Ahluwalia Contracts (India) Ltd vs Raheja Developers Ltd

(Arising out of Order dated 19th September, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, New Delhi in Company Petition No. IB-644 (ND)/2018)

IN THE MATTER OF:

Ahluwalia Contracts (India) Limited ...Appellant

Vs.

Raheja Developers Limited ...Respondent

Present: For Appellant: - Mr. Shashank Garg, Mr. Tariq Khan and Mr. Debojyoti Sengupta, Advocates.

For Respondent:- Mr. Jayant Mehta, Mr. Saurabh Kalia, Mr. Sajal Jain and Ms. Saloni Purohit, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant- 'Ahluwalia Contracts (India) Limited' filed an

application under Section 9 of the Insolvency and Bankruptcy Code, 2016

("I&B Code" for short) against 'Raheja Developers Limited'- ('Corporate

Debtor'). The Adjudicating Authority (National Company Law Tribunal),

New Delhi Bench, New Delhi, by impugned order dated 19th September,

2018 after discussing the case on merit, rejected the application on the

ground that the claim of the Appellant falls within the ambit of 'disputed

claim'.

2

2. The Adjudicating Authority also observed that the arbitration

proceedings in respect of the same cause of action has been initiated.

3. Learned counsel appearing on behalf of the Appellant submitted

that as on the date of issuance of demand notice under Section 8(1), no

arbitration proceeding was initiated or pending. The arbitration

proceeding has been filed by the Respondent- 'Corporate Debtor' after

receipt of demand notice under Section 8(1) of the 'I&B Code' on 28th

April, 2018.

4. It was submitted that the notice invoking arbitration sent by the

Respondent to the Appellant was issued on 24th May, 2018. The Appellant

through its counsel, sent a letter dated 1st June, 2018 to the Ld. Sole

Arbitrator with a copy to the Respondent stating that the appointment of

the Sole Arbitrator made by the Management Review Committee of the

Respondent was not acceptable to the Appellant.

5. It was submitted that pursuant to the agreement dated 6th

December, 2010 and R.A. Bill No. 36 was issued on 18th March, 2016 in

respect to civil work certified by the Respondent. Another R.A. Bill No. 20

for plumbing work executed by the Appellant was raised and certified by

the Respondent.

6. The Appellant sent an e-mail on 11th August, 2017 to Respondent

requesting the Respondent to provide the pending WCT certificates for

Company Appeal (AT) (Insolvency) No. 703 of 2018 3

the years 2014-15 and 2015-16. Reminders were given on 16th August,

2017.

7. Further, the case of the Appellant is that it sent another e-mail to

the Respondent on 21st August, 2017 for the outstanding payment of Rs.

6,51,11,525/- towards actual work executed by the Appellant. The

Respondent by letter dated 28th August, 2017, alleged that there is a

delay in execution of the works asserting that the claims of the Appellant

raised vide the e-mail dated 21st August, 2017 were baseless and

unsubstantiated.

8. According to the Appellant, subsequently the Appellant raised R.A.

Bill No. 21 on 25th October, 2017 for plumbing work executed by the

Appellant and certified by the Respondent. Another R.A. Bill No. 22 for

'plumbing work' was executed by the Appellant which was also certified

by the Respondent on 23rd February, 2018.

9. On 5th March, 2018, an e-mail was again sent by Appellant for

pending WCT certificates for the period from 2014-15 onwards, followed

by e-mail dated 22nd March, 2018 requesting the 'Corporate Debtor' to

release long pending dues of Rs. 5.50 Crores and drawing attention of the

Respondent of non-compliance of statutory requirements.

10. It is only on failure of payment, demand notice under Section 8(1)

was issued by the Appellant on 28th April, 2018.

Company Appeal (AT) (Insolvency) No. 703 of 2018 4

11. Referring to the aforesaid facts, it was submitted that there is no

pre-existing dispute with regard to the work done by the Appellant for

which R.A. Bill No. 36 dated 18th March, 2016, R.A. Bill No. 20 dated 28th

February, 2017 and R.A. Bill No. 21 dated 25th October, 2017 and R.A.

Bill No. 22 dated 23rd February, 2018, were raised which have been

certified by the Respondent without any objection which suggest that the

work performed by the Appellant are to the satisfaction of the

Respondent.

12. Learned counsel for the Appellant submitted that the amounts

claimed by the Appellant as shown in the application under Section 9

were derived from the Respondent's own admission in "Comparative

Statement of Payment Status between ACIL and RDL" dated 28th August,

2017 which bears its seal and is duly signed. Therefore, according to the

Appellant, Respondent cannot dispute the amounts.

13. Learned counsel appearing on behalf of the Respondent-

('Corporate Debtor') submitted that the Appellant failed to complete the

work by February, 2017 and thereafter, abandoned the work. The work

was subsequently completed and rectified by the Respondent, as a result

of which the Respondent had to incur Rs. 4,60,00,000/- approx.

Therefore, the Appellant is not only liable to pay the said amount to the

Respondent but also liable to pay interest @5% towards 'liquidated

damages' in terms of the 'General Conditions of the Contract'.

Company Appeal (AT) (Insolvency) No. 703 of 2018 5

14. From bare perusal of the impugned order dated 19th September,

2018, it will be evident that the Adjudicating Authority have noticed the

aforesaid disputed fact to come to the conclusion and hold that the claim

amount raised by the Appellant is a disputed claim.

15. In an application under Section 9, it is always open to the

'Corporate Debtor' to point out pre-existence of dispute. It is to be shown

that the dispute was raised prior to the issuance of demand notice under

Section 8(1).

16. In "Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P)

Limited− 2017 1 SCC OnLine SC 353", the Hon'ble Supreme Court held

that the 'existence of the dispute' and/or the suit or arbitration

proceeding must be pre-existing - i.e. it must exist before the receipt of

the demand notice or invoice, as the case may be and observed:

"33. The scheme under Sections 8 and 9 of

the Code, appears to be that an operational

creditor, as defined, may, on the occurrence of

a default (i.e., on non-payment of a debt, any

part whereof has become due and payable and

has not been repaid), deliver a demand notice

of such unpaid operational debt or deliver the

copy of an invoice demanding payment of such

amount to the corporate debtor in the form set

Company Appeal (AT) (Insolvency) No. 703 of 2018 6

out in Rule 5 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules,

2016 read with Form 3 or 4, as the case may

be (Section 8(1)). Within a period of 10 days

of the receipt of such demand notice or

copy of invoice, the corporate debtor must

bring to the notice of the operational

creditor the existence of a dispute and/or

the record of the pendency of a suit or

arbitration proceeding filed before the

receipt of such notice or invoice in relation

to such dispute (Section 8(2)(a)). What is

important is that the existence of the

dispute and/or the suit or arbitration

proceeding must be pre-existing - i.e. it

must exist before the receipt of the

demand notice or invoice, as the case may

be. ........"

17. In the said case, the Hon'ble Supreme Court held as to what are

the facts to be examined by the Adjudicating Authority while examining

an application under Section 9, which is as follows:

Company Appeal (AT) (Insolvency) No. 703 of 2018 7

"34. Therefore, the adjudicating authority,

when examining an application under Section

9 of the Act will have to determine:

(i) Whether there is an "operational debt"

as defined exceeding Rs.1 lakh? (See

Section 4 of the Act)

(ii) Whether the documentary evidence

furnished with the application shows

that the aforesaid debt is due and

payable and has not yet been paid?

and

(iii) Whether there is existence of a dispute

between the parties or the record of

the pendency of a suit or arbitration

proceeding filed before the receipt of

the demand notice of the unpaid

operational debt in relation to such

dispute?

If any one of the aforesaid conditions is

lacking, the application would have to be

rejected. Apart from the above, the

adjudicating authority must follow the

mandate of Section 9, as outlined above, and

in particular the mandate of Section 9(5) of

Company Appeal (AT) (Insolvency) No. 703 of 2018 8

the Act, and admit or reject the application,

as the case may be, depending upon the

factors mentioned in Section 9(5) of the Act."

18. From the aforesaid decision, it is clear that the existence of dispute

must be pre-existing i.e. it must exist before the receipt of the demand

notice or invoice. If it comes to the notice of the Adjudicating Authority

that the 'operational debt' is exceeding Rs. 1 lakh and the application

shows that the aforesaid debt is due and payable and has not been paid,

in such case, in absence of any existence of a dispute between the parties

or the record of the pendency of a suit or arbitration proceeding filed

before the receipt of the demand notice of the unpaid 'operational debt',

the application under Section 9 cannot be rejected and is required to be

admitted.

19. In "Innoventive Industries Ltd. v. ICICI Bank and Anr.─ (2018)

1 SCC 407", the Hon'ble Supreme Court while explaining the provisions

of Sections 7 or 9 observed and held:

"27. The scheme of the Code is to ensure that

when a default takes place, in the sense that a

debt becomes due and is not paid, the insolvency

resolution process begins. Default is defined in

Section 3(12) in very wide terms as meaning

non-payment of a debt once it becomes due and

Company Appeal (AT) (Insolvency) No. 703 of 2018 9

payable, which includes non-payment of even

part thereof or an instalment amount. For the

meaning of "debt", we have to go to Section

3(11), which in turn tells us that a debt

means a liability of obligation in respect of

a "claim" and for the meaning of "claim",

we have to go back to Section 3(6) which

defines "claim" to mean a right to payment

even if it is disputed. The Code gets

triggered the moment default is of rupees

one lakh or more (Section 4). The corporate

insolvency resolution process may be triggered

by the corporate debtor itself or a financial

creditor or operational creditor. A distinction is

made by the Code between debts owed to

financial creditors and operational creditors. A

financial creditor has been defined under

Section 5(7) as a person to whom a financial debt

is owed and a financial debt is defined in Section

5(8) to mean a debt which is disbursed against

consideration for the time value of money. As

opposed to this, an operational creditor means a

person to whom an operational debt is owed and

Company Appeal (AT) (Insolvency) No. 703 of 2018 10

an operational debt under Section 5(21) means a

claim in respect of provision of goods or services.

xxx xxx xxx

29. The scheme of Section 7 stands in

contrast with the scheme under Section 8 where

an operational creditor is, on the occurrence of a

default, to first deliver a demand notice of the

unpaid debt to the operational debtor in the

manner provided in Section 8(1) of the Code.

Under Section 8(2), the corporate debtor can,

within a period of 10 days of receipt of the

demand notice or copy of the invoice

mentioned of a dispute or the record of the

pendency of a suit or arbitration

proceedings, which is pre-existing- i.e.

before such notice or invoice was received

by the corporate debtor. The moment there is

existence of such a dispute, the operational

creditor gets out of the clutches of the Code."

20. From the aforesaid findings, it is clear that 'claim' means a right

to payment even if it is disputed. Therefore, merely the 'Corporate

Debtor' has disputed the claim by showing that there is certain counter

claim, it cannot be held that there is pre-existence of dispute, in absence

Company Appeal (AT) (Insolvency) No. 703 of 2018 11

of any evidence to suggest that dispute was raised prior to the issuance of

demand notice under Section 8(1) or invoice.

21. In the present case, it is not in dispute that the arbitration

proceeding was initiated by the Respondent vide notice dated 24th May,

2018 i.e. after about one month from the date of issuance of demand notice

under Section 8(1) which was issued on 28th April, 2018. Therefore, the

'Corporate Debtor' cannot rely on arbitration proceeding to suggest a pre-

existing dispute. There is nothing on the record to suggest that the

'Corporate Debtor' raised any pre-existing dispute relating to quality of

work performed by Appellant. The ground of delay in execution of work

cannot be noticed to deny admission of application under Section 9, the

'Corporate Debtor' having allowed the Appellant to execute the work and

certified all the bills.

22. The Adjudicating Authority wrongly rejected the claim on the ground

that the claim raised by the Appellant falls within the ambit of disputed

claim. Merely disputing a claim cannot be a ground, as held by Hon'ble

Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank and Anr."

wherein it is observed that "claim means a right to payment even if it is

disputed. The Code gets triggered the moment default is of rupees one lakh

or more (Section 4)."

23. The Adjudicating Authority also failed to appreciate that the

arbitration proceeding was initiated on 24th May, 2018 i.e. much after the

Company Appeal (AT) (Insolvency) No. 703 of 2018 12

issuance of the demand notice under Section 8(1) on 28th April, 2018

thereby wrongly held that an arbitration proceeding is pending.

24. From the record as we find that the Respondent has defaulted to pay

more than Rs. 1 Lakh and in absence of any pre-existing dispute, and the

record being complete, we hold that the application under Section 9

preferred by the Appellant was fit to be admitted.

25. For the reasons aforesaid, we set aside the impugned judgment

dated 19th September, 2018 and remit the case to the Adjudicating

Authority for admitting the application under Section 9 after notice to the

'Corporate Debtor' to enable the 'Corporate Debtor' to settle the matter

prior to the admission.

The appeal is allowed with aforesaid observations and directions. No

costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

(Kanthi Narahari) Member(Technical)

NEW DELHI 23rd July, 2019 AR

Company Appeal (AT) (Insolvency) No. 703 of 2018