Rajpal Singh Solanki vs Quazer Infrastructure Pvt Ltd & Anr

Mr. Rajpal Singh Solanki, Ex-Director of Minarch Overseas Private Limited, G-7, Ashok Plaza Building, 12A//14, W.E.A., Karol Bagh, New Delhi-110005 ... Appellant

Vs.

M/s. Quazar Infrastructure Pvt. Ltd., B-64, Chhatarpur Enclave, Delhi-110074. ... Respondent

No. 1 Mr. Vinod Kumar Chaurasia, Interim Resolution Professional for Minarch Overseas Private Limited, A-756, Sector-2, Rohini, New Delhi, Delhi-110085. ...Respondent No. 2

Present

For Appellant: Mr. Virender Ganda, Sr. Advocate with Mr. Vipul Ganda, Mr. Ayandeb Mitra, Ms. Aastha Trivedi, Mr. Guresha Bhamra, Ms. Dipika Ganda, Advocates

For Respondent: Mr. Nakul Mohta, Advocate for R-1 Mr. Vinod Kr. Chaurasia and Mr. Iswar Mohapatra, R-2, IRP

Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 1 of 16 Judgment (Date: 2.7.2021)

{Per: Dr.Alok Srivastava, Member (T)}

1. This appeal has been filed by Rajpal Singh Solanki, a

Director in the suspended Board of Directors of the Corporate

Debtor M/s Minarch Overseas Pvt. Ltd. aggrieved by the Order

dated 25 February, 2020 (hereinafter called the Impugned Order) of

the Adjudicating Authority (National Company Law Tribunal, New

Delhi) in CP (IB) No. 615 (ND)/2018, which was filed by the

Respondent Quazar Infrastructure Pvt. Ltd., an Operational

Creditor.

2. The Adjudicating Authority has admitted the application filed

by the Operational Creditor under Section 9 of the Insolvency and

Bankruptcy Code (hereinafter called the IBC) through the

Impugned Order while rejecting the contention of the Corporate

Debtor that there was a pre-existing dispute between the Appellant

and Respondent No.1.

3. The brief facts of the case as presented and argued by the

Appellant is that by virtue of an agreement dated January 18, 2013

between the Corporate Debtor and the Operational Creditor, which

Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 2 of 16 commenced on January 15, 2013, a works contract was awarded to

the Operational Creditor for carrying out civil work for construction

of office building for a total contract value of Rs. 5,32,74,331 by the

Corporate Debtor. This project was to be completed within nine

months, by October 14, 2013. The Appellant has claimed that, in

addition to the original works contract, the Corporate Debtor

awarded additional work relating to fire-fighting, plumbing and

electrical work in the project to the Operational Debtor on

December 21, 2013 and the completion date for these additional

works was agreed to be September 30, 2014. The Appellant has

alleged that Respondent No. 1 did not work according to the

conditions of the contract - the pace of construction was slow and

it was of sub-standard quality in addition to other deficiencies. He

has alleged that the Operational Creditor stopped execution of the

contract from April 2015 leaving the project incomplete. The

Appellant has claimed that payments against certain running bills

were made to Respondent No.1, but he did not raise any bill after

February 16, 2015 and since the Operational Creditor left the work

incomplete, it had to be completed by employing a new contractor,

and as a result the Corporate Debtor suffered financial loss.

4. The Appellant has mentioned two demand notices dated

16.2.2018 and 23.2.2018, given by the Respondent No. 1 Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 3 of 16 (Operational Creditor) to the Appellant (Corporate Debtor). In his

reply and oral arguments, the Learned Counsel for Respondent No.

1 has stated that for the purpose of this matter which is under the

IBC, the demand notice dated 23.2.2018 issued under Section 8 of

IBC is being relied upon and the reply of the Appellant to this

demand notice dated 23.3.2018 is therefore to be considered. We

will, therefore, consider the demand notice dated 23.2.2018 and its

reply by the Corporate Debtor dated 23.3. 2018 for the purpose of

this appeal, as has been done by the Adjudicating Authority.

5. The main issue on which this appeal hinges is the pre-

existence or otherwise of dispute between the Appellant and

Respondent No. 1 regarding the claimed operational debt. In the

Impugned Order the Adjudicating Authority has not considered the

dispute raised by the Corporate Debtor as a pre-existing dispute

and has consequently admitted Section 9 application of the

Operational Creditor.

6. In the arguments the Ld. Counsel of Appellant has cited two

letters dated 14.10.2014 (page 236, volume 2 of Appeal) and dated

18.1.2016 (page 235, volume 2 of Appeal) to claim that the

Appellant had raised the issues of sub-standard construction, slow

pace of work and leaving the work incomplete with the Operational Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 4 of 16 Creditor, which according to the Appellant, are evidence of pre-

existing dispute. The Respondent has refuted this claim of

Corporate Debtor stating that the said letters are an afterthought

and were not given to Respondent No. 1 by the Corporate Debtor.

He has stated that the Corporate Debtor has at no place mentioned

these letters or having given these letters to the Operational

Creditor regarding the disputed issues, whether in reply to the

demand notice dated 23.3.2018 under section 8 of IBC or in his

reply to the Section 9 application. A perusal of the documents

submitted by the Appellant and Respondent No. 1 in the Appeal,

which includes the reply to the demand notice dated 23.3.21

(attached at pages 57-64 of the Appeal Paperbook, Vol. I) given by

the Appellant-Corporate Debtor under Section 8 of the IBC, and

also his reply to the Section 9 application(attached at pages 103-

199 of Appeal Paperbook, Vol. I) submitted by the Corporate

Debtor, makes it abundantly clear that these two letters claimed by

the Appellant as evidence of pre-existing dispute are not mentioned

in either of the two replies of the Corporate Debtor.

7. It would be useful to refer to Section 8 of the IBC regarding

conditions for admission of Section 9 application:-

"8. Insolvency resolution by operational creditor -

(1) An operational creditor may, on the occurrence of a Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 5 of 16 default, deliver a demand notice of unpaid operational debtor

copy of invoice demanding payment of the amount involved in

the default to the corporate debtor in such form and manner as

may be prescribed.

(2) The corporate debtor shall, within a period of ten

days of the receipt of the demand notice or copy of the invoice

mentioned in sub-section (1) bring to the notice of the

operational creditor -

(a) existence of a dispute, if any, or record of

the pendency of the suit or arbitration

proceedings filed before the receipt of such

notice or invoice in relation to such dispute;

(b) the payment of unpaid operational debt-

(i) by sending an attested copy of the

record of electronic transfer of the unpaid

amount from the bank account of the

corporate debtor; or

(ii) by sending an attested copy of the

record that the operational creditor has

encashed a cheque issued by the corporate

debtor.

Explanation: For the purposes of this section,

a"demand notice" means a notice served by Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 6 of 16 an operational creditor to the corporate

debtor demanding payment of the

operational debt in respect of which the

default has occurred."

The provision under Section 8(2)(a) makes it clear that the

corporate debtor has to bring to the operational creditor the fact of

the existence of a dispute within ten days of the receipt of the

demand notice.

8. Regarding judging whether a dispute is a pre-existing

dispute, the Hon'ble Supreme Court has held in Mobilox

Innovations (P) Ltd. v. Kirusa Software (P) Ltd. [Civil Appeal No.

9405 pf 2017, decided on September 21, 2017, (2018) 1 SCC

353] as follows:

"Therefore all that the adjudicating authority has to see at this

stage is whether there is a plausible contention which requires

further investigation and that the "dispute" is not 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......So

long as a dispute truly exists in fact and is not spurious,

hypothetical or illusory, the adjudicating authority has to reject Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 7 of 16 the application." (Para 51)

Quite obviously it follows that the existence of dispute before the

Section 8 notice was delivered has to be a plausible one and not a

'spurious defence'and "that the "dispute" is not patently feeble legal

argument or an assertion of fact unsupported by evidence". The

adjudicating authority has been enjoined with the responsibility to

see that "the dispute truly exists and is not spurious, hypothetical

or illusory". Since there is no corroboration of the two letters dated

14.10. 2014 and 18.1.2016 either in the Corporate Debtor's reply

to Section 8 demand notice or in the Corporate Debtor's reply to

Section 9 application, and rebuttal of these letters by Respondent

No. 1 calling them an afterthought, we are unable to be persuaded

by the argument of the Corporate Debtor about pre-existence of

dispute on the basis of these letters.

9. The Learned Counsel for Appellant has argued about various

items of dispute, citing that the running account bills (RA bills)

that have been submitted by the Operational Creditor in many

volumes were not allowed to be permitted to be placed on record by

the Adjudicating Authority. In his arguments, the Ld. Counsel of

Appellant has referred to clauses 57, 58, 59 and 61 of the Contract

Agreement to show that the RA bills were not submitted by the

operational creditor after joint measurements and, therefore, in the Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 8 of 16 absence of such measurements, the bills are not liable to be paid.

He has added that in the absence of joint measurements the

Corporate Debtor undertook the measurements and the amount

that is then arrived at for payment is much less than what is

claimed by the Operational Debtor. Hence there is a dispute

regarding the measurements and amount payable to the

Operational Creditor. He has also referred to clause 61 of the

contract agreement to claim that the work was not completed to the

satisfaction of the employer (Corporate Debtor) and no completion

certificate was issued by the employer. Therefore, the work was left

incomplete by the operational creditor which had to be completed

by another contractor, which led the corporate debtor to incur

losses. Hence the amount claimed in debt by the Operational

Creditor is not liable to be paid by the Corporate Debtor.

10. The Ld. Counsel for Appellant has also claimed that these RA

bills were certified by one Satish Wagh, a representative of the

architect, at a time when he was not assigned to the project. The

Appellant has produced a letter dated 15.12.2018 of the architect

of the project Nivedita and Uday Pande Consultants stating that

Satish Wagh had been shifted to another project from September

2014 onwards. Therefore, he has argued, the certification of the

works by Satish Wagh is not proper and such bills are not liable to Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 9 of 16 be paid. On this issue, the Learned Counsel for Respondent No. 1

has claimed that the RA bills have been submitted as evidence of

the work that was carried out and Satish Wagh who certified the

RA bills, was appointed by the architect of the project. He has also

urged that the documents relating to of RA Bills were sent as

attachment to the email dated March 22, 2018 forwarding the

demand notice under section 8 to the Appellant (page 48-52 of

Appeal Paperbook, Vol. I) and it has also been filed with the Written

Statement of the Respondent before the Adjudicating Authority and

is therefore a part of record of the Adjudicating Authority.

11. Clause 57 of the contract agreement very clearly specifies

that the joint measurement has to be undertaken by the employer

i.e. Corporate Debtor alongwith the contractor. The Corporate

Debtor has not shown anywhere that he made any effort for joint

measurement for verification of the work done in relation to the

pending RA bills. As per the clauses of the contract agreement,

once a bill is submitted it has to be examined and any deficiencies

ought to be removed. The joint measurement, as per clause 57 of

the contract agreement, is therefore something that should have

been undertaken by the corporate debtor leading to final payment

of these RA bills. This does not seem to have been done, and

therefore the responsibility of the Corporate Debtor for verification Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 10 of 16 of the bills cannot be shifted on the Operational Creditor. On the

basis of this discussion, we find that the debt that has been

included in the Section 8 notice by the Operational Creditor is due

and payable.

12. The Learned Counsel for Appellant has mentioned that in

accordance with an MOU entered between the Corporate Debtor

and Ramprastha Promoters and Developers Private Limited an

amount of Rs.1,70,00,000 (Rupees One Crore and Seventy Lakhs

only) was paid to Respondent No. 1 on behalf of the Appellant

Corporate Debtor in terms of the MOU. In this connection, the

Learned Counsel for Respondent has clarified that the said written

confirmation by Ramprastha Promoters and Developers Private

Limited was filed by the Corporate Debtor at the time of final

arguments and has been denied by the Respondent. He has added

that Respondent No. 1 being a contractor used to receive various

payments from its employees and there is no basis for the

Corporate Debtor to adjust such payment from its debt payable to

the Respondent. He has further added that even if the said amount

is deducted from the unpaid operational debt, the balance

outstanding is Rs. 2,91,00,770 (Rupees Two Crore Ninety One Lakh

Seven Hundred and Seventy only) which is above the threshold

limit for admission of Section 9 application. We find strength in Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 11 of 16 the argument put forth by Respondent No.1.

13. It is pointed out that various elements of default by the

Operational Creditor raised by the Appellant are not relevant in the

adjudication of the application of the operational creditor under

Section 9 of the IBC and, therefore, we do not think the correctness

or otherwise of these claims/counterclaims should have any

bearing on the outcome of this appeal.

14. The Ld. Counsel of Appellant has referred to the following

judgments in support of his contentions-

 Mobilox Innovations Private Limited. v. Kirusa Software Private Limited (2018) I SCC 353  Innoventive Industries Ltd. v. ICICI Bank &Anr., (2018) I SCC407 Kuntal Construction Pvt. Ltd. v. Bharat Hotels Ltd. C.A.(AT)(I) No. 542 of 2020.  Ved Contracts Pvt. Ltd. v. Pan Realtors Pvt. Ltd., C.A.(AT) (I) No. 908 of 2019.

 Sandeep Reddy &Anr. v. Jaycon Infrastructure Ltd., C.A(AT)(I) No. 228 of 2017.

15. The judgments of the Hon'ble Apex Court in Mobilox

Innovations Private Limited and Innovative Industries Limited

civil appeals are basically about pre-existing dispute and that the

Adjudicating Authority should be prima facie convinced about the

Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 12 of 16 pre-existence of a dispute before notice under Section 8 was sent,

and not involve itself into examining the pre-existing dispute on

merits. In the present case, since no pre-existing dispute is found

to be present, the ratio of these judgments are not found

applicable. The judgment in Kuntal Construction case, decided by

NCLAT only follows the dictum well-settled by Mobilox case

judgment of the Hon'ble Apex Court.

16. The Ld. Counsel for Appellant has also cited the judgment of

NCLAT in Universal Woollen Mills v. Winsome Yarns Ltd., C.A.

(AT) (I) No. 554 of 2018to emphasise that it is not for the

Adjudicating Authority to examine whether the two letters claiming

pre-existence of dispute are fabricated or not. In the cited

judgment, the fabrication of an email had been alleged. In the

present case two letters of the corporate debtor have been cited as

evidence of pre-existence of dispute which do not inspire our

confidence as no other corroboration of their existence has been

shown by the Appellant. If such letters pre-existed, Corporate

Debtor did not refer to them in reply to Section 8 Notice or Reply to

Section 9 Application as we have noted earlier in this judgment.

Only at the time of final arguments (as claimed by Appellant) they

were tendered. Operational Creditor disputes this and Operational

Creditor claims they were filed by Corporate Debtor after close of Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 13 of 16 arguments, with Written Submissions, without permission of

Adjudicating Authority

17. The following judgments have been cited by Learned Counsel

for Respondent: -

 Mobilox Innovations Private Limited. v. Kirusa Software Private Limited (2018) I SCC 353  Innoventive Industries Ltd. v. ICICI Bank &Anr., (2018) I SCC 407  K. Kishan v. Vijay Nirmal Company, (2018) SCC Online 1013  Sudhir Sales v. D. Art Furnitures MANU/NL/248/2018  YogendraYasupal v. Jigsaw Solutions, (2017) SCC Online NCLAT 293

The ratio in all these judgments support the dictum that the pre-

existing dispute should be real and not a spurious one. As we have

found in the present appeal, the dispute raised by the Appellant is

not a pre-existing one, and therefore the ratios in all these

judgments only go to support the contention of the Respondent

No.1.

18. It is argued by Learned Counsel for Appellant that the fact

that there is no completion certificate being shown by Operational

Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 14 of 16 Creditor itself is evidence of pre-existing dispute, as the project was

to be completed by 14.10.2013. Learned Counsel for Operational

Creditor submitted that as R.A. Bills were not being paid, he could

not continue work and had to send Demand Notice u/s 8 of IBC.

We find that Corporate Debtor has not shown anywhere that if the

project was not completed or abandoned, any notice was sent to

the Operational Creditor, before Operational Creditor sent Demand

Notice u/s 8 of IBC. The Document Annexure R-1 filed by

Respondent No.1 (Dy. No.25468) shows that even till August, 2016

bills were being paid. Thus, time was not essence of the contract.

No dispute can be presumed merely by non-completion of the

project in the fixed time or for the reason that the it was the

contractor's fault, when the contract shows responsibilities on both

the sides. If Operational Creditor had to continue construction,

Corporate Debtor also had to continue paying RA Bills. Thus we do

not agree with the argument to make a presumption that there was

pre-existing dispute or that the responsibility of non-completion fell

on the Operational Creditor.

19. In the light of the discussion in the above-mentioned

paragraphs, we come to a very clear conclusion that there was no

pre-existing dispute regarding the construction works that were

undertaken by the Operational Creditor for the Corporate Debtor. Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 15 of 16 Since there was no pre-existing dispute, all the other

issues/disputes that relate to the various clauses of the contract

agreement such as joint measurements, lack of completion

certificate and inadequate and inappropriate certification of the

bills become irrelevant insofar as adjudication of Respondent No.

1's application under Section 9 is concerned. We, therefore, do not

find any basis for interfering with the order of the Adjudicating

Authority. The appeal is dismissed. Interim orders, if any, in the

appeal do not survive. The Corporate Insolvency Resolution

Process (CIRP) shall proceed as required under law. The time spent

in prosecuting this appeal from 28.2.2020 (when stay to public

announcement and constitution of COC was granted) till today

shall not be counted towards the period of CIRP.

20. There is no order as to costs.

(Justice A I S Cheema) The Officiating Chairperson

(Dr. Alok Srivastava) Member (Technical) New Delhi 2nd July, 2021

/aks/

Company Appeal (AT) (Insolvency) No. 354 of 2020 Page 16 of 16