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Judgment
1 The instant application has been filed under the provisions of Section 9 of Insolvency and Bankruptcy Code, 2016 (""IBC, 2016"") read with Rule 6 of
the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP)
against State Trading Corporation of India Limited (for brevity 'Corporate Debtor), by Gandhar Oil Refinery India Limited (for brevity Operational
Creditor).
The registered office of the applicant/ Operational Creditor is at DLH Park, 18th Floor, S. V. Road, Goregaon (West), Mumbai 400062. The
registered office of the Respondent/ Corporate Debtor company is situated at Jawahar Vyapar Bhawan, Tolstoy Marg, New Delhi- 110001 which is
situated within the territorial jurisdiction of this Tribunal, hence this Tribunal has jurisdiction to entertain and try this application.
Mr. Abhishek Baragra, Manager - Legal of the company is authorized by the applicant company / Operational Creditor vide authority letter and
board resolution dated 16.10.2017 to file this Company Application.
The facts which are material to the controversy raised may first be noticed. Bharat Oman Refineries Limited (BORL) floated a global tender
bearing Ref No. BR.BINA.TENDER.2015-16/283 dated 04.11.2015 for Supply of Low Sulphur Indonesian Coal on F.O.R. destination at Refinery .
site basis at Bharat Oman Refineries Limited, Bina, District- Sagar, Madhya Pradesh, India. Against the said tender, CORPORATE DEBTOR sent
its offer dated 04.11.2015 to BORL and said offer has been accepted by the BORL vide its letter bearing Ref. No. BRP/RVX/6637 dated
29.01.2016. Corporate Debtor and BORL entered into an Agreement dated 23.04.2016 for supply of Low Sulphur Indonesian Coal on F.O.R Refinery
site basis at Bharat Oman Refineries Limited, Bina.
Corporate Debtor in turn floated a global tender bearing Ref. No. STC/MUM/COAL/BORL/2015-16/01 dated 10.11.2015 of procurement of Low
Sulphur Indonesian Coal on F.O.R. destination at Refinery site basis at BORL, Bina, District- Sagar, Madhya Pradesh, India. Against said tender,
Operational Creditor submitted its bid and emerged as successful bidder to whom contract was awarded by the Corporate Debtor vide its letter of
intent dated 12.02.2016 for supply, handling & delivery of Low Sulphur Indonesian Coal. Operational Creditor has also accepted all the terms and
conditions of said tender and has agreed to abide by all the terms and conditions of the tender document. Therefore, Corporate Debtor and
Operational Creditor has entered into a contract based on following legal documents in respect of supply of Low Sulphur Indonesian Coal:
i. Agreement dated 13.05.2016 between Corporate Debtor & Operational Creditor for supply of Low Sulphur Indonesian Coal to BORL
ii. Bank Guarantee dated 08.06.2017 for contract performance was executed by Bank of Baroda in favour of Corporate Debtor
iii. Letter of Undertaking from Operational Creditor in favour of Corporate Debtor.
iv. Indemnity Bond dated 13.05.2016 in favour of Corporate Debtor by Operational Creditor.
It is clear from the agreements between BORL and Corporate Debtor as well as Corporate Debtor and Operational Creditor that the basis for the
agreement between Operational Creditor and Corporate Debtor was the agreement and obligation to supply coal between Corporate Debtor and
BORL. The entire arrangement was on a back to back basis and the costs and charges etc. payable / to be paid by Corporate Debtor to BORL were
a pass through to Operational Creditor under the contract between Operational Creditor and Corporate Debtor.
The Operational Creditor has raised various Invoices, Debit Notes and Credit Notes between May 2016 to June 2017 on Corporate Debtor in
respect of the coal supplied to BORL. However, in spite of several reminders and follow-ups with the Corporate Debtor, payment have not been
honored and a total sum of Rs. 1,85,31,196/- is still due and payable by Corporate Debtor.
It is further stated that the first default occurred on 04.07.2017 that is after passing of thirty days from the date of delivery of goods at BORL site
and submission of each Invoices. The workings for computation of default have been attached herewith as Annexure IV.
Since no payment was forthcoming hence a notice under Section 8 of the Insolvency and Bankruptcy Code along with annexure was issued on
30.10.2017 to the Corporate Debtor and the said notice is duly received by the company on 01.11.2017.. To this notice of demand the Respondent
replied first by way of an interim reply dated 09.11.2017 and then the final reply dated 19.12.2017.
As per the reply to the demand notice the corporate debtor disputed the notice and hence this application filed seeking to unfold the process of
CIRP.
Learned counsel for the corporate Debtor opposed the admission and has argued that all the supplies of Low Sulphur Indonesian Coal *made by
Operational Creditor under the contract between Corporate Debtor & Operational Creditor were delayed and attracted the provision of the liquidated
damages as envisaged in the agreement and exercise other rights as provided under the agreement between BORL and Corporate Debtor.
The Corporate Debtor further argued that Operational Creditor violated clause 6.1 of the Agreement dated 13.05.2016 which stipulated that ""the
coal as per technical specifications will have to be delivered as per Corporate Debtor/ BORL instructions and as per requirement. A period of 35 days
notice will be given for starting delivery of coal on each Call- On. The ordered quality shall have to be delivered within the stipulated delivery time.
It is further submitted that as per clause 6.7 the time and date of delivery of materials as stipulated in the order shall be deemed to be the essence
of the contract. None of the deliveries of goods/ coal has been made by Operational Creditor as per schedule by Operational Creditor as provided and
required under the terms of the agreement between Corporate Debtor and Operational Creditor. This had given rise to the right of Corporate Debtor/
BORL to levy penalty/ liquidated damages as per the terms of the contract.
Further disputing its liability the Corporate Debtor replied that since the Operational Creditor has failed to keep the performance bank guarantee
alive and the contract has still not been fully performed and remains effective and open, an amount of less than 20% as prescribed in clause 13 of the
agreement between the parties, has been retained by Corporate Debtor as per its right under the contract and in order to meet any obligations arising
out of the contract between Corporate Debtor and BORL, which contract has also not been closed and settled by BORL, neither the amounts and
payments are finally reconciliated.
The Respondent further disputed the maintainability of the Application and argued that till the accounts are settled between the Corporate Debtor
and BORL, any alleged claim made by Operational Creditor by its Notice/ Application and the claim under the provisions of Section 9 of the
Insolvency and Bankruptcy Code, 2016, is not maintainable under the IBC, 2016.
On the basis of the agreement between Corporate Debtor and Operational Creditor the Corporate Debtor argued that the contract itself has
specifically provided the right to Corporate Debtor to deduct upto 20% of the payments to be made for supplies towards adjustment for any liquidated
damages and penalties etc. It is evident from the calculations of Operational Creditor itself that payments more than 80% of the entire amount of
invoices have already been cleared and only a small amount has been retained, for any eventual penalty amounts which might have to be only paid
after BORL closes the contract and finalizes and settles all amounts and accounts with Corporate Debtor. Till such time, as per the contract between
Operational Creditor and Corporate Debtor, no further amounts are payable by Corporate Debtor to Operational Creditor.
As per the arguments advanced by the learned counsel for the respondent, it is evident that Corporate Debtor has made payment of over 97% of
the total amount claimed in the invoices raised by Operational Creditor. Therefore, as per the terms of the contract between Corporate Debtor and
Operational Creditor, major part of payments due and payable has been paid by Corporate Debtor. Any amount retained by the Corporate Debtor are
as per the rights available to Corporate Debtor under the contract between Corporate Debtor and Operational Creditor including as per clauses 13, 21,
22, 27 of the contract. The remaining payment has only to be made after the final settlement/ reconciliation of account between Corporate Debtor and
BORL, the Corporate Debtor then only will be entitled to pay to Operational Creditor as per the terms of the contract. Accordingly, there is no debt
which is due and payable by Corporate Debtor and therefore no Default as defined under section 3(12) of Insolvency and Bankruptcy Code, 2016 has
occurred. Accordingly, as per the mandate of section 6 of IBC, 2016 no action under chapter II of IBC including under section 8 and 9 of IBC, 2016
can be taken or initiated by Operational Creditor against Corporate Debtor as on date under IB Code.
Another argument raised by the respondent is that the remaining payment, if any, will be made by Corporate Debtor once the settlement of
accounts takes place between Corporate Debtor and Operational Creditor, as per clause 15 of the contract, on a back to back basis of settlement of
accounts taking place between Corporate Debtor and BORL and on BORL issuing a final acceptance and closing the contract with Corporate
Debtor.
The learned counsel for the applicant objected to the arguments of the respondent and argued that the BORL has imposed no penalties/ made no
deductions to theamounts paid to the Respondent and the Respondent has received full consideration from BORL, so the Corporate Debtor also has
no right to deduct any amount as penalty.
The Applicant further states and submits that while the Main Agreement did contemplate that time was of the essence of the agreement, the
Respondent has subsequently accepted the reasons given by the Applicant for the delayed supply of goods. There has been no response or any non-
acceptance by the Respondent to the Applicant's email dated 12.01.2017, whereby the Applicant has explained the cause for the delay in supply of
coal. By accepting the delivery of goods and not lodging any claim or taking any steps against the applicant for delayed supply, as contemplated in the
Main Agreement, the Respondent has waived its rights to take steps against the Applicant, and the contentions raised in the Affidavit in Reply are
untenable.
It is further submitted that on the contrary, Respondent has returned the Bank Guarantee to the Applicant vide its letter dated 21.08.2017. As
admitted by the Respondent, Respondent had the right to retain the Performance Bank Guarantee ('PBG) until satisfactory performance and
fulfillment of the main Agreement and the compliances mandated by the main Agreement. Therefore, since the Respondent has already returned the
PBG to the Applicant, it is clear that the Respondent themselyes admitted to satisfactory performance of the Applicant and fulfillment of all
contractual compliances and obligations.
As per the compliance of the interim order dated 19.03.2018 of this Bench, the learned counsel for the respondent stated that the reconciled
statement has then been finalized and in view of the reconciled account the payment shall be released.
In the application dated 16.03.2018 the applicant has filed statement of reconciliation between Corporate Debtor and the applicant under tender
No. STC/M/Vol./2015-16/01 dated 10.11.2015. According to the accounts statement the total amount to be released to the applicant is Rs.
1,75,40,098/-.
However, the learned counsel for the respondent states that 'No Dues Certificate' from BORL has not been issued so far to enable the respondent
to release the payment.
The Corporate Debtor was directed vide order dated 09.02.2018 by the Hon'ble Principal Bench to take up the matter with BORL immediately
and ask them to issue No Dues Certificate and release the payment accordingly. Opportunities were given to the Corporate Debtor to assert the
matter and direction of the Bench with BORL and bring an end of the entire controversy, since Corporate Debtor has already admitted the debt
before this Bench. But even after three adjournments on 01.03.2018, 19.03.2018 & 02.04.2018 there is no result of giving such opportunity.
The applicant has filed the bank certificate of HDFC bank to evident that the Corporate Debtor has not paid any amount to the present Applicant,
as required u/s. 9(3)(c) of I&B Code, 2016.
In the circumstances• mentioned above despite of giving number of opportunities to the respondent again and again to get the No Dues
Certificate from BORL and release the payment, the respondent failed to comply the orders of this Honble Tribunal. As the liabilities are accepted by
the respondent but the payment has not been made to the applicant, it is observed to be the fit case for accepting this application and initiate the
Corporate Insolvency Resolution Process. As observed by Hon'ble Supreme Court in the judgement of Mobilox Innovations Private Limited v. Kirusa
Software Private Limited:
...what is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing- i.e. it must exist before
the receipt of the demand notice or invoice, as the case may be……â€
“.... It is clear that what is required in all cases is something between mere assertion and the proof that would be necessary in a court of law.
Something more than mere assertion is required because if that were not so then anyone could merely say it did not owe a debt……â€
As per the aforesaid judgement, a ""genuine"" dispute requires that:
• ""The dispute be bona fide and truly exist in fact;
• The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived
It is observed her that though the dispute was raised against section 8 notice by the Corporate Debtor but after the filing of application the debt
was accepted and admitted with certain caveat which means the dispute cannot be termed as genuine as observed under the said judgement.
The parameters to initiate CIRP as required under Insolvency and Bankruptcy Code are duly complied with and the application is complete.
The Tribunal is of the considered view that this application requires to be admitted and that CIRP process is required to be initiated against the
Corporate Debtor.
The Operational Creditor has not proposed the name of any 1RP. Ms. Rita Gupta, who is duly registered with Insolvency and Bankruptcy Board
of India and having registration No. IBBI/ IPA-001 /IP-P00149/ 2017-18/10313 is hereby appointed as an Interim Resolution Professional.
As a consequence of the application being admitted in terms of Section 9(5) of IBC, 2016 moratorium as envisaged under the provisions of Section
14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor prohibiting all of the following:
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or
order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action
under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
However, during the pendency of the moratorium period in terms of Section 14(2) and 14(3) as extracted hereunder the following shall be
continue:
(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during
moratorium period.
(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any
financial sector regulator.
The duration of the period of moratorium shall be as provided in. Section 14(4) of IBC, 2016 and for ready reference reproduced as follows:
4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan
under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect
from the date of such approval or liquidation order,.as the case may be.
Based on the above terms, the Application stands admitted in terms of Section 9(5) of IBC, 2016 and the moratorium shall come in to effect as of
this date.
A copy of the order shall be communicated to the Operational Creditor as well as to the Corporate Debtor above named by the Registry. In
addition, a copy of the order shall also be forwarded to IBBI for its records. Further the IRP above named be also furnished with copy of this order
forthwith by the Registry.