Hardwin Construction Private Limited vs Ongc Petro Additions Limited

Hardwin Construction Pvt. Ltd. ...Appellant

Versus

ONGC Petro Additions Ltd. Respondent

Present: For Appellant: Mr. Jayendra M. Shah, Advocate. For Respondent: Mr. Akshat Khare, Advocate.

ORDER

(Virtual Mode)

14.03.2022: Heard Shri Jayendra M. Shah, learned counsel for the

Appellant and Shri Akshat Khare, learned counsel for the Respondent. This

Appeal has been filed against order dated 02.02.2021 passed by the

Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench,

Court No. 1 by which, application filed under Section 9 by the Appellant -

Operational Creditor has been dismissed.

2. The Appellant (hereinafter referred to as 'Operational Creditor') was

issued two Work Orders by 'Fernas Construction India Pvt. Ltd.' (hereinafter

referred to as 'FERNAS'/ 'FCIPL') on 16.05.2014 and 17.08.2016. The

Corporate Debtor i.e. 'M/s ONGC Petro Additions Ltd.' issued Letter of

Assurance dated 24.03.2015 and 02.09.2016 to the Operational Creditor

assuring that all conditions of the contracts will be honoured and the

Corporate Debtor will make payments directly to the Operational Creditor after

receipt of invoice duly certified by FCIPL and EIL (Engineers India Ltd.). After 2

the aforesaid Letter of Assurance, certain payments were directly made to the

Operational Creditor by the Corporate Debtor. Certain bills and invoices were

raised by the Operational Creditor and the notice under Section 8 was issued

by the Operational Creditor on 25.05.2018 demanding payment from the

Corporate Debtor for works performed by the Operational Creditor to the

extent of Rs.1,51,14,649/-.

3. The Section 8 notice was replied by the Corporate Debtor denying the

claim of the Operational Creditor. It was stated in the reply that the Corporate

Debtor has decided to make direct payment to the Sub-contractor/Vendors of

FCIPL including the Operational Creditor for the works to be executed w.e.f.

01.09.2014 only with a view to get the work of the contract done smoothly in

the interest of the Corporate Debtor and subject to methodology agreed

between Corporate Debtor and FCIPL which includes certification of works

done by Operational Creditor from FCIPL and EIL. In the reply all claims made

by the Operational Creditor were refuted. The Appellant thereafter filed

application under Section 9 claiming the payment from the Corporate Debtor

for the amount indicated in the notice under Section 8. The reply was filed to

Section 9 application by the Corporate Debtor refuting the claim of the

Appellant. It was pleaded by the Corporate Debtor that all bills issued by the

Operational Creditor which have been certified by FCIPL and EIL as per

methodology indicated in the Assurance Letter have already been paid and

there is no claim of the Operational Creditor received with regard to payment

of bills which have been certified by FCIPL and EIL.

Company Appeal (AT) (Insolvency) No. 585 of 2021 3

4. The Adjudicating Authority after hearing both the parties held that there

was no privity of contract between the Operational Creditor and Corporate

Debtor, hence, the application cannot be admitted. In paras 6 and 7 of the

order of the Adjudicating Authority following observations have been made:

"6. From the perusal of the above, we find sufficient merit in the claims made by and on behalf of the alleged Corporate Debtor as these letters merely state that the payment due to the work done by the main contractor i.e. M.S FCIPL through the Operational Creditor would be made directly to the Operational Creditor. In our considered view, this is the real substance of these two letters. Further, this also requires various formalities to be completed before such payment could be released. We also find that the direct payments were to be made for the works to be executed w.e.f. 10.09.2014 only and this arrangement has been made to complete the balance pending work. We also find that the payment as per assurance can be made only when invoices are duly certified by the main contractor as well as Project Manager of M/s Engineers India Ltd. with the specific recommendation as to the amount which could be paid. The said assurance is not provided, hence, in our view, no liability can be imposed upon the alleged Corporate Debtor on the basis of said letters of assurance. We also find that the deduction for retention money has also been made by FCIPL as far as Operational Creditor is considered and not by the alleged Corporate Debtor. We have also taken note of the fact that neither such retention money has been deducted by

Company Appeal (AT) (Insolvency) No. 585 of 2021 4

the alleged Corporate Debtor nor it is a subject matter of the said letters of assurance. We also find that the main contractor has not raised the bills for the alleged outstanding amounts as well as retention money nor any claim till then had been filed before the RP of FCIPL who was undergoing CIRP. We also find that the reply to notice of demand issued under Section 8 of IBC, 2016, alleged Corporate Debtor has clarified its stand and opposed the demand so raised.

7. Thus, considering the fact and circumstance of the case, we conclude that in the absence of privity of contract and non-compliance of the submission of invoices/bills by the main contractor along with necessary back up documents required as 0per the contractual provisions, the said letters of assurance do not result into a cause of action against the alleged Corporate Debtor. We also find that the Corporate Debtor is Public Sector Undertaking (PSU), hence, instead of pursuing its claim with the main contractor, the Operational Creditor has chosen to file this application. Normally, in these circumstances, we could have imposed costs for abuse the process of law but considering the fact that some correspondence executed between the Operational Creditor as well as alleged Corporate Debtor, we give benefit of doubt and refrain from doing so."

5. Learned counsel for the Appellant challenging the order of the

Adjudicating Authority contends that when the Corporate Debtor by Letters of

Assurance dated 24.03.2015 and 02.09.2016 has undertaken to honour all

Company Appeal (AT) (Insolvency) No. 585 of 2021 5

conditions of the contract, it was incumbent upon the Corporate Debtor to

make all payments pertaining to bills of the Operational Creditor after

01.09.2014. It was submitted that when FERNAS was expelled by the

Corporate Debtor there was no occasion for the bills to be certified by the

FERNAS. It is submitted that the Appellant has completed its work but no

payment has been received. It is submitted that it is liability of the Corporate

Debtor to make payment against all works done.

6. Learned counsel for the Respondent refuting the submission of the

Appellant contends that all payment of the bills submitted by the Operational

Creditor which were duly certified as per the methodology have already been

cleared and there is no bill which is due on the Corporate Debtor which was

certified by the FCIPL and EIL. It is submitted hat the Corporate Debtor has

never stepped into the shoes of FERNAS and only limited undertaking to make

payment directly to the Operational Creditor in the interest of the work was

made which was subject to certification of bills by FERNAS and EIL. It is

submitted that Appellant cannot claim any payment on bills which are not

certified by FERNAS and EIL.

7. We have considered submissions of learned counsel for the parties and

perused the record.

8. Work Order to the Operational Creditor was issued by FERNAS on

16.05.2014 and 17.08.2016. Under the Work Order issued by FERNAS the

work was to be carried on by the Operational Creditor. The FERNAS was the

Principal Contractor of the Corporate Debtor. For exigencies of work

Company Appeal (AT) (Insolvency) No. 585 of 2021 6

Corporate Debtor issued two letters dated 24.03.2015 and 02.09.2016 to the

Operational Creditor. It is useful to extract letter dated 24.03.2015 which was

issued by the Corporate Debtor to the Operational Creditor, which is to the

following effect:

"Date 24/03/2015 To, M/s Hardwin Construction Pvt. Ltd., B-106, Kukreja Centre, Sector-11, CBD, Belapur Navi Mumbai 400 614

Kind. Attn. Mr. Anil Kumar Singh

Subject: Assurance for payment to M/s Hardwin Construction Pvt. Ltd.

Reference- Work order nos. FCIPL/OPaL/Contracts/311 dated 26 November,

2014 (amended), FCIPL/OPaL/Contracts/325 dated 29 August, 2014 and FCIPL/OPaL/Contracts/328 dated 8 September, November, 2014 placed by M/s th

FERNAS on M/s Hardwin Construction Pvt. Ltd.

Dear Sir,

With reference to the Work Orders mentioned above, placed by M/s FCIPL on you with regard to supply of various items as mentioned in WO, fabrication and erection of fire sprinkles, installations & dismantling of scaffoldings, OPaL is hereby confirming that all the conditions of the contracts will be honored and the

Company Appeal (AT) (Insolvency) No. 585 of 2021 7

payment w.e.f. 1 September, 2014 will be paid to you st

directly by OPaL within 15 days from the date of receipt of invoices duly certified by M/s FCIPL and EIL.

Thanking you, Yours faithfully, Sd/-

K. Satyanarayana CEO OPaL"

9. To the similar effect is next letter dated 02.09.2016 which stated that

the Corporate Debtor is confirming that all the conditions of the contract will

be honored and Corporate Debtor shall make the payments directly to the

Operational Creditor once services as per aforesaid mentioned letter will be

provided and after the receipt of invoice duly certified by M/s FCIPL and

EIL.

10. One of the submissions which has been raised by learned counsel for

the Appellant is that in view of the aforesaid Letter of assurance the Corporate

Debtor is substituted in the shoes of FERNAS and all liabilities under the

Contract/ Work Order with the FERNAS had been undertaken by the

Corporate Debtor, hence, all work which was done by the Operational Creditor

will be liable to be paid by the Corporate Debtor.

11. When we look into the Letter of Assurance issued by the Corporate

Debtor, it is clear that the Corporate Debtor undertook to make payment

directly to the Operational Creditor w.e.f. 01.09.2014 which was subject to

receipt of invoices duly certified by M/s FCIPL and EIL. Thus, certification of

Company Appeal (AT) (Insolvency) No. 585 of 2021 8

invoices by M/S FCIPL and EIL was condition precedent for making payment.

Said Letter of Assurance cannot be stated to be a letter by which the Corporate

Debtor substituted itself in the shoes of FERNAS. The assurance was for

limited purpose and Corporate Debtor was liable to adhere to the assurance

as per assurance given in the said letter.

12. Learned counsel for the Respondent has placed reliance on judgment of

Hon'ble Supreme Court in "Essar Oil Ltd. vs. Hindustan Shipyard Ltd. & Ors.',

judgment reported in (2015) 6 SCC 642, in case of similar facts, where ONGC

was making direct payment to the sub-contractor, it was held that ONGC

cannot be substituted in place of the Principal Contractor. In Paras 24, 25

and 26 of the Judgment following has been laid down:

"24. It is true that the ONGC had made payment to the appellant directly on several occasions. Upon perusal of the correspondence, we find that some understanding, but not amounting to any agreement or contract, was arrived at between the ONGC and the Respondent for making direct payment to the Appellant, possibly because the Respondent was not in a position to make prompt payments to the Appellant. It also appears that on account of the delay in making payment to the Appellant, the work of the ONGC was likely to be adversely affected. The ONGC was interested in getting its work done promptly and without any hassles. In the circumstances, upon perusal of the correspondence, which had taken place between the ONGC and the Respondent, it is clear that so as to facilitate the Respondent, the ONGC had made

Company Appeal (AT) (Insolvency) No. 585 of 2021 9

payments on behalf of the Respondent to the Appellant directly.

25. Simply because some payments had been made by the ONGC to the Appellant, it would not be established that there was a privity of contract between the ONGC and the Appellant and only for that reason the ONGC cannot be saddled with a liability to pay the amount payable to the Appellant by the Respondent.

26. It is also pertinent to note that the Arbitration Agreement was only between the Appellant and the Respondent. The ONGC was not a party to the Arbitration Agreement. When a dispute had arisen between the Appellant and the Respondent in relation to payment of money, the Appellant had initiated the arbitration proceedings. As the ONGC was not a party to the Arbitration Agreement, it could not have been represented before the Arbitral Tribunal. If the ONGC was not a party before the Arbitral Tribunal, the Tribunal could not have made any Award making the ONGC liable to make payment to the Appellant. In the aforestated factual and legal position, the Arbitral Tribunal could not have made the ONGC liable in any respect and rightly, the majority view of the Arbitral Tribunal was to the effect that the ONGC, not being a party to any contract or Arbitration Agreement with the Appellant, could not have been made liable to make any payment to the Appellant."

Company Appeal (AT) (Insolvency) No. 585 of 2021 10

13. We, thus, are of the view that the present is the case where Corporate

Debtor shall not be treated to be substituted in place of the Original Contractor

and limited liability to make payment was accepted by the Corporate Debtor

subject to certification of the bills by the Original Contractor. Before the

Adjudicating Authority itself, the Corporate Debtor has filed detailed reply

where with regard to all items of the claim made by the Operational Creditor

detailed reply was given. It was clearly pointed out in Para 21 of the Reply

that the bills which are claimed by the Appellant could not be paid due to non-

certification of invoices and in Para 21 following pleadings has been made by

the Corporate Debtor:

"21. I say and submit that with reference to first

allegation regarding non-payment of some of the

alleged invoices namely (RA bill No. 03A, RA-07, RA-

08, RA-09, RA-28) amounting to Rs. 3,767,647.5/, it

is submitted that same has not been paid by

respondent due to certain deficiencies i.e. non-

compliance of the following explicit conditions:

I. Non-amended work order;

II. Non-submission of the Undertakings by FCIPL;

III. Non-certification of the invoices by FCIPL and;

IV. Not providing indemnity.

Hence, in view of the above deficiencies, the

aforesaid invoices were not processed by OPaL. In

Company Appeal (AT) (Insolvency) No. 585 of 2021 11

other words as the Petitioner had not complied with

the explicit conditions of the Letter of Assurance

issued by OPaL, there cannot be any liability posed

qua the said unpaid bills because of noncompliance

of aforementioned deficiencies. Thus, these bills

cannot be considered as a debt in any stretch of

imagination over the Respondent OPaL and thus the

said petition is required to be rejected being a

misuse of the process of law by the petitioner."

14. With regard to retention of money, in Para 23 it was mentioned that the

retention money has not been deducted by the Corporate Debtor and there is

no claim of payment of retention money. The claim of TDS has been dealt with

in Para 24 of the Reply.

15. Thus, the plea of the Corporate Debtor was on fore-front that it has

undertaken to make payment of only those bills which were certified by FCIPL

and EIL. The Appellant's submission that since FERNAS was expelled by the

Corporate Debtor there was no need for the Operational Creditor to get bills

certified, cannot accepted. From the invoices which are on the record, it is

clear that invoices were issued to the FCIPL and invoices were not directly

issued to the Corporate Debtor. The invoices were issued to the FCIPL only

for the purpose of due certification by FCIPL and EIL, so that the Corporate

Debtor may make the payment. In facts of the case, we are of the view that

the Adjudicating Authority has not committed any error in rejecting the

Company Appeal (AT) (Insolvency) No. 585 of 2021 12

Section 9 Application filed by the Operational Creditor. There is no merit in

the Appeal. The Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

Archana/nn

Company Appeal (AT) (Insolvency) No. 585 of 2021