M/s NSSL Pvt. Ltd. vs M/s UEM India Pvt. Ltd.

The Present Application is filed under section 9 of Insolvency and Bankruptcy Code, 2016 (for brevity ‘Code, 2016’) read with Rule 6 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by M/s NSSL Private Limited (for brevity ‘Applicant’) through

its Head Business Development, Mr. Vineet Bhartia who has been authorized vide Board Resolution dated 14.10.2017, with a prayer for initiation of

Corporate Insolvency process against M/s UEM India Private Limited (for brevity ‘Corporate Debtor’).

The Applicant M/s. NSSL Private Limited, claimed to be the operational creditor, is a company incorporated under the Companies Act, 1956 having

its registered office at T-45, MIDC Industrial Area, Hingna Road, Nagpur-440016 and is involved in the business of manufacturing of gate, globe,

check, ball and plug valves in cast steel, stainless steel and alloy materials which are used in oil, natural gas, petroleum, petrochemical, fertilizer,

cement, pulp, power and steel sectors.

The Respondent M/s. UEM India Private Limited is a company incorporated on 23.03.1984 under the Companies Act, 1956 having its registered

office at 19, Kalkaji, New Delhi-110019 and CIN 51909DL1984PTC017765, is engaged in providing turnkey services in water and wastewater

collection, treatment and disposal of the wastewater.

The Authorised share capital of the Corporate Debtor is Rs. 15,00,00,000/- and Issued, Subscribed and Paid up share capital of the company is Rs.

13,39,58,350/-.

It is the case of the Applicant that during the course of business M/s UEM India Private Limited has approached the applicant for supply of various

manual check valve and other material for the project of Indian Oil Corporation Limited based at Barauni refinery, Bihar in turn given to CD and in

order to meet its requirements, the CD placed various purchase orders, for the supply of various materials to the applicant. In pursuant to that the

applicant had performed the part of contractual obligation and furnished 20 % of purchase order in form of advance bank guarantee on different

dates.

The Applicant has stated that the total material supplied to the CD is Rs.1,80,35,096/- and the CD has made the part payment of Rs. 1,52,21,952/-

to the applicant against the material supplied leaving the balance as on date of an amount of Rs. 28,13,144/- which is still receivable from the CD.

The Applicant has submitted that with regard to the said unpaid amount, various invoices were raised by the applicant on corporate debtor. The

applicant further submits that regular follow ups were made through emails, but no payment was ever received.

The Applicant served a legal notice, for winding up under section 433 (e) and 434 of the Companies Act, 1956 for an amount of Rs.28,13,143/- on

30.01.2014 to the CD. However, on 20.02.2014, CD replied to the notice, the copy of reply is annexed to the reply filed by CD, stating that an

inordinate delay of more than eleven months in supplying the contracted quantities as per the purchase order has occurred which led to serious

hardships including the claim of liquidated damages, raised by IOCL (Indian Oil Corporation Limited). Further contended that the amount claimed by

the applicant in the notice is incorrect and malafide.

There after regular meetings were held and correspondence exchanged which are annexed by CD in the reply showing that reconciliation and/or

negotiations were going in between the parties to arrive at settlement but was in vain.

The Applicant issued two demand notices, dated 29.08.2017 and 14.10.2017 under the provisions of section 8 of Insolvency & Bankruptcy Code,

2016 seeking payment of outstanding debt of Rs.52,77,068/- including with interest consisting of the (principal amount of Rs.28,13,144/- plus overdue

interest at the rate of 18 % i.e. Rs. 24,63,924/-).

The Corporate Debtor on 06.09.2017 and 27.10.2017 replied to both the said notices by stating that the claim by the applicant is baseless and is

denied and further contended that the applicant miserably failed to comply with the Purchase order terms and despite CD’s regular follow ups, the

applicant could not supply the material on time which was a critical as per the agreement where time is essence of contract was specifically written in

the project being executed by CD for IOCL. In pursuant to that the project execution delayed and ultimately resulted in imposition of Liquidated

Damages by IOCL on CD @ 10% amounting to Rs.10,10,00,000/-. The CD has stated that the applicant has clearly delayed the supplies beyond

contractual delivery schedule, therefore had to incur an additional expenditure of Rs.75,00,000/- on account of hiring other contractor, manpower and

also had to purchase material on emergency basis from other resources, additional transportation cost, additional overhead cost etc. (“Additional

Expenditureâ€) and had incurred other liquidated damages @ 5% of purchase order value i.e. Rs.8,46,495/- which is to be recovered and paid by the

applicant in accordance with Clause 6 of specific terms and conditions to purchase order, which is extracted below;

“6) Risk Purchase:

During the execution of Purchase order, if any delay is observed due to reasons attributable to the applicant other than force majeure

conditions, which may cause delay in completion of delivery, the respondent shall without prejudice to terms and conditions of existing

order take corrective actions deemed fit including cancel the contract at any time point in time without assigning any reason whatsoever at

the cost and risk if the applicant.â€​

The Corporate Debtor filed a reply raising dispute to this application. It is contended by the Respondent that the total values under the PO had to

be supplied by January, 2012 but the supply was completed late in the year 2012 i.e. after delay of more than 11 months despite of frequent

persistence by the respondent through various communications to the applicant to complete the deliveries of all supplies. The applicant did not pay any

heed to the reminders and continued to be in default of performance of its obligations under PO having no regard to the specific terms of the PO i.e.

‘when time is of essence of the Purchase order’.

The Respondent further contends that the total value of the PO was Rs.1,92,88,881/- but the applicant in the present application states that the

total value of the supplies for Rs.1,80,35,096/- out of which the applicant made supplies for value of Rs.1,77,93,525/-. The entire material as per PO

which were critical for the completion of the project of IOCL were not supplied and completed by the applicant, and thus the ‘dispute’ arose

between the parties.

Further, the Respondent has stated that the CD had suffered huge losses/damages on account of applicant’s non-compliance and default of

specific terms and conditions of the purchase order by failing to deliver timely and complete supplies. The respondent is reserving its right to recover

amount due by way of liquidated damages for delay in supplies thereby forcing CD to incur large expenses to enable to complete the project as well as

also to recover the amount of liquidated damages claimed by IOCL due to the non-completion of project in time.

Thereafter, pursuant to issuance of winding up notice, the applicant for a long time, did not take any legal notice action against the respondent for

recovery of alleged dues. But in the year 2016, the applicant admitted that dispute have arisen between the parties which can be amicably settled and

on the request of the respondent, the applicant withdrew the winding up notice in order to enable the parties to explore the possibility of amicable

settlement. However, the settlement between the parties did not see the light of the day.

The Respondent stated that the applicant had failed to provide the supply of valves for inspection in a timely manner which in turn further delayed

the dispatch of valves. In addition thereto, there has been unreasonable delay in submitting the compliance report for the supplies. Since the year 2012

vide many emails the respondent expressed its dissatisfaction towards the conduct of the applicant and failure in completing the supplies under the PO.

The Respondent contended that till today around 8 valves have still not been supplied to the respondent and the applicant has miserably failed to

supply the entire contracted quantity till date, leaving the respondent at high and dry crucial stage.

The Learned Counsel for the Respondent relied on the order of the Hon’ble Supreme Court of India in the case of:

i. Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited 2017 SC 1154 which came to the following observation:

“The adjudicating authority must reject the application under section 9 (5)(2)(d) if notice has been received by the operational creditor,

wherein 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. At this stage, examination of merits of the dispute is not requiredâ€​

ii. In the order of the Hon’ble NCLAT in the Case of Philips India Limited Vs. Goodwill Hospital & Research Centre Limited, Company Appeal

No. 14 of 2017; Hemang Resources Limited Vs. M/S SSP Sponge Iron Private Limited Company Appeal No. 660 Of 2018, it is held thsaitn ce the

respondent had already raised a dispute relating to quality of service/maintenance pursuant to notice under section 433(e) and 434(1)(a) of

the Companies Act, 2013, the objection cannot be called to be mere objection raising a dispute for the sake of ‘dispute’. Thus, the

dismissal of application under section 9 was upheld.

iii. In the order of Hon’ble NCLAT in the Case of VDS Plastics Private Limited Vs. Pal Mohan Electronics Private Limited, company appeal No.

58 of 2017; Value Kine Interiors Private Limited V. Rattan India Power Limited; Uttma Galva Steels Limited V. DF Deutsche Forfeit AG & Anr,

Company Appeal No. 39 Of 2017 it was held on the basis of letters written by the CD with regard to supply of goods and material and the

reply to notice under section 433(e) and 434 (1) (a) of the Companies Act, 2013, it can be said that there was a dispute pending between the

parties. Thus, the application was held to be rightly rejected on the ground of pre-existing dispute between the parties. The Hon’ble

tribunal also made an observation on the fact that the applicant had failed to take any steps for along time after the issuance of the winding

up notice and receipt of reply.

On hearing the Ld. Counsels of both the sides and on perusal of the record, it can be concluded as under:

i. The record of the instant case reveals that the alleged liability has been disputed from time to time and that the dispute was pre-existing. It is seen

from the email dated 22.08.2012 and 07.08.2012 that a dispute of deficient performance was clearly pre-existing and raised by corporate debtor. The

email spells out the delay in performance of the supply of valves by the applicant where in the contract it was specifically mentioned that time is the

essence of contract. In addition, the issue of non-supply of remaining 8 valves was also raised by the respondent.

Even after the notice was issued under section 8 of the I & B Code, 2016 there were meetings between the parties to resolve issues but all in vain.

There is thus force in the contention of respondent that there is established and long-standing dispute between the parties much prior to the initiation of

the present proceedings under the code.

ii. In view of the dispute existing between the parties, there is no default in terms of section 8 of the Code read with section 3(12).

The Hon’ble NCLAT in the case of Kirusa Software Private Limited Vs. Mobilox Innovations Private Limited, interpreted the meaning of the

terms claim, debt and default as the parameters within which the notice of dispute has to be examined.

“13. Though the words prima facie are missing in section 8 and 9 of the Code, yet the Adjudicating Authority would examine whether

notice of dispute in fact raises the dispute and hat too within the parameters of two definitions-‘debt’ and ‘default’ and then it

has to reject the application if it apparently finds that the notice of dispute does really raise a dispute and no other facula ascertainment id

required. On the other hand, if the Adjudicating Authority finds that the notice of dispute lacks in particular or dose not raise dispute, it

may admit the application but in either case, there is neither an ascertainment of the dispute, nor satisfaction of the Adjudicating Authority.

The role of the Adjudicating Authority mat become easier once the information utility starts functioning for it is a record of dispute that

would be sufficient to reject the application of the operational creditor.

“14. The terms “claimâ€​, “debtâ€​ and “defaultâ€​ are defined under part I of the Code.

Section 3(6) of the Code defines “claims†to mean a right to payment and included within its ambit disputed and undisputed, legal,

equitable, secured, including arising out of breach of contract.

Therefore, “right to paymentâ€​ is the foundation for making a claim under the Code.

Section 3(11) defines “debt†to mean, the liability or obligation in respect of a claim which is due from any person. Thus, claim transforms into a

debt, financial and operational, once liability or obligation to pay gets attached to the claim.

Section 3(12) defines “default†to mean “non-payment of the debt†once it has become due and pay and the same is not repaid by the debtor,

“default occurs on fulfillment of twin conditions:

(a) Debt becoming due and payable ; (b) non-payment thereof.

iii. “Dispute’ has been defined under the code in section 5 (6) which envisages that:

‘Dispute’ includes a suit or arbitration proceedings relating to - (a) the existence of the amount of debt; (b) the quality of goods or

service; or (c) the breach of a representation or warranty.â€​

The definition of ‘dispute’ is inclusive and not exhaustive. The same has to be given wide meaning provided it is relatable to the existence

of the amount of the debt, quality of goods or service or breach of a representation or warranty.

Once the term ‘dispute’ is given its natural and ordinary meaning, upon reading of the code as a whole, the width of “dispute†should cover

all disputes on debt, default etc. and not be limited to only two ways of disputing a demand made by the operational creditor, i.e. either by showing a

record of pending suit or by showing a record of a pending arbitration.â€​

iv. A dispute does truly exist between the parties in terms of section 5(6)(b) in the present case, which may or may not ultimately succeed but requires

trial/investigation. On one hand the applicant has relied on invoices in support of its claim. On the other hand respondent has disputed the long-standing

dispute of supply of quantity and non-performance of the complete contract till date on time. Though this is not the forum to examine and adjudicate as

to which portion of the claims or counter claims are admissible. Tribunal will not examine the merits of the dispute other than to see if there is in fact

exist a ‘real dispute’ having some substance.

v. Hon’ble Supreme Court in the case of “Mobilox Innovative Private Limited vs. Kirusa Software Private Limited†in civil appeal number

9405 of 2017 vide order dated 21.09.2017 has held that: “Therefore, all 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 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 exist in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to

reject the application. In the present case the respondent has raised dispute with sufficient particulars. Besides the case records reveal that there was

existence of dispute much prior to the issuance of notice under section 8 of the code. The claim of the dispute suggest the need of elaborate

investigation. The moment there is existence of such a pre-existence dispute, the corporate debtor gets out of the clutches of the code.

In view of the aforesaid facts, and documents placed on record a conclusion can be drawn that there is a ‘Pre-existence dispute’ though is

not legally crystalized in any litigation but dispute is genuine and was raised by corporate debtor time and again much prior to the notice served under

section 8 of I & B Code. It is a fit case to reject the application under section 9 of the Insolvency & Bankruptcy Code, 2016.

In view of the above discussion the present application is hereby rejected and dismissed. No order as to costs. A copy of the order shall be

forwarded to IBBI for its records.