Dezire Group Through Harmanjeet Singh ... vs Indamer Mjets Airport Services ...

Dezire Group ...Appellant Through Mr. Harmanjeet Singh Bedi, Partner

Vs

M/s Indamer Mjets Airport Service Pvt. Ltd. ...Respondent

(Arising out of Impugned Order dated 20.11.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court - III) in C.P.(IB)-1033(MB)/C-III/2022)

For Appellant: Mr. Palash S. Singhai and Mr. Harshal Sareen, Advocates

For Respondent: Mr. Hemant Phalpher and Mr. Kunal Sinha, Advocates

JUDGEMENT

Per Justice N. Seshasayee, Member (Judicial)

An Operational creditor, whose application for initiating a CIRP under Sec 9

of IBC was dismissed by the Adjudicating Authority on the ground of existence

of a pre-existing dispute between the parties, has preferred this appeal. 2

The Facts

2. The material facts that provide a backdrop to this case are as below:

a) The appellant is a partnership firm and is involved in the business of

construction. While so, on 01.03.2021 it entered into a Construction

Contract with the respondent for the execution of certain civil work and

allied interior work associated with the lounge near Terminal 3 of Delhi

International Airport. Alongside this contract, both the parties entered

into what is known as 'Workshop Contract' (the copy of this second

mentioned contract is not made part of the record, and the debt involved

in this case does not relate to this contract but to the Construction

Contract).

b) The Construction Contract stipulated three months' time for completing

the work. Clause 15 of the said contract provides that the contractor

could submit the running bill fortnightly upon receiving which the

respondent would release payment within 5 days there from. And, the

contractor is required to submit its final bill within 30 days from the

date of completion the contracted work duly certified by the respondent,

and the payment there under would be finalised within 30 days from

the date of the bill.

c) Be that as it may, the appellant had raised four Running Account bills

(referred to as Running Bills in the Clause 5 of the Contract), the details 3

whereof are as below:

Sl.No Date Amount (in Rs.) 1. 10.03.2021 66,17,293

2. 10.06.2021 36,25,358

3. 08.12.2021 1,11,04,433

4. 15.02.2022 86,64,411

d) Besides the above bills, the appellant claims another Rs.17.0 lakhs

towards glass and aluminium vide Annexure 5, which was said to have

been raised sometime in February, 2022.

e) While the contract work was in focus, on 21.03.2022 the respondent

abruptly terminated the contract. And on 11.04.2022, the appellant

raised its final bill. In all, the total value of the work which the appellant

had done is Rs.4,66,89,639/-, out of which the respondent had paid

Rs.3,09,70,026/- leaving a balance of Rs.1,57,19,613.00 to be paid.

f) According to the appellant, despite due verification of all these bills, the

respondent showed no intention to honour its liability under the bills.

It is in these circumstances, on 03.07.2022, the appellant had issued a

demand notice as required under Sec. 8 IBC, but despite receiving it,

the respondent showed no interest to pay the same.

The respondent has thus committed default in paying the debt, which in turn

had given the appellant a cause for filing its petition under Sec.9 of IBC for

commencing a insolvency resolution process against the respondent. 4

3. In its Reply, the respondent contended:

a) That the construction contract which the appellant had entered into

with the respondent commenced on 01.03.2021, and it stipulated that

the entire work must be completed in three months. However, the

appellant did not complete the work within the time stipulated, and

since the contract-period had fallen within the pandemic days due to

Covid - 19, time was periodically extended and finally up to 31.01.2022.

The work still was not complete. Hence the respondent was constrained

to terminate the Construction Contract.

b) In terms of the contract dated 01.03.2021, if the appellant delayed in

completing the work, it is liable to pay a penalty of Rs.25,000/- a day.

c) This apart vide e-mails dated 02.12.2021, 24.12.2021 and 09.01.2022,

complaints were raised on the aspect of delay, on the invoice, and also

on the quality of work done. In effect, the respondents have raised

certain dispute even prior to the commencement of CIRP.

d) IBC is not a recovery mechanism, and if at all the appellant feels

aggrieved, it should resort to arbitration in terms of the contract.

4. After considering the rival submissions, the Adjudicating Authority had

concluded vide its Order dated 20.11.2023 that the appellant's Petition under

Section 9 of IBC is liable to be dismissed since there exists a pre-existing

dispute between parties which included delay in performance of the

contractual obligation by the appellant. This Order is now under challenge. 5

Arguments

5. The learned counsel for the appellant submitted: that on 11.04.2022

(however, in the notes of arguments provided by the appellant it is mentioned

as 14.04.2022) the appellant raised the final bill and it was verified by the

respondent. When once the final bill amount was verified by the respondent,

the latter's obligation to pay the amount so verified commences. Admittedly,

this amount has not been paid, and it completes the debt-default equation

necessary to invoke Sec.9 IBC. Reliance was placed on the ratio of this

tribunal in R.R.Gopaljee Vs I.O.B. & Others [Comp. A (AT)(Ins) 748 of 2019].

The tribunal however, relied on an e-mail of the respondent dated 25.04.2022

for concluding that there existed a dispute which originated even prior to the

issuance of notice under Sec.8 IBC, but this e-mail relates to what is styled

as 'Workshop Contract', and does not relate to the contract vis-à-vis the final

bill whose non-payment has given rise to the cause of action for invoking Sec.9

IBC.

6. Per contra, the learned counsel for the respondent submitted that the main

plank of the respondent's defence was that the appellant had not completed

the contracted work despite multiple extension and it forced the respondent

to terminate the contract. Now for belated payment the respondent is entitled

to claim penalty @ Rs.25,000/- for every day of delay. Secondly, the purported

claim in the final bill is only for Rs.81,76,767/- and it does not meet the

threshold limit of Rs.1.0 crore to invoke the IBC. Thirdly, that the claim of the

appellant was not free of dispute is established by: (i) in the final bill, an

endorsement has been made on behalf of the respondent that it is not 6

accepted; (ii) that vide e-mail dated 26.11.2022, the appellant had listed its

difficulties in executing the work and in the respondent's mail dated

02.12.2021, the respondent had alleged the appellant of its negligence in

executing the work; (iii) in its e-mail dated 09.01.2022, the respondent had

raised quality-issue in the work executed by the appellant which relates to

leakage due to rain. Indeed, the respondent had expressed its displeasure

both regarding the pace of execution of the work and quality of the work done

vide e-mails dated 01.02.2022 and 14.02.2022, and eventually the

respondent was constrained to terminate the contract. In effect, the appellant

attempts to brand a solvent company as insolvent when the fault lies with it.

Reliance was placed on the ratio in Kay Bouvet Engineering Ltd., Vs

Overseas Infrastructure Alliance (India) (P) Ltd., [(2021)10 SCC 483].

Discussion & Decision

7. After carefully evaluating rival submissions we consider that this appeal is

liable to be dismissed, and the reasons are:

a) That the final bill dated 11.04.2022 is not seen approved for payment

by the respondent, nor its correctness acknowledged by it. On the

contrary, the respondent's representative has made two endorsements.

The first endorsement runs into two sentences and commences with the

phrase: 'Not accepting...'. The learned counsel for the appellant

contended that it related to releasing the security deposit, but on a plain

observation of the final bill it is not adequately evident that the phrase

'not accepting' must be read only in relation to the security deposit, even 7

though the endorsement also refers to security deposit. And there is a

second endorsement as well. Taking both these endorsements together,

it does not establish that the respondent had accepted the liability

under the final bill unconditionally and without any qualification. This

requires further evidence and it cannot be decided in a summary

proceeding.

b) In terms of the final bill (Annexure 6), the net amount payable was

mentioned as Rs.81,76,767/-. However, in the statutory demand notice

dated 03.07.2022, it is mentioned as Rs.1,02,87,004/-. To this was

added another Rs.17.0 lakhs as bill for glass and aluminium. It is not

adequately explained how Rs.81.76,767/- has enlarged to Rs.1.02 crore

and odd. Now, unless the justification for a claim of Rs.1.02 crore has

been established, even the inclusion of the bill for Rs.17.0 glass and

aluminium will not help in crossing the threshold limit of Rs.1.0 crore.

In effect, the appellant has not been able to establish the exact debt due

from the respondent, and at any rate that it is at least more than the

threshold limit of Rs.1.0 crore. When the entire case of the appellant is

spun around the final bill dated 11.04.2022, it is not adequately

explained how it hits the threshold limit for invoking the IBC.

c) There are two e-mails, of which one is from the respondent to the

appellant dated 09.01.2022 (Annexure D to the respondent's reply filed

before the tribunal below) in which it had pointedly raised an issue of

quality of the work done. The other e-mail is dated 31.05.2022 from

the appellant to the respondent wherein the representative of the 8

appellant writes: "My bills have been verified and submitted, barring a

few discrepancies, which have to be sorted out....". There is no reference

as to when exactly this discrepancy was and if it was sorted out. This

apart, Clause 15 of the Construction Contract stipulates that the

payment of the final bill would be done but after due certification of the

completion of the work. To sum up, the final bill is not unqualified. This

apart, the respondent himself has admitted to some discrepancies in

the bill. Given the setting, there is a doubt if the time for payment of the

alleged debt has arrived. In other words, both the debt and the default

in paying the same which are sine qua non for invoking Sec.9 are in

doubt.

d) That the work was not executed in time, that it was not completed

despite extension of time granted by the respondent, that the

respondent had terminated the contract etc., are not disputed, nor is

the contractual term enabling the respondent to claim Rs.25,000/-

from the appellant for every day's delay. Whether the respondent will

be entitled to claim damages at Rs.25,000/- per day might have to be

tested in a separate proceeding, but nothing prevents the respondent

from making the claim based on this term. And, the respondent had

raised this point in its defence, and if this is telescoped into the case of

the appellant, it leaves the appellant's claim shaky.

8. It is very apparent that the case of the appellant is not free of factors which

the IBC regime does not accommodate. Consequently, this tribunal does not

find any material to interfere with the Order of the Adjudicating Authority 9

dated 20.11.2021 in C.P. (IB) 1033 of 2022. This appeal is accordingly

dismissed.

(Justice N. Seshasayee) Member (Judicial)

(Barun Mitra) Member (Technical)