Settlement Agreement categorically stated and recorded the Agreement between the parties that the Corporate Debtor shall pay ₹ ten crores representing R A Bills due and part of the interest amount to Respondent No. 1, i.e. SPJV. After the payment of ₹ ten crores, the Corporate Debtor had no further liability or obligation regarding the Settlement Amount. Further, it was agreed that the SPJV could initiate any suit, action or proceeding against only the promoter ('Amrit Jal Venture Private Limited' to the exclusion of 'GIPL'.) To recover the balance settlement amount of ₹ 23.98 crores in excess of ₹ ten crores, the promoter agreed to pay in terms of the Settlement Agreement.

However, subsequently, AJVPL paid only ₹4,38,62,122 to Respondent No. 1, SPJV, and failed to make any further payments as agreed by the Settlement Agreement. This non-payment of the remaining amount by AJVPL is the basis of the instant Section 9 petition. Upon failure of AJVPL to pay in terms of the Settlement Agreement is itself a disputed issue and the absence of a determination of the said issue by a court of competent jurisdiction in favour of Respondent No. 1, proceedings under Section 9 for alleged non-payment of this amount is untenable. Any alleged breach on account of non-implementation of the terms of settlement cannot be considered 'default' regarding payment of "operational debt". However, the Corporate Debtor GIPL has duly discharged its liability qua Respondent No. 1, SPJV arising out of the settlement agreement.

Further, as regards the claim towards the withheld amount, it is evident that the Corporate Debtor never admitted this amount, given the pendency of works by Respondent No.1. The case of Respondent No.1 is solely based on account of issuance of a merit certificate, which was explicitly issued at the instance of Respondent No.1, as evident from a bare reading of the email dated 29 May 2014. (Page 236 of Appeal Paper Book.).

It is evident from the email sent by Mr Ramesh on behalf of "Sew Infrastructure Ltd" dated 29 May 2014, 07:28 that the Operational Creditor requested for merit certificate because it was required for submission to other clients for PQ purpose. It is stated in the mail that "as directed by Sanjeev Upadhayay Saab, we are enclosing the format of work completion certificate and work done certificate. Therefore, we request you to kindly issue the certificate at the earliest, as we require the same for submission to other clients for PQ purpose."

The Appellant contends that given non-performance of the terms of Agreement by Respondent No.1, the Corporate Debtor also issued notice dated 10 August 2017 invoking Arbitration for the delay in completing the project, losses suffered by the Corporate Debtor. Respondent No.1 has failed to address the issues as raised in the said notice. Its only response regarding the said notice is not relevant in light of the dismissal of Section 11 Application of the Corporate Debtor.

It is ill-founded in as much as the order dated 4 August 2020 passed by the Hon'ble High Court in Arbitration Case is on account of proceedings being premature and can in no manner be read to make out a case of admitted Operational Debt.

The alleged claim regarding the liability of the Corporate Debtor to pay ₹ 2.03 crores to Respondent No.1 was subject to the completion of work to the satisfaction of the Corporate Debtor, as evident from the letter dated 21 July 2014.

The Appellant has annexed the copy of a letter dated 21 July 2014 (page 185 of the Paper Book), which shows that the Corporate Debtor wrote a letter to the Operational Creditor SPJV in response to its request for releasing the withheld amount. It is stated in the letter that;

The Appellant has annexed the copy of the letter sent by Operational Creditor SPJV to Corporate Debtor dated 23 January 2015 (Page 187 of the Appeal Paper Book), a correspondence relating to release of withholding amount. It is stated in the letter that;

Based on the above correspondence, it is clear that the withhold amount was to be released subject to work satisfaction by 'GIPL'. However, the contract work was not completed until 23 January 2015; therefore, the Operational Creditor wrote to the Corporate Debtor that he has already completed almost all the pending works except sifting equipment and machinery. In the circumstances request was made for releasing at least Rupees one crore.

Further, the Operational Creditor/ Respondent No.1 vide its letter to the Corporate Debtor dated 23 May 2017 (page 189 of the Appeal Paper Book) while mentioning the Settlement Agreement dated 14 December 2013 and demanding the release of the pending amount from the Corporate Debtor. Still, no reference was made about the merit certificate relating to the completion of work to the satisfaction of the Corporate Debtor. In this letter, the Operational Creditor 'SPJV' has stated that;

However, on perusal of the letter dated 23 January 2015, it is clear that work was not completed until then; that's why the Operational Creditor wrote to the Corporate Debtor that he had completed most of the works and only work relating to shifting of equipment and machinery is left. Therefore the Operational Creditor requested the Corporate Debtor to at least release one crore rupees from the withheld amount.

The Operational Creditor relies only on the 'merit certificate' issued to the Corporate Debtor. But on perusal of documents filed by the Appellant, it appears that merit certificate was given to the Operational Creditor only for PQ purposes, for submission to other clients showing completion of the work. Still, it was issued only on request for submission to other clients. Therefore the Operational Creditor requested the Corporate Debtor for issuing the certificate at the earliest, as it is required the same for submission to other clients for PQ purposes.

The Appellant further submits that the issue raised by the Corporate Debtor being a subject matter of civil disputes, cannot form the basis of an Application under Section 9 of the Insolvency and Bankruptcy Code 2016. Therefore, the present case being a case of pre-existing dispute, cannot be adjudicated under the provisions of IBC.

The Appellant further contends that by MOU dated 20 May 2016 (page 227 of Appeal Paper Book), executed between Respondent No.1/Operational Creditor, i.e. 'SPJV', AJVPL, Sew Infrastructure Ltd and Intercontinental Infrastructure Ltd, as per which it was agreed that "AJVPL" would clear all the outstanding dues of Respondent No.1, which were later assigned to Sew Infrastructure Ltd.

Further, the Learned Counsel for Respondent No. 1 'SPJV' emphasised the letter issued by Corporate Debtor to the Operational Creditor, SPJV, dated 10 August 2017. A copy of the letter is annexed with the Petition. (Page 221 of Appeal Paper Book). This letter was issued after the issuance of demand notice in Form 3, dated 3 August 2017. The letter reads as under;

The Learned Counsel for the Respondent emphasised the contents of the email dated 24 January 2015 sent by the then Director of AJVPL, purportedly to acknowledge the debt by the Corporate Debtor GIPL. In response to it, the Appellant contends that this email was sent on behalf of AJVPL, which was addressed to the Arbitrator under terms of Settlement Agreement on behalf of AJVPL, i.e. the entity liable to pay. This email was malafidely read to make the Corporate Debtor GIPL liable. The contents of the email is reproduced below for ready reference;

It is pertinent to mention that the email mentioned above was sent by Mr Sunil Gupta, who happened to be Director of 'AJVPL', and addressed to Mr C L Rajaram, who was Arbitrator. Therefore, this email dated 24 January 2015 cannot be treated as an acknowledgement of the debt by the Corporate Debtor GIPL. However, this fact cannot be ignored that the holding Company of the Corporate Debtor GIPL is 'AJVPL'. Thus, the above-stated email cannot be interpreted as acknowledging the debt by the Corporate Debtor 'GIPL'.

It is also essential to mention that a letter dated 22 March 2015 sent by Respondent No. 1 and addressed to AJVPL (Page 71 of Appeal Paper Book). It is noteworthy that in the said letter, Respondent No.1 refers to the Settlement Agreement dated 14 December 2013 and further states that the said amount due from AJVPL to Respondent No.1 is to be paid to 'Sew Infrastructure Ltd', thereby admitting to the fact that the liability of the Corporate Debtor 'GIPL' stands satisfied in terms of Settlement Agreement and also implies that Respondent No.1 agreed to the fact that the email dated 24 January 2015 was from holding Company of Corporate Debtor 'AJVPL' and not from the Corporate Debtor 'GIPL'. Contents of the letter are reproduced below for ready reference;

The Learned Counsel for the Appellant argues that the Corporate Debtor did not issue the Completion Certificate in view of pending works to be carried on by Respondent No.1, 'SPJV'. However, in light of repeated request and assurance of Respondent No.1 as regards issuance of certificates for future bidding purposes solely as can be inferred from an email dated 29 May 2014 (page 236 of the Appeal Paper Book), Corporate Debtor issued the merits certificate in terms of the format as shared by Respondent No.1.

In the instant case, it is evident that 1^st contract agreement entered between Respondent No. 1, SPJV, and Corporate Debtor GIPL on 12 August 2006 to complete civil and hydro-mechanical work contract. However, there was a delay of more than ten years in the completion of the project. Then, to resolve all the disputes, a Settlement Agreement in the form of the MOU dated 14 December 2013 was executed. Clause 2.3 read with Clause 2.7 of the said Agreement provided immunity to the Corporate Debtor from any suit, proceeding, or action subject to the payment of ₹ ten crores to the Operational Creditor /Respondent No. 1. The Corporate Debtor made a payment of ₹ ten crores and complied with the terms of the settlement.

Further, "MOU" dated 20 May 2016 was executed between SEW Infrastructure Ltd, Amrit Jal Venture Limited, Intercontinental Infrastructure Ltd and Respondent No. 1, i.e. Sew –Prasad JV. Given the terms of MOU dated 20 May 2016, it was agreed that AJVPL should make payment of ₹ eight crores to Intercontinental Infrastructure Ltd under intimation to "SEW Infrastructure Ltd". It was further agreed that upon payment of ₹ eight crores by AJVPL to Intercontinental Infrastructure Ltd, the obligation of all the parties under this Memorandum of Understanding stands fulfilled.

Undisputedly AJVPL failed to make the payment as per the terms of MOU. Accordingly, consequences of the breach of the terms of MOU dated 14 December 2013 and further violation of the terms of MOU dated 20 May 2016 cannot be determined in a summary jurisdiction given to the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

Before the issuance of the demand notice, several correspondences are showing the existence of a dispute between the parties. The alleged claim regarding the liability of the Corporate Debtor to pay ₹ 2.03 crores to Respondent No.1 SPJV was subject to the completion of work to the satisfaction of the Corporate Debtor GIPL. In response to the letter of the Operational Creditor dated 12 July 2014 for releasing the amount of ₹ 2.03 crores, the Corporate Debtor intimated that the payment against the withhold amount could be made after the completion of work. It was suggested by the Corporate Debtor to speed up the pace of the work and complete their pending assignments at the site.

Further, the Operational Creditor, in its letter dated 23 January 2015, wrote to the corporate debtor for releasing ₹ two crores, which were withheld against their pending works. In this letter, the Operational Creditor contended that it has already completed almost all the pending works except the shifting of equipment and machinery. Therefore the request was made to at least release rupees one crore from the pending dues.

Based on the above discussion, I believe that the Appellant has proved a pre-existing dispute prior to issuance of the demand notice under Section 8 of the Insolvency and Bankruptcy Code 2016.

Hon'ble Supreme Court in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353: 2017 SCC OnLine SC 1154 : (2018) 1 SCC (Civ) 311 at page 403 has held:

In the above-mentioned case, Hon'ble Supreme Court has held that all that the Adjudicating Authority is to see at the stage of admitting/rejecting the Application is whether there is a plausible contention that requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. However, in doing so, the authority does not need to be satisfied that the defence is likely to succeed. Therefore, so long as a dispute truly exists in fact and is not spurious, hypothetical or imaginary, the Adjudicating Authority has to reject the Application. Moreover, the existence of the dispute must be pre-existing, i.e. it must exist before the receipt of the demand notice or invoice.

In the instant case, the claim under the Settlement Agreement, falls within the ambit of the term 'dispute' about "the existence of debt". The alleged claims regarding the Corporate Debtor's liability to pay ₹ 2.03 crores to the Operational Creditor was subject to the completion of work to the satisfaction of the Corporate Debtor. The Operational Creditor relied on the merits certificate to show the completion of work to the satisfaction of the Corporate Debtor. However, the Appellant pleaded that the merits certificate was issued at the instance of the Operational Creditor, which was obtained for submission in other entities. Given the law laid down by the Hon'ble Supreme Court in the case of Mobilox (supra), the Adjudicating Authority does not need to be satisfied at the admission/rejection stage that the defence is likely to succeed.

The Appellant is relying on the Settlement Agreement dated 14 December 2013. Based on that, the Appellant is claiming that after payment of ₹ ten crores as per terms of the settlement, no further liability could be imposed on the Corporate Debtor. The Corporate Debtor's liability based on their terms of settlement cannot be determined in a summary proceeding under the Insolvency and Bankruptcy Code, 2016.

This Petition is filed by the Operational Creditor SPJV, who has assigned its debt to "SEW Infrastructure Ltd". The maintainability of the Petition after the assignment of debt to "SEW Infrastructure Ltd" is also questionable. The Appellant is relying on the MOU dated 20 May 2016. The entire due amount agreed to be paid to the Operational Creditor "SEW-Prasad JV', or its Assignee by the 'Amrit Jal Venture Private Limited' and not the Corporate Debtor.

Further, the dues receivable by the 'SEW and Prasad JV' is assigned to SEW Infrastructure Ltd. However, the Operational Creditor claims that given the MOU dated 20 May 2016, ₹ eight crores was paid to Intercontinental Infrastructure Ltd by AJVPL. But AJVPL failed to pay the said amount of ₹ eight crores; the MOU has been terminated. Whether the MOU dated 20 May 2016 is valid or not is a disputed question and needs further investigation. Such disputed question cannot be decided under the summary jurisdiction exercised by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. There is no debtor-creditor relationship between the Operational Creditor 'SPJV' and the Corporate Debtor 'GIPL'. Therefore, the Petition filed U/S Sec 9 is not maintainable on this ground also.

Based on the above discussion, I think that Appeal deserves to be allowed, and the impugned order of admission of Petition filed U/S 9 of the I&B Code, 2016 deserves to be set aside.