Manishaas Infratecho Solutions ... vs Bhonu Hulshi Real Estate Private ...

In the matter of: Manishaas Infratecho Solutions Pvt. Ltd (formerly known as Manisha Infrasolutions Private Limited) bearing ClN-U45200DL2009PTC193846 and having its registered office At- 437, G/F, Main Road, Mandwali Fazalpur, Delhi-110 092 India. Email id: sunilkumar@manishaispl.com ...Appellant

Versus

Bhonu Hulshi Real Estate Private Limited ClN-U70109BR2018PTC038579 having its Registered Office Rajani Ranjan, Bhonu Hulshi Nilay, 5th Floor, Ranchi Road, Bhaisasoor, Opposite - Jaya Nursing, Biharsharif, District-Nalanda, Bihar-80130l, India. Email id: Rajanil08.rr@gmail.com ...Respondent

Present :

For Appellant : Mr. A. Kumar Shandilya and Ms. Namrata Langade, Advocates.

For Respondent : Mr. Himanshu Gautam, 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 05.03.2024 along with corrigendum dated 11.03.2024

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

Adjudicating Authority (National Company Law Tribunal, Kolkata, Court-II)

in CP (IB) 304/KB/2022/. By the impugned order, the Adjudicating

Authority has dismissed Section 9 Application filed by the Appellant -

Operational Creditor and imposed a penalty of Rs. One Lakh only.

Aggrieved by the impugned order, the present appeal has been preferred by

the Operational Creditor.

2. Making his submissions, the Learned Counsel for the Appellant

submitted that the Operational Creditor - Manishaas Infratecho Solutions

Pvt Ltd received a development-cum- maintenance work order from the

Corporate Debtor - Bhonu Hulshi Real Estate for civil construction and

miscellaneous work for a real estate project, namely, Bhonu Hulshi Nilaay

Project. It is further stated that in pursuance of the work order, the

Operational Creditor undertook various civil-cum-electrical works which

were completed and invoices were raised aggregating an amount of Rs.4.26

cr for payment. It was further submitted that the Corporate Debtor had

made part payment of Rs.2.05 cr and there was an outstanding payment of

Rs.2.83 cr including interest. The Appellant submitted that it had sent

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 2 of 15 reminders to the Corporate Debtor for making payment but due to non-

receipt of any response from the Corporate Debtor, the Appellant had issued

Section 8 demand notice on 07.10.2022 which was served upon the

Corporate Debtor on 10.10.2022. Since the Corporate Debtor did not reply

to the demand notice within the prescribed ten days period, nor made any

payments, the Appellant filed the Section 9 application on 30.10.2022

before the Adjudicating Authority for initiation of Corporate Insolvency

Resolution Proceedings ('CIRP' in short) against the Corporate Debtor.

3. Elucidating on the subsequent developments, it was submitted by the

Learned Counsel for the Appellant that the Adjudicating Authority wrongly

dismissed the Section 9 application ignoring the complete facts and the

circumstances of the case. It has been contended that the Adjudicating

Authority wrongly relied upon the submission made by the Corporate

Debtor that entire outstanding amount had been paid by them to the

Operational Creditor at a time when no supporting documents were

produced by them to show how all dues were cleared. It has been contended

that the Adjudicating Authority had committed an error in not considering

the default on the part of the Corporate Debtor in terms of Section 3(12) of

the IBC which expressly states that when whole or any part or instalment

of the amount of debt has become due and payable and is not repaid by the

Corporate Debtor, such non repayment shall be treated as default. It has

been further submitted that the claim of the Corporate Debtor to have

cleared the outstanding dues was baseless and the default having crossed

the threshold limit, this was a fit case for admission of Section 9 application.

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 3 of 15

4. It is also contended that though the Appellant had sought permission

of the Adjudicating Authority to file rejoinder to controvert the claim of the

Respondent that there was no pendency of payment, the same had been

disallowed. Thus, denial of opportunity to place before the Adjudicating

Authority relevant material in their support had prejudicially affected in

protecting their interests.

5. Challenging the impugned order, the Learned Counsel for the

Appellant further submitted that the Adjudicating Authority had erred in

not considering the existence of operational debt merely on the ground that

Shri Sunil Kumar who was a Director of the Operational Creditor had been

the erstwhile Managing Director of the Corporate Debtor during the period

when work order was issued by the Corporate Debtor. It has been

contended that the Corporate Debtor company being a distinct and

independent juristic entity, it was legally obliged to discharge its admitted

legal debts and could not claim immunity from the discharge of debt liability

merely on the ground that its erstwhile Managing Director was now the

Director of the Operational Creditor.

6. It was also contended that the Adjudicating Authority wrongly took

the view that the Section 9 application could not have been filed by the

Appellant since the default in respect of the third invoice raised by the

Appellant amounting Rs.2.47 cr arose after 24.03.2020 and hence attracted

Section 10A of the IBC. The Adjudicating Authority thus committed

another mistake in holding that the default of the Corporate Debtor was hit

by Section 10A of the IBC.

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 4 of 15

7. Refuting the submissions made by the Appellant, the Learned

Counsel for the Respondent submitted that the Corporate Debtor had

cleared all payments to the Operational Creditor and to their vendors and

labourers. It was also asserted that detailed submissions have been made

before the Adjudicating Authority to show that the entire payment had been

made against the bills of the Operational Creditor either directly from the

project account or from the account of one of the Directors of the Corporate

Debtor. Moreover, during the period when work order was issued by the

Corporate Debtor to the Operational Creditor, both these entities were being

jointly managed by members of the same family and Sunil Kumar, the

Managing Director of the Corporate Debtor was also serving as the Director

of the Operational Creditor. This arrangement continued till July, 2021

while settlement talks were taking place amongst the family members on

the modalities of vesting of control and ownership of the Corporate Debtor

company and the Operational Creditor entity amongst members of the

family. Subsequent to settlement amongst the family members on

07.07.2021, the ownership of the Corporate Debtor and Operational

Creditor got separated and the Managing Director of the Corporate Debtor

resigned from this position to become the owner of the Operational Creditor.

8. Citing this background, it is the contention of the Respondent that

the three invoices raised by the Appellant which have been claimed by them

to have remained unpaid were not genuine invoices raised by Sunil Kumar.

Since the Corporate Debtor went out of the hands of Sunil Kumar following

the family settlement, the three invoices were raised by him as operational

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 5 of 15 debt with a view to unduly extract money from the Corporate Debtor so as

to settle scores with other family members because of business

reorganisation.

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

Counsel for both the parties and perused the records carefully.

10. The short point for our consideration is whether any operational debt

qua the Corporate Debtor has been proven to have become due and payable

and if there has been a default in the payment thereof and whether there is

any pre-existing dispute between the parties. This examination would be in

line with the test which has been laid down by the Hon'ble Supreme Court

in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC

353 ('Mobilox' in short) which is as reproduced below :-

"34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:

(i) Whether there is an "operational debt" as defined exceeding Rs. 1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And

(iii) 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?

If any of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, 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,

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 6 of 15 depending upon the factors mentioned in Section 9(5) of the Act."

11. On the issue of outstanding operational debt payable by the

Corporate Debtor, we notice that in all fairness, the Appellant has admitted

that the Corporate Debtor has consistently denied debt and default. The

Appellant has also admitted that it is the contention of the Corporate Debtor

that all due payments have been made either to the Operational Creditor

and/or to the labourers and vendors of the Operational Creditor directly.

The same submissions of having cleared all payments were made by the

Corporate Debtor before the Adjudicating Authority. This has been captured

at para 24 of the impugned order along with details of the various accounts

from which payments have been disbursed by them. The Adjudicating

Authority in the impugned order, in its own analysis and findings, has also

therefore noted that the Corporate Debtor has made detailed submissions

based on bank statements to substantiate that payments were made by

them to the Operational Creditor and to vendors/labourers of the

Operational Creditor either from the joint project account of Anil Kumar

and Sunil Kumar and/or from the account of Mr. Rajini Ranjan, another

Director of the Corporate Debtor.

12. At this stage it may be useful to notice the relevant excerpts of the

impugned order as placed below:

"28. We note that the Operational Creditor has not dealt with specific arguments made by the Corporate Debtor with reference to payments made as per the tables mentioned in para 24 of this Order, other than making sweeping contention that operational Creditor has not received the balance amount and the claims of the

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 7 of 15 Corporate Debtor that all payments have been made is incorrect and false.

*** ***

32. While operational creditor has claimed that a work order has been issued by the corporate debtor on dated 30.07.2018, we do not find any such work order/agreement between the corporate debtor and the operational creditor in the application. During the course of hearing, this bench asked the applicant to provide details of e-bills, Lorry receipts, GST Returns, proof of GST payments, packing lists / delivery challans etc but no such documents have been placed on record. Therefore, Genuity of the Invoices raised by Operational Creditor is not free from doubt.

*** ***

40....In this application, the Operational creditor has claimed that the claim of the Corporate Debtor that payments made have been made to the vendors and labourers of the operational creditors are unsubstantiated without any supporting/bills/written agreements between corporate debtor and operational creditor. However, in the ledger account of the Corporate Debtor maintained in the books of the Operational Creditor, which is annexed at page 148 to this application, operational creditor has accounted all such payments to employees and various vendors of the operational creditor, claimed to have been made by Rajni Ranjan. Thus, we see contradiction with their own pleadings and the ledger maintained in their books."

*** ***

41. Therefore, in absence of any supporting with any other documents as required in Regulation 7 (2) (b) of IBBI (Insolvency Resolution Process for Corporate persons) Regulations 2016 which requires operational creditor to provide contract for supply of goods, financial accounts, copies of GSTR-1 and GSTR -3B etc to be confirmed as operational debt, the invoices relied cannot be taken at face value, considering the facts and circumstances enunciated in this order."

13. From the above extracts it is clear that the Adjudicating Authority

had applied its mind while considering the contention of the Appellant that

the Respondent's claim of payments having been made by them was false.

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 8 of 15 However, this contention of the Appellant was not found sustainable by the

Adjudicating Authority and held to be a mere sweeping statement by the

Appellant for reasons of being unsubstantiated with supporting documents.

We also notice that the Adjudicating Authority has noticed contradiction in

the pleadings made by the Operational Creditor with regard to outstanding

payments and the ledger account of the Corporate Debtor maintained by

the Operational Creditor in their books of account which reflect that

payments have been made by the Corporate Debtor.

14. In the absence of any credible proof put forth by the Operational

Creditor to controvert the contention of the Corporate Debtor that the entire

debt has been cleared and that there was no default, we have no reason to

disagree with the above findings of the Adjudicating Authority that the

allegations of debt and default raised by the Appellant is facile and lacks

substance.

15. Besides holding that the contention of the Operational Creditor that

payments were not made to them by the Corporate Debtor as a sweeping

statement lacking foundational basis, the Adjudicating Authority has also

dealt at length on the tenability of the three invoices dated 05.03.2019,

07.03.2019 and 24.03.2020 basis which debt and default has been raised

by the Appellant in the Section 8 demand notice. These three invoices have

been captured at para 29 of the impugned order which is as reproduced

below:

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 9 of 15 "29. Be that as it may, we find that three invoices were issued by the operational creditor for a sum of Rs. 4,26,96,948/- as stated hereinbelow:

Invoice Date Amount No. 1 Rs. 1,55,05,151/- 05.03.2019 2 Rs. 24, 43, 190/- 07.03.2019 3 Rs. 2,47,48,607/- 24.03.2019

16. Perusal of the above three invoices show that they aggregate to an

amount of Rs.4.26 cr. The Operational Creditor has admittedly received

Rs.2.05 cr. It has therefore been correctly inferred by the Adjudicating

Authority that since the first two invoices aggregated Rs.1.79 cr, the same

stood cleared while only the third invoice amounting Rs.2.47 cr could at

best be treated as having remained unpaid. However, the Adjudicating

Authority after careful consideration has held that this third invoice cannot

establish debt since this invoice was hit by Section 10A of the IBC and

consequently no application under Section 9 of IBC could have been filed

on the strength of this invoice. The ground for holding this invoice to have

been hit by prohibitory period imposed under Section 10A was that the

third invoice was dated 24.03.2020, which was one day prior to the period

covered under Section 10A of the IBC. Payment against this invoice would

have arisen after 24.03.2020 by which time Section 10A period was already

in force.

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 10 of 15

17. Given this backdrop, it will be useful to find out how the Adjudicating

Authority has considered the spectrum of facts and passed the impugned

order to hold the third invoice as non-maintainable under Section 10A of

the IBC.rejecting the Section 9 application on the grounds of pre-existing

disputes. The relevant portions of the impugned order is as extracted

hereunder:

"33. Further we find that there is nothing on record to prove that the date of default is 02.04.2021. There is nothing in the invoices on payment terms, in the absence of which, we can only infer that the invoices are due for payment within reasonable time, from the date of receipt of such invoices. We are of the view that as per the trade practice of this Industry 30 days from the date of receipt of such invoices, is reasonable.

34. Based on admission made in the Notice issued under Section 8 of IBC by the corporate debtor that an amount of Rs.2,05,38,049/- has been received, we infer that first two Invoices have been paid in full. Therefore, substantial amount claimed to be due is with reference to invoice No. 3 and the said invoice is dated 24.03.2020, which is one day prior to the date of commencement of period covered under Section 10A of IBC.

*** ***

36. In the case in hand, the Invoice No. 3 relates to the construction of work. Even assuming for the sake of analysis, that this invoice is genuine, the corporate debtor will have to at least verify the completion of the work order claimed to have been executed. The verification would involve quality, of civil work performed, measurement etc. Therefore, payment of invoice would require at least couple of days from the receipt of invoice, even it is proved that invoice dated 24.03.2020 was delivered on the same day. Transactions covered in these kinds of Invoices cannot be "cash and carry" transaction.

37. However, in the case in hand there is nothing on record to prove that Invoice has been delivered on the same day. Next date to the date of the Invoice is the starting date of the period covered under Section 10 A of IBC. If one take above into consideration, then we are of the view that the default, if at all, would fall during the period covered under Section 10A of IBC.

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 11 of 15

38. As per Section 10A of IBC, no application under Section 7, 9 and 10 of IBC can be filed for any default arising on or after 25.03.2020 to 24.03.2021. Proviso to Section 10A clearly states that no application shall ever be filed for initiation of the Corporate Insolvency Resolution Process (CIRP) of a corporate debtor for the default occurring during the said period.

39. Under the above facts and circumstances, we are of the view that invoice no. 3 amounting to Rs. 2,47,48,607/- would be hit by Section 10A of the IBC and consequently, no application under Section 9 of IBC can be filed."

18. Since the above finding of the Adjudicating Authority in the context

of Section 10A has been challenged by the Appellant, we choose to dwell

upon this issue at this juncture. To begin with, we may go through the

provisions of Section 10A of IBC and understand its intent and objective.

Section 10A of IBC reads as under:

Section 10A: Suspension of initiation of corporate insolvency resolution process. - Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:

Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.

Thus, from a plain reading of the above statutory provision, it becomes clear

that the aim and objective of Section 10A was to protect a Corporate Debtor

from the filing of any insolvency application against it for any default

committed during the period when Covid-19 pandemic was prevailing.

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 12 of 15

19. We now come to the rationale followed by Adjudicating Authority in

holding the third invoice as one hit by Section 10A of IBC. The Adjudicating

Authority has opined that even though the invoice was issued one day prior

to the commencement of prohibited period under Section 10A, it cannot

escape the clutches of Section 10A since the date of issue of invoice cannot

become the date of default since nothing has been placed on record by the

Operational Creditor to show that the invoice had been delivered to the

Corporate Debtor on the same date. Furthermore, there is no

document/agreement between the two parties which has been placed on

record to establish the fact that payment was to be made by the Corporate

Debtor on the date of the invoice. The Adjudicating Authority has also

opined that it is common business practice that some reasonable time is

always available for making payment after invoices are issued. In the

instant case since the third invoice was dated 24.03.2020, payment qua the

invoice would expectedly run from a date subsequent to 24.03.2020 which

would therefore clearly bring it within the ambit of the Section 10A

prohibition period.

20. In our considered opinion, we are inclined to agree with the finding

of the Adjudicating Authority that the third invoice attracted Section 10A

embargo. Mere insertion of any date in the Section 8 demand notice or in

the Section 9 application does not make that date of default valid and

binding especially when there is no agreement between the two parties as

to what shall constitute an event of default. In the absence of any agreement

available on record, the alleged date of default cannot be whimsically and

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 13 of 15 arbitrarily decided by the Operational Creditor. The Operational Creditor

needs to be put to strict proof to establish the date of default. Neither in

their pleadings nor in the course of oral arguments, any evidence has been

placed on record by the Appellant to show how the default qua the third

invoice did not arise during the Section 10A prohibited period.

21. This brings us to the last limb of the argument that the Appellant was

denied adequate opportunity to file their rejoinder and relevant material

before the Adjudicating Authority. It was contended that during the hearing

before the Adjudicating Authority on 30.03.2023, the Learned Counsel for

Appellant had requested that the Operational Creditor be allowed to file

rejoinder to the reply of the Corporate Debtor but the said prayer was

refused. On the other hand, on 25.09.2023 the Adjudicating Authority

allowed the Corporate Debtor to file Sur-rejoinder and on 20.11.2023 taken

on record. To decide on the tenability of this contention, we have gone

through the interim orders passed by the Adjudicating Authority on

30.03.2023, 12.05.2023, 27.06.2023, 31.07.2023, 05.09.2023,

25.09.2023, 10.10.2023, 20.11.2023 and 14.12.2023 as placed at pages

178-186 of the Appeal Paper Book. We find that the Operational Creditor

was represented by their legal counsel on each of these dates. We also

notice that opportunity was given to both the parties to file their written

notes of arguments after pleadings were completed. We thus do not find

any substance in the contention of the Operational Creditor of having been

denied an opportunity of hearing or an opportunity to make any written

submission. We are satisfied that the Adjudicating Authority had offered

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 14 of 15 equal opportunity to both the parties and there is no evidence of any

infringement of the principles of natural justice in the proceedings

conducted by the Adjudicating Authority.

22. In sum, we are satisfied with the findings of the Adjudicating

Authority that debt and default above the threshold limit has not been

established by the Appellant qua the Respondent. Further from the

sequence of events and the factual matrix, we are of the considered view

that the Section 9 application has been filed with malicious intent to settle

score between members of the family and not for the resolution of

insolvency. We therefore affirm the decision of the Adjudicating Authority

rejecting the Section 9 application and imposing penalty of Rs. one lakh

only upon the Appellant. The Appeal fails and stands dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 18.07.2024 Ashok Kumar

Company Appeal (AT) (Insolvency) No. 1222 of 2024 Page 15 of 15