Vpr Mining Infrastructure Pvt. Ltd/ vs M/S Gajraj Mining Pvt. Ltd

(Arising out of the Order dated 05.04.2024 passed by the National Company Law Tribunal, Indore Bench, Court No. 1 in CP(IB)/21(MP) 2021)

IN THE MATTER OF:

M/s VPR Mining Private Ltd. 8-2-293/82/A/1259, Laxmi Towers, Road No. 36, Jubilee Hills, Hyderabad - 500033 Telangana ...Appellant

Versus

M/s Gajraj Mining Private Limited Behind Telephone Exchange, Nehru Nagar, Singrauli, Madhya Pradesh- 486889 Email : ajrajmpl@gmail.com ...Respondent

Present

For Appellants: Mr. Shashank Garg, Sr. Advocate, Dr. Swaroop George, Mr. Raghav Bhatia, Ms. Aradhya Chaturvedi & Mr. S. Roy, Advocates.

For Respondent: None.

JUDGEMENT

(23.05.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present Company Appeal (AT) (Ins) No. 1546 of 2024 has been filed

by the Appellant i.e. M/s VPR Mining Private Ltd., who is the Operational Company App. (AT) (Ins.) No. 1546 of 2024

Creditor, under Section 61 of the Insolvency and Bankruptcy Code, 2016

('Code'), challenging the Impugned Order dated 05.04.2024 passed by the

National Company Law Tribunal, Indore Bench ("Adjudicating Authority") in

CP (IB) No. 21(MP)/2021

2. M/s Gajraj Mining Private Ltd, who is the Corporate Debtor, is the

Respondent herein.

3. The Appellant submitted that M/s Northern Coalfield India Ltd. (NCL)

awarded a contract to the Corporate Debtor, M/s Gajraj Mining Private Limited,

on 25.01.2019 for excavation work at Dudhi Chua OCP, valued at Rs.

768,30,82,389.78/-. The Appellant stated that the Respondent subsequently

engaged the Appellant via a Memorandum of Understanding (MoU) dated

10.04.2019 for part of the work, not exceeding Rs. 231,69,32,000/- subject to a

price variation clause. Amendments to the MoU on 12.10.2019 and 07.07.2020

increased the scope of work to Rs. 363,70,66,646/- and Rs. 610,95,23,083/-

respectively.

4. The Appellant submitted that it diligently commenced work, deploying

significant machinery, but faced persistent delays in payment from the

Respondent. Despite repeated communications and a Minutes of Meeting on

16.12.2020, where the Respondent acknowledged dues and committed to timely

payments, including TDS liabilities, no payments were forthcoming.

5. The Appellant submitted that, due to non-payment of Rs. 3,98,02,115/- the

Appellant issued a notice of termination on 10.04.2019 and amendments made

Page 2 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

thereunder on 22.03.2021, invoking clauses 8.1 and 9.1 of the MOU. The

Respondent's response on 08.04.2021 cited temporary financial difficulties but

failed to address the dues. Consequently, on 24.04.2021, the Appellant demanded

Rs. 16,24,83,76/- in unpaid bills and Rs. 3,26,73,990/- in TDS deposits, which

remained unpaid.

6. The Appellant further contended that it issued a demand notice under

Section 8 of the Code on 20.05.2021, to which the Respondent replied on

30.05.2021 (received on 16.06.2021), contesting the debt. Aggrieved, the

Appellant filed a petition under Section 9 of the Code, which was heard on

08.09.2023, with judgment reserved. However, on 30.11.2023, the Adjudicating

Authority took up the matter again and sought clarifications from both the parties

as to whether the Appellants had stopped its work or had withdrawn its machinery

pursuant to the termination. The Respondent unilaterally filed additional

documents without permission and liberty granted by the Adjudicating Authority

to either of the parties. On 22.12.2023, the Adjudicating Authority noted this

irregularity, rejecting one application but inexplicably allowed another one which

was an application for placing of new documents on record. This application was

admitted by the Adjudicating Authority on 01.03.2024, without granting the

Appellant an opportunity to respond, violating principles of natural justice.

7. The Appellant submitted that the Respondent's failure to pay admitted

dues, coupled with procedural irregularities by the Adjudicating Authority,

Page 3 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

warrants to set aside the Impugned Order and allow his petition under Section 9

of the Code.

8. The Appellant submitted that the Adjudicating Authority erred in its order

dated 05.04.2024 by dismissing the Section 9 petition under the Code on the

ground that the debt fell within the Section 10A exclusion period (25.03.2020 to

24.03.2021). The Appellant asserted that the invoices raised under the MoU dated

10.04.2019 with the Respondent were final in nature, payable fortnightly as per

clause 5, which mandated 100% payment upon receipt from M/s Northern

Coalfield India Ltd. (NCL). The MoU contained no provision for running account

bills or interim payments, rendering each bill final upon issuance. The

Respondent's admission of liability for dues exceeding Rs. 1 crore, including

TDS deductions of Rs. 1,47,85,166/- for the financial year 2019-20, in the

Minutes of Meeting dated 16.12.2020, established defaults prior to 25.03.2020,

well outside the Section 10A period, as per the explanation to Section 10A.

9. The Appellant contended that the Adjudicating Authority's reliance on

clause 10.2 of the MoU, which references potential recovery of losses or damages,

is misplaced and does not alter the nature or due date of the debt. The Appellant

explained that no claim for damages was raised by the Respondent prior to the

issuance of the demand notice under Section 8 of the Code on 20.05.2021, and

the belated dispute raised in its reply dated 30.05.2021 (received on 16.06.2021,

beyond the 10-day statutory period) cannot be construed as a pre-existing dispute.

The Appellant submitted that the Minutes of Meeting dated 16.12.2020

Page 4 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

unequivocally record the Respondent's admission of liability and commitment to

clear dues, including Rs. 3,23,73,595/- in pending bills and Rs. 1,47,85,166/- in

TDS, reinforcing that the default occurred on the invoice due dates, unaffected by

unclaimed or hypothetical damages.

10. The Appellant submitted that the Adjudicating Authority's finding that the

outstanding amount of Rs. 9.25 crores relate solely to the last two invoices dated

05.03.2021 and 19.03.2021, thus falling within the Section 10A period, is

factually and legally incorrect. The Appellant elaborated that the debt comprises

invoices raised from 09.07.2019, with significant defaults, including unpaid TDS

and bill amounts exceeding Rs. 1 crore, occurring prior to 25.03.2020 and the

Respondent never asserted that pre-10A dues were cleared, and part payments

acknowledged in the 16.12.2020 Minutes, coupled with invoice abstracts, confirm

the continuity of unpaid dues from 2019. It is the case of the Appellant that the

Adjudicating Authority's failure to examine the timeline of each component of

the debt, particularly the TDS dues, which were statutorily payable by the 7 th of

the following month, led to an erroneous conclusion that the entire debt fell within

the Section 10A period.

11. The Appellant contended that the TDS dues alone, amounting to over Rs.

1 crore for the period prior to 25.03.2020, constitute an undisputed operational

debt sufficient to trigger insolvency proceedings under Section 9, as TDS is a

statutory obligation deducted from payments made to the Appellant and

mandatorily payable to the government by the 7 th of the subsequent month, its

Page 5 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

non-deposit by the Respondent constitutes a clear default. The Minutes of

Meeting dated 16.12.2020 record the Respondent's agreement to clear Rs.

1,47,85,166 in TDS by 31.01.2021, yet no payments were made, establishing a

default well before the Section 10A period.

12. The Appellant submitted that the Adjudicating Authority committed a

grave procedural irregularity by allowing the Respondent to file additional

documents on 01.03.2024, without leave, after the matter was reserved for

judgment on 08.09.2023. the appellant stated that on 30.11.2023, the Authority

sought clarifications on whether the Appellant had stopped work or withdrawn

machinery post-termination, but no liberty was granted to file documents. The

Appellants finally submitted that the Respondent's suo motu filing of documents,

including a purported hindrance report, was noted as irregular on 22.12.2023,

with one application (for balance sheet) rejected, yet another application was

inexplicably allowed despite identical circumstances. The Appellant pleaded that

the Respondent failed to demonstrate the relevance of these documents or justify

the delay in filing, violating established principles for admitting additional

evidence post-reservation. The Appellant alleged that he was denied an

opportunity to respond, constituting a flagrant violation of natural justice and

vitiating the impugned order.

13. The Appellant contended that the Respondent's defences, including Covid-

19-related financial difficulties and alleged damages, are mala fide afterthoughts

raised post-Section 8 notice to evade liability. The Corporate Debtor's letter dated

Page 6 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

08.04.2021, responding to the termination notice of 22.03.2021, admitted

financial constraints due to the demise of its promoter and operational issues with

bankers but did not dispute the debt or raise Covid-19 as a defence. Similarly, no

dispute was recorded in communications from January 2021 until the demand

notice, and the 16.12.2020 Minutes confirm the debt's undisputed nature. The

Appellant emphasized that the Respondent's reliance on a 21.03.2021 letter,

allegedly issued on a Sunday and responded to by NCL on the same day, is

dubious and irrelevant, as it pertains to operational stoppage for lack of

explosives, not termination or debt disputes. The Appellant submitted that such

belated defences fail to meet the Code's requirement of a pre-existing dispute

under Section 8(2).

14. The Appellant submitted that the termination notice dated 22.03.2021,

issued under clauses 8 and 9 of the MoU, was a direct consequence of the

Respondent's persistent default in paying dues, including Rs. 3,98,02,115/- as

demanded. The notice complied with the 30-day requirement, and upon the

Respondent's failure to remedy the default, the MoU stood terminated on

21.04.2021. The Appellant withdrew its equipment and demanded Rs.

16,24,83,761/- in unpaid bills and Rs. 3,26,73,990/- in undeposited TDS, as

recorded in the letter dated 24.04.2021. It was submitted that the Respondent's

attempt to equate operational stoppage with termination is baseless, as clause 6.5

of the Second Amendment explicitly includes non-payment of TDS and bill

amounts as part of the debt, further affirmed by the 16.12.2020 Minutes.

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Company App. (AT) (Ins.) No. 1546 of 2024

15. The Appellant contended that the debt of Rs. 22,44,15,010/- comprising a

principal sum of Rs. 19,51,57,798 plus 24% simple interest as on 17.05.2021, is

admitted and undisputed, as evidenced by the 16.12.2020 Minutes, invoice

abstracts, and part payments made by the Respondent. The Appellant reiterated

that the demand notice under Section 8, issued on 20.05.2021, was not responded

to within the statutory 10-day period, and the Respondent's delayed reply on

30.05.2021 (received on 16.06.2021) lacks merit, in the absence of any pre-

existing dispute, coupled with the Respondent's admission of liability, mandates

the admission of the Section 9 petition. The Appellant further reiterated that the

Respondent's claim that the petition is barred by Section 10A is untenable, as the

first 18 invoices, valued over Rs. 1 crore, predate 25.03.2020, as admitted during

hearings.

16. Concluding his arguments, the Appellant requested this Appellate Tribunal

to set aside the Impugned Order and allow its appeal.

17. We note that initially the Respondent attended the hearings, and filed the

Reply to the appeal. However, subsequently the Respondent failed to appear. We

note that on 14.02.2025, the counsel for the Respondent brought to our notice that

she has not received any instructions from the Respondent and as such this

Appellate Tribunal issued fresh notice to the Respondent. The Respondent,

however, failed to appear directly or through the counsel and therefore this

Appellate Tribunal vide its order dated 21.04.2025, decided to proceed ex-parte.

The order dated 21.04.2025 reads as under: -

Page 8 of 42

Company App. (AT) (Ins.) No. 1546 of 2024

Page 9 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

18. Hence, we have taken response of the Respondent from the reply filed vide

Diary No. 54812, dated 14.10.2024, and note that per contra, the Respondent

denied all averments made by the Appellant as misleading and baseless.

19. The Respondent submitted that the appeal filed by Appellant lacks merit

and is barred by limitation, warranting dismissal at the threshold, as the

Adjudicating Authority rightly rejected the Appellant's Section 9 application

under the Code, due to a pre-existing dispute and applicability of Section 10A of

the Code.

20. The Respondent submitted that the 2nd Amendment to the MoU dated

20.06.2019, was executed on 07.07.2020, which clearly indicates that up to

07.07.2020, there were no disputes between the parties, and the Appellant

company had not raise any grievances regarding payments made or due. The

Respondent replied that it is only after 07.07.2020, that any alleged dispute

appears to have arisen, specifically during the period covered by Section 10A of

the Code. The Respondent replied that the dispute was triggered following the

unfortunate demise of the Respondent company's Managing Director due to

Covid-19 on 07.08.2020, and the subsequent non-availability of explosives from

Page 10 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

Northern Coalfields Limited (NCL), which adversely affected the mining

operations. In its reply, the Respondent alleged that the Appellant decided to

unilaterally abandon the contract and, in an attempt to extricate itself, raised a

frivolous issue regarding non-payment of certain invoices that were issued during

the Section 10A period.

21. The Respondent submitted in his reply that it is an undisputed fact that, as

per the terms of the MoU, payments to the Appellant company were to be made

by the Respondent company on a fortnightly basis, expressly subject to the

Respondent's receipt of corresponding payments from NCL and it was agreed

that 100% of the amount due to the Appellant would be paid immediately upon

the Respondent receiving such payment from NCL, which clearly establishes that

the Respondent's obligation to pay the Appellant was contingent upon and

directly linked to the receipt of funds from NCL.

22. The Respondent in his reply submitted that it is undisputed by the

Appellant company, by executing the 2nd Amendment to the contract on

07.07.2020, expressly enhanced its responsibilities and agreed to an escrow

arrangement with a bank, whereby 100% of the amounts received from NCL

would be credited directly into the escrow account, with no rights accruing to the

Respondent, its bankers, lenders, or statutory authorities over such funds. Under

this amendment, the Respondent was only entitled to a commission/management

fee of Rs.4 per BCM, and the retention money was to be released directly to the

Appellant against submission of a bank guarantee, with the Respondent having

Page 11 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

no claim over it. The Respondent in his reply explained that except for the

modifications introduced by the 2nd Amendment, all other terms and conditions

of the original MoU dated 10.04.2019, remained in full force and effect.

23. The Respondent in his reply also submitted that both the original MoU

dated 10.04.2019 and the 1st amendment dated 12.10.2019 were executed prior to

the onset of the pandemic, while the 2nd amendment was executed during the

pandemic on 07.07.2020 and unfortunately the Managing Director of the

Respondent company, who was solely responsible for managing its day-to-day

affairs, passed away due to Covid-19 on 07.08.2020, resulting in a temporary

disruption of the company's operations.

24. The Respondent in his reply submitted that the Appellant company, with

mala fide intentions to evade its expanded obligations under the MoU dated

10.04.2019 and its subsequent amendments, misused the Respondent's letterhead

to send a letter to Northern Coalfields Limited (NCL), falsely informing NCL that

the Respondent company was ceasing operations immediately. This letter was

issued without the knowledge or consent of the Respondent company and was

signed by Mr. Gopinath Rao, a representative of the Appellant, rather than by any

authorized director of the Respondent and such unauthorized use of the

Respondent's letterhead was deliberately done to cause financial harm to the

Respondent by damaging its crucial relationship with NCL.

25. The Respondent in his reply further submitted that, upon receiving the

letter dated 21.03.2021-improperly sent by the Appellant using the Respondent's

Page 12 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

letterhead-Northern Coalfields Limited (NCL) immediately objected, stating that

the letter was highly improper, unjustified, and undesirable. NCL clarified that

the project was unable to provide the required amount of explosives due to the

ongoing crisis caused by Covid-19, as supplies were being allocated based on

government directives. NCL strongly advised reconsideration of the decision to

halt operations and urged that work resume without delay. The Respondent in his

reply stated that the Hindrance Report for March 2021, maintained by NCL,

clearly records that the Appellant had already completely stopped work and

withdrawn equipment as of 19.03.2021.

26. The Respondent submitted that it was duly recorded by Northern Coalfields

Limited (NCL) that the Appellant company, on its own accord, ceased operations

on the project and removed equipment on 21.03.2021, in gross violation of the

terms of the Works Contract awarded by NCL. The Respondent assailed this

unilateral action by the Appellant which was evidently intended to cause financial

loss to the Respondent and led to a clear dispute between the parties on account

of the Appellant's breach of both the contractual terms and NCL's conditions.

The Respondent in his reply alleged that the Appellant addressed a letter dated

22.03.2021 to Smt. Nuzhat Zaidi and Shri Kabir Iram Zaidi, notifying them of its

decision to terminate the MoU dated 10.04.2019 and its subsequent amendments,

thereby attempting to evade its contractual responsibilities.

27. The Respondent submitted that, through its letter dated 22.03.2021, the

Appellant company once again acted in bad faith by attempting to justify its

Page 13 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

unlawful stoppage and termination of the project, stating that, due to outstanding

dues, it was providing a 30-day notice for automatic termination of the

agreements. However, the factual position remains that the Appellant had already

ceased operations and removed equipment from the site on or before 21.03.2021,

as evident from the correspondence exchanged with NCL on that date.

28. The Respondent in his reply submitted that the Appellant's abrupt work

stoppage, without adhering to the MoU's 30-day notice requirement for default

remedy and termination, caused significant financial loss to the Respondent,

including a penalty of Rs. 1,39,32,302.25 imposed by NCL and payments of Rs.

75,04,994 and Rs. 18,12,570 towards workers' wages and EPF, respectively,

which were the Appellant's obligations. These actions led to the Respondent

initiating arbitration on 07.09.2021, claiming Rs. 38,61,78,852.60 in losses,

further evidencing the dispute.

29. The Respondent submitted that the alleged outstanding invoices of Rs.

13,71,02,646, primarily from 5th and 19th March 2021, fall within the Section 10A

period (prohibiting insolvency proceedings for defaults during Covid-19),

rendering the Appellant's claim untenable. The claimed TDS amount of Rs.

3,26,73,990 is payable to the Income Tax Department, not the Appellant, and thus

does not constitute a default under the Code.

30. The Respondent submitted that the Appellant's reliance on the minutes of

the 16.12.2020 meeting is misplaced, as it was a personal, not official, meeting

with no admission of debt by Mr. Kabir Zaidi. The Statutory Notice of Demand

Page 14 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

dated 20.05.2021 was addressed to individuals, not the Respondent, and was duly

replied to on 30.05.2021 within the 10-day period, disputing the claim on merits.

31. The Respondent submitted that the Appellant suppressed critical

documents, including the 21.03.2021 stoppage notice and NCL's objection letter,

to mislead the Adjudicating Authority and this Appellate Tribunal. The

Respondent's interlocutory applications (IA No. 1 and 36 of 2024) were filed with

due opportunity for the Appellant to respond, and the Adjudicating Authority's

order dated 01.03.2024, allowing IA No. 1, was procedurally fair.

32. The Respondent submitted that the Appellant's claim of Rs. 19,51,57,798

is a minor sum compared to the contract value of Rs. 610,95,23,083, typical in

running projects, and was exacerbated by the Covid-19 force majeure and the

Respondent's operational challenges post the Managing Director's death. The

Appellant's mala fide intent to evade contractual obligations is evident from its

premature equipment withdrawal and false non-payment claims.

33. Concluding in reply, the Respondent requested this Appellate Tribunal

dismiss the appeal with cost.

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Company App. (AT) (Ins.) No. 1546 of 2024

Findings

34. We note that an application was filed by the Appellant Company, namely,

M/s VPR Mining Infrastructure Pvt. Ltd. under Section 9 of the Code for initiating

the CIRP against the Respondent Company i.e. M/s. Gajraj Mining Pvt. Ltd. for

having allegedly defaulted to make a payment of their outstanding dues

amounting to Rs. 22,44,15,010/- including simple interest @24%. However, the

Adjudicating Authority has rejected the petition of the Appellant on the ground

of the 10A period being applicable as well as pre-existing disputes.

35. Thus, we need to decide the following two issues: -

Issue No. (I) Whether, the application filed by the Appellant under Section 9 of

the Code before the Adjudicating Authority was hit by Section 10A of the Code

or not.

Issue No. (II) Whether, any pre-existing dispute existed between the Appellant

and the Respondent.

36. Issue No. (I) Whether, the application filed by the Appellant under Section

9 of the Code before the Adjudicating Authority was hit by Section 10A of the

Code or not.

(i) At this stage, we will look into important provisions of the MoU dated

10.04.2019, followed by amendment of MoU vide dated 12.10.2019 and

dated 07.07.2020.

Page 16 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

Clause 5

Clause 6

Page 17 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

Clause 8

Clause 9

Page 18 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

Clause 10

(ii) From above, it is noted that the MoU was singed between the M/s Gajraj

Mining Private Ltd (Respondent herein) who signed MoU as First Party and M/s

VPR Mining Private Ltd. (the Appellant herein) who has signed MoU as Second

Party on 10.04.2019.

(iii) During hearing, we put a specific question to the Appellant that whether

there has any separate contract had been signed, to which the Appellant has

replied that the MoU is only agreement between them and based on which the

Appellant as Second Party or as sub contractor to the Respondent carried out the

work.

(iv) From Clause 5.1, it is seen that the payment in respect of work completed

by the Second Party i.e., the Appellant herein was to be made by the Respondent

once in a fortnight at the end of each fortnight subject to condition that same

Page 19 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

having being received by the Respondent from the Northern Coalfields Limited /

owner.

(v) Similarly, from Clause 5.2 it can be inferred that bill raised by the

Appellant were to be in accordance with the actual work done vis-à-vis the

amount recorded in the MB (although not defined in MoU, however it is presumed

that MB stands for Measurement Book).

(vi) Typically speaking, MB is used in engineering and construction projects to

record the measurements i.e., quantities of work done or material used. Thus, MB

is record of measurements taken on site and is basis for preparing the bills and

making payment to the contractor/ sub-contractor. MB is normally used for

"running bills" in the sense that it record the progress of work and the

corresponding quantities / work that need to be paid periodically (running account

bills) which is in contrast to the concept of "fixed bills". Thus, the MB is used

for measuring work progress and generating running bills based on measured

quantities.

(vii) We have already noted in Clause 5.1, wherein it has been stated that the

Appellant's bills are to paid once in a fortnight based on work undertaken by the

Appellant and the bill raised. When we further look into Clause 5.3 of the above

MoU, it is noted that the total cost/ consideration for execution of the work,

covered under the MoU has been fixed and pre-determined which was originally

Rs. 231,69,32,000/- excluding applicable taxes and subject to price variation.

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Company App. (AT) (Ins.) No. 1546 of 2024

(viii) From these clauses of MoU, it can be inferred that the contract of the work

was at a pre-determined price and the bill raised every month based on the work

executed by the Appellant were in nature of the running bills.

(ix) We also note that the Clause 8 defines termination of contract which is

subject to Clause 9 i.e., event of default. The event of default on part of the

Respondent was on the failure to pay the bills or in other amount as required under

the MoU to the Appellant whereas the event of default w.r.t. the Appellant was

failure to execute the work in accordance with the specific requirements of

Northern Coalfields Limited / owner, as determined in Clause 2.2 of the MoU.

Sub-Clause (b) of Clause 9.2 indicate that insufficient deployment of equipment

would also tantamount to breach on the part of the Appellant. Similarly, sub-

Clause (c) of Clause 9.2 further stipulates that in case the Appellant fails to

provide required manpower but maintenance as per the requirement of the

Respondent the same will also be treated as breach on the part of the Appellant.

Sub-Clause (f) of Clause 9.2 finally indicate that if the Appellant breaches the

terms of the agreement, the same is to be treated as an event of default.

(x) The remedies have been provided in Clause 10 of the MoU. It has been

significant to note that in Clause 10.2 the words "running bills" have been

specifically mentioned, which clearly indicate that the MoU envisaged the

concept of "running bills".

(xi) Now, we will come back to issue of 10A which is fulcrum in the present

appeal. It is the case of the Appellant that he raised 42 invoices starting with

Page 21 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

invoices dated 05.07.2015 to last invoice dated 19.03.2021. The list of 42

invoices reads as under :-

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Company App. (AT) (Ins.) No. 1546 of 2024

(xii) From above, we note that the first 18 invoices were prior to 10A period i.e.,

before 25.03.2020 and invoice from Serial No. 19 to Serial No. 42 are within the

restricted period of 10 A of the Code i.e., from 25.03.2020 to 25.03.2021.

(xiii) It is the case of the Appellant that 18 invoices pertains prior to 10A period

and since these were invoices wise payment i.e., fixed bill payments and not

running bills, the total outstanding at the end of the day was Rs. 9,25,51,048/-In

view of the Appellant, the Impugned Order has been incorrectly passed against

the Appellant holding that Section 7 application is hit by 10A period. On the other

hand, we note that the Adjudicating Authority has held that these bills were

"running bills", therefore, the outstanding amounts pertained to period falling in

restricted period covered under Section 10A of the Code.

Page 23 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

(xiv) Therefore, a crucial aspect here involves correctly identifying the nature of

the debt owed, particularly whether it arises from running bills or fixed invoice-

based bills, as this classification can influence the determination of default for

initiating CIRP. Section 3(12) of the Code defines 'default' as the "non-payment

of debt when whole or any part or instalment of the amount of debt has become

due and payable and is not repaid". This definition is pivotal when considering

scenarios involving partial payments against the bills raised, paid and remaining

outstanding amount. We need to differentiate between running bills and fixed

invoice-based bills in the context of initiating CIRP for outstanding payments,

while considering the temporal limitations imposed by Section 10A of the Code.

(xv) We have already noted that running bills are a common invoicing method

employed in long-term projects, particularly within the construction and

engineering sectors, where work is executed over an extended period. These

invoices are typically submitted periodically, often monthly, and claim payment

for the work completed up to a specific point in time. The amount claimed in a

running bill is usually based on the percentage of physical work completed or the

achievement of pre-defined milestones within a specific billing cycle, which helps

to ensures a regular influx of funds for the contractor, facilitating the ongoing

execution of the project, and allows the Corporate Debtor or the owner of the

project to track progress and manage payments accordingly. The MB is typically

jointly verified and signed by representatives of both the Corporate Debtor/ owner

and the contractor, adding to its authenticity and reliability. Following the

Page 24 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

recording of measurements in the MB, the contractor submits a Running Account

Bill (RA Bill), which is a regular invoice detailing the work performed up to a

specific date, directly referencing the measurements documented in the MB. RA

Bills typically provide a comprehensive breakdown of the completed work,

including measurements of various items, their corresponding unit rates and

prices, the percentage of work completed during the billing period, any variations

in the initially estimated quantities, and details of retentions and deductions. Part

payment against a running bill would generally reduce the outstanding amount

pertaining to the specific work certified and recorded in the MB and claimed in

the RA Bill up to that particular billing cycle.

(xvi) In contrast to running bills, fixed invoice-based bills involve a pre-

determined price agreed upon between the contractor and the Corporate Debtor/

owner for a specific project or a defined set of deliverables, often established

before the work commences and includes examples like lump sum contracts

where a single, fixed price covers the entire project , milestone-based payments

where invoices are raised and payments are made upon the successful completion

of pre-defined stages or milestones in the project , and recurring billing where a

fixed amount is invoiced at regular intervals, such as monthly or quarterly,

irrespective of the actual amount of work performed during that period. These

types of bills typically outline defined deliverables and a clear scope of work,

ensuring both parties have a mutual understanding of the obligations and the

Page 25 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

expected outcomes. Invoicing under a fixed price arrangement is usually tied to

the achievement of agreed-upon milestones or the final completion of the project.

(xvii) Debts arising from both running bills and fixed invoice-based bills will fall

under the definition of operational debt as per Section 5(21) of the Code, which

defines operational debt as "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". Section 3(11) of the Code provides

a broader definition of 'debt' as "a liability or obligation in respect of a claim

which is due from any person and includes a financial debt and operational debt".

This encompasses the financial obligations arising from the provision of goods or

services, regardless of whether they are documented through running bills or fixed

invoices. The concept of 'default' under the Code, as defined in Section 3(12), is

crucial when considering part payments as the definition explicitly includes the

non-payment of any part of a due debt, implying that even after a partial payment,

a default exists for the remaining outstanding amount. Therefore, a part payment

does not necessarily negate the occurrence of a default; it merely reduces the

quantum of the debt that remains unpaid. Thus, even if a part payment has been

made, CIRP can still be initiated if the remaining unpaid amount meets or exceeds

the threshold of Rs. 1 Crore.

(xviii) Section 10A of the Code introduced a suspension on the initiation of CIRP

under Sections 7, 9, and 10 for any default arising on or after March 25, 2020,

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and before March 25, 2021. This bar on initiating CIRP for defaults within this

specified period is absolute. For both running bills and fixed invoices, if the date

of default for the non-payment of the whole or any part of the bill (after

accounting for any part payment) falls within the Section 10A period, then CIRP

cannot be initiated for that particular instance of default. However, if the date of

default for a running bill or a fixed invoice occurred before March 25, 2020, and

the default continued into or after the Section 10A period, the bar under Section

10A does not apply. Therefore, when considering initiating CIRP for part

payment defaults related to running bills or fixed invoices, it is crucial to

accurately determine the date of default for the unpaid amount. If this date falls

within the Section 10A moratorium, CIRP is barred for that specific default.

However, defaults originating before this period and continuing thereafter are not

protected by Section 10A.

(xix) We observe that in Ramesh Kymal v. Siemens Gamesa Renewable Power

Pvt. Ltd., [(2021) 3 SCC 224] the Hon'ble Supreme Court of India unequivocally

clarified that Section 10A imposes an absolute bar on initiating CIRP for defaults

occurring during the period from March 25, 2020, to March 24, 2021.

(xx) In this connection, we would like to look into the reasoning on the aspect

of Section 10A of the Code used by the Adjudicating Authority as contained in

the Impugned Order. The relevant portion of the Impugned Order reads as under:- Page 27 of 42

Company App. (AT) (Ins.) No. 1546 of 2024

"9.1 It is noted that the net outstanding amount as on any day ranged from Rs 55.32 lakhs to Rs 9.50 crores only whereas during the period the total amount payable as per the various bills/invoices amounted to Rs. 292.21 crores and as against that the Respondent Company had paid an amount to the extent of Rs. 278.39 crores. Thus, the outstanding, if any, as on a particular day during the entire period of 09.07.2019 to 19.03.2021, which ranged between Rs 55.32 lakhs to Rs 9.5 crores only, was not as high when compared to the total amount of Rs 278.39 crores paid by the Respondent Company. Furthermore, keeping in view the nature of contract, the invoices are to be considered as running tails only and as such the payments made by the Respondent Company is to be adjusted against the outstanding dues as per the running account. However, it has been stated on behalf of the Applicant Company that these were not running bills and rather as per the terms of the MoU each bills were to be settled by the Respondent Company at 100 % separately.

9.2 But, in the context, on perusal of Clause 10.2 of the MoU dated 10.04.2019, we find that the invoices raised were running bills only (refer para 5.1 above.) For ready reference the content of clause 10.2 of the MoU is reiterated herein as under:

"10.2 In case of Second Party's Event of Default under this Agreement, the First Party, shall have the right to exercise any one or more of the following remedies".

Page 28 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

(a) To recover the losses, costs, expenses & damages (Direct or Indirect) from the running bills of the Second Party and/or recover the said amount from the Second Party directly.

(b) To sue for recovery of the damages."

Here the Respondent Company is referred to as First Party and the Applicant Company is referred to as Second Party. In this clause there is a reference for recovery of losses/ damages incurred to the First Party from the running bills of the Second Party. Thus, the plea taken by the Applicant Company that its invoices cannot be considered as running bills is quite misplaced. The above-mentioned clause of the MoU also supports the view that the bills under reference have to be treated as running bills, and thus the outstanding amount as on any day has to be first adjusted as against the regular payments made immediately after that day. That way the total payment of Rs 278.39 crores was to be adjusted against the various bills and if that is done then the outstanding, amount of Rs 9.25 crores will have to be co- related to the last two invoices dated 05.03.2021 & 19.03.2021.

Only this inference can be derived in another way also.

From Annexure 2 of the demand notice (refer to para 3 above), it can be noted that the last two invoices are dated 05.03.2021 & 19.03.2021. The payable amount as per these invoices amounted to Rs 6.98 crores & Rs 7.81 crores respectively totalling to Rs 14.79 cores as against these invoices the payments made by the Respondent Company

Page 29 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

amounted to Rs 6.75 crores & 7.56 crores totalling to Rs 14.31 cores. As already mentioned the balance outstanding as at the end of the period amounted to Rs 9.25 crores only which is less than the total invoices value as per the last two bills dated 05.03.2021 & 19.03.2021, thus it has to be inferred that this balance outstanding is to be correlated to the last two bills only and that way the default date falls within 10A period. In view thereof, the application is not maintainable at all and on that ground, itself deserved to be rejected.

It is to be noted that the liability for depositing the TDS in the Government account is of the Respondent Company only, but in terms of the said MoU and amendments made thereto, if the Respondent Company is made liable to pay that amount also to the Applicant Company (on failing to pay within due dates as per the Income Tax Act), then that amount would also fall within the period of 10A and as such on that account also the application filed by the Applicant Company does not succeed.

Even otherwise, if we consider the admitted amount as per the minutes dated 16.12.2020 (for clearing pending bill amounting to Rs 3.23 crores and depositing the TDS of Rs 1.47 crores) and also the outstanding dues as on 22.03.2021 for an amount of Rs 16.24 crores, and the TDS to the tune of Rs 3.98 crores, as stated by the Applicant Company, in default then also such default would lie within the 10A period and as such the application would not be

Page 30 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

maintainable and on that ground itself the application deserves to be rejected."

(Emphasis Supplied)

(xxi) From above, it is noted that the Adjudicating Authority was of the view

that all these invoices were in nature of "running bills". Based on this conviction

of "running bills", the Impugned Order has recorded that total amount payable at

the bills/ invoices was amounting to Rs. 292.21 Crores against which the

Respondent has paid amount of Rs. 278.39 Crores. Thus, there was a balance

outstanding of Rs. 9.25 Crores payable to the Appellant. The Adjudicating

Authority had further relied upon the amount of Rs. 9.25 Crores pertains to the

last two bills which was falling in restricted under Section 10A period of the Code.

(xxii) We do not find any fault in the reasoning of the Adjudicating Authority.

We have already noted that in the MoU, which is the only document between the

Appellant and the Respondent, the Clause regarding 'MB' and "running bills"

have been clearly used, indicating that the intention of the parties was to make

payment against running bills and once the concept of "running bills" is accepted

then one has to take into consideration total amount payable, which is Rs. 292.21

Crores and the amount paid which is Rs. 278.39 Crores. Thus, the net outstanding

payment was Rs. 9.25 Crores (approx.) which is covered by the last two invoices

itself as correctly pointed out by the Adjudicating Authority. On this account, we

find that the default amount claimed by the Appellant falls within 10A period.

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(xxiii) Further, we note that in Part IV of the Section 7 application the Appellant

has claimed Rs. 19,51,57,798/-. The break of the same is Rs. 16,24,83,809/-

towards work done payment plus Rs. 3,26,73,990/- towards TDS deducted from

work bills and not deposited. It has been indicated in Part IV that detailed

calculation is as per the enclosure to demand notice. We find demand notice

which reads as under :-

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Company App. (AT) (Ins.) No. 1546 of 2024

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Page 36 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

(xxiv) Thus, although some calculation sheet has been made which includes bill

amount pending security deposit, diesel tanker supplied, etc., however exact

details of calculation of entire amount claimed thereof, seems not to have been

attached or even furnished at this appeal stage and as such, we cannot go into

details of these figures. The only sheet, which is clear and concise is the list of

42 invoices which we already discussed and the Impugned Order also recorded

the same.

(xxv) On 21.04.2025, during the course of hearing, counsel for the appellant has

argued that original MoU dated 10.04.2019 was amended on 07.07.2020 in which

Clause 5.7 was added pertaining to the escrow account but the escrow account

was never operationalized. In this regard the appellant was also directed to file an

affidavit vide our order dated 21.04.2025.

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Company App. (AT) (Ins.) No. 1546 of 2024

(xxvi) However, we note that no such affidavit has been filed by the Appellant.

We also observe that the Written Submissions was filed by the Appellant on

30.04.2025 but without filing the affidavit. As such, we are no in a position to

accept the submission made by the Appellant on this account.

(xxvii) Now , we will examine the aspect of alleged non-payment of TDS

by the Respondent amounting to operational debts, which were not paid by

Corporate Debtor to the government resulting into default for Section 7

application. It is the case of the Appellant that non payment of TDS will

tantamount to default by the Corporate Debtor i.e., Respondent herein towards

the Operational Creditor i.e., the Appellant herein. We appreciate that when

corporate debtor makes specific payments, it is obligated to deduct a certain

percentage of the gross amount as tax and remit this deducted amount to the

government. This deducted amount is essentially held by the corporate debtor on

behalf of the government and represents a prepayment of the income tax liability

of the recipient of the payment. Failure on the part of the corporate debtor to either

deduct the TDS or to deposit the deducted amount with the government attracts

penalties and interest charges as per the provisions of the Income Tax Act. The

amount of TDS deducted by the corporate debtor is reflected in the Form 26AS

of the recipient of the income, allowing them to claim credit for this amount

against their total income tax liability when filing their tax returns.

The primary obligation for the non-payment of TDS rests with the corporate

debtor in relation to the Income Tax Department, rather than directly towards the

Page 38 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

operational creditor. The operational creditor's fundamental concern is typically

the receipt of the full payment due for the goods or services they have provided,.

(xxviii) Thus, we also need to examine whether the non-payment of TDS by

the Corporate Debtor/ Respondent can constitute a valid ground for the Appellant

as an operational creditor to initiate the CIRP under the Code. Understanding the

interplay between the Code provisions regarding operational debt and the

obligations imposed by the Income Tax Act, 1961 concerning TDS is crucial in

determining the viability of such an action. The provisins under the Code indicate

that a tax-related default by the Corporate Debtor towards the government, even

if originating from a transaction involving an operational creditor, might not

automatically fall under the purview of operational debt in a manner that allows

the latter to trigger CIRP. We note that Section 5(21) of the Code defines

"operational debt" as "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". An "operational creditor," as defined

under Section 5(20) of the Code, is any person to whom an operational debt is

owed, which also includes individuals to whom such a debt has been legally

assigned or transferred. Generally, statutory dues such as income tax, sales tax,

and Value Added Tax are considered operational debts owed to the respective

government authorities. The fundamental characteristic of an operational debt is

Page 39 of 42 Company App. (AT) (Ins.) No. 1546 of 2024

that it arises from a transaction related to the operations of the corporate debtor,

typically involving the supply of goods or services.

(xxix) Thus, we need to clearly understand that while TDS is a statutory due, the

operational creditor's primary claim against the corporate debtor usually pertains

to the payment for goods or services they have provided. The non-remittance of

TDS by the corporate debtor, while a legal obligation, is principally a matter

between the corporate debtor and the tax authorities. The Code framework for

operational debt recovery is primarily designed to address defaults in payments

for operational transactions. The failure of a corporate debtor to pay the TDS

amount does not constitute a sufficient reason for admitting an application under

Section 9 of the Code, which pertains to the initiation of CIRP by an operational

creditor.

(xxx) Thus, we hold that the Appellant, as an operational creditor, cannot initiate

the CIRP against a Corporate Debtor only on the ground of non-payment of TDS

by the Respondent as Corporate Debtor. The Income Tax Act, 1961, provides

specific legal avenues and remedies to address instances of non-deduction or non-

remittance of TDS, and these are the mechanisms that the relevant tax authorities

are expected to pursue. While statutory dues in general can be classified as

operational debt under the Code, the failure of a corporate debtor to remit TDS,

which is essentially tax collected on behalf of the government from payments

made to others, is not considered a debt owed to the Appellant as an operational

creditor in a manner that would entitle him to initiate CIRP under the Code. The

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Code is primarily focused on resolving insolvency related to defaults in payments

arising from operational or financial relationships between the corporate debtor

and its creditors. Therefore, matters concerning non-compliance with tax laws,

such as the non-payment of TDS, fall under the purview of the Income Tax Act

and its enforcement mechanisms.

37. In view of above detailed examination of facts and law, we do not find any

merit in the contention of the Appellant on the applicability of 10 A period in

Section 9 application. We hold that the outstanding bills of Rs. 9.25 Crores

(approx.) fell in 10A restricted period and thus the Appellant could not have

initiated Section 9 application against the Respondent. We concur with the finding

of the Adjudicating Authority on this issue and do not find any fault in the

Impugned Order on this ground.

38. Issue No. (II) Whether, any pre-existing dispute existed between the

Appellant and the Respondent.

Since, the application is directly hit by the 10 A restricted period as

provided in the Code, as such, it is not maintainable. In view of this, we do not

intent to go into the issue of pre-existing dispute which has been elaborated in the

Impugned Order.

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Company App. (AT) (Ins.) No. 1546 of 2024

39. In fine, we do not find any error in the Impugned Order. The Appeal

devoid of any merit stand rejected. No cost. I.A., if any, are closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim

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