Philips India Limited vs Goodwill Hospital & Research Centre Ltd

(arising out of Order dated 02.03.2017 passed by the National Company Law Tribunal, Principal Bench, New Delhi in CF (IB) No. 03(PB)/ 2017)

IN THE MATTER OF:

Philips India Limited .Appellant Vs Goodwill Hospital & Research Centre Ltd. Respondent

Along with Company Appeal (AT) (Insolvency) No. 15 of 2017

Philips India Limited .Appellant Vs. Karma Healthcare Private Limited Respondent

Present: For Appellant: - Mr. N.Mahabir and Mr. P.C.Arya, Advocates

For Respondent: - Mr. S.N.Jha, Sr. Counsel, Mr. Atul T.N. and Mr. Harsh Raghuvanshi, Advocates.

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA,J.

As both the appeals have been preferred against common order dated

2nd March 2017 passed by 'Adjudicating Authority' (National Company Law

Tribunal), Principal Bench, New Delhi, the appellant is common and common

question of law is involved, they were heard together and disposed of by this

common judgement.

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2. Appellant, Philips India Limited (hereinafter referred to as 'Operational

Creditor) had preferred two separate applications for initiation of Corporate

Insolvency Resolution Process invoking provisions of Section 9 of Insolvency

and Bankruptcy Code, 2016 (hereinafter referred to as 'I & B Code) against

one Respondent - Corporate Debtor "Goodwill Hospital and Research Centre

Limited" and another Corporate Debtor, "Karma Healthcare Private Limited".

Both the applications under Section 9 were rejected by impugned common

judgement passed by 'Adjudicating Authority' with observations that the

remedy of the Appellant/ Applicant lies elsewhere and not under the

provisions of 'I & B Code'.

3. The brief fact of the case are as follows: -

The appellant entered into a Comprehensive Annual Maintenance

Contract with respondent 'Goodwill Hospitals and Research Centre' on 2'

August 2011 and 11th May 2012 for the period from 1St September 2011 to

31st August 2012 and 1st September 2012 to 31St August 2013 respectively in

respect of maintenance of Allum FD 20C.

4. Another Comprehensive Annual Maintenance Contract was reached

between Appellant and the Respondent 'Karma Healthcare Private Limited' on

14th March 2010 for maintenance of installed machine Brilliance 64 without

MRC tube coverage but with UPS, battery, injector for the period from 15th

March 2010 to 14th March 2013.

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5. In both the cases the grievance of the appellant is that the Respondent

- Corporate Debtor defaulted to make payment of debts giving rise to filing of

the petitions under Section 9 of 'I & B Code'.

6. A perusal of the impugned order would show that the 'Adjudicating

Authority' noticed the work order placed by the 'Corporate Debtor' primarily

related to maintenance of equipments. A bare perusal of invoices would show

that it has included the charges of material and labour apart from CST,

service tax, operational cess, small and secondary and higher education cess.

The Learned Adjudicating Authority also noticed that there was no document

placed on record certified by the 'Corporate Debtor' or its authorised

representative or a medical technician that the work has been done

satisfactorily in accordance with the standard of norms! quality stipulated in

the agreement. The Adjudicating Authority noticed the aforesaid factors and

in view of the objections raised by both the 'Corporate Debtors', pursuant to

a notice issued by Appellant - 'Financial Creditor' under Section 433 and 434

of the Companies Act 1956, rejected the applications with following

observations: -

"The reliance of the applicant on the provisions of Section

9 of IBC is not meritorious. The applicant hat, claimed and has

classified itself as 'operational creditor' and has prayed for

triggering of the Insolvency Process. A bare perusal of Section

9 of IBC would inter alia, reveal that this Tribunal is vested with

the powers to reject the application of the operational creditor

under Section 9(5) (d) of IBC in case it is found that notice of 4

dispute has been received by such an operational creditor, or

there is a record of dispute with the information utility. We have

been informed that no 'Information Utility' has so far been set

up and we are perforce to rely on the notice of dispute as sent

by the respondent operational debtor to the applicant in the

notice of dispute, the liability to pay has been completely

denied."

7. The 'Corporate Debtors' have taken plea that there was an existence of

dispute which they brought to the notice of the 'Operational Creditor' in reply

to notice under Section 8 of the 'I & B Code' read with Section 9 of 'I & B

Code'.

8. At this stage it is desirable to state that the Appellant - Operational

Creditor issues a notice under Section 433(e) read with Section 434(1)(a) of

the Companies Act on 9th March 2016 to the respondent 'Goodwill Hospital

and Research Centre Ltd'. Referring to earlier notice it was pointed out that

'Operational Creditor' will be left with no alternative but to call upon the said

'Corporate Debtor' to forthwith and without any further delay make the

outstanding payment or otherwise the 'Operational Creditor' have been

constrained to initiate appropriate proceedings, both under Civil and Criminal

law, including winding up. Similar notice under Section 433(e) read with

Section 434(1)(a) dated 9th March 2016 was issued on respondent Karma

Healthcare (P) Limited.

9. Learned Adjudicating Authority to appreciate the nature of the dispute

while noticed the aforesaid facts, also noticed the reply dated 30th march 2016 5

filed by both 'Corporate Debtors' with similar plea, as apparent from

impugned order and quoted below: -

"To appreciate the nature of dispute, it would be

profitable to read the following part of the reply dated

30.3.2016:

0.3.2016:--

"At the outset the allegations levelled under "At

your notice dated 9.3.2016 are being denied

in its entirety for being false and concocted. It

appears from the tone and tenor of your notice

that your client had not apprised you with the

correct facts and circumstances of the matter

at hand, leading to the issuance of the

misconceived and ill-founded notice dated

9.3.2016. It is brought to your kind notice that

dues as claimed by your notice were never

outstanding against my clients and the

demand notice for the same is hopelessly

barred btj laws of limitation and hence

untenable under law.

It is brought to your notice that our

clients entered into a Comprehensive Annual

Maintenance Contract with your client for the

maintenance of installed Allura Xper FD 20C

at its hospital to keep the same in a good and 6

proper working condition. It was agreed

under the clause 2 of the contract that the

service will be provided by your clients for the

upkeep of the above mentioned medical

equipment at the site of my client but your

client in the most unprofessional manner

failed to keep up with the contractual

obliqation taken by it vide contract dated

11.5.2012. It is further important to mention

herein that the officials of your client had

failed to visit the premises of my client in a

periodic manner for the upkeep of the medical

equipment due to which the functioning of the

equipment was majorly effected.

It is further important to mention herein

that the Allura Xper FD 20C installed at the

hospital of my client was left unattended at

the hospital of mtj client for several days due

to minor problems which were to be repaired

by your client but were never repaired in time

causing severe financial loss due to non

activity of the machine of my client. The

unprofessional approach by the officials of

your client has caused major loss of 7

reputation for my client and caused severe

inconvenience to the patient awaiting their

treatment at the Hospital of my client due to

which the payment was deducted by my

client and the same was informed to the

officials of your client.

10. The Adjudicating Authority then proceeded to discuss the provisions of

law including the expression 'dispute' as defined and inclusive definition as

could be seen from sub-section (6) of Section 5 of the 'I & B Code' and

observed: -

"dispute" includes a suit or arbitration proceedings relating to--

(a) The existence of the amount of debt;

(b) The quality of goods or service; or

(c) The breach of a representation or warranty;

A bare perusal of the above provision of the 'IBC' shows that a

dispute could be proved by showing that a suit has been filed or

Arbitration proceedings are pending. It further elaborates that the suitor

arbitration should be in respect of the existence of the amount of debt,

quality of goods or services, or for a breach of a representation or a

warranty. Obviously, it is not an exhaustive definition but an illustrative

one. It becomes evident from the expression 'includes' which

immediately succeeds the word 'dispute'. Moreover, under Section 8(1)

of the Code adequate room has been provided for the 'NCLT' to ascertain 8

the existence of a dispute. A demand notice by 'operational creditor' to

an 'operational debtor' must be sent who has not paid operational dues

and has committed default. Sub-section (2) of Section 8 further clarifies

that the corporate debtor is obliged to bring to the notice of the

'operational creditor, within 10 days of the receipt of notice, the existence

of a dispute and show the record of the pendency of the suit or arbitration

proceeding filed before the receipt of such notice or invoice in relation to

such dispute. The other option is to pay the demanded amount. In the

instant case, the applicant sent a demand notice which was duly

received by the respondent. A reply has also been duly filed where

serious dispute has been raised."

11. On perusal of the documents submitted before the Adjudicating

Authority and in view of the discussions, part of which were noticed above,

the Adjudicating Authority held that it was unable to fathom any material on

record to dislodge the stand of the respondents that there is existence of

dispute between the parties.

12. Learned counsel for the Appellant - Operational Creditor referred to

sub-section (6) of Section 5 and sub-section (2) of Section 8 of 'I & B code'

made the following submissions: -

Section 5(6):

12.1 Dispute under S. 5(6) is limited to a 'proceeding' or 'us'. The word

proceeding has been qualified to be a suit or Arbitration

proceeding.

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12.2 The word 'dispute' has to be read in conjunction with Suit or

Arbitration. The word 'include' is a limitation to 'dispute'. The

word 'include' connotes 'comprise' or 'consist'. The word

'includes' ought to be read as 'means and includes'.

12.3 The word 'include' is used because the proceedings could be of

various other nomenclature and cannot be listed by an

exhaustive definition. Proceedings could include a Writ petition,

Consumer Court, Rent tribunal, Labour court, mediation,

conciliation etc.

12.4 'Dispute; connotes a claim made and denied by the other party.

A suit or arbitration would ordinarily be covered by 'Dispute'.

Therefore, construing 'Dispute' to situations other than a

proceedings/us would render the words 'suit or arbitration' in S.

5(6) otiose.

Section 8(2):

12.5 Use of the word AND envisages a us/proceeding regarding the

dispute.

12.6 It would not be an appropriate construction that there are two

parts in Section 8(2) with the first party bring 'existence of a

dispute' and the second part being 'record of the pendency of suit

or arbitration...' by reading the conjunctive 'and' as disjunctive

'or'. Such a reading would render the second part otiose for the

following reasons:

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(i) There is no limitation of time for the first part i.e. to

notify 'existence of a dispute'. Whereas a limitation

is prescribed for the second part i.e. to notify 'record

of suit or arbitration', by the words 'filed before the

receipt of notice'.

(ii) The second part 'suit or arbitration' is ordinarily

covered by the first pait 'dispute' rendering the

second part surplus age.

(iii) It creates this discrimination without any reasonable

basis.

13. Reliance was also placed on meaning of 'dispute' as per Oxford English

Dictionary means a dis-agreement or argument.

14. Learned counsel for the appellant made much stress on the word

'includes' and placed reliance on decision of Hon'ble Supreme Court in

Namboodripad vs. Union of India, (2007) 4 SCC 502; Godfray Phillips Ltd. vs.

State of UP & Others ( 2005) 2 SCC 515; The South Gujarat Roofing Tiles

Manufacturers Association & Anr. Vs. The State of Gujarat, (1976) 4 SCC 601

wherein the Hon'ble Supreme court held that there could not be inflexible rule

that the word 'include' should be read always as a word of extension without

reference to the context...

15. It was further contended that general word 'dispute' has to be restricted

to a lis/proceedings by applying the principles of Noscuntur a Sociis and

Ejusdem generis. When a general word is qualified by specific words of 11

narrower construction, the legislative intent is clear that the general word

should be read and limited to characteristics of the specific words. Therefore,

according to learned counsel for the appellant the specific words 'suit or

arbitration' is ordinarily understood and covered by the general word

'dispute'.

16. Per contra, according to Learned Senior counsel for the respondents the

definition provided under the sub-section (6) of section 5 of the Code is

illustrative in nature and it enumerates three types of disputes that the

operational creditor can have with the corporate debtor but it does not rest

here. It was submitted that there could be various other types of disputes

which have not been mentioned in the present definition so as such the list

in the body of the definition is not exhaustive and the term "includes" used

by the legislature cannot be read down to include only these three types of

dispute and has to be assigned a wider meaning by this Hon'ble Tribunal.

The conjoint meaning of the definition with the section 8(2) (a) of the Code

enlarges the scope of the definition as provided in the section 5(6) of the Code

and gives illustration of a pending suit or arbitration. It was submitted that

after the rendering of defective services by operational creditor, to avoid the

rigors of section 9 of the Code, the Corporate Debtor would, if the term dispute

has to give a narrow meaning of a Suit or Arbitration proceeding be constraint

to approach the Court seeking a negative declaration of non-payment which

is prohibited under the Specific Relief Act. Hence, as per the submission of

the respondent herein, a dispute would mean communication of a denial or

repudiation of the claim of the operation creditor at first instance either when 12

the invoice has been raised and duly communicated to the Corporate Debtor,

a Recovery Notice has been received by a Corporate Debtor or a statutory

notice under section 8(2) (a) has been received by a Corporate Debtor. Further

as per submission of the Respondent, no negative burden of filing a suit or

arbitration could be casted upon operational creditor in view of the above

submission. The word 'includes' is a very wide term and creates extensive

meaning to the word and covers within its ambit all other aspects as well apart

from the ones mentioned in the section 5(6) of the IBC Code 2016.

17. The question as to what does "dispute" and "existence of dispute"

means for the purpose of determination of an application under Section 9 of

the 'I & B Code' fell for consideration before this Appellate Tribunal in "Kirusa

Software (P) Limited Vs. Mobilox Innovations Pvt. Ltd. - Company

Appeal(AT)(Insol.) 06/2017". By judgement dated 24th May 2017, the

Appellate Tribunal observed and held as follows: -

"25. The true meaning of sub-section (2)(a) of Section 8 read

with sub-section (6) of Section 5 of the 'I& B Code' clearly brings

out the intent of the Code, namely the Corporate Debtor must

raise a dispute with sufficient particulars. And in case a

dispute is being raised by simply showing a record of dispute

in a pending arbitration or suit, the dispute must also be

relatable to the three conditions provided under sub-section (6)

of Section 5 (a)-(c) only. The words 'and record of the pendency

of the suit or arbitration proceedings' under sub-section (2)(a) of

Section 8 also make the intent of the Legislature clear that 13

disputes in a pending suit or arbitration proceeding are such

disputes which satisfy the test of sub-section (6) of Section 5 of

the 'I & B Code' and that such disputes are within the ambit of

the expression, 'dispute, if any'. The record of suit or arbitration

proceeding is required to demonstrate the same, being pending

prior to the notice of demand under sub-section 8 of the 'I & B

Code'.

26. It is a fundamental principle of law that multiplicity of

proceedings is required to be avoided. Therefore, if disputes

under sub-section (2)(a) of Section 8 read with sub-section (6) of

Section 5 of the 'I & B Code' are confined to a dispute in a

pending suit and arbitration in relation to the three classes

under sub-section (6) of Section 5 of the 'I & B Code it would

violate the definition of operational debt under sub-section (21)

of Section 3 of the 'I & B Code' and would become inconsistent

thereto, and would bar Operational Creditor from invoking

Sections 8 and 9 of the Code.

27. Sub-section (6) of Section 5 read with sub-section (2)(a) of

Section 8 also cannot be confined to pending arbitration or a

civil suit. It must include disputes pending before every judicial

authority including mediation, conciliation etc. as long there are

disputes as to existence of debt or default etc., it would satisfy

sub-section (2) of Section 8 of the 'I & B Code'. 14

28. Therefore, as per sub-section (2) of the 'I & B Code there

are two ways in which a demand of an Operational Creditor

can be disputed:

i. By bringing to the notice of an operational creditor,

'existence of a dispute'. In this case, the notice of

dispute will bring to the notice of the creditor, an

'existence of a dispute' under the Code. This would

mean disputes as to existence of debt or default etc,;

or

ii. By simply bringing to the notice of an operational

creditor, record of the pendency of a suit or arbitral

proceedings in relation to a dispute. In this case, the

dispute in the suit/ arbitral proceeding should relate

to matters (a)-(c) in sub-section (6) of Section 5 and

in this case, showing a record of pendency of a suit

or arbitral proceedings on a dispute is enough and

to intent of the Legislature is clear, i.e. once the

dispute (on matters relating to 3 classes in sub-

section (6) of Section 5 of the 'I & B Code') is pending

adjudication, that in itself would bring it within the

ambit of sub-section (6) of Section 5 of the 'I & B

Code'.

29. The definition of 'dispute'for the purpose of Section 9 must

be read alongwith expression operational debt as defined in

Section 5(2 1) of I&B Code, 2016 means:

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(21) "operational debt" means a claim in respect of

the provision of goods or services including

employment or a debt in respect of the repayment of

dues arising under any law for the time being in

force and payable to the Central Government, any

State Government or any local authority;"

Thus the definition of 'dispute 'operational debt'

is read together for the purpose of Section 9 is clear that

the intention of legislature to lay down the nature of

'dispute' has not been limited to suit or arbitration

proceedings pending but includes other proceedings "if

any".

30. Therefore, it is clear that for the purpose of sub-section (2)

of Section 8 and Section 9 a 'dispute' must be capable of being

discerned from notice of corporate debtor and the meaning of

"existence" a "dispute, if any", must be understood in the

context.

31. The dispute under I&B Code, 2016 must relate to

specified nature in clause (a), (b) or (c) i.e. existence of amount

of debt or quality of goods or service or breach of representation

or warranty. However, it is capable of being discerned not only

from in a suit or arbitration from any document related to it. For

example, the 'operational creditor' has issued notice under

Code of Civil Procedure Code, 1908 prior to initiation of the suit

against the operational creditor which is disputed by 'corporate 16

debtor. Similarly notice under Section 59 of the Sales and

Goods Act if issued by one of the party, a labourer/employee

who may claim to be operation creditor for the purpose of

Section 9 of I&B Code, 2016 may have raised the dispute with

the State Government concerning the subject matter i.e.

existence of amount of debt and pending consideration before

the competent Government. Similarly, a dispute may be

pending in a Labour Court about existence of amount of debt.

A party can move before a High Court under writ jurisdictions

against Government, corporate debtor (public sector

undertaking). There may be cases where one of the party has

moved before the High Court under Section 433 of the

Companies Act, 1956 for initiation of liquidation proceedings

against the corporate debtor and dispute is pending. Similarly,

with regard to quality of foods, if the 'corporate debtor' has

raised a dispute, and brought to the notice of the 'operational

creditor' to take appropriate step, prior to receipt of notice under

sub-section (1) of Section 8 of the 'I & B Code one can say that

a dispute is pending about the debt. Mere raising a dispute for

the sake of dispute, unrelated or related to clause (a) or (b) or

(c) of Sub-section (6) of Section 5, if not raised prior to application

and not pending before any competent court of law or authority

cannot be relied upon to hold that there is a 'dispute' raised by

the corporate debtor. The scope of existence of 'dispute', if any,

which includes pending suits and arbitration proceedings 17

cannot be limited and confined to suit and arbitration

proceedings only. It includes any other dispute raised prior to

Section 8 in this in relation to clause (a) or (b) or (c) of sub-section

(6) of Section 5. It must be raised in a court of law or authority

and proposed to be moved before the court of law or authority

and not any got up or malafide dispute just to stall the

insolvency resolution process."

18. In the present case the Respondent - Corporate Debtor much prior to issuance of notice under Section 8 of 'I & B code', raised a dispute relating to quality of service/ maintenance pursuant to notice under Section 433(e) and 434 (1)(a) of the Companies Act 2013 to the notice of the 'Operational Creditor'. In that view of the matter, it can be safely being stated that there is 'existence of dispute' about the claim of debt.

19. Objection raised by Respondent - 'Corporate Debtor', not raised for the first time while replying to the notice issued by 'Operational Creditor' under Section 8 of the 'I & B code'. The objection cannot be called to be mere objection raising a dispute for the sake of 'dispute' and/or unrelated to Clause

(a) or (b) or (c) of sub-section (6) of Section 5 of 'I & B code'. For the said reason if the Adjudicating Authority has refused to entertain the application under Section 9 of 'I & B code, no ground is made out to interfere with such orders.

20. We find no merit in both the appeals. They are accordingly dismissed. However, there shall be no order as to cost.

(Mr. Balvinder Singh) (Justice S.J. Mukhopadhaya) Member (Technical) Chairperson

NEW DELHI 31St May, 2017

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