Rk Associates & Hoteliers Pvt Ltd vs Bw Businessworld Media Pvt Ltd Through ...

Regd. Office at A-25, Hospital Road, Jangpura-A, New Delhi-110014 Through its Director Shri Sharan Bihari Agarwal Email: sbagrawal65@gamil. Com Phone No. 011-47100200 Fax No. 011-24373621 Address of Legal Representative: NA ...Appellant

Vs.

BW Businessworld Media Pvt Ltd Through its Managing Director

Regd. Office at J-6/55, Upper Ground Floor, Rajouri Garden, New Delhi-110027 U22190DL2013PTC259734 Also at: 2nd Floor, Express Building, 9-10, Bahadur Shah Zafar Marg, New Delhi - 110002 Email: ankit@businessworld.in ... Respondent Present:-

For Appellant: - Mr Gagan Gupta, Advocate For Respondent: -Mr. Petal Chandhok, Ms Rupali, Mr Sudhanshu Pandey, Advocates

JUDGMENT

COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020 2

Jarat Kumar Jain. J:

The Appellant M/s RK Associates & Hoteliers Pvt. Ltd. filed this

Appeal against the impugned order passed by the Adjudicating Authority

(National Company Law Tribunal) Bench (Court No. II), New Delhi on

20.02.2020 thereby dismissed the Application under Section 9 of the

Insolvency and Bankruptcy Code, 2016 (In Brief I&B Code).

2. Brief facts of this case are that in June, 2018 IRCTC Ltd. issued a

tender document/corrigendum for publishing and distribution of the Board

magazine for Indian Railways-Rail Bandhu. On 18.06.2018 the Operational

Creditor (Appellant) and Corporate Debtor (Respondent) entered into a

Memorandum of Understanding (MOU) for working together on the projects

in Indian Railways. The purpose of the MOU was to cooperate for jointly

qualifying, developing, bidding, executing and operating the projects in

publication, printing and media. Both the parties envisaged execution of

further document (Shareholder's agreement dated 06.12.2018) to form a

Joint Venture Special Purpose Company as a bidding consortium with

participation of both the parties with interest in the ratio of 50:50. The

Corporate Debtor (Respondent) participated in the IRCTC tender and on

14/16.08.2018. IRCTC issued a Letter of Award for publishing and

distribution of "On board magazine for Indian Railways-Rail Bandhu" in

favour of the Corporate Debtor.

3. As per the Letter of Award, the Corporate Debtor was required to

submit performance guarantee to IRCTC Ltd. For the same the Operational

Creditor (Appellant) on 27.09.2018 transferred total amount of Rs.

72,09,975/- to the Corporate Debtor (Respondent) into tranches Rs. COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020 3

31,37,500/- as its share towards performance guarantee and Rs.

40,72,475/- as share towards first instalment for the first year revenue

share. On 29.09.2018 the Operational Creditor (Appellant) transferred

further amount of Rs. 50 Lakhs to the Corporate Debtor by way of NEFT

transfer. On 12.03.2019 IRCTC Ltd. terminated the contract awarded to the

Corporate Debtor (Respondent) and encashed the performance guarantee

and further inform that the liquidated damages shall be intimated in due

course. Thus, for fault of the Corporate Debtor (Respondent) the amount of

Rs. 1,22,09,975/- immediately felt due to the Operational Creditor

(Appellant) w.e.f 12.03.2019 with interest @ 18% per annum. The dues

remain unpaid, therefore, the Operational Creditor (Appellant) had sent a

demand notice dated 31.05.2019 under Section 8 of the I&B Code. The

Corporate Debtor (Respondent) had replied to the demand notice vide its

letter dated 14.06.2019. The Contract was terminated by the IRCTC Ltd. due

to breaches and defaults by the Corporate Debtor (Respondent). Thereafter,

the Operational Creditor (Appellant) filed an Application before the

Adjudicating Authority for initiating the Corporate Insolvency Resolution

Process (CIRP) against the Corporate Debtor (Respondent) under Section 9 of

the I&B Code for the Operational Debt.

4. The Corporate Debtor (Respondent) has resisted the Application on

the ground that there is a pre-existing dispute between the parties and

arbitration proceedings is pending between the Corporate Debtor

(Respondent) and IRCTC Ltd.

5. After hearing the parties, Learned Adjudicating Authority dismissed

the Application on the ground that the debt in question is arising out of the COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020 4

payment made by the Operational Creditor as its share for submission of

performance guarantee to the IRCTC Ltd. and for business proposition, it

cannot be treated as Operational Debt under Section 5(21) of the I&B Code.

6. Being Aggrieved with this order, the Appellant has filed this Appeal.

7. Learned Counsel for the Appellant submitted that the definition of the

claim is very wide and includes both a right to payment and also a right to

remedy for breach of contract giving rise to payment even if such right is not

reduced to Judgment. There is no dispute between the parties with respect

to services provided and no dispute was raised by the Respondent prior to

the notice under Section 8 of the I&B Code. A perusal of clause 9(ii) (d) and

clause 12(ii) of the MOU would reveal that the amount paid by the Appellant

to the Respondent become an Operational Debt, immediately after

termination of the contract of the Respondent by IRCTC Ltd. The

Adjudicating Authority presumed that the entire amount of Rs.

1,22,09,975/- was paid by the Appellant to the Respondent as its share of

performance guarantee submitted to IRCTC Ltd., actually only Rs.

72,09,975/- was paid towards performance guarantee and remaining Rs. 50

lakhs was paid for various expenses that the Respondent would incur for

the execution of the project. In any case entire amount was paid in relation

to services provided by the Appellant to the Respondent. Hence, the claim is

Operational Debt under Section 5(21) of the I&B Code. The Corporate Debtor

has defaulted in payment. No Joint Venture was formed between the parties

and the Appellant was accommodated as a sub-contractor. Thus, the

Operational Debt is due and Respondent committed default is proved.

COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020 5

However, Ld. Adjudicating Authority erroneously dismissed the Application.

Therefore, impugned order is liable to be set aside.

8. Per Contra Learned Counsel for the Respondent supported the

impugned order and has drawn our attention towards the terms and

conditions of the MOU and Shareholders agreement dated 06.12.2018 and

submits that this is a case of Joint Venture. The Appellant and Respondent

are partner and they have invested 50:50 and entitled for the profit for the

same proportion. The Respondent was awarded a contract for publication

and distribution of the board magazine for IRCTC Rail Bandhu. The

Appellant remitted an amount of Rs. 72,09,975/- towards 50% share of the

performance guarantee that was submitted with IRCTC Ltd. Thereafter, the

Appellant further remitted an amount of Rs. 50 lakhs towards their share of

various expenses that would be incurred for the execution of the project. As

per the agreement between the parties, the Respondent has to publish the

magazine and the Appellant has to distribute the magazine. However, the

Appellant has failed to perform their part. which is evident from the

termination letter dated 12.03.2019. The Appellant has not supplied any

goods or provided services to the Respondent. Thus, there is no relationship

between them as Operational Creditor and Corporate Debtor. The Impugned

order does not require any interference by this Appellate Tribunal and the

Appeal is liable to be dismissed.

9. After hearing learned counsel for the parties, we have gone through

the record.

10. The Appellant and Respondent enter into MOU dated 18.06.2018,

which is as under: -

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11. The MOU was intended to establish the Key terms and principals of

collaboration and mutual understanding of the parties. As per the terms and

conditions of the MOU, the Appellant and Respondent have mutually agreed

that they wish to cooperate for the purpose of evaluating the possibility of

jointly qualifying, developing, bidding and successful execution and

operating the projects in publication, printing and media. It was also agreed

between them that they jointly submit a bid for any of the projects but

where joint bid is not stipulated by the client, allow either of the parties

fulfilling the qualification criteria to submit bid as a single entity and if

awarded accommodate other party as sub-contractor and if the awarded any

of the projects, execute their respective obligation in accordance with the

terms of the provisions of the MOU and any subsequent agreements.

12. Clause 5 of the MOU provides that if so require by the tender

document and if so agreed unanimously by the parties as soon as

reasonably practicable following the date of being designated preferred

bidder under the RIP, RKHPL and BW shall incorporate a special purpose

vehicle for the sole purpose of undertaking the financing and execution of

the project (Project Company). The shareholding of the project company

shall also be 50:50. In furtherance of the MOU on 06.12.2018 the Appellant

entered into a Shareholder's agreement with the Respondent for the

purposes of executing the project. On behalf of the Appellant Company, the

agreement is signed by the Rajiv Mittal, however, the Appellant in Memo of

Appeal explained that the Appellant has prepared and sent to the

Respondent the drafted Shareholder's agreement but the draft agreement

was never signed by the Director of the Appellant. It is to be seen that the COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020 17

Appellant has not specifically denied that Rajiv Mittal has not signed the

agreement on behalf of the Appellant Company. Counter Affidavit of Rajiv

Mittal has also not been filed by the Appellant. Therefore, we are of the view

that in pursuance of the Clause 5 of MOU Shareholder's agreement was

executed by the parties. Clause 5 (ii) of the MOU provides that the

shareholding of the project company shall be 50:50 and Clause 5 (vii) of

MOU provides that if the project does not reach financial closure, the parties

acknowledge and agree that none of them will neither receive any

compensation nor reimbursement of their internal or external costs and that

there shall be no further liability among the parties except as otherwise

provided in the MOU or in any other agreement between the parties. As per

the clause 12(iv) it is also agreed between the parties that in this MOU no

party shall be liable to the other party for any consequential loss or damage,

such as loss of profit, loss of reputation, loss of revenue, loss of interest and

under or in connection with this MOU on its termination.

13. With the terms and conditions of the MOU it is clear that the project

under taken by the parties is a Joint Venture and therefore, the Appellant

has paid the 50% of performance guarantee though the contract was

awarded to the Respondent. There is nothing in this MOU that the Appellant

has to provide services to the Respondent. Even the Appellant is not able to

demonstrate which type of services provided by them to the Respondent. In

the Application under Section 9 of the I&B Code r/w Rule 6 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules

2016, it is nowhere mentioned that the Appellant has provided services or

supplied goods to the Respondent. The Adjudicating Authority has rightly COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020 18

held that the payment made towards performance guarantee or any such

business proposition cannot be treated as Operational Debt under Section 5

(21) of the I&B Code. We are fully agree with findings of the Ld. Adjudicating

Authority.

14. This Appellate Tribunal in the case of M/s Sree Sankeshwara

Foundation and Investments Vs. M/s Dugar Housing Limited (CA (AT) (Ins)

No. 515 of 2019) decided on 25.11.2019 held that:

"The Appellant alongwith Respondent (Corporate Debtor) had executed Joint Development Agreement in the year 2012 for construction of structure and allotment to allottees. Both of them being parties to a joint venture project, we hold that the Appellant cannot claim to be 'Operational Creditor' as it does not relate to supply of goods nor service rendered by the Appellant. If joint venture rendered any service to the allottees and for that to pay service tax it does not mean that the parties of the joint venture will render service to each other"

15. With the above discussion, we are of the view that Adjudicating

Authority has rightly rejected the Application under Section 9 of the I&B

Code, as not maintainable.

Accordingly, the Appeal is dismissed. However, no order as to costs.

(Justice Jarat Kumar Jain) Member (Judicial)

(Kanthi Narahari) Member (Technical)

New Delhi 12th February, 2021.

SC COMPANY APPEAL (AT) (Insolvency) No. 511 of 2020