Avil Menezes vs Tata Consulting Engineers Limited

In the matter of: Avil Menezes Liquidator of Sunil Hitech and Engineers Limited 106, 1st Floor, Kanakia Atrium 2, Cross Road A, Behind Courtyard Marriott, Chakala, Andheri East, Mumbai City, Maharashtra - 400093 ...Appellant

Versus

Tata Consulting Engineers Limited Unit No. NB 1502 & SB 1501, Empire Tower, Thane Belapur Road, Navi Mumbai - 400708 ..... Respondent

Present :

For Appellant : Mr. J. Rajesh, Mr. Dhrupad Vaghani, Mr. J.S Khurana, Mr. Aniket Mokherjee, Advocates.

For Respondents : Mr. Saswat Pattnaik, Advocate.

JUDGMENT

(Hybrid Mode)

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

01.11.2023 (hereinafter referred to as 'Impugned Order') passed by the

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 1 of 15 Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in

in I.A.3392 of 2019 in CP (IB) 2295/MB-I/2018. By the impugned order, the

Adjudicating Authority directed the Appellant - Liquidator in the liquidation

process of the Corporate Debtor to accept the claim of the Respondent- M/s

Tata Consulting Engineers Limited relating to refund of an amount of

Rs.56,80,000/- with interest paid by them to prevent invocation of their Bank

Guarantee and an amount of Rs. 16,73,798/- for invoice dated 22.11.2017

raised by them. Aggrieved by this impugned order, the present appeal has

been preferred by the Appellant.

2. The salient facts of the case which are relevant to be noticed for

consideration of the matter are as outlined below:

 On 13.01.2010, the Maharashtra State Power Generation Company Ltd

('MSPG' in short) issued a work contract in favour of Sunil Hitech

Engineers Ltd ('SHEL' in short) following which SHEL appointed Tata

Consulting Engineers Ltd ('TCEL' in short) as sub-contractor to provide

engineering services.

 A Bank Guarantee ('BG' in short) for Rs.56.80 lakhs was submitted by

TCEL on dated 01.07.2010, in terms of contract between SHEL -

Corporate Debtor and TCEL - Respondent. The validity of the said bank

guarantee was extended by the Respondent from time to time upto

30.09.2018.

 The Corporate Debtor was later admitted into Corporate Insolvency

Resolution Process ('CIRP' in short) in September, 2018 and the

Resolution Professional ('RP' in short) representing the Corporate Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 2 of 15 Debtor sought to invoke the BG of the Respondent on 06.03.2019.

Before the BG could be invoked, the Respondent paid the guarantee

amount equivalent of Rs.56.80 lakhs on 06.03.2019.

 The Corporate Debtor was brought under liquidation proceedings on

25.06.2019. The Respondent in the liquidation process filed their claim

of Rs.79.73 lakhs before the Liquidator on 24.07.2019 which also

included refund of Rs.56.80 lakhs being the equivalent of guarantee

amount paid; Rs.16.73 lakhs towards invoice No. 171910023 raised on

22.11.2017 and Rs.15.48 lakhs against other invoices raised on

25.03.2015 and 16.02.2016.

 The Liquidator/Appellant rejected the claim of the Respondent on

03.10.2019 with respect to refund of Rs.56.80 lakhs being the

equivalent of guarantee amount paid and Rs.16.73 lakhs towards

invoice No. 171910023 raised on 22.11.2017 following which the

Respondent filed I.A. No. 3392 of 2019 before the Adjudicating

Authority on 16.10.2019 for issue of directions to the Liquidator to

accept their claim.

 The Adjudicating Authority allowed the prayers of the Respondent

contained in I.A. No. 3392 of 2019 on 01.11.2023.

 Aggrieved by the impugned order, the present appeal has been filed.

3. The Learned Counsel for the Appellant making submissions contended

that the Corporate Debtor had been regularly making payments to the

Respondent against invoices raised by them from time to time. Subsequently,

however, the Respondent started defaulting in the discharge of its obligations

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 3 of 15 under the contract. Due to delayed submissions of drawing and design

documents by the Respondent, the entire project of MSPG got delayed which

in turn had led to invocation of BG of the Corporate Debtor by MSPG. Due to

this loss suffered by them arising on account of non-performance by the

Respondent, the RP of the Corporate Debtor, during the CIRP period, invoked

the BG of the Respondent. The Respondent made payment without making

any protest or raising any objections to the invocation of the BG. Later when

the liquidation proceedings of the Corporate Debtor commenced and the

Respondent sought refund of the BG amount of Rs.56.80 lakhs by filing a

claim, it was contended by the Learned Counsel of the Appellant that the

Liquidator rightly rejected the claims made in this respect since this amount

had been paid against the BG without raising any objections. Having made

the payment without protest, the Respondent had therefore waived their right

to seek refund from the Corporate Debtor and therefore could not have filed

their claim for the same amount before the Liquidator. It was vehemently

contended that it does not stand to reason how the Adjudicating Authority

could have directed the Appellant/Liquidator to allow this claim.

4. It is further contended that the Adjudicating Authority had exceeded its

jurisdiction under Section 42 of IBC while passing the impugned order

without appreciating the fact that BGs constitute a separate, distinct and

independent contract and hence the Adjudicating Authority did not have the

jurisdiction to grant relief with respect to such claim. Adjudicating a breach

of contract falls outside the scope of the insolvency of the Corporate Debtor

and therefore the Adjudicating Authority did not enjoy the power to decide

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 4 of 15 such contractual disputes which could only be determined by way of

arbitration as set out in the contract.

5. As regards rejection of the claim filed in respect of invoice No.

171910023 dated 22.11.2017, it was contended that the same was not

certified by MSPG and hence the Respondent was not entitled to receive the

said amount. Moreover, when the Plant handover to MSPG could not take

place, the Respondent was not entitled for payment against this invoice. The

liquidator had therefore not committed any error in rejecting the claim for

payments with regard to invoice No. 171910023 raised on 22.11.2017.

6. The Learned Counsel for the Respondent rebutting the arguments

canvassed by the Appellant submitted that TCEL had successfully fulfilled

their contractual obligations for which it raised invoices as stipulated in the

contract. Admittedly in terms of the contractual clauses, TCEL had also

provided BG amounting Rs. 56.80 lakhs which was extended from time to

time. Though payments to TCEL remained outstanding, the Corporate Debtor

proceeded to invoke the BG on 06.03.2019 without sufficient cause. While

admitting that TCEL made payment of Rs.56.80 lakhs for reversal of BG, it

was vehemently contended that the same was done under duress so as to

avoid any harm being caused to their professional image and market

reputation. Since this amount was wrongly held back by the Corporate

Debtor, the Respondent was justified in filing their claims before the

Liquidator. However, the Liquidator wrongly rejected their claim by citing that

the amount had been paid without protest. It was added that the Adjudicating

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 5 of 15 Authority rightly directed the Liquidator to accept the claim since they had

rejected the claim without proper substantiation.

7. It was further asserted that despite having provided satisfactory

services, the Corporate Debtor had failed to make payments against invoices

raised by them. The Learned Counsel for the Respondent denied that TCEL

had delayed the submission of drawing and designing documents or that they

had failed to perform the contract in time. Neither had the Corporate Debtor

ever sent any adverse communication to TCEL suggesting any deficiency in

the quality of the work output. It was also stoutly contended that the

Corporate Debtor had not cleared payment for the last invoice on 22.11.2017

which payment they were entitled to receive. Under such circumstances, it

was wrong on the part of the Liquidator to reject the claim filed by them in

respect of invoice no. 1719100023. The allegation of delayed and under-

performance being levelled now by the Liquidator to justify their rejection of

the claim of TCEL is contrived and an after-thought. Hence, the Respondent

was constrained to file the IA before the Adjudicating Authority challenging

the rejection of their claim by the Liquidator.

8. We have duly considered the arguments advanced by the Learned

Counsel for both the parties and perused the records carefully.

9. The main limbs of the Appellant's case are, firstly, that the Respondent

had failed to comply with the terms of the contract. The delayed submission

of drawings and designs documents by TCEL had affected the overall

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 6 of 15 performance of the Corporate Debtor in the main contract with MSPG leading

to invocation of their BG of Rs.83.30 crores by MSPG. Hence the Corporate

Debtor had rightly invoked the BG of the Respondent having suffered losses.

Following invocation of BG of TCEL, the reversal amount of the BG was paid

by TCEL by their own volition and not under protest. That being the case, no

right accrues to them at the liquidation stage to claim the reversed amount of

Rs.56.80 lakhs from the Liquidator. The second limb of argument is that

TCEL had raised their final invoice on 22.11.2017 bearing no. 1719100023

on the Corporate Debtor without the invoice having been certified by MSPG.

Furthermore, since the project handing over to MSPG could not be effectuated

on account of delay in the performance of TCEL, the invoice was therefore not

cleared. Both being quite inter-related, we propose to deal with them in a

conjoint manner.

10. To appreciate the issue at hand, we may first have a quick look at the

statutory role and responsibility of the Liquidator in the context of handling

of claims. However, before we start our journey of glancing at the statutes, we

must add here that it is well settled that IBC treats CIRP and the liquidation

process as two separate stages. Liquidation order signifies the end of CIRP

and the marks the beginning of the liquidation process. Proofs of claim are

required to be filed separately at both these stages. While in the resolution

phase, the submission of claims and verification thereof is with respect to

primarily determining the eligibility to be a member of the Committee of

Creditors, under the liquidation process, the verification is done with the

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 7 of 15 primary objective to determine the total amount of dues and priority thereof

to be paid out of the liquidation estate.

11. The relevant statutory provisions are as outlined below:

"35. Powers and duties of liquidator. - (1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely: -

(a) to verify claims of all the creditors;

(2) The liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53:

Provided that any such consultation shall not be binding on the liquidator:

Provided further that the records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board.

38. Consolidation of claims. - (1) The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process.

(2) A financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility:

Provided that where the information relating to the claim is not recorded in the information utility, the financial creditor may submit the claim in the same manner provided for the submission of claims for the operational creditor under sub-section (3).

(3) An operational creditor may submit a claim to the liquidator in such form and in such manner and along with such supporting documents required to prove the claim as may be specified by the Board. (4) A creditor who is partly a financial creditor and partly an operational creditor shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in sub-section (2) and to the extent of his operational debt under sub-section (3).

(5) A creditor may withdraw or vary his claim under this section within fourteen days of its submission.

39.Verification of claims.- (1) The liquidator shall verify the claims submitted under section 38 within such time as specified by the Board.

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 8 of 15 (2) The liquidator may require any creditor or the corporate debtor or any other person to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.

40. Admission or rejection of claims. - (1) The liquidator may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be:

Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection.

(2) The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims.

41. Determination of valuation of claims. - The liquidator shall determine the value of claims admitted under section 40 in such manner as may be specified by the Board.

42. Appeal against the decision of liquidator. - A creditor may appeal to the Adjudicating Authority against the decision of the liquidator 1[accepting or] rejecting the claims within fourteen days of the receipt of

such decision."

It may not be out of place to notice the relevant provision of IBBI (Liquidation

Process) Regulations, 2016 ('Liquidation Regulations' in short) which is as

hereunder:

"23. Substantiation of claims. - The liquidator may call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim."

12. From the above statutory scheme, it becomes clear that for the purpose

of liquidation, the liquidator has some special powers which are significantly

different from those of the RP. Under Section 36 the liquidator forms a

liquidation estate where liquidator holds all the properties of Corporate Debtor

as a fiduciary, for the benefit of the creditors. Another major function of the

liquidator is the consolidation and verification of the claims submitted to him

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 9 of 15 as has been prescribed by Section 35 of the IBC. After their appointment, the

liquidator has to issue a public announcement within 5 days from the

appointment in Form B of Schedule II of the Liquidation Regulations. The

purpose of the public announcement is to call upon the creditors and other

such persons to submit their claims in relation to the corporate debtor. After

the receipt of the claims, the liquidator shall verify those claims submitted by

the creditors and may also ask the creditors to submit any evidence in relation

to their claims for the purpose of verification. A liquidator is empowered to

either admit or reject the claims on the basis of verification. If the liquidator

rejects or admits a claim of a creditor, he has to communicate the same to the

creditor within seven days from such decision. In the liquidation process, the

liquidator has the power to reject claims raised and if a claim is rejected, a

creditor can appeal against this decision to the Adjudicating Authority. After

all the required claims have been admitted by the liquidator, he is required to

determine the value of the claims for the purpose of distribution of the assets

of the Corporate Debtor. This clearly entails the responsibility of more than

merely collating claims but verification of claims and determination of their

value.

13. Having noticed the scheme of IBC, with respect to role of the Liquidator,

we may now see how the Liquidator in the present factual matrix has handled

the claims lodged by the Respondent on 24.07.2019. The Liquidator informed

the Respondent by email on 03.10.2019 partly rejecting their claims as

follows:

"Bank Guarantee Claim of INR 56,80,000

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 10 of 15 We have perused the claim and communication with the Resolution Professional Mr. Ashish Rathi in relation to the invocation of Bank Guarantee of INR 56,80,000. In this regard, we wish to point out the email dated 6th March 2019 sent by Mr. Sachin Mishra (annexed as Page No. 127 to your claim) which clearly states that the amount paid against the bank guarantee is not under protest. Hence, in view of this, the claim of INR 56,80,000 is rejected.

Invoices dated 22.11.2017 We understand from the company that the invoice no. 1719100023 dated 22.11.2017 is not certified as the plant handover to Mahagenco did not take place. Hence in view of this, the claim for this invoice for INR 16,73,798/- is rejected.

Invoices dated 16.02.2016 and 25.03.2015 The company has accepted the invoices and paid INR 15,48,065/- against the said invoices. The same is also corroborated in your claim filed with us. In view of this, we accept your outstanding claim of INR 6,19,947/- against the above-mentioned invoices.

Summary In view of the reasons stated above, the Liquidator is admitting your claim for INR 6,19,947".

14. Aggrieved by the rejection of their claims, the Respondent filed their

grievance before the Adjudicating Authority which reversed the rejection of the

claims by the Liquidator. The principal conclusive findings contained in the

impugned order as to why the Adjudicating Authority directed the Liquidator

to accept the claims is as follows:

"5.1 We find that there are series of email communications from each side in relation to development of designs and none of such mail suggests any deficiency in the work of the Applicant, who had been forthright in modifying the design/drawings in accordance with the discussion between the parties. The Liquidator has not brought on record any substantive evidence that the invocation of Bank Guarantee by MAHAGENCO was attributable to deficiency in work on the part of the Applicant or any evidence suggesting that the Applicant failed to deliver Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 11 of 15 what it was supposed to. We feel that the action of the Resolution Professional in invoking Bank Guarantee was reaction to invocation of Corporate Debtor's Bank Guarantee by MAHAGENCO. Accordingly, we do not hesitate to hold that the Applicant is entitled to refund of Rs. 56,80,000/, being the amount of Bank Guarantee paid by it, alongwith the payment due in respect of Invoice dated 22nd November, 2017, bearing Ref. No. 1719100023."

15. Coming to our analysis, we find that no material has been placed on

record by the Appellant which shows that the Corporate Debtor had on any

earlier occasion denied making payments against the invoices raised by the

Respondent. This gives sufficient room to believe that the Corporate Debtor

was satisfied with the level of services performed by TCEL. We also find that

the Respondent had been sending repeated emails on a regular basis to the

Corporate Debtor seeking payment against various invoices including Invoice

No. 171910023. These emails dated 06.10.2017, 13.10.2017, 02.11.2017,

21.11.2017, 13.12.2017, 16.01.2018, 16.02.2018, 11.04.2018, and

08.01.2019 are available at pages 154 to 157 of Appeal Paper Book ('APB' in

short). There is nothing to show that the Corporate Debtor had disputed their

liability to pay the last invoice No. 171910023 of 22.11.2017 raised by the

Respondent. No communication appears to have been sent by the Corporate

Debtor to TCEL regarding balance or pending work. There is also substance

in the contention of the Respondent that the emails dated 14.11.2013,

02.06.2014 and 10.11.2014 referred to by the Appellant were at best in the

nature of reminder emails from the Corporate Debtor but do not indicate any

delays committed by the TCEL or any complaint being lodged against them.

No specific grievances with regard to inferior quality of work have either been

placed on record by the Corporate Debtor. The Corporate Debtor had Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 12 of 15 themselves communicated to TCEL that the project timeline of the contract

between the parties for the balance work had been extended upto 31.12.2017.

If we go by the extended timelines, the related work was completed by the

TCEL within time as the invoice was raised by them on 22.11.2017. It

therefore does not stand to reason for the Liquidator to have summarily

rejected the claim of Rs.16.73 lakhs by simply citing that the project handing

over to MSPG had not taken place. The Liquidator has clearly side-stepped

undertaking appropriate verification of the claims.

16. Coming to the issue of invocation of BG by the Corporate Debtor, it is

the case of the Respondent that having duly performed their obligations

arising out of their contract with the Corporate Debtor, and in the absence of

any claim for defect or otherwise, action on the part of the RP to invoke the

BG of Rs. 56.80 lakh was without any basis. It has also been submitted that

the Respondent wanted to avoid the spectre of invocation of their BG to protect

their market reputation and hence paid the equivalent amount. Moreover,

since this amount of Rs.56.80 lakh was paid while CIRP proceedings were

going on and moratorium was in force, the Respondent was estopped from

initiating legal proceedings to claim the said amount. The first chance that

the Respondent got to recover the BG equivalent amount which was

wrongfully retained by the Corporate Debtor was when the liquidation process

commenced and the Respondent acted accordingly.

17. It is the counter-point of the Appellant that when the Respondent had

made the payment of Rs.56.80 lakhs to the Corporate Debtor in lieu of the

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 13 of 15 BG, without any protest or reservations, they are estopped from seeking

refund of the same before the Liquidator.

18. The liquidator is required to admit or reject a claim, basis documentary

evidence. The liquidator is required to independently assess the merits of such

claims based on the documents/evidence adduced by each such creditor.

When we analyse the material on record, we notice that while sending the

initial communication to the Bank of Baroda to encash the BG, the RP had

not specified the default or non-compliance on the part of TCEL. The

communication contained a very general statement that TCEL had defaulted

under the contract and failed to comply with the terms and conditions of the

contract. There seems to be no supporting documents to substantiate that

the invocation of BG by MSPG was attributable to deficiency in work on the

part of the Respondent or failure to achieve the deliverables on their part.

Given this backdrop, we are of the considered view that the Liquidator has

tried to justify the wrongful invocation of BG by raising the feeble defence that

the BG equivalent had been paid without any demur or protest which seems

to be more of an after-thought to cover the action of the RP.

19. In such circumstances, we have no hesitation in holding that the

Respondent cannot be faulted in following the due process in filing its claim

with the Liquidator. Furthermore, in the liquidation process, if a claim is

rejected by the Liquidator, a creditor can appeal against this decision before

the Adjudicating Authority. The Adjudicating Authority enjoys complete

jurisdiction under Section 42 of the IBC to deal with the decision of the

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 14 of 15 Liquidator rejecting the claim filed by the Respondent under Section 38 of

IBC. This is in consonance with the statutory position set out under the IBC.

20. In view of the foregoing reasons, we are of the considered view that the

Adjudicating Authority after perusing all material on record has rightly come

to the conclusion while passing the impugned order that the Respondent is

entitled to refund of Rs. 56.80 lakh being the amount of BG paid by it,

alongwith the payment of Rs. 16.73 lakh due in respect of invoice dated

22.11.2017 and accordingly directed the Liquidator to accept these claims.

We find no reasons to interfere with the impugned order. The Appeal fails and

is dismissed. No costs.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical)

[Mr. Arun Baroka] Member (Technical)

Place: New Delhi Date: 28th May, 2024

Harleen Kaur

Company Appeal (AT) (Insolvency) No. 264 of 2024 Page 15 of 15