Smartcity (Kochi) Infrastructure Pvt. ... vs Synergy Property Development Services ...

(Arising out of Order dated 9th June, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Chennai Bench, Chennai in Company Petition No. 484 (IB)/CB/2017]

In the matter of : Smartcity (Kochi) Infrastructure Pvt. Ltd. ... Appellant Versus Synergy Property Development Services Private Limited and Another ... Respondents

Present : For Appellant : Shri Ramji Srinivasan, Senior Advocate with Shri Tushar Bhardwaj and Shri Sohil Yadav and Ms. Jasmine Damkewala, Advocates.

For Respondents: Shri Balaji Srinivasan and Ms. Pratiksha Mishra, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by the Appellant-M/s SmartCity

(Kochi) Infrastructure Pvt. Ltd. ('Corporate Debtor') challenging the order

dated 9th June, 2017 passed by the Adjudicating Authority (National

Company Law Tribunal), Chennai Bench, Chennai in CP/484 (IB)/CB/2017.

2. By the impugned order, the Adjudicating Authority entertained the

application under section 9 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I&B Code") preferred by Respondent- M/s.

Synergy Property Development Services Pvt. Ltd. ('Operational Creditor') 2

admitted the application, appointed the Interim Resolution Professional and

ordered for Moratorium with further directions in terms of 'I&B Code'.

3. The appellant has challenged the impugned order dated 9th June,

2017, mainly on the following grounds: -

(i) Notice under sub-section (1) of Section 8 was not issued by the

'Operational Creditor' but by the 'Law Firm', which is not in

accordance with law.

(ii) Notice under Rule 4(3) of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 was not sent by

the 'Operational Creditor', but by a 'Law Firm' and,

(iii) There is a dispute in existence and therefore the application under

Section 9 was not maintainable.

4. Learned Counsel appearing on behalf of the 'Operational Creditor' has

not disputed the aforesaid facts and submitted that the parties have already

reached settlement.

5. Notice under sub-section (1) of Section 8 is to be issued in Form-3 or

Form-4, as prescribed under Rule 5 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016, which reads as follows:-

"5. Demand notice by operational creditor. ─ (1) An

operational creditor shall deliver to the corporate debtor,

the following documents, namely, ─

(a) a demand notice in Form 3; or

(b) a copy of an invoice attached with a notice in

Form 4.

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(2) The demand notice or the copy of the invoice

demanding payment referred to in sub-section (2) of

section 8 of the Code, may be delivered to the corporate

debtor,

(a) at the registered office by hand, registered

post or speed post with acknowledgement due; or

(b) by electronic mail service to a whole time

director or designated partner or key managerial

personnel, if any, of the corporate debtor.

(3) A copy of demand notice or invoice demanding

payment served under this rule by an operational creditor

shall also be filed with an information utility, if any."

6. From the said so-called notice dated 20th April, 2017, we also find that

it has not been issued by the 'Operational Creditor' but by a Law Firm-

'JUSTLAW'.

7. In reply to the said notice, the appellant by its reply dated 18th May,

2017 requested the 'Operational Creditor' to follow the procedures as per

agreement by appointing nominee arbitrator without prejudice to the right of

the appellant.

8. Another notice seems to have been issued in terms of Rule 5 of the

Adjudicating Authority Rules, 2016 dated 7th January, 2017. Though, it has

been issued in the Form-3 but it has not been issued by the 'Operational

Creditor' but by the same Law Firm-'JUSTLAW'.

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9. Similar issue fell for consideration before this Appellate Tribunal in

"M/s. Uttam Galva Steels Limited v. DF Deutsche Forfait AG & Anr.

Company Appeal (AT) (Insolvency) No. 39 of 2017" wherein this Appellate

Tribunal by its judgment dated 28th July, 2017 held as follows: -

"30. From bare perusal of Form-3 and Form-4, read

with sub-rule (1) of Rule 5 and Section 8 of the I&B Code, it

is clear that an Operational Creditor can apply himself or

through a person authorised to act on behalf of

Operational Creditor. The person who is authorised to act

on behalf of Operational Creditor is also required to state

"his position with or in relation to the Operational

Creditor", meaning thereby the person authorised by

Operational Creditor must hold position with or in relation

to the Operational Creditor and only such person can

apply.

31. The demand notice/invoice Demanding Payment

under the I&B Code is required to be issued in Form-3 or

Form - 4. Through the said formats, the 'Corporate

Debtor' is to be informed of particulars of 'Operational

Debt', with a demand of payment, with clear

understanding that the 'Operational Debt' (in default)

required to pay the debt, as claimed, unconditionally

within ten days from the date of receipt of letter failing

which the 'Operational Creditor' will initiate a Corporate

Insolvency Process in respect of 'Corporate Debtor', as 5

apparent from last paragraph no. 6 of notice contained in

Form - 3, and quoted above.

Only if such notice in Form-3 is served, the 'Corporate

Debtor' will understand the serious consequences of non-

payment of 'Operational Debt', otherwise like any normal

pleader notice/Advocate notice, like notice under Section

80 of C.P.C. or for proceeding under Section 433 of the

Companies Act 1956, the 'Corporate Debtor' may decide to

contest the suit/case if filed, distinct Corporate Resolution

Process, where such claim otherwise cannot be contested,

except where there is an existence of dispute, prior to issue

of notice under Section 8.

32. In view of provisions of I&B Code, read with

Rules, as referred to above, we hold that an

'Advocate/Lawyer' or 'Chartered Accountant' or 'Company

Secretary' in absence of any authority of the Board of

Directors, and holding no position with or in relation to the

Operational Creditor cannot issue any notice under Section

8 of the I&B Code, which otherwise is a 'lawyer's notice'

as distinct from notice to be given by operational creditor in

terms of section 8 of the I&B Code."

10. In the present case also the notice has been issued by a Law Firm and

there is nothing on the record to suggest that the said Law Firm has been 6

authorised by the Board of Directors of the 'Operational Creditor'- M/s.

Synergy Property Development Services Pvt. Ltd. There is nothing on the

record to suggest that any Lawyer or Law Firm hold any position with or in

relation with the Respondents-'Operational Creditor'.

11. In view of the aforesaid facts and the decision of this Appellate

Tribunal in " M/s. Uttam Galva Steels Limited v. DF Deutsche Forfait AG

& Anr" we hold that the notice(s) issued by the Law Firm 'JUSTLAW' on

behalf of Respondents-'Operational Creditor' cannot be treated as a notice

under section 8 of the 'I&B Code' and for that the petition under section 9 at

the instance of the Respondents against the appellant was not maintainable.

12. The other question raised is whether there is existence of dispute, if

any, in the present case?

13. From bare perusal of the record, it is clear that on 12th November,

2016, one Mr. Govindan Kutty M on behalf of the Appellant- 'Corporate

Debtor' intimated the Respondent-'Operational Creditor' that the

Respondent discontinued the service and abandoned the work. The relevant

portion of the letter reads as follows:-

"Synergy Property Development Services Pvt. Ltd. Easwaravilasom Road Vazhuthacaud, Trivandrum Kerala - 695 014

Attn.: Mr. Liju Eapen - Associate Director

Dear Mr. Liju Eapen

We refer to the mail from Mr. Govindan Kutty M dated 4 th

November, 2016 with copy to you on discontinuation of PMC 7

services on alleged nonpayment of dues and wish to bring to your

attention to the following aspects:

1.This is the third unilateral discontinuation of the PMC services

by you till date. We feel that such action of you by abandoning

the work and withdrawing the staff without proper notice and

formal handing over of documents is unprofessional and

delaying the project completion resulting in losses to SCK for

which you alone will be responsible. This action of you is

against the true spirit of the engagement.

2. We confirm that all our commitments for payments, those are

due as per conditions of extension letter will be honored and

paid on the due dates. As a gesture of goodwill, an amount of

Rs. 30 lakhs was paid as advance.

3. We also wish to bring to your notice that the documents

especially those related to ongoing works including bills some of

which are kept in the work stations allotted to you in SCK

Pavilion, have not been handed over in an orderly manner with

proper index thereby putting us in difficulty to trace out the

same. We also would like to bring to your notice that keeping of

official documents of SCK in your office outside SCK premises is

detrimental to the contract conditions and you are requested to

take immediate remedial steps.

4. The delays in completion of the project has mainly resulted

from you non adherence to PMC Services Contract conditions

including taking over of certain responsibilities to be performed

by the Lead Architect and Consultant while abandoning your

own responsibilities with respect to design management and 8

coordination of work under your scope. There are many

instances of lack or poor coordination a few of which is pointed

out here.

i) Water cascading - The work was being executed without

coordinated shop drawings approved by the Consultant or any

coordination during work stage.

ii) Sliding doors provided by the Contractor in the reception

lobbies. The installed units do not match with the BOQ or

specification.

Therefore, we request you to take necessary immediate action for

completing your scope of work in an orderly fashion as envisaged

in the contact.

Yours faithfully.

For SmartCity (Kochi) Infrastructure Pvt. Ltd.

Sd/-

Kurian Kurjan Director Projects"

14. Therefore, it is clear that much prior to the so-called notice under

section 8 of the 'I&B Code', a dispute was raised by Appellant-'Corporate

Debtor' regarding non-completion and abandoning of the work.

15. In view of the aforesaid reasons and findings recorded above, we hold

that the impugned order dated 9th June, 2017 is illegal and set aside the

said order passed by Adjudicating Authority, Chennai Bench in CP/484

(IB)/CB/2017.

16. In effect, order (s), if any, passed by Ld. Adjudicating Authority

appointing any 'Interim Resolution Professional' or declaring moratorium,

freezing of account and all other order (s) passed by Adjudicating Authority 9

pursuant to impugned order and action, if any, taken by the 'Interim

Resolution Professional', including the advertisement, if any, published in

the newspaper calling for applications all such orders and actions are

declared illegal and are set aside. The application preferred by Respondent

under Section 9 of the I&B Code, 2016 is dismissed. Learned Adjudicating

Authority will now close the proceeding. The appellant company is released

from all the rigour of law and is allowed to function independently through

its Board of Directors from immediate effect.

17. Learned Adjudicating Authority will fix the fee of 'Interim Resolution

Professional', if appointed and the Respondent will pay the fees of the

Interim Resolution Professional, for the period he has functioned. The

appeal is allowed with aforesaid observation and direction. However, in the

facts and circumstances of the case, there shall be no order as to cost.

(Balvinder Singh) (Justice S.J. Mukhopadhaya) Member (Technical) Chairperson

NEW DELHI

12th October, 2017

AR