Shekhar Sarawagi vs Ghanaram Infraengineers Private ...

IN THE MATTER OF: Shekhar Sarawagi Sole Proprietor of M/s Ado Conmat India 68A, Sector-6 II E Pantnagar, Rudrapur Faridabad Email: adoconmatindia@gmail.com ...Appellant

Versus

Ghanaram Infraengineers Pvt. Ltd. Having its registered office at: 8/18 West Patel Nagar New Delhi - 110008 Email: ghanaram@rediffmail.com ...Respondent

Present: For Appellant : Mr. Aditya Madaan, Mr. GP Madaan and Mr. Aishwarya Adlakha, Advocates

For Respondent :

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

This Appeal, under Section 61(1) of Insolvency and Bankruptcy Code,

2016 (IBC), challenges the Order dated May 7, 2024 (Impugned Order) issued

by the National Company Law Tribunal, New Delhi Bench-V (NCLT) in

Company Petition (IB) No. 298 of 2022 (Company Petition). The Adjudicating

Authority dismissed the Appellant's petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The instant Appeal seeks the

setting aside of the order passed by the Adjudicating Authority on

07.05.2024 whereby the petition filed under Section 9 of the Code was

rejected on the contentions of the Corporate Debtor that there lies a pre-

existing dispute between the Parties. This Appeal requests a reversal of the

Impugned Order.

Submissions of the Appellant

2. The underlying dispute arises from two agreements between the

Appellant and the Corporate Debtor (Respondent) pertaining to a barrage

project. Superintending Engineer, Flood Works circle Department of Irrigation

Govt. of U.P. Bareilly had awarded the Corporate Debtor ("Ghanaram

Infraengineers Pvt. Ltd."), the work of "Construction of Ramganga Barrage,

Upstream & Downstream Guide Bund and Main Canal Head Regulator. (Main

Contract).

3. In turn, on 08.12.2011, the Corporate Debtor ("Ghanaram Infra

Engineers Pvt. Ltd.") entered into a Sub-Contract Agreement (Supply

Agreement) with the Appellant concerning the Design, Fabrication, Supply

with Rope Drum Hoist and Counter Weight, etc. The Corporate Debtor also

entered into another Sub-Contract Agreement (Erection Agreement) with the

Appellant for the execution of part of the above works concerning to erection

and commissioning of Vertical Lift Steel Gates of other Barrage ways of

Bareilly Barrage H.M works i.e. transportation, erection & Commissioning of

Company Appeal (AT) (Insolvency) No. 1220 of 2024 2 of 22 Structural Steel Vertical Lift Gates with Rope Drum Hoist and Counter Weight

etc.

4. The Appellant contends that it had fulfilled its contractual obligations

by duly supplying the materials and completing the installation work as per

the agreements. Invoices reflecting the agreed-upon charges were submitted

to the Respondent. Despite partial payments, the Respondent failed to settle

the invoices in full, resulting in a significant outstanding debt owed to the

Appellant.

5. The Appellant initiated communication to address the outstanding

payment. Emails were sent to the Respondent highlighting their own ledger

entries that confirmed the outstanding amount. Meetings were also held to

discuss the issue. On 11.05.2017 and 13.05.2017, two emails were sent by

the Appellant to the Corporate Debtor whereby the Appellant requested the

Respondent to release the outstanding payment on priority/ immediately. On

07.07.2017, the Respondent sent an email to the Appellant with the subject

"Account Statement," wherein a copy of the Appellant's ledger account

maintained by the Respondent for the period 01.04.2016 to 31.03.2017 was

shared. As per this ledger account, as of 27.03.2017, an outstanding amount

of Rs. 5,20,70,840/- was due and payable by the Respondent to the

Appellant. On 11.07.2017, the Respondent sent another email to the

Appellant with the subject "Account Statement 2017-18," wherein a copy of

the Appellant's ledger account maintained by the Respondent for the period

Company Appeal (AT) (Insolvency) No. 1220 of 2024 3 of 22 01.04.2017 to 03.07.2017 was shared. This ledger account reveals that as of

24.06.2017, an outstanding amount of Rs. 5,92,95,099/- was due and

payable by the Respondent to the Appellant. This email constitutes an explicit

admission of the outstanding "operational debt" that has become due and

payable, the payment of which has been defaulted upon by the Respondent.

On 16.08.2018, the Respondent sent yet another email to the Appellant with

the subject "Account Statement 2017-18," wherein a copy of the Appellant's

ledger account maintained by the Respondent for the period 01.04.2017 to

03.07.2017 was once again shared. A perusal of the said ledger account

reveals that as of 24.06.2017, admittedly outstanding amount of

Rs.5,92,95,099/- was due and payable by the Respondent to the Appellant.

6. Despite the Appellant's attempts to reach an amicable resolution, the

Respondent did not settle the outstanding debt. On 23.05.2018 there was a

meeting conducted between the Appellant and the Corporate Debtor whereby

the Appellant informed the Corporate Debtor that it will be filing an

application for initiation of Corporate Insolvency Resolution Process, if the

payments are not released. On 08.09.2018, the Appellant herein sent an

email to the Respondent requesting a time for a meeting to finalize the

account of the Appellant and releasing the balance payments, which was

decided in an earlier meeting held in August 2018 itself. On 11.09.2018, the

Respondent sent an email to the Appellant stipulating:

"Dear sir, In ref. to your, it is to inform you that after site verification, it has been found that you have done work only for Rs. 18,76,79,023.00 (Statement enclosed) against which we have already paid Rs. 20,89,14,223.00 i.e.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 4 of 22 excess payment of Rs. 2,12,35,200.00 has already been released to you. As such we request you to please refund our excess amount immediately. It is also mentioned that if there is any confusion, we may feel free to write to us so that meeting may be fixed according with all concerned."

7. The email dated 11.09.2018 raises an entirely baseless claim about an

alleged excess payment made to the Appellant, which contradicts the

Respondent's own previous admissions and ledger statements reflecting the

outstanding debt owed to the Appellant. Along with the email the Respondent

mentioned some random percentages against multiple heads, veracity of

which is disputed by the Appellant.

8. On 17.09.2018, the Appellant responded to the email dated 11.09.2018

sent by the Corporate Debtor. The impugned order has relied upon emails

dated 11.09.2018 and 17.09.2018 and erroneously proceeded with a finding

that these constitute evidence of a pre-existing dispute. These emails are mere

correspondences pertaining to the release of outstanding payments which

were already admitted by the Respondent, devoid of any mention or allusion

to a pre-existing dispute. The Respondent's claim of excess payment in an

email dated 11.09.2018, was also promptly and categorically refuted by the

Appellant in its response dated 17.09.2018. Further, none of these emails

contain a whisper about any deficiency in the work performed or any failure

to complete the agreed-upon work. The Adjudicating Authority erroneously

relied on these emails to come to a conclusion that there exists a pre-existing

dispute.

9. Following the above response, the Respondent ceased responding to the

emails from the Appellant. The Respondent failed to respond to the email Company Appeal (AT) (Insolvency) No. 1220 of 2024 5 of 22 dated 25.09.2018 wherein the Appellant requested for scheduling a meeting

and also intimated that he has been continually trying to contact the

Respondent through phone which the Respondent has failed to respond as

well. Consequently, the Appellant sent an email dated 08.10.2018 to the

Respondent, requesting the release of the outstanding amount owed.

10. On 03.12.2021, the Appellant was compelled to send a legal notice

demanding payment of the outstanding balance from the Respondent. The

Respondent, however, did not respond to this notice. Subsequently, the

Appellant issued a statutory Demand Notice dated 27.12.2021, in accordance

with the provisions of the Code, which was duly received by the Respondent

on 04.01.2022.

11. Thereafter, the Respondent replied to the statutory Demand Notice

dated 27.12.2021 vide Reply dated 07.01.2022 wherein the Respondent

claims it be false and frivolous narrative of a dispute against the demand

raised by the Appellant herein.

12. Perusal of the reply to the demand notice demonstrates that all the

points as mentioned in the reply to the demand notice were either an

afterthought or an attempt to evade the amount that has become due and

payable.

13. Thereafter, on 21.02.2022, a petition under Section 9 of the Code was

filed by the Appellant whereby the following amount was mentioned:

(Principal: Rs. 5,92,95,099/- + Interest of INR 2,64,30,993/-). Company Appeal (AT) (Insolvency) No. 1220 of 2024 6 of 22

14. The said petition was listed before Adjudicating Authority on

22.04.2022 whereby the matter was heard on the point of issuance of notice

and the orders were reserved. On 11.05.2022, the Ld. Adjudicating Authority

dismissed the Petition filed under Section 9 of the Code by the Appellant on

the ground of limitation.

15. Thereafter, the Appellant herein preferred an Appeal against the said

order dated 11.05.2022 before this Hon'ble Appellate Tribunal bearing

Company Appeal (AT) (Insolvency) No. 911 of 2022, and this Hon'ble Appellate

Tribunal was pleased to issue notice on the said Appeal vide Order dated

17.08.2022. The Respondent herein filed their reply dated 20.09.2022 to the

Company Appeal (AT) (Insolvency) No. 911 of 2022. Vide order dated

26.09.2022, this Hon'ble Appellate Tribunal was pleased to allow the Appeal

and revive the Section 9 Application filed by the Appellant and recorded that:

"We thus are of the view that reasons given by the Adjudicating Authority for rejecting the application Section 9 as barred by time are not sustainable. We set aside the order dated 11.05.2022 and revive the application under Section 9 before the Adjudicating Authority."

16. Upon revival of the Section 9 Petition, the Respondent filed their reply

dated 13.10.2022 to the Section 9 Petition and the Appellant herein filed its

Rejoinder dated 22.11.2022 to the said Reply filed by the Corporate Debtor.

Additionally, it is imperative to mention that the Respondent has raised false

and frivolous grounds in their reply in order to create the false narrative of a

pre-existing dispute which have been vividly countered in the Rejoinder filed

by the Appellant herein. It is further pertinent to mention that the Corporate

Debtor allegedly terminated the Contract vide termination letter dated

Company Appeal (AT) (Insolvency) No. 1220 of 2024 7 of 22 13.02.2018. However, the said alleged termination letter was never received

by the Appellant and the Respondent has failed to bring on record any

document stating that the said letter was received by the Appellant herein.

17. In the Rejoinder the Appellant has clarified that the Respondent has

raised a concern with respect to the incomplete work on the Project, and the

Operational Creditor is requesting to pay for the work already completed.

However, the incomplete work has nothing to do with the operational debt of

which the default is being claimed by the Petitioner, and the same relates to

admitted, undisputed, and partially paid invoices.

18. It is apposite to mention that multiple applications were filed by the

Respondent in the above captioned petition which were not considered by the

Ld. Adjudicating Authority.

19. The Learned Adjudicating Authority incorrectly dismissed and disposed

of the Petition filed by the Appellant herein bearing CP (IB) No. 298 of 2022

by placing reliance on the false and frivolous contentions of the Respondents

herein.

20. Appellant requests to set aside the order of the Adjudicating Authority

and the Corporate Debtor be admitted in to CIRP since there is admitted debt

in default.

Submissions of the Respondent

21. In the fiscal year 2011-2012, the Respondent company was awarded a

contract by the Ministry of Irrigation, Government of Uttar Pradesh, for the

Company Appeal (AT) (Insolvency) No. 1220 of 2024 8 of 22 construction of the Ram Ganga Barrage. This contract included the

construction of 30 steel gates, as per Agreement No. 05/S.E./2011-12.

22. To fulfil the contractual obligations, the Respondent entered into two

sub-contracts for the supply, erection, and commissioning of the steel gates.

The Appellant was awarded a contract for 17 gates, while Kay Iron Work

(Yamunanagar) Pvt. Ltd. was awarded a contract for the remaining 13 gates.

These sub-contracts were formalized through separate agreements executed

on December 8, 2011, and December 16, 2011, respectively.

23. Both sub-contracts outlined a payment schedule in Clause 7,

stipulating that 85% of the contract value was payable at certain stages of the

project, and the remaining 15% was to be paid upon the complete

commissioning of the project. It is undisputed that the Appellant did not

complete the entire project, having only finished 11 out of 17 gates by July

2017, when they abandoned the site.

24. Consequently, the project was never fully completed or commissioned.

In fact, the Department of Irrigation, U.P. Govt. subsequently identified

defects in the project, further delaying its completion and commissioning.

25. The Appellant initiated insolvency proceedings against the Respondent

by submitting allegedly false documents to the National Company Law

Tribunal (NCLT). The Appellant claimed to have completed the entire work

assigned by the Department of Irrigation and to have received full payment.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 9 of 22 However, this claim is contradicted by the fact that the Appellant abandoned

the project in July, 2017 after completing only 11 steel gates. The Appellant

also presented a purported letter indicating acceptance of the work and

payment, which the Respondent alleges is forged. The Department of

Irrigation has filed a criminal complaint against the Appellant based on this

allegation.

26. The Respondent raised a dispute regarding the work completed by the

Appellant through a communication dated September 11, 2018. After

verifying the work done, the Respondent determined that the Appellant had

been overpaid by approximately Rs. 2,12,35,200.

27. The Appellant acknowledged receipt of the Respondent's

communication on September 17, 2018, and requested a meeting to resolve

the outstanding issues. This response indicates that the Appellant did not

admit to any debt and that a dispute existed prior to the initiation of

insolvency proceedings.

28. The Appellant's claim of a debt amounting to Rs. 5,92,95,098 is

inconsistent with the fact that the Respondent had to pay Rs. 9,25,10,038 to

a third party, Hoisto-Structures and Equipment's Pvt Ltd, to complete the

remaining work.

29. The Appellant has concealed crucial documents and based their appeal

on two primary arguments:

Company Appeal (AT) (Insolvency) No. 1220 of 2024 10 of 22 i. Forgery of Termination Notice: The Appellant claims that the

termination notice dated February 13, 2018, is forged and was never

served, rendering it unreliable. However, the Appellant had already

ceased work in July, 2017 and abandoned the site in December

2017, effectively terminating the contract by their conduct. The

remaining work was reassigned to Hoisto-Structures and

Equipment's Pvt Ltd on 05/03/2018. The Appellant's own

communication on 17/09/2018 acknowledges the reassignment of

the work, contradicting their claim of forgery and indicating

awareness of the contract's termination. Regardless of the

termination notice, the Appellant's abandonment of the work and

site precludes any claim of "admitted debt.

ii. Misrepresentation of Admitted Debt: The Appellant asserts that the

Respondent admitted a debt through communications dated July

11, 2017, and August 16, 2018. The Respondent contends that

these communications merely acknowledge the receipt of invoices

and do not constitute an admission of debt. The payment schedule

in the sub-contract agreement clearly stipulates that payments were

to be made in stages, with the final payment contingent upon project

completion and commissioning. The Respondent further argues that

the Appellant has failed to prove that these stages were achieved and

has presented a forged letter to support their claim.

False Affidavit and Dispute Existence:

Company Appeal (AT) (Insolvency) No. 1220 of 2024 11 of 22

30. The Appellant filed a false affidavit with the petition, claiming an

admitted debt despite the dispute raised on September 11, 2018. Under

Section 3(12) of the IBC, a debt is defined as unpaid when it is due and

payable. Given the terms of the sub-contract agreement and the pre-existing

dispute, the alleged debt is not due.

Limitation Period:

31. The demand notice is barred by limitation due to the existence of a

dispute raised before its issuance. The last invoice is dated 24.06.2017

whereas the statutory demand notice was issued dated 27.12.2021 by the OC

which was duly replied on 07.01.2022. The present petition has been filed

on 21.2.2022, and is therefore, clearly barred by limitation. Respondent

places reliance on the judgement of Hon'ble Apex Court in Sagufa Ahmed &

Orts Vs. Upper Assam Polywood Products Pvt Ltd in [(2021)2 SCC 317].

This judgment clarified that the period of limitation and delay cannot be

condoned by the extension granted in Suo Moto Writ Petition No. 3 of 2020. Operational Creditor is not entitled to the benefit of orders of the Hon'ble Apex

Court in Suo Moto Writ Petition No.3 of 2020 which extended limitation

only as reported in the subsequent judgment reported Sagufa Ahmed

(supra).

Appraisal:

32. Heard Ld. Counsels for the Appellant as well as the Ld. Counsel for the

Respondent and perused the averments made in the appeal. The relevant

documents annexed with the submissions have also been examined.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 12 of 22

33. The underlying dispute arises from two agreements between the

Appellant and the Corporate Debtor (Respondent) pertaining to a barrage

project awarded to the Corporate Debtor by the Superintending Engineer,

Flood Works Circle Department of Irrigation, Govt. of U.P., Bareilly for the

"Construction of Ramganga Barrage, Upstream & Downstream Guide Bund

and Main Canal Head Regulator", which was partly subcontracted by the CD

to the Appellant.

34. The Appellant contends that it fulfilled its contractual obligations by

duly supplying the materials and completing the installation work as per the

agreements. Invoices reflecting the agreed-upon charges were also submitted

to the Respondent. Despite partial payments, the Respondent failed to settle

the invoices in full, resulting in a significant outstanding debt.

Communication efforts were made by the Appellant to address the

outstanding payment, including emails dated May 11, 2017, and May 13,

2017, requesting the Respondent to release the outstanding payment. It is

claimed that the Respondent acknowledged the outstanding amount in their

email dated July 7, 2017, and shared the ledger account showing an

outstanding amount of Rs. 5,20,70,840/- as of March 27, 2017. This amount

increased to Rs. 5,92,95,099/- as per another ledger account shared on July

11, 2017. Despite these acknowledgments, the Respondent raised a claim of

excess payment in an email dated September 11, 2018, which was promptly

refuted by the Appellant in their response dated September 17, 2018.

Following the non-responsive stance of the Respondent, the Appellant sent a

Company Appeal (AT) (Insolvency) No. 1220 of 2024 13 of 22 legal notice demanding payment on December 3, 2021, and a statutory

Demand Notice on December 27, 2021. The Respondent replied to this notice

on January 7, 2022, raising disputes over the claimed amount. Subsequently,

a petition under Section 9 of the Code was filed by the Appellant on February

21, 2022, mentioning the outstanding principal amount of Rs. 5,92,95,099/-

plus interest. The Adjudicating Authority dismissed the petition on the

grounds of limitation, which was later set aside by this Appellate Tribunal,

reviving the Section 9 Application.

35. Per contra, the Respondent contends that the project was never fully

completed or commissioned due to defects identified by the Ministry of

Irrigation, UP Govt. The Respondent alleges that the Appellant abandoned the

project in July 2017 after completing only 11 out of 17 gates, resulting in the

reassignment of the remaining work to Hoisto-Structures and Equipment's

Pvt Ltd. The Respondent had raised a dispute regarding the completed work

on September 11, 2018, determining that the Appellant was overpaid by

approximately Rs. 2,12,35,200 after verifying the work done. Further the

Respondent challenges the authenticity of documents submitted by the

Appellant, including a purported acceptance letter, alleging it to be forged.

The Appellant's claim of a debt amounting to Rs. 5,92,95,098 is inconsistent

with the fact that the Respondent paid Rs. 9,25,10,038 to a third party, viz,

Hoisto-Structures and Equipment's Pvt Ltd, to complete the remaining work.

36. The main issue before us is whether there is a Pre-existing dispute with

respect to the amount claimed to be due in the present appeal or not.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 14 of 22

37. The Appellant's argument that the Respondent admitted the debt in

communications dated July 11, 2017, and August 16, 2018, is based on

ledger statements of invoices, not an admission of debt. Payments were to be

made at various stages as per Clause 7.1, which the Appellant failed to

achieve. The payment schedule stipulated in the sub-contract agreements

clearly indicates that final payment is contingent upon project completion and

commissioning, which was not achieved. The admissibility of further

payments is therefore questionable and the question of debt doesn't arise.

38. The Respondent had also raised the dispute regarding the quality of

work and overpayment, evidenced by their communication dated September

11, 2018, which is reproduced as follows:

"Dear sir, In ref. to your, it is to inform you that after site verification, it has been found that you have done work only for Rs. 18,76,79,023.00 (Statement enclosed) against which we have already paid Rs. 20,89,14,223.00 i.e. excess payment of Rs. 2,12,35,200.00 has already been released to you. As such we request you to please refund our excess amount immediately. It is also mentioned that if there is any confusion, we may feel free to write to us so that meeting may be fixed according with all concerned."

39. The Appellant's acknowledgment of this dispute in their response dated

September 17, 2018, further confirms the existence of a dispute much prior

to the initiation of insolvency proceedings. The email is as follows:

"Dear Sir, With reference to your mail dated 11.09.2018, it is highly surprising to see such mail from you after having 3-4 meetings regarding our accounts settlement & release of payment.

We have already received the account Statement from your side on dated 11.07.2017 & dated 16.08.2018 only confirming our balances as on 24.06.2017 for amount Rs. 5,92,95,098.00.

Now as per our last meeting in mid of August your good self only told us that we will again meet in 1st week of September and finalize the amount of balance supplies to be made and accordingly our accounts shall be settled, as you were busy with other tender work.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 15 of 22 Now you have sent the account statement modified as per your wish to reduce the total outstanding value (in some item you have mention 65% payment and in some item it is 100%) which is not as per our agreement and not at all acceptable.

We have raised all the bills only after completion of that work and all the bills for supplies as well as erection has been accepted by your site office & your head office and accounted for an being reflected in your books of accounts also.

Sir, We have already discussed in our last 3-4 meetings since April 2018, that our accounts shall be settled, after finalizing the market value of balance supplies to be made rest all the account is already settled and final. Now if you modifying the balance payment account as per your wish is not acceptable.

We again request you to kindly give us a suitable date for meeting and finalize the account as per terms of contract and release our outstanding amount which is Rs. 5,92,95,098.00. We have been cooperating with your good self in best way possible and it was only on your assurance that our pending accounts shall be settled and payment shall be made at earliest. We did not interfere / object even when you foreclosed our erection contract and have given the balance of erection work to other contractor without our consent although our huge payment was pending for the work done till that time, and since then we have had 3-4 meetings and various discussion has been done, and it was decided in our last meeting in mid- august that in September 1st week your good self will finalize it, as you were busy with other tender work.

We are hereby again attaching the balance account statement which is reconciled with your account statement as follows. Hence we request you to kindly give us a suitable date to finalize the accounts & for release of our payments."

40. The Appellant had acknowledged the Respondent's communication on

September 17, 2018, and also accepted the matter of foreclosure of erection

contract and requested a meeting to resolve outstanding issues. The emails

exchanged between the parties on September 11, 2018, and September 17,

2018, indicate a pre-existing dispute regarding the alleged overpayment and

the quality of work completed by the Appellant. It is to be noted that the

Respondent raised the dispute on September 11, 2018, well before the

demand notice issued under Section 8 of the Insolvency and Bankruptcy

Code, 2016 (IBC) on December 27, 2021. All this goes to confirm a pre-

existing dispute before the insolvency proceedings.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 16 of 22

41. Furthermore, both sides have made allegations of Forgery against each

other. The Appellant presented a letter indicating work acceptance and

payment, which the Respondent alleges is forged. It appears that the

Department of Irrigation, U.P. Govt. had also filed a criminal complaint

against the Appellant. This has also been noted by the Adjudicating Authority

in the impugned order.

42. Appellant has raised the issue of forgery of termination notice. The

Appellant claims that the termination notice dated February 13, 2018, is

forged and was never served. However, from this email quoted supra the

Appellant had accepted the matter of foreclosure of erection contract and

giving of this balance work to other contractor. The remaining work was then

assigned to Hoisto-Structures and Equipment's Pvt Ltd, as acknowledged by

the Appellant into the verified dated September 17, 2018 (supra). Thus, the

claim of forgery regarding the termination notice contradicts the Appellant's

own communications and conduct.

43. The Respondent's allegation of forged documents and the Appellant's

failure to complete the work further support the existence of a pre-existing

dispute, which doesn't appear to be a moonshine. The Respondent's actions,

such as reassigning the remaining work, align with the termination of the

contract, contradicting the Appellant's claim. Without looking into the

genuineness of claims and counter claims of forgery by both parties, we still

come to the conclusion of the pre-existing dispute basis other facts on record

as noted in the previous paragraphs.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 17 of 22

44. The Respondent's reply to the statutory demand notice dated January

7, 2022, further substantiates the existence of a pre-existing dispute. The

Respondent highlighted issues such as alleged substandard material and

incomplete work, which were not addressed by the Appellant satisfactorily.

45. If the issue on hand is examined from the perspective of the contractual

obligations and payments, we note that the sub-contract agreements

stipulated payment schedules contingent upon the completion and

commissioning of the project. It is to be noted that sub-contract agreement at

Clause 4.2 provides for date of completion of works to be 31.12.2013.

Admittedly, from the material on record, it is clear that there has been delay

in completion of the work. As the work was not completed in time, Respondent

engaged someone else which is admitted by the Appellant in their email dated

17.09.2018. Furthermore, Clause 7.1 of the same sub-contract agreement

provides for payment schedule which is as follows:

"7.1 Payment Schedule

a) 2% advance

b) 83% within 30 days after supply of equipments.

c) 7.5% within 30 days after fitting & erection of equipment at site on per set basis.

d) 7.5% within 30 days after commissioning."

46. It is to be noted that both sub-contracts specified a payment schedule

in Clause 7, stating that 85% of the contract value was payable at certain

stages, and the remaining 15% was payable upon full commissioning of the

project. The Appellant did not complete the project, finishing only 11 out of

17 gates by July 2017, when they abandoned the site. Therefore, we cannot

Company Appeal (AT) (Insolvency) No. 1220 of 2024 18 of 22 conclude that the Appellant's claim for the outstanding amount aligns with

the contractual terms, as the project was not completed or commissioned.

Since there were claims and counter claims leading into a dispute. These

cannot be gone into by us under the framework of the Code. We leave it open

for both parties to agitate them in appropriate forum.

47. Respondent has also raised the issue of limitation and claims that

petition is barred by limitation, as the statutory demand notice was issued on

December 27, 2021, well beyond the prescribed period from the date of the

last invoice. The issue of limitation was taken up by the Adjudicating

Authority in its order dated 11.05.2022 in which it was noted that since the

first default had occurred in April 2013 and the present application is filed

on 23rd February 2022 and where as in terms of Article 137 of the limitation

Act, the applicant is required to file an application within 3 years, when the

right to apply accrues. Since the invoices had been raised from 2013 and the

applicant claims that the amount was also defaulted in the year 2013.

Therefore, the first date of the default was in the year 2013, when the payment

of the invoices was due and not paid period. Hence the present application is

barred by limitation and was dismissed. The same was challenged by the

Appellant before this Tribunal vide order dated 26.09.22 had ordered that:

"8. Adjudicating Authority itself in its order has quoted part-IV of the application which itself noticed that last payment made by the Corporate Debtor was on 07.06.2017.

9. The order does not notice the order of the Hon'ble Supreme Court passed in suo moto writ petition no. 3 of 2020.

10. Further it appears that last invoice is not 18.04.2016 but 24.06.2017 which is at page 256 of the paper book which was part of Section 9 application.

Company Appeal (AT) (Insolvency) No. 1220 of 2024 19 of 22

11. We thus are of the view that reasons given by the Adjudicating Authority for rejecting the application Section 9 as barred by time are not sustainable. We set aside the order dated 11.05.2022 and revive the application under Section 9 before the Adjudicating Authority.

12. Let the Respondent file the reply within three weeks from today. Replication if any by the Appellant may also be filed within two weeks thereafter.

13. The Section 9 application may be listed before the Adjudicating Authority after six weeks from today.

14. We make it clear that we are not expressing any opinion on merits of the case and all contentions of the parties are left open to be decided by the Adjudicating Authority.

15. The appeal is allowed accordingly."

48. The issue of the limitation was settled by this Tribunal in its earlier

order as noted above and had not gone into the merits of the case. Now since

the Adjudicating Authority has gone into the merits of the case and they find

sufficient material evidence on record that there is a pre-existing dispute, only

this aspect needs to be considered by us while deciding the fate of the appeal.

49. We find that the main ground basis which the Appeal cannot be

accepted is existence of Pre-existing dispute which is not a moonshine which

is noted in earlier part of this judgement. For such situations of pre-existing

disputes, Hon'ble Supreme Court in Mobilox Innovation Pvt. Ltd. Vs.

Kirusa Software Private Limited (2018) 1 SCC 353 at para 40 had held as

under:

"..

40. 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

Company Appeal (AT) (Insolvency) No. 1220 of 2024 20 of 22 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..."

50. The Corporate Debtor had raised a plausible contention about a pre-

existing dispute, which in the instant case is not a moonshine or feeble legal

argument. Therefore, the Adjudicating Authority was not incorrect to reject

the application filed under Section 9 of the Code.

51. The Appellant has placed reliance on Soham Polymers Pvt. Ltd. Vs.

Flocksur India Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 924 of

2021) of this Hon'ble Tribunal which in its order dated 14.02.2022 has held

that a dispute raised by the Corporate Debtor solely with an intent to create

a smokescreen of the dispute would not constitute as "pre-existence of

dispute" under the scheme of IBC, 2016. The facts of that case are different

as in that case there was no dispute raised prior to the issuance of Section 8

notice period. But in this case lot of disputes have risen before the issuance

of Section 8 notice. Therefore, this case may not of help to the Appellant.

Conclusion

52. On the basis of the materials on record, it can be observed that in the

instant case there were agreed-upon tasks which remained incomplete, and

dispute regarding the payment amount existed prior to issuance of Demand

Notice by the Petitioner to the Respondent. Based on the detailed analysis

and appraisal of the facts and contentions presented, it is evident that there

exists a pre-existing dispute between the Appellant and the Respondent,

which is not moonshine. Consequently, the Appeal is rejected, and the

Company Appeal (AT) (Insolvency) No. 1220 of 2024 21 of 22 Impugned Order dated May 7, 2024, passed by the NCLT dismissing the

petition filed under Section 9 of the IBC is upheld.

Order

53. The Appeal is dismissed. The Order dated May 7, 2024, of the National

Company Law Tribunal, New Delhi Bench-V, in Company Petition (IB) No. 298

of 2022, is hereby affirmed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) New Delhi August 02, 2024 pks

Company Appeal (AT) (Insolvency) No. 1220 of 2024 22 of 22