Apya Capital Services Pvt. Ltd vs Guardian Homes Pvt. Ltd

(Arising out of Order dated 03.01.2020 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in C.P. No. 3113/I&B/2019)

IN THE MATTER OF:

Apya Capital Services Private Limited ....Appellant

Versus

Guardian Homes Private Limited .....Respondent

Present:

For Appellant: Mr. Abhijeet Sinha, Ms. Bani Dikshit and Mr. Farman Ali, Advocates.

For Respondent: Ms. Priya Hingorani, Senior Advocate with Mr. Himanshu Yadav, Advocate.

BANSI LAL BHAT, J.

Appellant is aggrieved of dismissal of its application filed under

Section 9 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for

short) by the Adjudicating Authority (National Company Law Tribunal),

Mumbai Bench vide impugned order dated 3rd January, 2019 subsequently

corrected as 3rd January, 2020 on the ground that there was a clear

deficiency in the service provided by the Appellant and there was no debt as

claimed by the Appellant.

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2. To understand the factual matrix in proper prospective a flashback

into the events relevant to the filing of application by Appellant under

Section 9 for triggering of Corporate Insolvency Resolution Process and

germane to its disposal is inevitable. Respondent- 'Guardian Homes Pvt.

Ltd.' (Corporate Debtor) engaged in the construction business wanted to

raise finance for its operations. The Appellant provided its services to the

Corporate Debtor for raising finance as also advisory services for structuring

and placement of debt instrument in private transactions. A letter dated

08.11.2017 incorporating the terms and conditions for providing services to

the Corporate Debtor came to be issued by the Appellant which was

accepted by the Corporate Debtor. Sanction letter dated 16.10.2018 placed

before the Adjudicating Authority revealed that certain facilities to the extent

of Rs. 280,00,00,000/- Crores were granted to the Corporate Debtor by one

'KKR India Asset Finance Pvt. Ltd.'. The Appellant raised proforma invoices

on the Corporate Debtor dated 16.01.2019, 30.01.2019, 27.02.2019 and

20.04.2019 as noticed in the impugned order. In regard to proforma invoice

dated 20.04.2019 for an amount of Rs. 2,05,00,000/-, Corporate Debtor

addressed communication dated 02.05.2019 to Appellant raising the issue

of delay in providing the service which according to the Corporate Debtor

had taken 11 months instead of 6 months as per agreed terms. However, the

Corporate Debtor, having regard to the efforts put in by the Appellant's

team, claimed to have amicably decided to conclude the deal at a fee of Rs.

150 Lakhs out of which Rs. 75 lakhs have already been paid. The invoice

was returned to the Appellant with request to submit full and final bill for

Company Appeal (AT) (Insolvency) No. 412 of 2020 -3-

balance amount of Rs.75 lakhs to enable the Corporate Debtor to process

the same. On 20.05.2019, Appellant issued a demand notice under Section

8 of the 'I&B Code' claiming an amount of Rs.2,41,90,000/- from the

Corporate Debtor and when the same was not complied with, the Appellant

initiated steps for triggering of Corporate Insolvency Resolution Process.

3. Before the Adjudicating Authority, it was pleaded by the Corporate

Debtor that there was delay in arranging the funds on the part of Appellant,

in respect whereof an issue was raised by the Corporate Debtor vide letter

dated 02.05.2019 and the issue was amicably resolved by settling the fees at

a sum of Rs.150 lakhs. It was pleaded that in terms of the sanction letter

dated 16.10.2018, funds were required to be arranged by 07.05.2018 but on

account of delay on the part of the Appellant, the Corporate Debtor suffered

for consequential losses which resulted in amicable settlement of the issue

for a fee of Rs.1.50 Crores out of which Rs.75 lakhs were made as part

payment towards the proforma invoice dated 16.01.2019. On consideration

of the versions put forth by the parties in the light of documents and

evidence adduced, the Adjudicating Authority arrived at a conclusion that

there was no debt as claimed by the Appellant besides there being deficiency

in service provided by the Appellant warranting dismissal of application.

4. It is contended on behalf of Appellant that by availing the Appellant's

services, the Corporate Debtor obtained funding to the tune of Rs.280

Crores for its Real Estate Project "Cityscapes" and the Appellant raised

invoices for its fees of Rs.2.80 Crores i.e. 1% of Rs.280 Crores of financial

Company Appeal (AT) (Insolvency) No. 412 of 2020 -4-

facilities as per Sanction Letter. However, the Corporate Debtor made only

part payment of Rs.75 Lakhs on 25.01.2019 and defaulted in making

payment of remaining fees which was due and payable to the Appellant. It is

further submitted that even as per Corporate Debtor's own admitted case

Appellant's fee settled at Rs.1.5 Crores after which Rs.75 Lakh was

outstanding and same being due and payable to the Appellant and not

having been paid in compliance to the demand notice, the Adjudicating

Authority was bound to admit the application under Section 9. It is

submitted that the mere assertion on the part of the Corporate Debtor that

it is ready and willing to settle the balance of Rs.75 Lakhs would not justify

rejection of Appellant's application under Section 9. It is pointed out that

Corporate Debtor's letter dated 02.05.2019 was an afterthought to evade its

liability though part payment for services rendered by Appellant was made

which clearly establishes that there was no pre-existing dispute between the

parties. As regards plea of deficiency of services raised by the Corporate

Debtor, it is submitted on the behalf of the Corporate Debtor that the

Corporate Debtor, in terms of Clause 2.2 of the Engagement Letter was still

liable to pay full fees to the Appellant. Learned counsel for the Appellant

would further argue that the delay in disbursal of funding was attributable

to the Corporate Debtor itself and the Appellant could not be blamed for

deficiency of service. Lastly, it is submitted that no settlement had taken

place with respect to reduction in fees payable under the Engagement Letter

and even the amount of Rs.75 lakhs admittedly lying outstanding as per

Company Appeal (AT) (Insolvency) No. 412 of 2020 -5-

Corporate Debtor's assertion has been withheld to coerce the Appellant in

accepting in writing the factum of settlement of dispute at Rs.1,50,00,000/-.

5. Per contra, learned counsel for Respondent- Corporate Debtor

submitted that the Appellant was required to provide its services to the

Corporate Debtor for structuring and placement of its debts instruments

with provision of funding amount ranging between Rs.200 Crores to Rs. 400

Crores. It is submitted that the time was of the essence in the delivery of the

aforesaid services by the Appellant and it was specifically provided that such

services shall be provided within a fixed period of 6 months which never

came to be extended. 100% of the agreed professional fees amounting to 1%

of the total debt financing facilities was to be paid to the Appellant only if

the services were provided by it within the fixed period of 6 months. The

Appellant's services involved sourcing and procuring financial

arrangements/ funds for the Corporate Debtor from third party lenders

through 'Definitive Agreements'. It is submitted that the Mandate Letter

dated 03.04.2018 issued to the Corporate Debtor by 'KKR Capital Markets

India Pvt. Ltd.' was not a Sanction Letter as claimed by the Appellant. It is

submitted that the Appellant failed to provide the financing facilities for the

Corporate Debtor's projects and there was no extension of time beyond the

fixed period of 6 months. Appellant was able to procure another Mandate

Letter dated 03.09.2018 issued by 'KKR India Asset Finance Pvt. Ltd.' but

the same was not a Sanction Letter as claimed by the Appellant. It did not

provide the Corporate Debtor the financial arrangement. The Appellant was

able to secure Sanction Letter from 'KKR India Asset Finance Pvt. Ltd.' in its

Company Appeal (AT) (Insolvency) No. 412 of 2020 -6-

capacity of being an 'original lender' only after delay of more than 5 months.

The Sanction Letter dated 16.10.2018 was only regarding just one project of

the Respondent Company- "Cityscapes" and not the entire project portfolio.

It is further submitted that in December, 2018, as the Appellant's company

failed to render its services within the fixed time, discussions were held and

it was mutually agreed that the Corporate Debtor will pay amount of Rs.1.5

Crores as professional fees towards the deficient services as provided by

Appellant as full and final settlement. The Appellant, pursuant to the

negotiations, raised the invoice dated 16.01.2019 for Rs.1.5 crores towards

the full and final settlement amount, the invoice being towards the 'fees' and

not 'part fees''. Vide letter dated 19.02.2019, Respondent confirmed the

payment of Rs.75 lakhs clearly stipulating that the total professional fees

agreed between the parties was Rs.1.5 crores. When the Respondent

received incorrect invoice dated 27.02.2019, it requested the Appellant to

issue the corrected proforma invoice. It is pointed out that the Appellant did

not object to the same nor disputed said emails. Even the demand notice

dated 20.05.2019 issued by the Appellant stated that the quantum of debt

were disputed by the parties. It is lastly submitted that the dispute

admittedly existed prior to the issuance of the demand notice and failure to

reply the same would not be entitled the Corporate Debtor to show existence

of such pre-existence of dispute. Respondent is willing to pay the balance

amount of Rs.75 lakhs to the Appellant provided the Appellant raises the

full and final invoice for the same. It is submitted that there being deficiency

in services on the part of the Appellant and the corresponding pre-existing

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dispute relating to the quantum of the debt as claimed by the Appellant, the

impugned order was sustainable.

6. We have given our anxious consideration to the submissions made at

the Bar and also examined the record. Facts in regard to contractual

relationship inter se the parties are not in controversy. Services were

provided by the Appellant to Corporate Debtor for raising finance as also

advisory services relating to structuring and placement of debt instrument

in private transactions. It is also not in dispute that the Appellant had

issued engagement letter dated 08.11.2017 incorporating the terms and

conditions for providing services to the Corporate Debtor. Admittedly, the

Corporate Debtor signified its consent and assent thereto. In terms of clause

1.1.1.2 of the engagement letter, the funding amount was to range between

Rs.200 Crores to Rs.450 Crores. Capaegis was to provide services to the

Corporate Debtor within six months or any mutually agreed period and in

the event of the proposed transaction being concluded by Corporate Debtor

within the specified period, it was required to pay 100% of the agreed fees to

Capaegis. It is specifically incorporated in Clause 1.3. The Corporate Debtor

was required to pay to Capaegis a fee equal to 1% of the total debt financing

facilities arranged as per Sanction Letter and a non-refundable advance of

Rs.1 Lakh as initiation of transaction besides covering travel related cost. It

appears that one 'KKR India Asset Finance Pvt. Ltd.' granted financial

facilities to Corporate Debtor to the extent of Rs.280 Crores, in respect

whereof the Appellant raised four proforma invoices. Controversy arose in

regard to proforma invoice dated 20.04.2019 raised for a sum of

Company Appeal (AT) (Insolvency) No. 412 of 2020 -8-

Rs.2,05,00,000/- plus taxes. Appellant in its letter dated 20.04.2019

forming Annexure-10 to appeal paper book raised demand for payment of

Rs.2,05,00,000/- for advisory services related to project "Cityscapes" funded

by 'KKR India Asset Finance Pvt. Ltd.' stating that only partial payment of

Rs.75 Lakh had been released while the amount due was Rs.2,80,00,000/-

in terms of the Sanction Letter for arranging funds to the tune of Rs.280

Crores to the Corporate Debtor. A bare look at the letter reveals that the

project "Cityscapes" was sanctioned on 16.10.2018 and first disbursement

towards the funding was received on 25.10.2018. It is manifestly clear that

the fixed period of six months for concluding the proposed transactions in

the nature of providing financing facilities as contemplated in the

engagement letter had elapsed on 07.05.2018 i.e. after the expiry of six

months reckoned from 08.11.2017 when the engagement letter was issued.

However, simple reading of Clause 1.3 of the engagement letter leaves no

room for doubt that the contemplated period of six months was

substitutable by a mutually agreed period and the agreed fee was liable to

be paid in full provided the proposed transactions through the Appellant

were concluded during the aforesaid term. Admittedly, no suit or arbitration

proceedings were pending in regard to any alleged deficiency of service. The

fact that another mandate letter dated 03.09.2018 forming Annexure 4 to

the appeal paper book was issued in favour of Appellant which was in

furtherance of the first mandate letter dated 03.04.2018 forming Annexure 3

to the appeal paper book would per se suggest that the original term of six

months in terms of Clause 1.3 was not adhered to and Appellant's action in

Company Appeal (AT) (Insolvency) No. 412 of 2020 -9-

finding 'KKR Capital Market India Pvt. Ltd.' as an arranger for searching

financers was approved. Therefore, it is futile on the part of the Corporate

Debtor to raise the grievance that there was a dispute relating to the quality

of service. As already noticed no suit or arbitration proceedings were

pending on the date of filing of application under Section 7 in regard to

quality of service to bring the same within the ambit of dispute as

contemplated under Section 5(6)(b) of the 'I&B Code' to disentitle the

Appellant- Financial Creditor from initiating Corporate Insolvency

Resolution Process. No such dispute was even brought to the notice of the

Appellant- Financial Creditor as the demand notice served under Section

8(1) of the 'I&B Code' was not responded to by the Corporate Debtor.

Therefore, we have no hesitation in holding that the Appellant- Financial

Creditor was entitled to raise the invoice dated 20.04.2019 in regard to the

unpaid balance amount of Rs. 2,05,00,000/- in respect whereof default was

committed by the Corporate Debtor who admittedly paid only Rs.75 Lakhs

as part payment. There is nothing on the record to even suggest that the

liability was at all denied by the Corporate Debtor and any agreement or

settlement was reached inter se the parties for reduction of amount of fee

payable in lieu of services provided for the reason that the timelines were

not adhered to by the Appellant in arranging financer for the Corporate

Debtor's project. The Adjudicating Authority landed in error in observing

that there was a clear deficiency in service provided by the Appellant falling

within the ambit of Section 5(6)(b) of the 'I&B Code' which cannot be

supported.

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7. Yet another aspect, which cannot be lost sight of is that the Appellant,

on its own showing claimed to have already paid 50% of the amount due in

respect of first proforma invoice dated 16.01.2019 thereby leaving an

outstanding amount of Rs.75 lakhs which was due and payable. By not

clearing the liability in respect of the balance Rs.75 lakhs in compliance to

the demand notice served upon it by the Appellant- Financial Creditor and

in absence of any dispute raised in regard to deficiency in service in

response to the demand notice, there appears to be considerable force in the

contention of Appellant that withholding of admitted payable amount of

Rs.75 Lakhs by Corporate Debtor emanated out of its design to coerce the

Appellant into accepting that the amount of fee payable had been settled at

Rs.1,50,00,000/- in terms of a mutual settlement which was not at all

forthcoming.

8. In view of the foregoing discussion on merits of the case, we are of the

considered opinion that the Adjudicating Authority has landed in error in

holding that there was no 'debt' as claimed by the Appellant and there was

'deficiency in service' provided by the Appellant. The findings recorded by

the Adjudicating Authority are grossly erroneous and same cannot be

supported. Once the liability in respect of Rs. 75 lakh was admitted and the

same was not discharged by the Corporate Debtor, dispute in regard to

quantum of debt would be immaterial at the stage of admission of

application under Section 7 unless the debt due and payable falls below the

minimum threshold limit prescribed under law. The impugned order is liable

to be set aside as the same is unsustainable.

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9. For the reasons recorded hereinabove, we allow the appeal and set

aside the impugned order. The Adjudicating Authority is directed to admit

the application of Appellant under Section 7 of the 'I&B Code' after providing

an opportunity to the Respondent- Corporate Debtor to settle the claim of

Appellant, if it so chooses and pass all consequential directions as a sequel

thereto. There shall be no order as to costs.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Anant Bijay Singh] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

NEW DELHI

8th December, 2020

AR

Company Appeal (AT) (Insolvency) No. 412 of 2020