Naik Environmental Engineers Pvt. Ltd vs Indiabulls Construction Ltd

[Arising out of Order dated 14th June 2019 passed by Adjudicating Authority, Bench-III, New Delhi in Company Petition No. IB- 889(N.D.)/2018]

IN THE MATTER OF:

M/s Naik Environment Engineers Pvt. Ltd. Having registered office at: A-686, Naik Enviro House Pavane Industrial Area Navi Mumbai - 400705 ...Appellant

Versus

M/s Indiabulls Constructions Limited Having its registered office at: M-62 & 63, First Floor Connaught Place New Delhi - 110001 ...Respondent

Present:

For Appellant : None For Respondent : Mr Sumesh Dhawan, Ms Geetika Sharma and Ms Vatsala Kak, Advocates

[Per; V. P. Singh, Member (T)]

This Appeal emanates from the Order dated 14.06.2019 passed by

Adjudicating Authority, Bench-III, New Delhi in Company Petition No. IB-

889(N.D.)/2018 titled as Naik Environmental Engineers Pvt Ltd Vs. India

Bulls Construction Ltd., whereby the Adjudicating Authority rejected the

application of the Appellant filed under Section 9 of the IBC. Parties are

represented by their status in the company petition for the sake of

convenience.

Company Appeal (AT) (Insolvency) No. 790 of 2019 1 of 10

2. Brief facts of the case are as follows:

The Petitioner/Appellant of the company petition placed 3 Purchase

Orders and 2 Work Orders inter-alia for comprehensive maintenance,

operation of the plant including the supply of consumables and chemicals

and supply of materials for reinstatements, repairs, servicing of the sewage

treatment plant, equipment of different capacities, operation and

maintenance of STP‟s, ETC at project sites at Hyderabad and Panvel.

Petitioner fulfilled its part under the purchase orders/work order placed by

the Respondent to its entire satisfaction and raised seven invoices upon

Respondent. However, after making part-payment towards the said invoices,

the Respondent failed and neglected to make the payment under the

Purchase Orders and Work Orders in question. After that, the Petitioner

issued a legal notice to the Respondent. The Respondent failed to make the

payment qua the invoices raised. Thus, the Appellant/Petitioner preferred to

file the company petition seeking the balance of Rs. 48,06,944/- along with

interest.

The Appellant contends that the Adjudicating Authority failed to

consider and appreciate the submissions of the Appellant and arrived at a

perverse finding that there exists a pre-existing despite between the parties,

thereby, rejected the application. Feeling aggrieved by the said Order, this

Appellant has been preferred by the Petitioner/Appellant.

3. The Petitioner further contends that the Adjudicating Authority erred

in concluding that there exists a prior dispute between the Appellant and

the Respondent based on the facts which are not even a subject matter of

Company Appeal (AT) (Insolvency) No. 790 of 2019 2 of 10 the case before the NCLT. It is further contended that Adjudicating

Authority erred in observing that there is a running composite account

between the parties, and there is no differentiation between different work

orders. In contrast, the purchase orders/work orders are separate and

different. It is further contended that the finding of the Adjudicating

Authority that there is a running composite account between the parties and

there is no differentiation between the work orders is wrong and perverse.

4. In Reply to the Appeal, the Corporate Debtor/Respondent submits

that it had received four demand notices under Section 8 of the IBC even

though there is a pre-existing dispute pending prior to the issuance of the

demand notices. Respondent further submits that they are not liable to pay

the Appellant anything under Work Order No. 3228001829, 3228002396,

3228001827, 3228108125, 3228002395 until the Petitioner successfully

complied the terms and conditions of every purchase order and work order.

5. The Ld. Adjudicating Authority has rejected the Petition mainly on the

ground that there is a running composite account between the same parties,

and there is no differentiation between different work orders issued between

the parties. The claim of the Applicant and their application is only

concerning five Work Orders and not concerning two Work Orders is not

acceptable. The Adjudicating Authority further observed that the

Respondent has clearly shown that disputes are pending regarding all the

work orders between the Applicant and Respondent. Based on the above

finding, the Adjudicating Authority dismissed the Petition, which is under

challenge in this Appeal.

Company Appeal (AT) (Insolvency) No. 790 of 2019 3 of 10

6. We have heard the arguments of the Learned Counsel for the parties

and perused the record.

7. The point in issue in this Appeal is as follows:

Whether pre-existing dispute exists before issuance of the demand

notice?

8. On perusal of the record, it appears that the Ld. Adjudicating

Authority has given a finding that there is a running composite account

between the same parties, and there is no differentiation between the

different work orders issued between the parties. It is also on record that the

Operational Creditor had filed Section 9 application in respect of

outstanding dues under the following Purchase Orders and two Work Orders

amounting to Rs. 48,06,944/- with the interest of Rs. 14,69,242/-

aggregating to Rs. 62,76,186/- for the projects at Hyderabad Centrum

Project, Hyderabad and Greena Panvel Project, Maharashtra:

i. P.O. No. 3228001827 dated 21.12.2012 ii. P.O. No. 3228108125 dated 04.12.2013 iii. P.O. No. 3228002395 dated 13.03.2014 iv. W.O. No. 3228001829 dated 21.12.2012 v. W.O. No. 3228002396 dated 13.03.2014

9. The Adjudicating Authority rejected the application on the premise

that there was a dispute about the commissioning of sewage treatment plant

(STP) at Parel, Mumbai (Sky Forest Project), hence not maintainable. The

Adjudicating Authority further observed that there was a running composite

account between the parties, and there was no differentiation between

different Work Orders issued between the parties.

Company Appeal (AT) (Insolvency) No. 790 of 2019 4 of 10

10. It is pertinent to mention that separate demand notices under Section

8 were issued in respect of supplies of STP at Hyderabad and Panvel

projects. The outstanding amount due from Sky Forest Project (Parel,

Mumbai) is not claimed in this proceeding. No demand notice has been

issued under Section 8 of the IBC regarding the outstanding amount due

concerning Sky Forst Project, Parel, Mumbai. The Sky Forest Project is

arising out of the W.O. No. 3228108736 and W.O. No. 3200100371 for

which no demand notice has been issued.

11. The Appellant further contends that each Purchase Order/Work Order

constitutes a separate contract, having different payment terms and

conditions. The Corporate Debtor sent a common reply to the separate

demand notices and the only ground for non-payment is shown in the Reply

is regarding the default in services of Sky Forest Project, Parel, Mumbai.

12. It is necessary to quote the following para of Reply to the demand

notice:

"In view thereof and circumstances aforesaid, we state that we are not

liable to pay you anything under Work Order no. 3228108736 and

3200100371 until we receive successfully commissioned STP at our

Sky Forest Project. On the contrary, it is us who is entitled to invoke

indemnity provided under the Work Order no. 3228108736 and

3200100371 and claim refund of the entire amount paid by us to you

under the aforesaid work orders with interest and recover expenses

and penalties that is being suffered by us due to your failure and

Company Appeal (AT) (Insolvency) No. 790 of 2019 5 of 10 negligence to provide us fully workable STP to comply with our

statutory requirement".

13. On perusal of the above-quoted Reply to the demand notice, it is clear

that the Corporate Debtor has complained regarding deficiency of service in

respect of only Work Order no--3228108736 and 3200100371, which

relates to the „STP‟ at Sky Forest Project. The Appellant contends that till

date, no action under IBC is taken for realization of the outstanding dues

relating to the Sky Forest Project, which emanates from the Work Order no.

3228108736, and 3200100371.

14. On perusal of the application filed under Section 9, it is clear that this

Petition is not filed relating to the outstanding dues in connection with Work

Order No. 3228108736, and 3200100371. Therefore, for the deficiency in

services regarding the Sky Forest Project is not in question in this case. It is

relevant to mention that each Purchase Order/Work order constitutes

separate contract having separate payment terms and conditions and

independent dispute resolution clause. The Corporate Debtor sent common

Reply to the separate demand notices dated 08.01.2018 and only ground for

non-payment was that Sky Forest Project at Parel, Mumbai was allegedly

having problems concerning its commissioning. The Corporate Debtor stated

that they are not liable to pay anything under Work Order about Sky Forest

Project only. In fact, in the last paragraph of the Reply to the demand notice,

the Corporate Debtor stated that in respect of the supply of STP at Panvel,

Hyderabad, the company would respond separately. The project-wise

separate calculation sheets are also filed. The Corporate Debtor did not

Company Appeal (AT) (Insolvency) No. 790 of 2019 6 of 10 submit any response against the demand notices issued in respect to

Panvel/Hyderabad supplies.

The Hon‟ble Supreme Court in case of Mobilox Innovations (P) Ltd. v.

Kirusa Software (P) Ltd., (2018) 1 SCC 353: 2017 SCC OnLine SC 1154:

(2018) 1 SCC (Civ) 311 at page 403 has laid down the principle for

determining pre existing for allowing or rejecting application U/S 9 of the

Code.

In the above mentioned case Hon‟ble Supreme Court has held that:

"51. It is clear, therefore, that once the operational creditor has filed

an application, which is otherwise complete, the adjudicating authority

must reject the application under Section 9(5)(2)(d) if notice of dispute

has been received by the operational creditor or there is a record of

dispute in the information utility. It is clear that such notice must bring

to the notice of the operational creditor the "existence" of a dispute or

the fact that a suit or arbitration proceeding relating to a dispute is

pending between the parties. Therefore, all that the adjudicating

authority is to see at this stage is whether there is a plausible

contention which requires further investigation and that the "dispute"

is not a patently feeble legal argument or an assertion of fact

unsupported by evidence. It is important to separate the grain from the

chaff and to reject a spurious defence which is mere bluster. However,

in doing so, the Court does not need to be satisfied that the defence is

likely to succeed. The Court does not at this stage examine the merits

of the dispute except to the extent indicated above. So long as a dispute

Company Appeal (AT) (Insolvency) No. 790 of 2019 7 of 10 truly exists in fact and is not spurious, hypothetical or illusory, the

adjudicating authority has to reject the application.

56. Going by the aforesaid test of "existence of a dispute", it is clear

that without going into the merits of the dispute, the appellant has

raised a plausible contention requiring further investigation which is

not a patently feeble legal argument or an assertion of facts

unsupported by evidence. The defence is not spurious, mere bluster,

plainly frivolous or vexatious. A dispute does truly exist in fact between

the parties, which may or may not ultimately succeed, and the

Appellate Tribunal was wholly incorrect in characterising the defence as

vague, got up and motivated to evade liability."

15. It is also important to mention that this Petition was initially filed at

Mumbai on the assumption that the registered office of the Corporate Debtor

is at Mumbai. However, subsequently, the same was withdrawn with liberty

to submit a fresh application. After that, new demand notices dated

16.04.2018 were reissued inter-alia, confirming the claim under the

Purchase Order/Work Order of supplies made at Hyderabad/Panvel. The

Corporate Debtor sent a fresh response back, reiterating in para 11 and 12

that unless the STP at Sky Forest Project, Parel is commissioned, the

Corporate Debtor is not liable to pay the amount.

16. It is stated in the second reply that:

"You are well aware that your STP installed at our Sky Forest project

has failed to function at its required capacity, and you have also failed

Company Appeal (AT) (Insolvency) No. 790 of 2019 8 of 10 to operate and repair it. From your notices, it appears that you want to

pressurize us in expediting the payment under P.O. 3228108125

without commissioning and testing of STP at India Bulls Green Panvel

Project as you fear that the same will not function similar to STP at Sky

Forest Project.

In view of the aforesaid, we hereby call upon you to withdraw all your

notices and letters under reference in respect of Purchase Order No.

3228108125 dated 04.12.2013. You are further called upon to comply

with terms of P.O. 3228108125 and refrain from demanding full

payment until all actions under the said P.O. is executed."

17. On perusal of the above Reply to the demand notice, it is clear that

service was deficient in respect of Sky Forest Project, but there was no

dispute concerning P.O. No. 3228108125. The Corporate Debtor himself

alleged that the Operational Creditor is pressurizing the payment under P.O.

No. 3228108125 under the fear that the same will not function similar to

STP at Sky Forest Project. On perusal of the Reply dated 23.04.2018

(Annexure A-7), it is clear that no dispute was existing about the P.O. No.

3228108125. There is nothing on record to substantiate that there is

running composite account between the same parties, and there is no

differentiation between different work orders issued between the parties. The

above observation of the Adjudicating Authority is without any basis. It is

also necessary to mention that each P.O./W.O. Constitutes separate

contract having separate terms and conditions and independent dispute

resolution clause, therefore for the alleged deficiency of service relating to

Company Appeal (AT) (Insolvency) No. 790 of 2019 9 of 10 the Sky Forest Project, the outstanding payment relating to other invoices

could not be stopped and the finding of the Adjudicating Authority that

there was pre-existing dispute is also erroneous. Based on the above

discussion, and the law laid down by Hon‟ble Supreme Court in Mobilox

Innovations (P) Ltd. it is clear that the Adjudicating Authority erred in

rejecting the application filed under Section 9 of the IBC based on the pre-

existing dispute. Thus, the Appeal deserves to be allowed.

ORDER

Appeal filed by M/s Naik Environment Engineers Pvt. Ltd. is allowed.

We are of the concerned opinion that all the ingredients of Sec 9 application

are fully satisfied. The Adjudicating Authority is directed to pass the Order

of admission within seven days from the date of submission of a certified

copy of Order.

[Justice Venugopal M.] Member (Judicial)

[V. P. Singh] Member (Technical)

[Shreesha Merla] Member (Technical) NEW DELHI 08th JUNE, 2020

pks/nn

Company Appeal (AT) (Insolvency) No. 790 of 2019 10 of 10