Akshay Kumar Bhatia vs Cue Learn Private Limited

Mr. Akshay Kumar Bhatia ...Appellant

Vs

M/s. Cue Learn Private Limited ...Respondent

(Arising out of Order dated 07.01.2025 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court IV) in C.P. (IB) No. 572 of 2022)

For Appellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Anish Agarwal, Mr. Pratik Chakma, Ms. Natasha Bagga, Mr. Abinav Maurya, Ms. Alina Merin Mathew, Ms. Tanisha Chaudhary, Advocates For Respondent: Mr. Prithu Garg, Mr. Shivam Singh, Mr. Ashutosh Arvind Kumar, Advocates

JUDGEMENT

Per Justice N. Seshasayee, Member (Judicial)

1. This appeal is preferred challenging the Order of the Adjudicating

Authority in C.P.(IB) 572 of 2022, dated 07.01.2025, dismissing a 2

petition filed by the appellant to initiate a CIRP against the respondent

under Sec.9 IBC.

Facts:

2. The broad facts that lead up to this appeal are required to be outlined.

The appellant herein is an actor and is a popular film star. On

08.03.2021, a tripartite agreement, styled as 'Endorsement Agreement'

came to be executed as between the Respondent as the First party, the

Appellant as the Second party and one Culture Company (P) Ltd., as

the Third party. (The role of the third party to the contract is largely

passive vis-à-vis the purpose of the working agreement, and except in

reply to the demand notice under Sec.8 IBC, it does not find any

reference anywhere in the facts constituting the present dispute). In

other words, the contractual obligations required to be performed are

essentially between the appellant and the respondent herein. The

salient features of the contract which are contextually relevant are:

a) Clause 2 of the said Agreement declares that the term of the

agreement is for two years (from 08.03.2021 and 07.03.2023).

Clause 3.2 of the agreement stipulates that during this period the

appellant has to make himself available for not more than two

days and render his services to the respondent for which

appellant was to be paid Rs.8.10 crores in terms of Clause 5 of

the Agreement. The mode of payment was detailed in Clause

5.1.1 and 5.1.2.

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b) In terms of Clause 5.1.1, the respondent is required to pay

Rs.4.05 crores (50% of the consideration stipulated in Clause 5)

on or before 08.03.2021. Clause 5.1.2 provides that Rs.4.05

crores is required to be paid on or before 15.04.2022 or seven

days prior to the utilisation of the second of the two days period,

whichever is earlier.

c) The payment in terms of Clause 5.1.1. was paid, and the

appellant's services were utilised for one day (even though, as

would be seen shortly, the reply to the Sec.8 demand notice

seems to allege that the appellant was yet to notify the two days

of his convenience, implying thereby that the appellant has not

rendered any service under the contract). The appellant however,

was not paid the balance 50% in terms of Clause 5.1.2 of the

agreement. In this backdrop, the appellant raised an invoice

dated 15.04.2022 on the respondent for, what the appellant

considered as the balance 50% payable in terms of Clause 5.1.2

of the contract. There was no response to this invoice.

d) Therefore, on 20.05.2022, the appellant issued a statutory

demand notice under Sec.8 IBC, and this was responded to by

the respondent with its reply dated 25.05.2022. To this, on

22.06.2022, the appellant sent its rejoinder.

e) The Respondent's line of defence as could be gathered both from

its reply to Sec.8 notice that no invoice dated 15.04.2022 as

alleged to have been issued was not received, that as per clauses

5.1.1 and 5.2.1 of the contract, without a valid invoice, no liability 4

arises, that discussions were held with Culture Company (the

third party to the contract)'s representative , that in terms of

clauses 5.1 read with Clause 5.2.1, artist must confirm the

availability for two days before payment obligation arises, and

that no mutually agreed dates were ever confirmed, and that the

respondent was awaiting the appellant's confirmation of two days

availability. In its rejoinder to this reply, the appellant would inter

alia contend that the contract does not envisage raising of invoice

for making payment, and at any rate separate invoices were

raised for payment due both under Clauses 5.1.1. and 5.1.2, and

the second invoice was served in the same manner as was the

first invoice.

3. Without any loss of time, the appellant had laid his petition under Sec.9

IBC. The respondent's principal plank of defence was that the

operational debt claimed by the appellant is embroiled in the

construction of the terms of the contract as to whether appellant is

entitled to claim remuneration for the service not rendered on the

second of the two days dedicated period, and that if at all any, the

appellant can only claim damages for breach of contract, but it will not

constitute operational debt under Sec.5(21) of the IBC.

4. Holding that there exists a pre-existing dispute vis-à-vis the

construction of the contract (the Endorsement Agreement), and that at

the best the appellant might be entitled to damages for breach of

contract which falls outside the definition of operational debt, the 5

Adjudicating Authority chose to dismiss the appellant's petition under

Sec.9 IBC. Hence the present appeal.

Appellant's Arguments:

5. The learned counsel for the Appellant argued:

a) that the cause of action for the appellant to seek initiation of a CIRP

involves an understanding of the contract between the parties. A

plain reading of the contract and ascertaining the intent of the

parties is not the same as construction of an ambiguous document.

Sec.94 and Sec.95 of the BSA (previously Sec.91 and 92 of the

Evidence Act) forbids the admissibility of any parole evidence to vary

the terms of a contract. On a plain reading of the Endorsement

Agreement dated 08.03.2021, its quintessential feature is that the

appellant, an artist, shall render services to the respondent for which

the appellant shall set aside two days to be fixed based on mutual

convenience during the contractual term of two years (which was to

end on 07.03.2023) for a consideration to be paid. And the dispute

is over payment of consideration.

b) Payment for the services to be rendered is stipulated in clause 5 of

the contract. Clause 5 says that the appellant shall be paid Rs.8.10

crores plus GST for making himself available to render services, and

it further stipulates the manner of payment in clauses 5.1 and 5.2.

Under Clause 5.1, the appellant was to be paid Rs.4.05 crores plus

taxes and GST on or before 08.03.2021 (the day on which the

agreement was entered into by the parties) or 7 days prior to the 6

utilization of the first day of the two days on which the appellant was

to render his services. This amount was paid, and the appellant had

also rendered his services for one day, even though the respondent

appears to deny that the appellant had ever rendered any services.

c) So far as the payment of the balance amount goes, Clause 5.2 of the

contract stipulates that Rs.4.05 crores plus taxes should be paid on

or before 15.04.2022 or seven days prior to the utilisation of the

second day, whichever is earlier. The phrase "whichever earlier"

makes evident that the Clause 5.2 has created an independent

obligation to make unconditional payment and it is not made related

to the services to be performed. Once the payment for the two

dedicated days is made, it is for the respondent to utilise the services

of the appellant. The respondent however, intends to efface the

phrase 'whichever is earlier' and tries to bring in an interpretation

that payment must be made for actual services, which the plain

reading of clause 5.2 read with clause 5 does not accommodate. The

contention of the appellant stands fortified by a combined reading of

Clause 5, 5.2, 7.2(c) and (d), and clause 3.6(b). In terms of clause

7.2(c), when the respondent defaults, all amounts including the

entire consideration become immediately due and payable while

both clause 7.2(d) and 3.6(b) provides that on respondent's default,

the appellant would not be liable to refund that the payment he had

received. The respondent has used the services of the appellant for

one day, and if it does not use the second day, then it is the choice 7

it has made, and it cannot be made to relate itself to the

unconditional obligation to make the payment in terms of clause 5.2.

d) Any unconditional obligation to make payment constitutes a debt,

and when there is a default in paying it, it gives rise to a cause of

action for seeking the initiation of CIRP against the corporate debtor

under Sec.9 IBC. Any right to payment including that which arises

out of a breach of contract would amount to claim and as held in

Pioneer Urban Land Vs Union of India [(2019) 8 SCC 416], it need

not even be adjudicated by a civil court and replaces the earlier

understanding that breach of contract give rise only to a claim of

damages as held in UOI Vs Raman Iron Foundary [(1974) 2 SCC

231]. It would therefore constitute a debt and any default in paying

the same enables the invocation of Sec.9 IBC.

e) To outmanoeuvre the logical consequence which flow from a plain

reading of Clause 5.2 read with 5 and 3.6(b) of the contract, the

respondent attempts to develop an argument that obligation to

comply with Clause 5.2 is directly associated with actual rendering

of services. Even by the ratio in Mobilox Innovations case [(2018)

1 SCC 353] it is a sham defence.

Reliance was placed on the ratio in Somesh Choudhary v. Knight

Riders Sports P. Ltd. [2022 SCC OnLine NCLAT 3505], Union of India

v. Raman Iron Foundry [(1974) 2 SCC 231], H.P. Housing & Urban

Development Authority v. Ranjit Singh Rana [(2012)4 8

SCC505:(2012) 2SCC(Civ)639], New Okhla Industrial Development

Authority v. Anand Sonbhadra [(2023) 1 SCC 724],

Respondent's Arguments

6. Per contra, the learned counsel for the respondent submitted:

a) The respondent's counsel maintained that the appellant's claim for

the second instalment of ₹4.05 crores does not qualify as an

operational debt under Section 9 of the IBC.

b) The payment was contingent upon performance of the second day of

endorsement services. Since the artist (appellant) neither has offered

nor rendered the services for the second day, the contractual

condition precedent for paying the second instalment has not arisen.

In other words, prior to 15th April, neither the respondent required

the appellant to provide his services for the second day, nor the

appellant had an occasion to offer any contracted service. To state it

differently, when the respondent has not availed the second day and

it is not under any obligation to make any payments. The contract

has created reciprocal obligations and mutual performance was

essential before payment liability could arise. Neither clauses 7.2(c)

or (d) nor Clause 3.6(b) provide for payment without services.

c) When no services were provided, there is no need for making any

payment, and hence there is no issue of any operational debt arising

out of this circumstance. Necessarily there does not arise any default 9

in paying a debt either. The respondent has highlighted the

ambiguity in understanding the terms of the contract, which is

evident from the correspondence before issuance of the demand

notice made this clear. Since the point, whether the obligation to pay

the second instalment was automatic or is contingent, has been

disputed even prior to the demand notice, it satisfies the Mobilox

test of 'genuine pre-existing dispute'. Hence invoking Sec.9 IBC is

barred under the scheme of IBC. After all IBC is not a recovery

mechanism.

Reliance was placed on the ratio in Union of India v. Ram Iron

Foundry [AIR 1974 SC 1265], Tower Vision India Pvt. Ltd. v. Procall

Private Limited [2012 SCC Online Del 4396], Chandrashekhar

Exports Pvt. Ltd. v. Babanraoji Shinde Sugar & Allied Industries

Ltd. [C.P. No. 3667/IBC/MB/2019], Chandrashekhar Exports Pvt.

Ltd. v. Babanraoji Shinde Sugar & Allied Industries Ltd. [C.A.

(AT)(INS) No. 1032 of 2023], Mobilox Innovations Private Limited v.

Kirusa Software Private Limited [(2018) 1 SCC 353], Pioneer Urban

Land and Infrastructure Ltd. v. Union of India [(2019) 8 SCC 416],

Swiss Ribbons (P) Ltd. v. Union of India [(2019) 4 SCC 17].

Discussion & Decision

7. Both sides punctuated their arguments with authorities carrying

precedential value. The principles however, are settled, and they are 10

merely required to be reiterated to provide a basis for our approach to

this case:

a) That the existence of a debt and default, the two fundamental factors

which provide a cause for initiating a CIRP, should be beyond doubt

or debate. To state it differently, the debt and default should not

have been embroiled in a dispute between the parties at any time

prior to the initiation of CIRP under Sec.9 IBC, indeed even prior to

the demand notice required to be issued under Sec.8 IBC. Where

any of these factors is under a shadow of a genuine dispute, then

CD will be in safe zone as CIRP cannot be commenced.

b) Where the CD pivots its defence in a pre-existing dispute over debt

or default, the defence so raised shall have to undergo a forensic

scrutiny by the Adjudicating Authority for ascertaining the prospects

of it being at least plausible. The Adjudicating Authority may

therefore, have to scan and probe every relevant material made

available before it which includes a plain understanding of any

written contract between the parties. In this pursuit even as the

Adjudicating Authority examines any written contract, it is still

beyond its jurisdiction to construct a contract the way a civil court

would do. To expatiate it, if there are any ambiguities in the material

terms of the contract which affect the endeavour of the Adjudicating

Authority to gather the real intent of the contracting parties, then

the Adjudicating Authority is merely required to identify it but not to

iron out the creases for discovering the real intent purported to be

conveyed by the terms of the contract. After all the endeavour of the 11

Adjudicating Authority is limited to ascertaining the existence of the

facts which may enable the commencement of a CIRP, and not to

adjudicate on any disputed fact, based on preponderance of

probabilities as in a recovery proceeding.

The contentions of the rival parties in this case will now be tested on

the plane of these principles.

8. There is no dispute that the contract required the appellant to set aside

2 days within two years ending 07.03.2023 for rendering services,

which in terms of Clause 3.2 of the contract, must be at the date, time

and place and schedules to be mutually agreed to by the parties in

writing. The appellant was paid 50% of the sum agreed to be paid as

consideration for two days as signing amount as provided in Clause

5.1.1, and his services too have been procured for a day. Admittedly,

the second day services were not procured, but the appellant has made

his claim for the second instalment in terms of Clause 5.2. The point

is whether non-payment of the amount stipulated to be paid under

clause 5.1.2 gives rise to an operational debt, or does it merely give rise

to a cause of action for claiming damages for breach of contract.

9. The quintessence of the controversy therefore, is what exactly is the

intent of the parties when they entered into a contract vis-à-vis the

payment of total consideration of Rs.8.10 crores in terms of Clauses 5,

5.1.1, and 5.1.2: whether the total consideration is required to be made

for the services to be rendered irrespective of the number of days over 12

which such service is promised to be rendered, or is it merely payment

for the day on which service is rendered. To be more specific, is the

payment of consideration of Rs.8.10 crores plus taxes is work specific -

for one work to be rendered over a period not exceeding two days, or is

it time specific, which is to mean, consideration of Rs.4.05 crores

payable for every day when the services are rendered by the appellant?

10. Since the parties are at variance on this issue, and inasmuch as

the respondent has raised a dispute over it, it now becomes imperative

to ascertain what the plain reading of the contract supports. It is

underscored that our effort is to identify if a plausible dispute exists in

understanding the terms of the contract and not how we harmonise

internal inconsistences, if any.

11. It made clear that that if the issue eventually boils down to one

involving breach of contract on the part of the respondent entitling the

appellant to a claim for damages, then in terms of Sec.3(6) of the Code,

the appellant would be entitled to make a claim, but a mere right to

claim damages will not still constitute any debt within the meaning of

an operational debt as defined under Sec.5(21). While a claim may

include a debt, not every claim will constitute a debt for commencing a

CIRP. As outlined earlier, there will be a need to travel thus far to enter

a finding on it only if we find that the plain reading of the contract leads

to a conclusion that the defence resting on a pre-existing dispute is

fanciful and sham.

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12. To commence, whether a plain reading of the contract indicates

that the choice of the expression which the contracting parties have

used for conveying their intent leaves an element of ambiguity in

understanding that intent. Here, the learned counsel for the appellant

contended that Sec.94 & 95 of the BSA (corresponding to Secs. 91 and

92 of the Evidence Act) prohibited the admissibility of parole evidence

to vary the term of the contract. We cannot but admit this statutory

position. That however, may be relevant in a situation where a judicial

fora is invited to construct a contract on the basis of any facts which

are extraneous to the express terms of the contract. We have already

indicated that we are only required to identify if the pre-existing dispute

which the CD puts forth on the basis of its understanding of the

contractual terms is plausible or fanciful, and no more.

13. The object for the formation of the contract could be gathered

from Recital D and Clause 3.2. Recital D reads: "The Company (the

respondent) being desirous of, approached the Artist (read it as the

appellant) to avail the Services (hereinafter defined) of the Artist, for the

endorsement of the Website (hereinafter defined), at the Company's own

cost and risk'. This is required to be read alongside Clause 3.2, and it

is as below:

"Subject to the terms thereof, and subject to the payment of all the amounts including the Consideration amount by the Company to the Artist and performance of all other obligations by the Company, and provided there is no default on the part of the Company, the 14

Artist hereby agrees to make himself available for not more than two (2) days, being the Dedicated Period, to render the Services, at the date, time, places and schedules mutually agreed by and between the Parties hereto in writing. ....."

This recital does not require any decoding since its plain reading

informs that the appellant is required to provide his services as an artist

for the endorsement of the Website of the respondent at a time, place,

and schedules to be mutually agreed to between the parties for not more

than two days during the two years term of the contract (between

08.03.2021 and 07.03.2023), for a consideration. The consideration is

payable only for the services to be rendered.

14. The term regarding payment of consideration is dealt with in

clauses 5, 5.1.1. and 5.1.2. They are as below:

"5. Consideration

5.1 In consideration of the Artist having agreed to make himself available to render the Services. the Company shall pay to the Artist, a sum of Rs.8,10,00,000/ (Rupees Eight Crore Ten Lakhs Only) plus all taxes including, GST, etc. ("Consideration"). in the following manner:

5.1.l Rs.4,05,00,000/- (Rupees Four Crores and Five Lakhs only) plus all taxes including GST, etc., on or before 8th March, 2021 or seven (7) days prior to utilization of one (1) Day, whichever is earlier ("Signing Amount"); and

5.1.2 Rs.4,05,00,000/- (Rupees Four Crores and Five Lakhs only) plus all taxes including GST, etc., on 15

or before 15th April, 2022 or seven (7) days prior to utilization of two (2) Days, whichever is earlier."

A plain reading of the above terms of the contract indicate that total

consideration of Rs.8.10 corers plus taxes is required to be paid to the

appellant for making himself available to render Services, which in terms

of Clause 3.2 is for no more than two mutually agreed days. The

contract is an executory contract and the appellant was required to be

paid for the services to be rendered. Here following aspects which flow

directly on a plain reading of the contract are relevant:

a) The appellant has not, under the contract, blocked any two

specific days for rendering services, and hence the appellant is

least likely to have lost what his talent could have earned him

anytime during the term of the contract even if the respondent

has defaulted in procuring the services of the appellant.

b) While clause 5 stipulates the total consideration required to be

paid, clauses 5.1.1. and 5.1.2 merely provides the time for

payment merely. Here, the parties to the contract agree that it

shall be paid in two instalments: the parties were ad idem that

50% of the consideration shall be paid 'on 08.03.2021 (the date

on which the contract was executed) or 7 days before utilisation of

the one (1) day, whichever is earlier' . Clause 5.1.2 is similar to

clause 5.1.1 except that it stipulates the balance Rs.4.05 crores

is required to be paid 'on 5.04.2021 of 7 days prior to the

utilisation of two (2) Days, whichever is earlier.' If the choice of 16

the words the parties have chosen to employ (even though the

respondent has taken up a plea that the contract was drafted by

the appellant, the fact remains the respondent has executed the

contract with open eyes) is carefully scanned, what it reveals on

a plain reading is that the consideration has to be paid only for

utilisation of the appellant's services for two days, or not

exceeding two days.

c) Does the phrase, 'whichever is earlier' provide any clue to hold

that the second instalment of the consideration has to be paid no

matter that the appellant's services are not required or rendered

for the second day? According to the appellant, the phrase

'whichever is earlier' under clause 5.1.2 makes evident that the

respondent has undertaken to pay latest by 15.04.2021

irrespective of whether the appellant is called upon to render his

contracted services for Day 2 or not. This understanding appears

bit farfetched, but at any rate does not conclusively decide the

issue. Even clause 5.1.1 has the same phrase, but then services

were rendered for Day 1. Here, there is no stipulation in the

contract that the appellant will schedule his two days for

rendering his services only after the entire consideration as

stipulated in clause 5 is paid.

d) The respondent's contention is that the consideration has to be

paid at the rate of Rs.4.05 crores only for the day for which the

appellant has performed his part of the contract, and relies on

clause 5.2. This clause stipulates that if the appellant is required 17

to render his services for any day in excess of the two days to be

reserved by the appellant under the contract then the respondent

is required to pay Rs.4.05 crores plus tax for such additional day.

Does not Clause 5.2 read with clauses 5.1.1 and 5.1.2 indicate a

plausible understanding that the consideration is required to be

made at Rs.4.05 crores for every day on which the appellant has

to perform?

Since we are not constructing the contract, but merely are in the

process of identifying any plausible pre-existing dispute in

understanding the contract, even if a prima facie view could be made

on a plain reading of the contract in support of a pre-existing

dispute, then the finding has to be entered in favour of the corporate

debtor. The result: advantage respondent.

15. The appellant laid considerable emphasis on clauses 3.6(b) and

7.2(c) and 7.2(d) of the contract to fortify his contention. If these

provisions are closely read, they spell out the consequences awaiting

the respondent if it does not perform its part of the contract. Clauses

7.2(c) and (d) reads:

"(c) all amounts including the entire Consideration amount of Rs.8,10,00,000/- (Rupees Eight Crore Ten Lakhs Only) plus all taxes including GST, etc. payable by the Company to the Artist, shall forthwith become due and payable and the Company shall forthwith pay the same to the Artist alongwith interest thereon at the rate of 12% per annum from the date of the Company's Default till the actual payment thereof;

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(d) the Artist shall not be liable, required, obligated to refund, return any money including the Signing Amount of Rs.4,05,00,000/- (Rupees Four Crores and Five Lakhs only) plus all taxes including GST, etc. or any part thereof to the Company and neither the Company nor shall any person be entitled to receive, recover any money from the Artist"

While Clause 7.2(c) provides that the appellant has a right to make a

claim for the entire consideration where the respondent wholly defaults

in performing its part of the contract, clause 7.2(d) provides for

forfeiture of the signing amount which is the first instalment of the

consideration paid under Clause 5.1.1 in the eventuality of the

respondent defaults in fulfilling its contractual obligations. Cautioning

ourselves not to embark on an enquiry on the effect of these contractual

terms in terms of the principles of Contract Act, we still believe that

consideration payable cannot be separated from the purpose for which

it was agreed to be paid.

16. To sum up while the appellant's understanding of the contract

seems to suggest that he has to provide one service - of endorsing the

respondent's Website. The consideration payable is one consolidated

sum receiving which the appellant has undertaken to perform one

service, which in terms of the contract is required to be made for not

more than two days. The second day in that sense, may have to be

understood as a cushion to meet the contingency when the contracted

services could not be fully performed on the first day. However, nowhere 19

in the contract we find any indication that the consideration as agreed

upon represents a consolidated sum for one service to be rendered for

not more than two days. On the other hand, the terms of the contract

make the understanding of the contract as projected by the respondent

a possibility. This would mean that the pre-existing dispute which the

respondent has raised appears reasonably plausible. Eventually this

has to be sorted out by a civil court and not by us.

Conclusion:

To conclude, we affirm the judgement of the Adjudicating Authority in

C.P. (IB) No. 572 of 2022 dated 07.01.2025 and consequently dismiss

the present appeal. No costs.

[Justice N. Seshasayee] Member (Judicial)

[Indevar Pandey] Member (Technical) rs/beena