Pioneer Engineered Facility ... vs Medeor Hospital Limited

Company Appeal (AT) (Insolvency) No. 29 of 2021 IN THE MATTER OF: Pioneer Engineered Facility Management Services Pvt. Ltd. Registered Office at: 303, Pocket-4, Sector 11, Dwarka, Delhi ...Appellant

Vs. Medeor Hospital Limited (Previously known as VPS Rockland Hospital Ltd.) Registered Office Address at: B-33-34, Qutab Institutional Area, New Delhi - 110016 ...Respondent

Present: For Appellant: Mr. Saurabh Kalia, Mr. Rakesh Wadhwa, Ms. Itisha Gulati, Advocates. For Respondent: Mr. Abhishek Singh, Mr. J. Amal Anand, Ms. Elvin Joshy, Advocates.

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appeal has been preferred under Section 61 of the Insolvency and

Bankruptcy Code, 2016 (In short IBC) against the Impugned Order dated

03.03.2020 passed by the NCLT, New Delhi Bench in CP (IB) No.

1759/ND/2019 filed under Section 9 of IBC.

2. The Appellant is seeking the relief of setting aside the Impugned Order

as stated above passed by the Adjudicating Authority on 03.03.2020 and

admit the Application filed by the Appellant and Corporate Insolvency

Resolution Process be initiated against the Corporate Debtor-Respondent.

Company Appeal (AT) (Ins) No. 29 of 2021 1

3. The Adjudicating Authority has not admitted the application under

Section 9 on the ground that primarily there is an existence of dispute. The

Adjudicating Authority has elaborately explained in Paragraphs 41 to 47

that the issue involved is not only labour dispute but the dispute is

regarding not providing proper staff as per agreement, deficiency in the bills

raised for the month of September 2018, October, 2018, November, 2018,

December, 2018, January, 2019, February, 2019 and March, 2019, even

employees and staff members of the Appellant refused to join duty and

approached labour commissioner etc.

4. The Appellant is a service provider company and is engaged in the

business of providing general duty assessment and housekeeping services in

health and hospitality industry. The Respondent Company approached the

appellant in the year 2016 (Agreement dated 01.09.2016) to avail their

services for their Dwarika Unit and subsequently vide agreement dated 18th

October, 2016 the Appellant was also given additional job in respect of the

Respondent's Qutab Unit. It was submitted by the Appellant that there was

no issue until the year 2018 but they get into problem of clearance of their

outstanding dues form 1st October, 2018 to 31st May, 2019 and have alleged

that a total outstanding is of amount of Rs. 1,44,27,230/-. The Respondents

instead of clearing the dues started alleging deficiency in services and

creating dispute on various labour compliances. These issues are mala fide

intentions of the Respondent and are false, frivolous and bogus. With the

change in management of the Respondent Company each unit head was

changing their requirements and have created all such problems. The

Appellant was providing service at mutually agreed rate and was submitting

Company Appeal (AT) (Ins) No. 29 of 2021 2 the bills for clearance well in time but the Respondents used to raise

objections with malicious intentions etc. They have never raised complaint

within five days as required in the agreement. Repeated requests and

reminder to clear out standing dues for its services has not been complied

with by the Respondents. They were supposed to release 90 percent of

payment of the bills value by 6th of every month but they were never

releasing within due time. They have deducted TDS but have not released

outstanding bills. The Appellant sent demand Notice dated 17th May, 2019

under the Code which was acknowledged by the Respondent via email dated

08th June, 2019 but still they did not clear the due. The Appellant has to

face the labour problem because the non-payment of invoices/bills in due

time as required as per the agreement. Adjudicating Authority dismissing

the Application based on emails of the Corporate Debtor that there is pre-

existing dispute is erroneous. It is a settled law that where TDS is deducted

but payment is not made, a dispute can not be created afterwards. The

Appellant has also cited the Judgment of Hon'ble Apex Court in "Mobilox

Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353". They

have also submitted that the position regarding interpretation of commercial

contracts has been settled by the Supreme Court in its judgement in "Export

Credit Guarantee Corporation of India Limited Vs. Garg Sons International"

(2014) 1 SCC 686 (Relevant Para 11) wherein, it was pleased to hold that

contract have to be construed strictly, without altering the nature of the

contract as the same may affect the interests of the parties adversely. The

Appellant has also raised the issue that Adjudicating Authority erred in

dismissing the Application under sub-section (ii)(5) of Section 9 without

Company Appeal (AT) (Ins) No. 29 of 2021 3 examining what constitutes 'dispute' in relation to services provided by the

Appellant. They have also raised the issue that once a party deducts TDS

under the Income Tax Act, 1961 on the admitted repayments due on the

amount of loan advanced by the parties squarely falls within the term

"admitted amount of interest" and thereby qualified to be a financial debt.

5. The Respondent has submitted that the Appellant was required to

comply with various statutory provisions like minimum wages act, payment

of wages act, payment of bonus act and other applicable laws in respect of

its employee/staff deputed at the sites of the Respondent Hospital. Further,

as per the mandate of Clause 4(k) of the Service Agreements dated

01.08.2016 and 12.10.2016, which agreements are identical, the Service

Provider (Appellant herein) was under an obligation to ensure compliance of

the aforesaid statutory provisions and furnish documents with every invoice

in support of the same, which documents were instrumental in determining

the amount of monthly bills due to the Appellant (Service Provider). The

Appellant had continually failed to provide requisite documents with the

invoices, thus making it impossible for the Respondent to ascertain whether

the Appellant had adhered to the compliances under Labour Laws. It is

further submitted that on account of non-payment of salaries to the

employees deployed by the Appellant at the Respondent's Hospitals, the

employees repeatedly went on strike, refused to work and the quality of

services provided by them deteriorated considerably and resultantly, the

Respondent suffered major losses. The same was communicated to the

Appellant Company time and again vide various Emails, requesting the

Appellant's to pay their employees' salaries to avoid stalling of the

Company Appeal (AT) (Ins) No. 29 of 2021 4 functioning of the Respondent's hospitals. That on repeated failure of the

Appellant to disburse the salaries of its employees, the Respondent, being

the principal employer, was obligated and constrained to disburse payments

towards salaries of the employees, amounting to Rs. 18,00,595/- which

action on the part of the Respondent is in consonance with the dictum of

Hon'ble Supreme Court in "People's Union for Democratic Rights v. Union of

India" 1982 SCC(3) 235 (Relevant para 10), and Hindustan Steel Works

Construction Ltd. Vs. Commissioner of Labour and Others (1996) 10 SCC 599

(Relevant Para 8) wherein it was held that if the contractor fails to make

payment of wages, then the principal employer shall be liable to make the

payment of wages in full or the unpaid balance due. Therefore, it becomes

necessary for the principal employer to witness disbursement of wages to

the contract labour by the contractor, collect all the necessary documents

that establishes that the statutory benefits are being made available to the

contract labours by the contractor. The Appellant has also failed to meet

contractual obligations including statutory compliances. The Appellant has

raised various inflated invoices. However in order to comply with income tax

laws they have deducted certain TDS and deposit of TDS does not amount to

acknowledgment of amount raised in the invoices. Reliance is placed on

"S.P. Brothers v. Biren Ramesh Kadakia" 2008 SCC Online Bom

1599(Relevant Para 8) and "M/s. Utility Powertech Limited vs. M/s. Amit

Traders" 2018 SCC Online Del 9096 (Relevant Para 19). It is also mentioned

that in terms of the mandate of the aforesaid service Agreements, any

dispute between the parties has to be settled through Arbitration in

accordance with the Arbitration and Conciliation Act 1996 or any

Company Appeal (AT) (Ins) No. 29 of 2021 5 subsequent enactment or amendment thereto. It is also submitted that the

invoices brought on record by the Appellant on the basis of which the

instant Application is filed and the computation of debt has been made by

the Appellant are the invoices raised in defiance of the Labour Laws and

other statutory provisions that were to be complied with by the Appellant.

That the said amount of Rs. 1,35,54,011 (Rupees One Crore Thirty-Five

Lakh Fifty-Four Thousand Eleven) is completely unjustified and exorbitant.

It is further submitted that despite the umpteen directions made to the

Appellant to inter alia supply the documents, the Appellant deliberately did

not act upon the said directions same being in complete violation of the

terms of engagement/agreement between the parties. That in light of the

prolonged delay on part of the Appellant to show compliance of Labour

Laws, the Respondent served a Show Cause Notice under Section 6 of the

Payment of Wages (Amendment) Act, 2017 dated 07.03.2019 on the

Appellant Company. The relevant paragraphs from the said notice are

reiterated below:-

"This is to bring to your kind notice that your response against the Cash

Payment mistake you have done in while enclosing the supporting

documents for the month of Oct-2018 is irrational. Further, please note that

the deficiency that has come to our notice is only for the month of Oct-2018

and the Management of the Medeor Hospital reserves its right to evaluate

the other bills and make appropriate deductions in case and deficiency is

found in other bills.

This clearly depicts that the manipulation done by you in the month of Oct-

2018 was deliberate and intentional. Thus the management has considered

Company Appeal (AT) (Ins) No. 29 of 2021 6 that such act of yours is in breach of trust & violation of the Section 6 of

Payment of Wages Act (Amendment) 2017 which was levied upon you at the

time of getting under this contract for providing Housekeeping services to

our hospital"

6. We have carefully gone through the pleadings of the parties and the

submissions made by their learned counsels and also the substantial law on

the subject including the propositions of law laid down by the Hon'ble Apex

Court and are having following observations:

a. It is not in dispute that they have separate agreement for each

of the hospital unit for supply of manpower particularly general duty

assistance and housekeeping staff from 2016.

b. There was no issue till 2017 between them either for supply of

manpower or payment of their dues.

c. Invoices for both units Dwarika Unit and Qutab Unit run into

rough weather from October, 2018 to 1st June, 2019.

d. The Respondent has reported deficiency of services from

October, 2018 and also the issue of not getting the supporting

documents form the Appellant showing compliances of various labour

laws in spite of numerous correspondence between them.

e. Correspondence between the parties in the form of email reflects

prior to issue of demand notice revolving around non-submissions of

documents for compliance of various labour laws as per agreement

between them as also supply of shortage of staff and other related

issue.

Company Appeal (AT) (Ins) No. 29 of 2021 7 f. The Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs.

Kirusa Softaware Pvt. Ltd. (2018) 1 SCC 353 vide para 51 has laid

down that Adjudicating Authority must reject the Application if a

notice of dispute has been received by Operational Creditor. g. For brevity and clarity, para 51 of the Judgment in the matter of

Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. is

extracted below:

"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 truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."

h. The Appellant has failed to comply with labour laws leading to

labour dispute before the labour commissioner and the Respondent

has to release certain amount (Rs. 18,00595/-) directly to the

employees of the Appellant.

i. It is proved beyond doubt that the Appellant is chasing for

payments which is not the object of IBC. Reference is drawn to

Hon'ble Supreme Court Judgment in the matter of "Transmission

Company Appeal (AT) (Ins) No. 29 of 2021 8 Corporation of Andhra Pradesh Ltd. Vs. Equipment Conductors and

Cables Limited" (Civil Appeal No. 9597 of 2018) - Para 15.

In view of the above, it is amply clear that the Order passed by

the Adjudicating Authority is in order and requires no review or

reconsideration. There is no infirmity in the order passed by

Adjudicating Authority hence the Appeal deserves to be dismissed and

is dismissed. No order as to costs.

[Justice M. Venugopal] Member (Judicial)

[Mr. V.P. Singh] Member (Technical)

(Dr. Ashok Kumar Mishra) Member(Technical)

22nd November, 2021 New Delhi Basant

Company Appeal (AT) (Ins) No. 29 of 2021 9