Prashanth Shekara Shetty vs Alcuris Helathcare Private Limited

[Arising out of order dated 15.03.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench-IV in CP(IB) No. 75/MB-IV/2020)]

IN THE MATTER OF: Prashanth Shekara Shetty Designated Partner of Abmay Health Ventures LLP, Prior to the admission of the Petition Resident of: Flat 552, Floor 12, O Wing, Tara Pore Tower, Oshiwara Mhada Colony, New Link Road, Andheri(West), Mumbai Maharashtra - 400053. ....Appellant

Versus

1.Alcuris Healthcare Private Limited Having its registered office at: 2801, C Wing, Runwal Pride Co-op. Hsg. Soc. Ltd. Behind R Mall, L.B.S. Marg, Mulund (West), Mumbai Maharashtra - 400080. ....Respondent No.1/OC

2. Abmay Health Ventures LLP Through its Interim Resolution Professional Mr. Sanjay Shrivastava 205 B Suraksha Apartment Hindustan Colony, Amravati Road, Nagpur, Maharashtra - 440033.

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 1 Also at:

A301, BSEL Tech Park, Sector 30A, Opposite Vashi Railway Station, Vashi, Navi Mumbai - 400705. ......Respondent No. 2/CD

Present:

For Appellant: Mr. Abhijeet Sinha, Mohd. Umar, Mr. Aditya Shukla, Advocates

For Respondents: Ms. S. Janani and Mr. Nishant Kumar, Advocates

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal, filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 ('IBC' in short) by the Appellant arises out of order dated

15.03.2022 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-IV) in

C.P.(IB) No. 75/MB-IV/2020. By the Impugned Order, the Adjudicating

Authority admitted the Section 9 application under IBC filed by the Operational

Creditor and initiated Corporate Insolvency Resolution Process ('CIRP' in short)

against the Corporate Debtor with immediate effect. Aggrieved by this impugned

order, the present appeal has been preferred.

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 2

2. The brief factual matrix of the case is that an Agreement dated 02.12.2015

was entered into between the Metro Heart Centre Pvt. Ltd. (MHCPL), later known

as "Alcuris Healthcare Pvt. Ltd.", the present Respondent No. 1 and "ABMAY

Health Ventures LLP", the Corporate Debtor creating a joint venture named "SRV

Heart Centre - unit of MHPCL". The heart centre as a unit became functional as

per the terms of the agreement w.e.f. January, 2016. Over a period of time,

differences arose between the two parties on various issues such as settlement

of accounts, calculation of profit sharing ratio etc. Claiming outstanding dues

as operational debt, Demand Notice under Form-3 of the IBC was sent by

Respondent No. 1 to the Corporate Debtor on 07.12.2019. The Corporate Debtor

sent an interim reply to the Demand Notice on 17.12.2019. A police complaint

was also filed against the Corporate Debtor by Respondent No. 1 on 11.01.2020

arising out of the disputes between the parties. In addition a Legal Notice

invoking Arbitration Clause for recovery of outstanding amounts was sent to the

Corporate Debtor by Respondent No.1 on 16.01.2020 and Section 9 petition

under Arbitration and Conciliation Act was filed by Respondent No. 1 on

24.01.2020 seeking interim relief. The Hon'ble High Court of Bombay disposed

of the Section 9 petition under Arbitration and Conciliation Act on 26.02.2020

and appointed an Arbitrator to decide the dispute and differences between the

parties. An application under Section 11 of Arbitration and Conciliation Act was

filed by Respondent No. 1 on 30.06.2021 which was dismissed on 17th August,

2021 following which petition under Section 15 of the said Act was filed on

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 3 21.09.2021 by Respondent No. 1. The Adjudicating Authority admitted the

Section 9 application under IBC filed by the Operational Creditor and initiated

CIRP against the Corporate Debtor vide impugned order on 15.03.2022.

3. Making his submissions, the Learned Counsel for the Appellant stated that

the agreement entered between the Corporate Debtor and Respondent No. 1 was

a Profit Sharing Agreement. It was emphasized that the agreement between the

two parties clearly states that "the parties agree to the following:-

"Abmay Health Ventures LLP" and "SRV Heart

Centre of MHCPL" will both be the general profit sharing

partners of the Cath Lab & Cardiac Surgery Department

of SRV".

From the above clause, it is clear that the agreement between both the parties

was for the purpose of profit sharing and that the Corporate Debtor and

Respondent No.1 were profit sharing partners. It was therefore contended that

failure or breach of such a Profit Sharing Agreement cannot be a ground to

trigger CIRP.

4. Elaborating further on the said agreement between the parties, it was

explained that the arrangement was that the Corporate Debtor and Respondent

No. 1 were to collaboratively operate a cardiology unit under the name of "SRV-

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 4 Heart Centre Unit of MHCPL" with both parties having shared responsibilities.

The Corporate Debtor was responsible for maintaining the operations

administration and operations for the unit while the Respondent No. 1 was to

maintain technical operations of the unit. In terms of the agreement, patients

who required heart procedure were directed to the Cathlab Unit and profit

accruing from the fee charged from the patients was shared between the two

parties as per the terms of the agreement.

5. It has been also submitted that after an initial period of operationalization

of this Profit Sharing Agreement, differences and disputes arose between the

parties. Respondent No. 1 started failing to deliver on their responsibilities such

as arranging cardiologist and cardiac surgeons, mal-functioning of Cathlab

Machine, inability to maintain necessary equipment essential for the procedure

etc. The Learned Counsel for the Appellant also stated that Dr. Ajay Pandey, who

was an employee of the Respondent No. 1 had been breaching the Profit Sharing

Agreement by unilaterally giving heavy discounts selectively to the patients. The

resignation of Dr. Ajay Pandey later and the resultant vacancy in the Cathlab led

to the non-operationalization of Cardiac Surgery Department by more than two

months thereby causing loss of revenue to the joint venture impacting the profit-

sharing formula. The Learned Counsel for the Appellant has relied on the

judgement of this Tribunal in "AS Techno Soft Pvt. Ltd." Vs. "Gold Squares

India Pvt. Ltd." in Company Appeal (AT) No. 331/2017 that the supply of

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 5 sub-standard quantities is a ground for dispute under the IBC and that in the

present case there were several material breaches by Respondent No. 1.

6. It has been further submitted that there also arose difference in the

understanding of the parties on profit sharing and the manner in which the profit

sharing calculation was carried out. It has been stated that this dispute with

respect to rates and the calculation was raised on various occasions including

the list of patients generated from the machine and on stent-pricing. That there

was pre-existing dispute is substantiated by the e-mail dated 23.06.2018 sent

by the Respondent No. 1 to the Corporate Debtor where the Excel sheet

calculation in column 6 has been made "as per SRV MHCPL share" while column

8 calculation was done "as new account as per MOU" thus reflecting

disagreement between calculations made by the Corporate Debtor and that by

the Respondent No. 1.

7. Moreover, it was argued that the claim incorporated by the Respondent

No. 1 in the Demand Notice was not in conformity with the terms of the

agreement and the calculations made by the Respondent No. 1 are full of lacunas

and actually an "estimated" share. Furthermore, the Corporate Debtor was to

share the profit based on the total billing and on the patient foot-fall. It is further

claimed that as per the terms and conditions of the Profit Sharing Agreement,

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 6 the Corporate Debtor had paid the due share of Respondent No. 1 as per Profit

Sharing Agreement of an aggregate sum of Rs. 3,50,83,400/- which has been

admitted by the Respondent No. 1 in Form-5. The present dispute is due to

difference in calculation; breach of representation and warranties in the

Agreement by the Respondent No. 1; differences in the total number of patients

treated and failure on the part of Respondent No. 1 to crystallize its claim as no

invoice was ever raised. The quantum of claim by the Respondent No. 1 was

alleged to be over-estimated and mala-fide.

8. The Learned Counsel for the Appellant claimed that till date no invoice has

been provided by the Respondent No. 1 to the Corporate Debtor and that though

he was called upon to share the invoices in support of the amount claimed in

the Demand Notice but no invoice has been provided. It has also been stated

that there was actually no need for the Respondent No. 1 to raise any invoice in

terms of the Profit Sharing Agreement as the relationship between the two parties

was that in an un-registered partnership and not that of a service provider and

service recipient. If the Respondent No. 1 was providing goods/services to the

Corporate Debtor, only then it ought to have raised invoices to that effect.

9. It has been admitted by the Learned Counsel for the Appellant that two

payments of Rs. 5 lakhs each were made on 30.11.2019 and 31.12.2019 but

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 7 that these payments were made on the last date of the months which was

towards profit sharing. These payments were claimed to have been made even

before the issue of the Demand Notice and therefore has no link with admission

of any debt. These were in the nature of advance amounts deposited by the

Corporate Debtor time and again with the Respondent No. 1 as running costs

which was liable to be adjusted at a later period and that this was in the

knowledge of the Operational Creditor from the beginning and later also clarified

by the Corporate Debtor in the reply to the Demand Notice dated 23.01.2020.

10. It was vehemently argued by the Learned counsel for the Appellant that

deduction of tax under Section 194-J of the Income Tax Act, 1961 cannot be

criteria for assuming that the relationship of the Corporate Debtor with

Respondent No. 1 is that of a recipient of service and that of service provider.

Furthermore, it is submitted that tax deduction under Section 194-J is not

limited to technical services alone but covers other heads of deduction and TDS

deduction was mutually agreed upon by both the parties not only in the Profit

Sharing Agreement but also with a view to avoid further litigation and tax

demands in income-tax assessment proceedings. Further, it has been contended

that if TDS deduction is viewed as criteria for treating the Respondent No. 1 as

service provider, then it ought to have enjoined upon the Respondent No. 1 as a

service-provider and the Corporate Debtor as Receiver of Services to be registered

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 8 under the GST. But in the instant case, neither the Corporate Debtor nor the

Respondent No. 1 raised any invoice which contains GST Registration.

11. Relying on the judgement of this Tribunal in "Drulum India Pvt. Ltd."

Vs. "Sharma Kalypso Pvt. Ltd." in Company Appeal (AT) 351/2018 it has

been added that the estimated share of Respondent No. 1 as per Form-5 does

not reflect the calculations as per profit-sharing agreement, hence, it is a

foundation to establish existence of dispute. Moreover pre-existence of disputes

is well established by the fact that the Respondent No. 1 had invoked the

Arbitration on 16.01.2020 prior to filing of Section 9 petition under IBC before

the Adjudicating Authority. The pre-existence of dispute is fortified by the fact

that the Respondent No. 1 invoked arbitration under Arbitration Clause as

contained in Profit Sharing Agreement which is still pending at the stage of cross-

examination. Having already invoked Arbitration, the Respondent No. 1 cannot

do forum shopping and seek resolution of a dispute which squarely falls outside

the purview of IBC. It is also submitted that there are police cases filed against

each other which shows pre-existing dispute.

12. Rebutting the aforesaid submissions, the Learned Counsel for the

Respondent stated that the Agreement between the two parties has to be

interpreted by the terms and conditions contained therein, the intention of the

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 9 parties and the interpretation as demonstrated by the conduct of the two parties

in implementing the agreement.

13. The agreement between the two parties clearly show that the Respondent

No. 1 was to provide service in the form of Cathlab Machine for which charges

were to be paid by the Appellant/Corporate Debtor to the Respondent No. 1 and

the arrangement was thus one of income-sharing and not Profit Sharing. It is

also submitted that the payment entries made by the Corporate Debtor to the

Respondent No. 1 were booked as Cath Lab Expenses in their ledger and not as

sharing of profits. Further the fact that the Corporate Debtor deducted TDS

under Section 194-J of the Income Tax Act for four years is corroborative that

this was not a Profit Sharing Agreement but an income sharing arrangement

wherein the Respondent no. 1 is a service-provider.

14. The agreement provided for payment of fees to Respondent No. 1 according

to the service/procedure performed. The Corporate Debtor used to raise the

invoice and collect the payment from the patients and thereafter made payment

to Respondent No. 1. All bills and invoices were raised by the Appellant and the

payment was also received by the Appellant from the patients thereafter the

Appellant made payment to the Respondent on weekly basis and as per the terms

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 10 of agreement. Moreover, since the Respondent No. 1 was providing service, the

outstanding amount becomes an operational debt.

15. It has been added that from January, 2016 to March, 2018, the Corporate

Debtor issued bills to the patients for using the Cathlab equipment owned by

Respondent No. 1 and send details of invoice to Respondent No. 1. The Corporate

Debtor shared fees with Respondent No. 1 in terms of the agreement signed

between the two parties and that the amount of fees payable by the Corporate

Debtor to Respondent No. 1 for past five years aggregated to Rs. 3,63,39,186/-.

However, from April 2018, the Corporate Debtor stopped sending details of the

bills generated on the patients to Respondent No. 1. The Respondent No. 1 has

raised a total amount of bill aggregating to Rs. 8,00,20,864/-. It has been denied

that the claim is over estimated. Moreover the Corporate Debtor by their own

statement at page-233 of Appeal Paper Book had admitted outstanding amount

of more than Rs. 16,000/- and also paid Rs. 5 lakhs each on 30.11.2019 and

30.12.2019. Further, the fact that the Corporate Debtor had transferred Rs. 5

lakhs to the Respondent No. 1 itself shows acceptance of liability of more than

Rs. one lakh.

16. On the issue of pre-existing dispute, it has been stated that Respondent

No. 1 had issued the Demand Notice on 07.12.2019 following which the

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 11 Corporate Debtor submitted interim reply on 16.12.2019 followed by a final reply

on 31.12.2019. In the reply, the Corporate Debtor had admitted the operational

debt without however agreeing to the amount stated in the Demand notice. As

regards certain e-mails referred to by the Corporate Debtor to substantiate

existence of dispute in the year 2018, it has been pointed out that these were

not mentioned in the reply to the Demand Notice and that they have been filed

for the first time before this Tribunal and that the Adjudicating Authority had no

occasion to consider these e-mails. Learned counsel for the Respondent No. 1

has raised objections to reply being sent in two stages and that this is in

contravention of the IBC provisions. It has also been stated that this is the only

dispute raised by the Corporate Debtor in four years of association between the

two parties. As regards the arbitration proceedings as a ground to show existence

of dispute, it has been clarified that this was initiated after the Section 9 petition

and was not confined to the disputed amount only but for restraining the

Corporate Debtor from removing the Cathlab Machine and other equipment

unilaterally from the hospital.

17. It has also been stated that non-raising of invoice cannot be a tenable

ground for rejection of Section 9 petition since raising of invoice is not mandatory

and buttressing their stand has relied on the judgement of the Hon'ble Supreme

Court in M/s Consolidated Construction Consortium Vs. M/s Hitro Energy

Solutions Private Ltd." As regards the contention of the Appellant that there

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 12 was material breach on account of giving of discount by Dr. Ajay Pandey, it was

stated that it cannot be a ground for dispute since it was a discount given to

poor and needy patients and the hospital was being run for the benefit of general

public. It has been contended that even after resignation of Dr. Ajay Pandey,

there was a continuous flow of patients as can be evidenced from the register of

patients and output from Cathlab equipment and hence a frivolous ground of

dispute raised by the Corporate Debtor. Moreover, it is denied that there was

any deficiency on the part of Respondent No. 1 in the working of Cathlab and

that the Appellant had not enclosed any document evidencing deficiencies. On

the cost of stents, it was stated that the same was to be recovered from patients

and hence cannot be the subject matter of dispute. Moreover, all charges were

as per the Government prescribed rate and there is no documentary evidence

enclosed by the Corporate Debtor showing dispute in rate difference having been

raised and that not even a single mail or letter has been enclosed stating that

the calculation of outstanding dues was wrong.

18. We have duly considered the detailed arguments and rival contentions

advanced by the Learned Counsel for both the parties and perused the records

carefully.

19. The primary issue before us for our consideration is whether claim raised

by the Respondent No. 1 is actually an operational debt and whether the said

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 13 operational debt exceeds an amount of Rs. 1 lakh. Only after we arrive at a

determinative opinion on this aspect that we may then proceed to examine

whether the debt has become due and payable and if any default has been

committed by the Corporate Debtor in respect of payment of such operational

debt and if so whether such debt is hemmed by any pre-existing dispute. This

examination would be in consonance with the test which has been laid down by

the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa

Software Private Ltd. (2018) 1 SCC 353 for the Adjudicating Authority while

examining an application under Section 9, the relevant excerpts of which are as

follows:-

"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

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 14 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, depending upon the factors mentioned in Section 9(5) of the Act."

20. To apply the Mobilox test, at this stage, we may first look into the

provisions of the IBC to find out as to how 'Operational Creditor' and 'Operational

Debt' is defined and thereafter have a look at the salient relevant clauses of the

agreement entered between the SRV Heart Centre Unit of Metro Centre Pvt. Ltd.

(MHCPL) and SRV Hospital to better appreciate the relationship between the

Corporate Debtor and Respondent No.1.

21. Section 5(20) of the IBC lays down that unless the context otherwise

requires "operational creditor" means a person to whom an operational debt is

owed and includes any person to whom such debt has been legally assigned or

transferred and Section 5(21) provides that "operational debt" means a claim

in respect of the provision of goods or services including employment or a debt

in respect of the payment 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.

22. From a plain reading of the above definition of operational debt, it is clear

that it is a claim in respect of provisions of goods or services including dues on Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 15 account of employment or a debt in respect of repayment of dues arising under

any law for the time being in force payable to Centre or State Government or

local authorities. It is, thus, confined to four categories viz. goods, services,

employment and Government dues. We therefore need to examine whether in

the background of the agreement signed between the two parties as extracted

above, the claim of the Respondent No. 1 falls within the purview of operational

debt and whether the admission of the Section 9 petition under IBC by the

Adjudicating Authority is legally tenable in the present case.

23. For this purpose, we may now turn our gaze towards some of the salient

features of the agreement entered between the SRV Heart Centre Unit of Metro

Centre Pvt. Ltd. (MHCPL) and SRV Hospital which have a bearing on the present

matter and recite them as follows:

The parties agree to the following:

"ABMAY HEALTH VENTURES LLP" and "SRV Heart Centre of

MHCPL" will both the general profit sharing partners of the

Cathlab and Cardiac Surgery department of SRV Hospital.

Whereas "SRV Hospital" agreed to outsource the Cathlab and

Cardiac Surgery department to SRV Heart Centre Unit of

MHCPL situated at Plot No. 178, Jawahar CHS Ltd., Jawahar

Nagar Road No. 2, Kamala Charan Building, Near Railway

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 16 Station, Goregaon (W) Mumbai - 400062 on following terms

and condition:-

"SRV Hospital" will be responsible for:

1. Providing premises for Cathlab;

2. Providing electrical supply for Cathlab room as per the

requirements of the Cathlab in conjunction with SRV Heart

Centre and the Cathlab equipment manufacturer. Providing

Airconditioning and lighting system at Cathlab Room.

3. One administration room - Please specify requirement of

administration Room

4. Providing the Major Operation theatre of SRV Hospital for the

purpose of using it for cardiac operation and providing the

Ventilator & IABP machine.

5. CSSD facility.

6. Be responsible to provide hospitalization of Post cardiology or

cardiac surgery patient into general, ICCU and Post-surgical ICU

department and provide medical & nursing care for the same.

7. Providing Hospitalization of any allied Cardiac Patient for medical

care under care of SRV Heart Centre Unit of MHCPL (Subjective to

availability of Bed at SRV Hospital).

"SRV Heart Centre unit of MHCPL" will be responsible for:

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 17

1. Providing Electrical system for Cathlab with Earthing system and

interior of the cathlab including lighting and airconditioning.

2. Purchasing of a Cathlab and install at SRV Hospital.

3. To arrange all the necessary equipment for Cathlab.

4. To install all the necessary equipment to the major operation of SRV

Hospital (except the equipment SRV Hospital already having) for

cardiac, surgery - Heart Lung Machine, BTCO2

5. Performing all the angiography, angloplasty, pacemaker insertion

other allied cathlab procedure and cardiac surgery.

6. Arranging Cardiologist, Cardiac surgeon, Anesthetics, Technician &

Administration - Please detail out role of administration.

Additionally costs related to cardiologist, cardiac surgeon,

anesthetics, technician bought in by Metro will be borne by Metro.

The hospital staff and technicians will be (illegible and smudged)

Income sharing offer: Both the parties broadly agree on the below

mentioned charges and sharing ratio. The same can be reviewed

every six months and can be changed if required by both the parties

agreeing in writing.

xxx xxx xxx

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 18 Discount to patients:- Any discounts to be given to any patient

deviating from the above charges mentioned have to be ratified by

authorized personnel from both the parties.

Some of the other salient additional points are:

 Vendor payment & GR payment policy to be in line with the

hospital policy. MHCPL will ensure that all liabilities and risks

arising from payments to vendors & G.P's to the SRV Heart

Centre will be the responsibility of MHCPL.

 Any medico-legal issues, staff related issues who are working

under cardiology center will be complete responsibility of Metro.

 The billing system for the SRV Heart Centre will be through

hospital used software-21st Century-All settlements of

payments from MHCPL to SRV Hospital or from SRV Hospital to

MHCPL will be done on a weekly basis. Simultaneously, all

settlements of pharmacy & pathology bills will be done on a

weekly basis.

 All risk insurances in line with the hospital policies to be taken

by Metro.

 Any discounts to be given to patients from the agreed pricing

as mentioned above will be on a case to case basis and will be

needed to agreed upon by authorized personnel from both

parties.

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 19  Duration: The duration of the Contract shall be for Five years

with a lock in for three years. The Income sharing part can be

reviewed every year with mutual discussion by both the Party.

 The above payment if liable for Tax Deduction at Source under

Income Tax Act, 1961 will be deducted and balance payment

will be made.

 The parties agree that any dispute which may arise regarding

the activities or any other issue will be settled by mutual

discussion or through arbitration.

 The parties may mutually agree to modify this agreement at any

time with six months' prior notice.

24. We also find that the Corporate Debtor on 30.12.2019 in their

second reply to the Demand Notice issued by the Respondent No. 1 has

contested that the Respondent No. 1 was not a provider of goods and services

and that the claim made is not therefore an operational debt. The excerpts

from the letter is as reproduced below:

"Our Client states that your client is not Operational Creditor

as your client has not provided any goods or services to our

Client. In fact, our Client had entered into an agreement

dated December 2, 2015 with your client for sharing income

/ profit and expenses arising out of running of Cathlab and Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 20 Cardiac Surgery Department in the premises situated at Plot

no. 3/178, Jawahar C.H.S. Ltd., Jawahar Nagar Road No.

2, Kamla Charan Building, Goregaon (W), Mumbai

400062(Hospital) owned by our Client. Therefore, whatever

your client is claiming through the Demand Notice is nothing

but a claim with respect to profit/income earned out of the

business arrangement which both the parties had between

them by virtue of the Agreement. Therefore, the alleged

claim under the Demand Notice is not Operational Debt

under the provisions of Insolvency and Bankruptcy Code

and hence your client is not operational creditor under the

provisions of Insolvency and Bankruptcy Code thereby has

no right to issue the Demand Notice under the provisions of

Insolvency and Bankruptcy Code."

25. We also note that the Corporate Debtor had strongly pleaded before the

Adjudicating Authority that the Respondent No. 1 did not provide goods and

services to them and neither raised any invoices and hence in the absence of

operational debt, the jurisdictional precondition for initiation of Section 9 IBC

proceedings was non-existent. It was also urged that since this was a dispute

arising out of a profit-sharing arrangement, it is either for the Commercial Court

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 21 to go into the details or be resolved by invoking the Arbitration clause as provided

in the Agreement.

26. While we do not agree that invoices are to be necessarily raised by any

Operational Creditor in support of their claim for outstanding dues, we find that

the Adjudicating Authority has rather cursorily glossed over the other arguments

raised by the Corporate Debtor in this regard and merely on the pretext that the

Respondent No. 1 had supplied Cathlab equipment to the Corporate Debtor and

made payments of Rs. 5 lakhs on 30.11.2019 and 30.12.2019 before and after

the issue of Demand Notice has proceeded to admit the Section 9 petition.

27. It is of paramount importance to keep in mind the objectives of IBC which

is, inter-alia, to promote entrepreneurship, maximize value of assets, make

available credit, and balance the interest of all stakeholders, in a time bound

manner. It is therefore equally important to always remain alert and cautious so

as to prevent any stakeholder from taking any undue benefit of the provisions

of the IBC and obligates that the nature of transactions alleged in a Section 9

petition gets properly examined and analysed so that the Corporate Debtor is not

dragged into the rigours of the CIRP for facile reasons.

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 22

28. In the present matter, the clauses of the agreement entered between the

two parties, who are described as "general profit sharing partners" therein,

furnish the key to the minds of the makers of this agreement. The clauses of the

agreement disclose an intent that both parties shall exercise joint control over

the SRV Heart Centre and will be accountable to each other for their respective

acts with reference to the functioning of the Cathlab. We also note that both the

parties also combined their investments, property, efforts, resources, skill and

knowledge in this unit. There are unmistakeable signs of reciprocal rights and

obligations contained in the agreement besides evidence of common

participation/joint control in the management as well as sharing of profits and

losses. When shared control of interest or enterprise and shared liability for profit

and losses is so clearly manifested, it cannot be denied that both parties are

implicit partners and co-adventurers in the Cathlab venture rather than one

being a consumer and the other a service provider. From the material on record,

facts and circumstances there arises no clear or unambiguous jural relationship

between the two parties as one of Corporate Debtor and Operational Creditor.

Rather both the Corporate Debtor and Respondent No. 1 are like the principal

as well as the agent of the other party. This spirit is not only captured in the

body of the agreement but also demonstrated in the actions and conduct of both

parties in their role as "general profit sharing partners". Thus, for the above

reasons, we are not inclined to agree with the contention of the Respondent No.

1 that the outstanding amount so claimed constitutes an operational debt under

the IBC. As we hold that the claim is not in the nature of Operational debt, we Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 23 need not go further to examine whether there was any default in respect of a

debt which had become due and payable and whether it was laced with pre-

existing dispute.

29. With the aforesaid discussion, we are of the considered view that the

Adjudicating Authority has erroneously admitted the application under Section

9 of the IBC. We therefore set aside the impugned order. The orders passed by

the Adjudicating Authority initiating CIRP against the Corporate Debtor and

appointing Interim Resolution Professional and all other orders pursuant to

impugned order are declared illegal and set aside. The Corporate Debtor

company is released from the rigours of CIRP and is allowed to function

independently through its board of directors with immediate effect. The appeal

is allowed with the aforesaid observations. With this IA No. 1321 of 2022 also

stands disposed of. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical) Place: New Delhi Date: 20.10.2022 Shashi

Company Appeal (AT) (Ins.) No. 359 of 2022 & I.A. No. 1321 of 2022 24