Chandan Mishra (Suspended Director Of ... vs Shapoorji Palloni And Co. Pvt Ltd And Anr

Comp. App. (AT) (Ins) No. 1185 of 2022 & I.A. No. 4477 of 2022 & 1780, 2830, 4382, 4384, 4541 of 2023

(Arising out of the Order dated 19.09.2022 passed by the National Company Law Tribunal, New Delhi Bench- IV in C.P. (IB) No. 2561/(ND)/2019 2019)

IN THE MATTER OF:

JEEVAGAN NARAYANA SWAMI NADAR (SUSPENDED DIRECTOR OF SINNAR THERMAL POWER LTD.) S/0 NARANA SWAMI PALANIAPPAN NADAR, RESIDING AT N 135 FF, MAYFIELD GARDENS, N BLOCK, SECTOR 51, GURUGRAM, HARYANA EMAIL : jeevagan1950@gmail.com [In Place of Chandan Mishra, Original Appellant herein (Since Deceased)]. ...Appellant

Versus

1. SHAPOORJI PALLONJI & CO. PVT. LTD. HAVING ITS REGISTERED OFFICE AT: 70 NAGINDAS MASTER ROAD, FORT, MUMBAI, MAHARASHTRA 400023 THROUGH ITS AUTHORISED SIGNATORY ...Respondent No. 1

2. ADARSH SHARMA (INTERIM RESOLUTION PROFESSIONAL OF SINNAR THERMAL POWER LTD.) J-6A, KAILASH COLONY, NEW DELHI 110048 EMAIL: adarsh@adarshca.com ...Respondent No. 2

Present

For Appellant: Mr. Palash Singhai, Mr. Karant Batura & Mr. Jayant Chawla, Advocates. -2- Comp. App. (AT) (Ins.) No. 1185 of 2022

For Respondents: Mr. Abhijeet Sinha, Mr. Mayank Mishra, Mr. Chirag sharma, Mr. Sudiksha Saini, Mr. Shikhar Misra, Advocates. Mr. Mr. S. Niranjan Reddy, Sr. Advocate along with Ms. Shally Bhasin, Mr. Prateek Gupta, Mr. Udbhav Nanda, Mr. Aayush Kapoor, Mr. Utkarsh Singh, Mr. Abhishek Anand, Mr. Karan Kohli & Mr. Sajal Jain, for IRP. Mr. Ramakant Rai, Mr. Varun Tikmani, Mr. Saptarshi Chatterjee, Mr. Aditya Pandey & Ms. Drishti Kaushik, for Intervenor (REC Ltd.)

JUDGEMENT

(19 .01.2024)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present Appeal i.e., Company Appeal (AT) (Insolvency) No. 1185 of

2022 was filed by Mr. Chandan Mishra, Suspended Director of Sinnar Thermal

Power Ltd. (in short 'Corporate Debtor') under Section 61 of the Insolvency

& Bankruptcy Code, 2016 (in short 'Code') being aggrieved by the Impugned

Order dated 19.09.2022 in C.P. (IB) No. 2561/(ND)/ 2019 passed by the

National Company Law Tribunal, New Delhi Bench- IV (in short

'Adjudicating Authority') whereby the Adjudicating Authority admitted the

Corporate Insolvency Resolution Process (in short 'CIRP') filed under Section

9 of the Code by M/s Shapoorji Pallonji & Co. Private Limited who is the

Operational Creditor and Respondent No. 1 herein.

-3-

Comp. App. (AT) (Ins.) No. 1185 of 2022

2. Mr. Chandan Mishra expired on 22.11.2022 and Mr. Jeevagan Narayana

Swami Nadar moved an application for change name as the Appellant which

was allowed by this Appellate Tribunal.

3. Mr. Adarsh Sharma is the Respondent No. 2 herein, was appointed as

Interim Resolution Professional (in short 'IRP') of the Corporate Debtor.

4. Heard, the Counsel for the Parties and perused the record made available

including the cited judgements.

5. The Corporate Debtor is the company incorporated on 03.01.2007 for the

purpose of setting up of 1350 (5×270) MW Nasik Thermal Power Project

located at Sinnar SEZ Nashik, whereas the Respondent No. 1 is the Operational

Creditor to the Corporate Debtor to whom the Corporate Debtor awarded

contract Civil & Structural Box on 28.05.2010 for setting boiler and generator (

in short 'BTG') for an amount of Rs.180 Crores.

6. It has been brought out that the total contract was enhanced from time to

time and was increased to Rs. 224.13 Crores.

7. The Corporate Debtor also issued another work order to the Respondent

No. 1 dated 22.11.2012 for amount of Rs. 12.56 Crores for various items under

OBTG and both the combined contracts/ work orders i.e., OBG and OBTG will

be referred hereinafter as "contracts".

8. It has been submitted that the Respondent No. 1 issued 77 running

accounts bill (in short 'RABs') along with Final bill for BTG and issued -4- Comp. App. (AT) (Ins.) No. 1185 of 2022

19 RABs along with final bill for OBTG. The total combined work done by

Respondent No. 1 is stated to be of Rs. 208.33 Crores against which the

Corporate Debtor made the payment of Rs. 146.14 Crores leaving Rs. 62.19

Crores as outstanding balance.

9. For seeking payment of outstanding dues from the Corporate Debtor

amounting to Rs. 62.19 Crores, the Respondent No. 1 issued demand notice

under Section 8 of the Code on 16.08.2019 which was replied by the Corporate

Debtor on 29.08.2019 denying the averments made in the demand notice.

10. It has been brought out that in meanwhile, the Respondent No. 1 filed a

petition under Section 9 of the Arbitration and Conciliation Act, 1996 (in short

'Arbitration Act') bearing number O.M.P. (Comm.) No. 262 of 2019 on

16.08.2019 before Hon'ble High Court of Delhi, who gave a stay on revocation

of bank guarantee by the Corporate Debtor in favour of Respondent No. 1 on

20.08.2019.

11. It has been submitted that the Respondent No. 1 filed an application

under Section 9 of the Code before the Adjudicating Authority which was

admitted on 19.09.2022. The Appellant submitted that he filed detailed counter

affidavit on 13.12.2019, disputing the Respondent No. 1 and bringing out the

pre-existing disputes between the Corporate Debtors and the Respondent No. 1.

12. The Appellant submitted that pending application before the Adjudicating

Authority, the Respondent No. 1 filed an application bearing C.A. No. 503 of -5- Comp. App. (AT) (Ins.) No. 1185 of 2022

2019 to bring on record work completion certificate 09.05.2019 issued by the

Corporate Debtor with reference to BTG work as additional document which

was dismissed by the Adjudicating Authority vide order dated 17.01.2022.

13. It has also been brought out that on 23.09.2019, the Respondent No. 1

issued notice to the Corporate Debtor invoking arbitration under Section 21 of

the Arbitration Act. The Arbitral Tribunal was constituted on 24.11.2019 to

adjudicate upon the claims and counter claims in the matter of Shapoorji

Pallonji and Company Private Limited Vs. Sinnar Thermal Power Limited. The

final arbitration award was passed on 22.04.2022.

14. It is the case of the Appellant that Arbitral Tribunal award was challenged

by him before Hon'ble High Court of Delhi under Section 34 of Arbitration Act

being O.M.P. (Comm.) No. 324 of 2024 which is still pending. The Appellant

submitted that in view of the pendency of the challenged Arbitral Tribunal's

Award, the averment made by the Respondent No. 1 regarding their claims

allowed by the Arbitral Tribunal should not be given undue reliance and

weightage.

15. The Appellant gave reference to the judgements of Hon'ble Supreme

Court of India in the matter of K. Kishan Vs. Vijay Nirman Company Private

Limited, [(2018) 17 SCC 662]. The Appellant also relied upon the judgement

of this Appellate Tribunal in the matter of M/s Annapurna Infrastructure Pvt.

Ltd. vs. M/s Soril Infra Resources Ltd. in Company Appeal (AT) (Insolvency) -6- Comp. App. (AT) (Ins.) No. 1185 of 2022

No. 32 of 2017. The Appellant also referred to several judgements in support of

his averments i.e., Umesh Saraf Vs. Tech India Engineers Pv.t Ltd. passed by

this Appellate Tribunal bearing Company Appeal (AT) (Insolvency) No. 548 of

2020, Karpara Project Engineering Private Limited Vs. BGR Energy Systems

Ltd. in Company Appeal (AT) (Insolvency) No. 622 of 2018, M/s. Raunaq EPC

International Ltd. Vs. M/s. Hiranmaye Energy Ltd. in Company Appeal (AT)

(Insolvency) No. 439 of 2020, Major (Retd.) Inder Singh Rekhi Vs. Delhi

Development Authority [(1988) 2 SCC 338] and Sundaram Finance Ltd. Vs.

NEPC India Ltd. [(1999) 2 SCC 479].

16. It is the case of the Appellant and that his appeal should be allowed

primarily on the following grounds :-

a) There have been pre-existing disputes between the parties.

b) The Adjudicating Authority erred in assuming that the Corporate

Debtor has not filed any application under Section 34 of the

Arbitration Act, challenging the Arbitral Award dated 22.04.2022.

c) The completion certificate dated 09.05.2019 relied upon by the

Adjudicating Authority was dismissed earlier by the Adjudicating

Authority vide order dated 17.01.2020.

17. The Appellant alleged that the Respondent No. 1 has been indulging in

forum shopping by way of raising the same/ similar references before different -7- Comp. App. (AT) (Ins.) No. 1185 of 2022

judicial/ legal fora including the Adjudicating Authority, this Appellate

Tribunal, the Arbitral Tribunal and Hon'ble High Court of Delhi.

18. It is the case of the Appellant and that IBC should not be allowed for

recovery mechanism and the Impugned Order should be set aside for the errors

committed by the Adjudicating Authority both on law and on the facts.

19. Concluding his arguments, the Appellant pleaded that the power plant of

the Corporate Debtor can be revived and he should be given adequate

opportunity by dismissing the Impugned Order.

20. Per Contra, the Respondent No. 1 refuted all the averments made by the

Appellant treating these to be as misleading, mischievous, frivolous and without

any substantial basis.

21. At the outset, the Respondent No. 1 submitted that the Impugned Order

has been passed by the Adjudicating Authority after detailed consideration and

after going into all details of facts and law.

22. The Respondent No. 1 refuted the allegations made by the Appellant that

the Respondent No. 1 concealed the fact regarding arbitration proceeding

pending before the Hon'ble High Court of Delhi.

23. The Respondent No. 1 gave full background of the case, including the

awarded work through legally binding contracts on account of the Corporate

Debtor executed by them and chequered history of pending payments. -8-

Comp. App. (AT) (Ins.) No. 1185 of 2022

24. It is the case of the Respondent No. 1 that out of total cumulative work

done worth Rs. 208.33 Crores, the Appellant paid only Rs. 146.14 Crores and

thereby leaving outstanding dues of Rs. 62.19 Crores. The Respondent No. 1

submitted that he gave all the opportunities to the Corporate Debtor to settle the

dues but the Corporate Debtor miserably failed to meet its obligation according

to the contracts and therefore, the Respondent No. 1 was compelled to issue

demand notice under Section 8 of the Code on 16.08.2019 which was replied by

the Corporate Debtor on 29.08.2019. It is the case of the Respondent No. 1 that

in their reply, nowhere the Corporate Debtor could link any documents or any

evidence of any pre-existing disputes w.r.t. the contracts prior to issue of

demand notice by him to Corporate Debtor on 16.08.2019. The Respondent No.

1 stated that the bogus plea of pre-existing disputes was tried to be created by

the Corporate Debtor in order to avoid payments to be paid to Respondent No.

1. The Respondent No. 1 submitted that the Corporate Debtor tried to raise the

issues which were not relevant for the execution of the work or regarding

quantity or quality of the work executed and completed by the Respondent No.

1.

25. The Respondent No. 1 also denied alleged slow progress work levelled by

the Corporate Debtor. The Respondent No. 1 further referred to counter claims

made by the Corporate Debtor only in response to the demand notice which are -9- Comp. App. (AT) (Ins.) No. 1185 of 2022

without any basis and was done by the Corporate Debtor only to derail the

entire CIRP process.

26. The Respondent No. 1 strongly objected to the allegations made by the

Appellant regarding non- admission of completion certificate dated 09.05.2019

issued by the Appellant. In this connection, the Respondent No. 1

submitted that the Adjudicating Authority rejected C.A. No. 503 of 2019 which

was made with a request to place additional document, only on the ground that

this document was not legible. The Respondent No.1 alleged that the Appellant

concealed the fact before this Appellate Tribunal that the work completion

certificate dated 09.05.2019 was indeed on record, since it was annexed with the

Rejoinder filed by the Respondent No. 1 before the Adjudicating Authority and

the same was duly considered by the Adjudicating Authority correctly in the

Impugned Order.

27. The Respondent No. 1 also refuted the fact that the Corporate Debtor is

financially viable and stated that the Corporate Debtor could not even pay their

share of fee to the Arbitral Tribunal in the arbitral proceeding.

28. The case of the Respondent No. 1 is that in terms of Clause 21.6.2 of

Special Conditions of Contract (in short 'SCC') an 'Engineer-in-Charge' was to

be nominated by the Corporate Debtor as owner and in terms of Clause 21.62 of

General Conditions of contract (in short 'GCC') any difference or dispute

regarding any items of schedule of work was to be referred to 'Engineer-in- -10-

Comp. App. (AT) (Ins.) No. 1185 of 2022

Charge' appointed by the Corporate Debtor. The Respondent No. 1 strongly

pleaded that during the entire duration of contract or even during the 'Defect

Liability Period' (in short 'DLP') or even prior to issue of demand 8 notice, the

Appellant never raised any dispute and so-called issue being raised in response

to the demand notice No. 8 are only with ulterior motives.

29. It is further the case of the Respondent No. 1 that in reply to demand

notice dated 29.08.2019, the Corporate Debtor admitted that the entire work was

done by the Respondent No. 1 and did not raise any issue regarding quality or

quantity of services provided under the contracts.

30. The Respondent No. 1 submitted that only in response to his petition

before the Hon'ble High Court of Delhi filed under Section 9 of the Arbitration

Act, the Corporate Debtor raised alleged pre-existing disputes in order to

illegally encash PBG of the Respondent No. 1 of Rs. 9 Crores.

31. The Respondent No. 1 submitted that the very fact that unqualified work

completion certificate was issued by the Corporate Debtor as on 09.05.2019 to

the Respondent No. 1, indicate that entire work was completed without any

grievances and therefore at this stage such plea of pre-existing disputes should

not be allowed.

32. The Respondent No. 1 submitted that even after issue of the completion

work certificate dated 09.05.2019, one year elapsed i.e., period relating to DLP -11- Comp. App. (AT) (Ins.) No. 1185 of 2022

and the Corporate Debtor did not raise any dispute even during this extended

period as the work was completed by 31.03.2018 itself.

33. The Respondent No. 1 stated that allegation of the Corporate Debtor

regarding alleged forum shopping by the Respondent No. 1, is nothing but false

and stated that he was compelled to approach the Hon'ble High Court of Delhi

under Section 9 of the Arbitration Act to protect illegal encashment of PBG by

the Corporate Debtor. The Corporate Debtor failed to return PBG of the

Respondent No. 1 despite several reminders and incidentally the Hon'ble High

Court of Delhi gave the verdict in the favour of Respondent No. 1.

34. The Respondent No. 1 submitted that the judgment cited by the Appellant

specifically of K. Kishan (Supra) is not applicable since that case was based on

Arbitral award which is not the case herein. The Respondent No. 1 amplified

that in the matter of K. Kishan (Supra), the demand notice under Section 8 of

the Code was issued by the Operational Creditor on the basis of final award

delivered by the Arbitral Tribunal in favour of the Operational Creditor,

whereas in the present case the Respondent No. 1 filed the application under

Section 9 of the Code based on unpaid invoices and therefore, the same has got

no relevance in the present case.

35. The Respondent No. 1 reiterated that the Corporate Debtor is not

financial sustainable entity and as per annual financial statements of the

Corporate Debtor for the financial year 2021, the company incurred heavy loss -12- Comp. App. (AT) (Ins.) No. 1185 of 2022

of Rs. 1761 Crores and the company had accumulated loss from operation

amounting to Rs. 7,176 Crores which resulted in complete erosion of the net

worth of the Corporate Debtor. The Financial statement of the year 2020-21

also reveal that the total outstanding loans not paid by the Corporate Debtor was

of Rs. 1413 Crores payable to banks and Rs. 5,688 Crores payable to the

financial institutions.

36. The Respondent No. 1 also submitted that all the assets owned by the

Corporate Debtor are mortgaged with the bank and therefore the revival of the

Corporate Debtor is practically impossible.

37. Concluding his arguments, the Respondent No. 1 requested this Appellate

Tribunal to dismiss this Appeal with exemplary costs.

Finding

38. From the above averments, the following issues emerges :-

a) Whether there were any pre-existing disputes between the parties prior to

the issue of demand notice issued under Section 8 of the Code by the

Respondent No. 1 to the Corporate Debtor on 16.08.2019.

b) Whether the arbitration case pending before the Hon'ble High Court of

Delhi has any impact on Section 9 application under the Code by the

Respondent No. 1 which is subject matter of the present appeal before

this Appellate Tribunal.

-13- Comp. App. (AT) (Ins.) No. 1185 of 2022

c) Whether, the work completion certificate dated 09.05.2019 was rightly

relied upon by the Adjudicating Authority.

39. These issues and other issues raised in the appeal are inter-connected and

inter- dependent and hence we shall deal all the relevant issues conjointly in the

following discussions.

40. We will go through some of cited judgments by the Appellant which

reads as under :-

a) K. Kishan v. Vijay Nirman Co. (P) Ltd., (2018) 17 SCC 662

b) M/s Annapurna Infrastructure Pvt. Ltd. vs. M/s Soril Infra Resources

Ltd. in Company Appeal (AT) (Insolvency) No. 32 of 2017.

41. The first case is of K. Kishan v. Vijay Nirman Co. (P) Ltd., which reads

as under :-

"27. We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an arbitral award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 has taken place."

(Emphasis Supplied) -14- Comp. App. (AT) (Ins.) No. 1185 of 2022

In this connection we will like to take into consideration the background

of the case which has been captured in initial paras. This judgment was passed

by Hon'ble Supreme Court of India in the matter of K. Kishan Vs. Vijay

Nirman Company Private Limited [(2018) 17 SCC 662], which reads as under

:-

"M/s Vijay Nirman Company Pvt. Ltd. (the respondent) entered into a subcontract agreement with one M/s Ksheerabad Constructions Pvt. Ltd. (KCPL) on 1-2-2008, to undertake 50% of Section 2 work of "Construction and widening of the existing two-lane highway to four lanes on NH 67 at km 190000 to km 218215 admeasuring a total of 28.215 km for and on behalf of KCPL." Apart from this Agreement, a separate agreement of the same date was entered into between the said KCPL and one M/s SDM Projects Pvt. Ltd., Bangalore, as a result of which, a tripartite memorandum of understanding was entered into on 9-5-2008 between KCPL, M/s SDM Projects Pvt. Ltd. and the respondent.

During the course of the project, disputes and differences arose between the parties and the same were referred to an Arbitral Tribunal, which delivered its award on 21-1-2017. One of the claims that was allowed by the said award was in favour of the respondent for a sum of Rs 1,71,98,302 which arises out of certain interim payment certificates. Another claim that was allowed related to higher rates of payment in -15- Comp. App. (AT) (Ins.) No. 1185 of 2022

which a sum of Rs 13,56,98,624 was awarded. Three cross- claims that were made by the respondent were rejected. A notice dated 6-2-2017 was sent by the respondent to KCPL to pay an amount of Rs 1,79,00,166. This notice was stated to be a notice under Section 8 of the Code. Within 10 days, by a letter dated 16-2-2017, KCPL disputed the invoice that was referred to in the said notice, stating that the said amount was, in fact, the subject-matter of an arbitration proceeding, and as per KCPL's accounts, the respondent was liable to pay larger amounts to them. After the notice and reply, on 20-4-2017, a Section 34 petition was filed by KCPL under the Arbitration and Conciliation Act, 1996 (the A&C Act) challenging the aforesaid award. This petition was filed within the period of limitation set down in Section 34(3) of the A&C Act. It is only thereafter that a petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code), on 14-7-2017.

The issue involved in this appeal was whether the Insolvency and Bankruptcy Code, 2016 can be invoked in respect of an operational debt where an arbitral award has been passed against the operational debtor, but which has not yet been finally adjudicated upon?"

(Emphasis supplied)

Thus, we find that above cited case is based on fact that the Demand

Notice was based on the Arbitral Tribunal which was challenged under Section -16- Comp. App. (AT) (Ins.) No. 1185 of 2022

34 of the Arbitration Act unlike in the present appeal where the Demand notice

and Section 9 is on the basis of unpaid invoices.

We will refer to another cited judgment of Hon'ble Supreme Court of

India in the matter of M/s Annapurna Infrastructure Pvt. Ltd. vs. M/s Soril

Infra Resources Ltd., which reads as under :-

"26. Under Sec. 36 of the Arbitration Act, an arbitral award is executable as decree but it can be enforced only after the time for filing the application under Sec 34 has expired and no application is made or such application having been made has been rejected That means, the arbitral award reaches finality after expiry of enforceable time under Sec. 34 and/or if application under Section 34 is filed and rejected"

(Emphasis Supplied)

The above cited case referred to the situation where decree based on

Arbitral Award could have been executed only after the time for filing Section

34 has expired. In the present appeal Section 9 was not filed based on the

Arbitral Award as discussed earlier was pressed for unpaid invoices after

completion of work for which completion certificate was issued by the

Corporate Debtor.

-17-

Comp. App. (AT) (Ins.) No. 1185 of 2022

42. We also note another judgements passed by Hon'ble Supreme Court in

the matter of Union of India Vs. Cipla Ltd., [(2017) 5 SCC 262] in this regard

which reads as under :-

"155...The decisions referred to clearly lay down the principle that the Court is required to adopt a functional test vis-à-vis the litigation and the litigant. What has to be seen is whether there is any functional similarity in the proceedings between one court and another or whether there is some sort of subterfuge on the part of a litigant. It is this functional test that will determine whether a litigant is indulging in forum shopping or not"

(Emphasis Supplied)

43. As regard allegation above forum shopping by the Respondent No. 1

(discussed earlier), we note that judgment in the matter of Parsoli Motors

Works Pvt. Ltd. Vs. BMW India Pvt. Ltd. [(2023) ibclaw.in 02 HC] give

suitable explanation passed by the Hon'ble High Court of Delhi in para 47,

which reads a under :-

"47. In this context, it may be observed that it is not a case where there are no arbitrable disputes. The parties may have approached NCLT or other Forums but the scope of adjudication before each of these Fora is independent and merely because the petitioner had approached Competition Commission of India or is a corporate debtor in the proceedings before the NCLT, cannot be held to be a bar to raise the disputes for adjudication by way of arbitration."

-18- Comp. App. (AT) (Ins.) No. 1185 of 2022

(Emphasis Supplied)

44. We also take note of the part IV of demand notice dated 16.08.2019

issued under Section 8 of the Code by the Respondent No. 1 to the Corporate

Debtor. In part IV, the Respondent No. 1 specifically asked for pendency of any

suit or arbitration proceedings in relation to any pre-existing disputes before the

receipt of any demand notice dated 16.08.2019. However, in the reply dated

29.08.2019 no specific reference of any pending arbitration case or suit, has

been given and reference were given only to their alleged deficiency of services

address to the Respondent No. 1 in their correspondence made earlier especially

with regard to alleged slow progress by the Respondent No. 1.

45. We further note from the said part IV of application that the Respondent

No. 1 specifically brought to the notice of their petition filed before the Hon'ble

High Court of Delhi vide petition number O.M.P. (Comm.) No. 262 of 2019

under Section 9 of the Arbitration Act. As such we do not find any force in the

arguments of the Appellant that the Respondent No. 1 concealed the fact

regarding arbitration before the Adjudicating Authority.

46. During averments before us, the Respondent No. 1 submitted that the

entire work was completed on 31.03.2018 and there was a clause regarding

DLP. We note that Clause 13 of SCC contained the clause of DLP which reads

as under :-

-19-

Comp. App. (AT) (Ins.) No. 1185 of 2022

"Defect liability period applicable for this contract is 12 months from the date of completion of work as per certificate of 'Engineering -in-charge'.

Since, the work was completed on 31.03.2018, the DLP period could

have been upto 31.03.2019. After this date, the Respondent No. 1 became

entitled to get back his to PBG given to the Corporate Debtor. We note from

the averments that the Respondent No. 1 has been requesting the Corporate

Debtor to return his PBG but the Corporate Debtor instead of returning was

insisting to extend the same and the Respondent No. 1 was apprehensive that

the PBG might be illegally encashed by the Corporate Debtor. In order to

protect such action by the Corporate Debtor, the Respondent No. 1 moved the

petition under Section 9 of the Arbitration Act before the Hon'ble High Court of

Delhi and stay of invocation of PBG was granted on 20.08.2019.

We find merits in the arguments of the Respondent No. 1 that after the

DLP Period was over on 31.03.2019 and for non-returning of PBG by the

Corporate Debtor, the Respondent No. 1 had to move petition before the

Hon'ble High Court of Delhi as independent contractual remedy and this cannot

be termed as forum shopping.

47. As regards, the financial viability of the Corporate Debtor, we have

carefully noted averment made by the Respondent No. 1 that the Corporate

Debtor could not pay fee even to the Arbitral Tribunal. In this connection we -20- Comp. App. (AT) (Ins.) No. 1185 of 2022

referred to the minutes of Arbitral Tribunal held on 20.04.2021 in part 2 which

reads as under :-

"15. The consequence of the above is that the Respondent's counter claim cannot be proceeded with. The Tribunal has fixed hearing for 9 days (18 sessions) in the month of May, 2021 and therefore, the Tribunal grants one more opportunity to the respondent to deposit with the Tribunal its outstanding share of fee in terms of Procedural Order No. 1 and Procedural Order No. 3 by 05.04.2021 failing which the proceedings relating to Respondent's counter claim shall stand terminated. The matter shall then proceed only in relation to Claimant's claim.

16. In the event of Respondent not depositing its share of fee as noted above by 05.04.2021, the Claimants are directed to deposit the entire Reading fee and fee for writing Order in terms of Procedural Order no. 1 and 3 on or before 30.04.2021."

(Emphasis Supplied)

48. Now we will take up the issue regarding pre-existing disputes between

the parties prior to issue of demand notice under Section 8 of the Code on

16.08.2019. Dispute is not mere denial and dispute should be in accordance

with the Section 5(6) of the Code.

-21-

Comp. App. (AT) (Ins.) No. 1185 of 2022

49. It has been the case of the Respondent No. 1 that alleged pre-existing

dispute were raised for the first time by the Corporate Debtor in his reply to

petition filed under Section 9 of the Arbitration Act before the Hon'ble High

Court of Delhi. Since, the Corporate Debtor raised issues regarding contractual

breaches and disputes, the Respondent No. 1 also had to issue notice invoking

arbitration in compliance with the terms of contract regarding raising of

disputes and had to move a suitable application under the Arbitration Act.

We note that the Arbitral Tribunal comprising of Justice R.M. Lodha,

Former Chief Justice of India, Presiding Arbitrator, Jusitce C.K. Prasad, Former

Judge, Supreme Court of India, Co-Arbitrator and Justice A.K. Sikri, Former

Judge, Supreme Court of India, Co-Arbitrator was constituted and the Appellate

Tribunal heard the parties and examined the documents from time to time and

finally passed the final award on 22.04.2022 under which, the Corporate Debtor

herein was asked to pay Rs. 62.19 Crores as claimed by the Respondent No. 1

herein before the Arbitral Tribunal. The Arbitral Tribunal also awarded a cost

of Rs. 3 Crores in favour of the Respondent No. 1 to be paid by the Corporate

Debtor. We also note that in the earlier Interim Order dated 29.07.2020 prayer

of the Respondent No. 1 was accepted w.r.t. return of performance bank

guarantee by the Corporate Debtor by the Arbitral Tribunal. -22-

Comp. App. (AT) (Ins.) No. 1185 of 2022

50. It may also be observed that a suit for arbitration process taken up

subsequent to demand notice filed under Section 9 of the Code this cannot be

and should not be considered as existence of dispute and therefore, the plea of

the Appellant that the arbitration proceedings which has been challenged by the

Appellant before the Hon'ble High Court of Delhi and therefore, the Section 9

should not be entertained, is devoid of any legal basis.

51. At this stage, we would like to observe that in the Section 7 (5) (a) of the

Code the word 'may' has been used 7(5)(a) as contrast to the word 'shall' in

Section 9 (5) (a) which clearly indicates legislative intention i.e., discretion has

been given to the Adjudicating Authority in case of Section 7 application

whereas Section 9 application no such description has been given. The

application filed by the Operational Creditor for initiation of CIRP is required to

be admitted by the Adjudicating Authority, if the application is complete in all

respect. What is to be proved is that there is non-payment of unpaid operational

debt without any pre-existing disputes. It may be pointed out that financial debt

is usually secured and backed by due documentation whereas the operational

debts are usually unsecured and for shorter period. Thus, the Adjudicating

Authority is required to admit the CIRP application under Section 9(2), if the

application is complete and there is no payment of unpaid operational debt,

invoices have been delivered, no notice of disputes has been -23- Comp. App. (AT) (Ins.) No. 1185 of 2022

received by the Operational Creditor or there is no record of dispute in the

information utility.

52. Other cited judgements of the Appellant are not found helping the cause

of the Appellant. We will also like to refer here the landmark judgement of

Hon'ble Supreme Court of India caring issue of Pre-existing disputes under the

Code. In Mobilox Innovations P. Ltd. vs. Kirusa Software (P) Ltd. [(2018) 1

SCC 353]. The Hon'ble Supreme Court of India has stipulated the following

test for existence of dispute :-

a) Whether the Corporate Debtor has raised a plausible contention

requiring further investigation which is not a patently feeble legal

argument or an assertion of facts unsupported by evidence;

b) Whether the defence is not spurious, mere bluster, plainly frivolous or

vexatious;

c) A dispute, if it truly exists in fact between the parties, which may or

may not ultimately succeed.

53. From the various averments of the parties, we note that prior to issue of

demand notice, no formal letter has been written by the Corporate Debtor to the

Respondent No. 1 regarding raising any specific disputes on aspect of quality

and quantity of work executed under the contracts. In this connection, we have

taken note of reply dated 29.08.2019 filed by the Corporate Debtor to demand

notice. From the said reply, it seems that the Corporate Debtor has referred to -24- Comp. App. (AT) (Ins.) No. 1185 of 2022

various communications and Minutes of Meeting (in short 'MoM'), wherein the

Corporate Debtor is stated to have raised the issues regarding slow progress of

work, non-mobilisation of adequate manpower etc. In fact, the Corporate

Debtor in demand notice 8 has referred to several e-mails and letters regarding

their concerns about slow progress of work and thereby invoking clause 33 of

GCC for termination of contract which, however was withdrawn and original

contract was reinstated.

54. We will refer to detailed discussion in the Impugned Order on the aspect

of pre-existing dispute which are reproduced as under :-

"6. On the other hand, the corporate debtor filed a detailed reply submitting that there were pre-existing disputes between the parties as the petition under Section 9 of the Arbitration and Conciliation Act 1996 was pending between the parties before the Hon'ble High Court of Delhi and the Arbitrator was duly appointed. Further, it is submitted that letter of charge dated 26.02.2010, for the Construction of BTG Civil and Structural Work for the Project does not pertain to Respondent as the same is signed and acknowledged by "Elena Power and Infrastructure Limited". Therefore, the said documents do not pertain to Corporate Debtor and there is no privity of contract between the Operational Creditor and the Corporate Debtor.

7. Further, it is submitted that BTG contract also contains an arbitration clause and as per that, parties were to settle -25- Comp. App. (AT) (Ins.) No. 1185 of 2022

the same by mutual agreement. It is also submitted that though the Respondent/ Corporate Debtor made the appropriate and corresponding payments, however, the applicant miserably failed to complete the assigned scope of work on various occasions and the Corporate Debtor and its representative & associates repeatedly informed the applicant thereby bringing to its notice the delay caused by Operational Creditor in completion of the assigned work as per the agreement including various other quality issues. This can be verified from the various correspondence mode through e-mails and vide e-mail dated 02.05.2016, the Corporate Debtor had brought to the notice of the Operational Creditor that the following significant checks were pending and were to be completed i.e.

a) Grid wise Column Alignment First & Second part (verticality)

b) Span and diagonal between column.

c) Alignment of skirt girder & verticality of stub column.

8. Sufficient time was provided to them, even adequate and qualified erection welders were not deployed at the elevated structure, there was lot of compromise with the quality of the work by the Operational Creditor, as there were various defects in the same. It is also submitted that vide MoM dated 01.11.2014 the Corporate Debtor expressed its concern over the nonavailability of 250 MT Crane, which the Operational Creditor have to provide in the month of Oct 2014 and the Corporate Debtor also asked the Operational -26- Comp. App. (AT) (Ins.) No. 1185 of 2022

Creditor to provide the completion programmer in line with the requirement of the Corporate Debtor, but no further progress was made. Subsequently, vide MoM dated 12.

11.20 14, the Corporate Debtor has expressed his concern on shortage of manpower, especially structural manpower and accordingly, the Operational Creditor was asked to immediate argumentation to meet the target dates.

Therefore, vide MoM dated 18.12.2014, 22.12.2014 & 29.012.2014 the Corporate Debtor expressed its serious concern over the poor supervision at the project and repetitive failure on the part of the Operational Creditor for the weekly execution of works completion targets commitments. Vide MoM dated 06.01.2015 the same concern were expressed to the Operational Creditor and this get on repeated the expressed on 03.03.2016, 31.03.2016, 02.04.2016, 07.04.2016, 14.04.2016, 21.04.2016, 05.05.2016, 11.05.2016, 19.05.2016, 26.05.2016, 02.06.2016, 09.06.2016, 17.06.2016, 23.06.2016, 30.06.2016, 07.07.2016, 19.07.2016, 04.08.2016, 11.08.2016, 18.08.2016, 27.08.2016, 01.09.2016, 07.09.2016, 22.09.2016, 01.10.2016, 13.10.2016, 27.10.2016, 03.11.2016, 10.11.2016, 01.12.2016, 08.12.2016, 22.12.2016, 01.01.2017, 12.01.2017, 16.02.2017, 23.02.2017, 09.03.2017, 23.03.2017, 13.04.2017, 04.05.2017, 11.05.2017, 25.05.2017, 08.06.2017. Thus, there were constant delay and deficiency of services on the part of the Operational Creditor in completing the project site and the Corporate -27- Comp. App. (AT) (Ins.) No. 1185 of 2022

Debtor was constrained to issue e-mail on 22.01.2016, however, the Operational Creditor vide e-mail dated 23.01.2016 denied their liability and requested the Corporate Debtor to withdraw their termination requests, even after repeated representations and assurance to provide best services by the Operational Creditor, the Operational Creditor still lacked in completing the work of the Corporate Debtor. The Corporate Debtor vide e-mail dated 22.02.2016 had brought to the notice of the Operational Creditor that the mobilization of manpower and machineries till date was not enough to cater the required work pace to achieve the agreed work completion plan. It is further submitted, vide letter dated 27.07.2017, the present director stated that the work of waterproofing as guaranteed was done, but there was leakage from the roofs of various building, at the project site. Hence, the work done by the Operational Creditor was of poor quality and in violation of the contract.

13. 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 -28- Comp. App. (AT) (Ins.) No. 1185 of 2022

Application under Section 9 cannot be rejected and is required to be admitted.

14. On a cojoint reading of the provision envisaged under Section 9 of the Code, 2016 and the Mobilox Innovations (Supra), we are of the considered opinion that it is a settled preposition that the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of 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.

15. Adverting to factual matrix of the present case, we are satisfied that present petition is complete as per the provisions of Code, 2016 read with rules made thereunder, outstanding operational debt claimed in part IV of Forrn-5 of the petition is above the pecuniary threshold limit as envisaged under Section 4 of the Code, 2016 and duly supported by Agreement dated 28.05.2010 and addendums thereto, Running Account Bills and other ancillary documents, therefore, the requirements as envisaged under Section 9(5)(i)(a), 9(5)(i)((b) and 9(5)(i)((c) of the Code, 2016 are satisfied.

16. The only issue this Adjudicating Authority have to determine is 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?

-29-

Comp. App. (AT) (Ins.) No. 1185 of 2022

17. It is apparent from the records that the corporate debtor had rwt raised any substantial objection or dispute pertaining to the work performed by the Operational Creditor prior to the issuance of the demand notice dated 16.08.2019. It was on 29.08.2019 when the corporate debtor had responded for the first time in its reply dated 29.08.2019 to the demand notice issued by the Operational Creditor under Section 8(1) of I&B Code raising dispute making reference to its own communications to establish that there is deficiency of services and the works were incomplete by the applicant, consequent of which that alleged operational debt is disputed.

18. As a preface to our analysis, we observe that the concerns raised by the corporate debtor in the communications referred by the corporate debtor in its reply were addressed by the applicant to the full satisfaction of the corporate debtor, resultant to which the corporate debtor had issued completion certificate dated 09.05.2019 to the applicant. It is pertinent to note here that by then the Defect Liability Period of 12 months had already expired. Further, call period of two months beyond the expiry of the Defect Liability Period was also over without raising any dispute by the corporate debtor regarding any defects in work completed by the applicant. This evidently proves that if there were any discrepancies, the applicant could not have obtained Work Completion Certificate from the corporate debtor with a remark that the applicant performance was found satisfactory to the best of their -30- Comp. App. (AT) (Ins.) No. 1185 of 2022

knowledge. This also shows that all the defects, if any, pointed out by the corporate debtor have been timely rectified within the appropriate time, so that the corporate debtor found it appropriate to issue the Work Completion Certificate, otherwise, the corporate debtor would not have issued an incorrect certificate. Therefore, the corporate debtor is estopped from raising the plea of the pre-existing dispute between the parties. The work completion certificate dated 09.05.2019 is as below:-

(Emphasis Supplied)

55. We note that the Adjudicating Authority has taken all efforts to go into

every detail of the reply of the Corporate Debtor including reference to their -31- Comp. App. (AT) (Ins.) No. 1185 of 2022

various e-mails, other correspondences regarding slow progress of work, etc.,

and only after detailed analysis, the Adjudicating Authority came to conclusion

that the Corporate Debtor has not raised any substantial objection or dispute

pertaining to work performance by the Operational Creditor prior to issuance of

demand notice dated 16.08.2019.

56. In Civil contract for construction of certain civil facilities like in the

present case of BTG and OBTG contracts, what is to be seen is that the work

has been completed and there has been no issues regarding quality or quantity

of the services. Mere allegations regarding less mobilisation of manpower or

regarding delay during the contract which was ultimately completed to the

satisfaction of the Corporate Debtor for which the completion certificate,

without any caveat or qualifications or conditions was issued to the Financial

Creditor, such allegations may not fall in the definition of dispute under Section

5(6) of the Code and also will not meet the test as stipulated by the Hon'ble

Supreme Court of India in the Mobilox Innovations P. Ltd. (Supra).

57. It may also be kept in view that the Adjudicating Authority is conducting

summary proceedings and is not expected to go in detailed scrutiny of evidence.

The Adjudicating Authority should look into whether the dispute tantamount to

be substantial, genuine and bona-fide and not spurious, speculative, illusory or

misconceived. The Adjudicating Authority at the stage of admission of CIRP is

not expected to hold a full trial in the matter and it must be decided whether the -32- Comp. App. (AT) (Ins.) No. 1185 of 2022

ground appears to be substantial. However, it is also a settled law that if such

operational debt are bona-fide disputed on substantial ground, the Adjudicating

Authority ought to dismiss the petition and such parties are required to seek

other alternative legal recourse.

58. It is pertinent to note that both GCC and SCC provided for specific clause

regarding "Engineer-In-Charge" whose job was to look into matter of dispute

raised and the same was appointed by the Corporate Debtor as owner of the

project. We have noted from the averments, that no such dispute was ever

referred to such Engineer-In-Charge. This fact also goes against the cause of

the Appellant, who has taken the plea of pre-existing dispute and it is felt that

when such specific provision did exist in the contracts, the Corporate Debtor

should have raised pre-existing dispute relating to quality of the services if any,

which is not found in the present appeal. Hence, we are not inclined to agree to

the plea above pre-existing dispute made by the Appellant.

59. At this stage, we would also like to refer to the various communications

relating to termination of contract by the Corporate Debtor, reply of the

Respondent No. 1 as Operational Creditor and final withdrawal letter of

termination by the Corporate Debtor. These letters will be helpful in looking to

the aspect of pre-existing disputes which can be covered under section 5(6) of

the Code as well as under Section 9 of the Code or otherwise. -33-

Comp. App. (AT) (Ins.) No. 1185 of 2022

60. These communication/ letters pertaining to termination letter,

correspondence exchanged and final termination withdrawal letter by the

Corporate Debtor, which reads as under :-

-34-

Comp. App. (AT) (Ins.) No. 1185 of 2022 -35- Comp. App. (AT) (Ins.) No. 1185 of 2022 -36- Comp. App. (AT) (Ins.) No. 1185 of 2022 -37- Comp. App. (AT) (Ins.) No. 1185 of 2022 -38- Comp. App. (AT) (Ins.) No. 1185 of 2022 -39- Comp. App. (AT) (Ins.) No. 1185 of 2022

61. From the letter dated 22.01.2016 written by the Corporate Debtor to the

Respondent No. 1, it is seen that letter was written on "mobilisation work" w.r.t.

progress of the work and nowhere any other aspect of disputes have been

mentioned. In the response to the same, the Respondent No. 1 replied the

Corporate Debtor vide e-mail dated 23.01.2016, refuting the content and

indicating action taken to mobilise resources and further raised the issue

regarding pending payments to be released by the Corporate Debtor to the

Respondent No. 1. This was followed with the communication from the

Corporate Debtor on 23.01.2016, giving outcome of discussion with the

Respondent No. 1 relating to payment to be made by the Corporate Debtor and

mobilisation of manpower and tools and plants to be made available by the

Respondent No. 1. The content of the letter was confirmed by the Respondent

No. 1 vide their letter dated 25.01.2016 and finally the Corporate Debtor

withdrew the termination letter. Thus, we find from above correspondence that

the issue was regarding release of payment by the Corporate Debtor and in turn

mobilisation of resources especially manpower and tools and plant by the

Respondent No. 1 for which the termination letter was issued and subsequently

withdrawn.

Thus, we do not find any issue raised by the Corporate Debtor regarding

quality or quantity of services resulting into pre-exiting disputes hence, on the

contention of the Appellant that the work was terminated indicates pre-existing -40- Comp. App. (AT) (Ins.) No. 1185 of 2022

disputes, we do not find much substance to this argument of the Appellant. In

fact, the termination letter was withdrawal by the Corporate Debtor and original

contract was restored.

62. In view of detailed discussions this Appellate Tribunal do not find any

error in the finding of the Adjudicating Authority on the aspect of pre-existing

dispute.

63. Yet another issue which has been raised by the Appellant is regarding

admissibility of the completion certificate issued dated 09.05.2019 by the

Corporate Debtor to the Respondent No. 1. The Appellant has taken two-fold

argument i.e., the completion certificate was not formerly part of the original

pleadings before the Adjudicating Authority and the Respondent No. 1 tried

to get it included by filing CA No. 503 of 2019 seeking permission from the

Adjudicating Authority to file additional document of the completion certificate

dated 09.05.2019, which was rejected by the Adjudicating Authority.

Second argument of the Appellant is that the completion certificate was

issued with Caveat that this was being issued at the request of the Respondent

No. 1, therefore, cannot be relied upon.

64. In this connection, we would like to refer to the completion certificate

issued by the Corporate Debtor to the Respondent No. 1 which reads as under :- -41-

Comp. App. (AT) (Ins.) No. 1185 of 2022 -42- Comp. App. (AT) (Ins.) No. 1185 of 2022

65. For this issue, we observe that the Adjudicating Authority has recorded

following while dismissing the CA No. 503 of 2019

ORDER "CA No. 503/2019 is an application filed by the Operational Creditor, seeking to place on record the additional documents which is to be placed on record and relied upon by the Operational Creditor and Page No. 6 is supposed to be work completion certificate. The original documents annexed with the typed copy is not readable/legible at all. In view of the same, CA No. 503/2019 is dismissed...

(Emphasis supplied)

66. Thus, it seems that the CA No. 503 of 2019 was dismissed since this was

not readable/ legible. As regard, other argument the completion certificate

dated 09.05.2019 was issued to the Respondent No. 1 based on their request for

participating in tenders in public and private sector, PSUs or any other private

organisations and therefore, this should be treated as Caveat and should not be

relied upon. In this connection, on a pointed query by this Appellate Tribunal

put to the Appellant, the genuineness and issuance of the work completion

certificate was not denied by the Appellant. We note that the Corporate Debtor

has issued completion certificate on 09.05.2019 prior to issue to demand notice

on 16.08.2019 stating that the Respondent No. 1 has completed the contract and

their performance was found satisfactory.

-43-

Comp. App. (AT) (Ins.) No. 1185 of 2022

We find that the completion certificate was unqualified and without

raising any issue regarding quality or quantity or progress of the work by the

Respondent No. 1. Merely the fact that the certificate was issued at the request

of the Corporate Debtor, the existence and validity and impact of the same

cannot be denied at this stage by the Corporate Debtor. Thus, the work

completion certificate was rightly taken into consideration by the Adjudicating

Authority in their analysis and we do not find any error on the same.

67. We are conscious of the fact that completion of project in time along with

requisite quality is the heart of the contract management. It can be no one's

case that extra-ordinary delay which changes viability of the project can be

simply brushed aside and should not be taken into consideration while deciding

Section 9 application under the Code by the Adjudicating Authority. However,

we need to acknowledge the fact in commercial world, occasional delay may

happen and may be attributable to both parties. In instant case, we have seen

that the Corporate Debtor raised issues regarding slow progress and less

mobilisation of manpower, tools and plants whereas in reply to the Corporate

Debtor, the Respondent No. 1 has been categorically stated that due payment in

order to mobilise resources at site has not been paid by the Corporate Debtor.

Hence, what is to be seen here whether delay was on account of only one party

and whether such delay effected the project. We also need to factor into

consideration if finally, project was completed to satisfaction of the Corporate -44- Comp. App. (AT) (Ins.) No. 1185 of 2022

Debtor and whether the same was accepted by the Corporate Debtor without

any caveats and qualification. In the instant appeal we note carefully that the

Corporate Debtor issued the completion certificate (already discussed in

detailed by us earlier) without any reservation and to full satisfaction to the

Corporate Debtor. In such background, the alleged delay during course of

execution of contracts, cannot be treated as an issue which may adversely affect

rights of the Operational Creditor under Section 9 of the Code. We clarify

position on delay/ slow progress during contract period accordingly.

68. After detailed analysis, we do not find any error in the Impugned Order.

69. In fine, the appeal, devoid of any merit, stand dismissed. No Costs.

Interlocutory Application(s), if any are Closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim