Rohini Industrial Electricals Ltd. vs National Textiles Corporation Ltd.

Dr. Deepti Mukesh, J

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

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity 'the Rules') by Rohini Industrial Electrical Limited through

its General Manager Mr. Ravi Hegde who is authorized vide board resolution dated 28.12.2017 (for brevity 'Applicant') with a prayer to initiate the

Corporate Insolvency process against National Textiles Corporation Limited (for brevity 'Corporate Debtor').

The Applicant is a public limited company registered and incorporated under the provisions of The Companies Act, 1956 having CIN

U74210M1H1983PLC030705 is also registered as a small enterprise under MSME Act, 2006. The applicant is having its registered office at Voltas

House, A Dr. Babasaheb Ambedkar Road, Chinchpokli, Mumbai-40003

The Corporate Debtor is a limited company duly registered and incorporated on 12.04.1968 under the Companies Act, 1956 having CIN

U74899DL1968G0I004866. The corporate debtor is having its registered office at Scope Complex Core IV 7 Lodhi Road New Delhi110003.

The Applicant has stated that pursuant to the letter of intent no. NTC WR Elec/LO/547/2009 dated 20.05.2009, the corporate debtor had issued a

work order dated 24.06.2009 to the applicant for electrical installation work of transformer substation & internal LT distribution network, lighting and

power work, fire alarm, PA system, CCTV, telephone and data system for Finlay Mills at Amravati Road, Achlapur Amravati.

It is stated that the total value of the work order was Rs 13,96,44,344/- but however due to the change in quantity required as per the site conditions,

the value of the work order was amended to Rs 14,35,30,089/- vide work amendment order bearing no. NTCWR/Tech/LEC/1960/2011. It is

submitted that the applicant had furnished bank guarantees of Rs 25,00,000/- and Rs 13,96,443/- towards the Earnest Money Deposit and Initial

Security Deposit respectively.

It is submitted that the applicant had executed work as per the agreed terms and the corporate debtor issued work completion and handing over

certificate dated 07.01.2014 and work completion against defect liability period certificate dated 21.05.2014 duly acknowledging and confirming that

the work was completed by the applicant in April 2012 and the defect liability period expired in April 2013.

The Applicant submits that the corporate debtor was required to release the entire payments including the Earnest Money Deposit and Initial

Security Deposit and retention money in favor of the applicant as per the work order. It is submitted that against the total invoice value of Rs

13,18,35,161/- raised by the applicant, the corporate debtor has till date paid only Rs 11,34,03,966/- and a sum of Rs 1,84,31,195/- has remained due

and payable. It is submitted that despite of various reminders and repeated requests, the corporate debtor had failed and neglected to make the

payments.

It is submitted that the applicant vide its letter dated 24.08.2018 once again submitted all supporting documents and details in respect of claim of Rs

1,84,31,195/- but there was no response from the corporate debtor. The applicant submits that the corporate debtor has neither made the payments nor

released the bank guarantees till date

The Applicant issued a demand notice dated 04.12.2018 in Form 3 under the provisions of section 8 of I&B Code, 2016 (Under Rule 5 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 calling upon the corporate debtor to pay the total outstanding amount

of Rs. 1,84,31,195/-. The corporate debtor had replied to the notice dated 15.12.2018 and contended that various communication have been made by

the corporate debtor to the applicant from time to time to complete the contract as per the agreed terms, but the applicant had failed to comply the

same and due to which the corporate debtor has suffered a lot operationally and financially. It is stated by the corporate debtor in its reply that the

contract is supposed to be completed within twelve months i.e. 20.05.2010, whereas as the applicant had completed the work in 2014 causing loss to

the corporate debtor.

The Applicant filed present Application under section 9 of IBC, 2016 and served the copy of this application which is duly delivered to the

Corporate Debtor as per the affidavit of service filed by the applicant.

The Corporate Debtor has replied to the application by contending that there is an existence of dispute between the parties which are as follows:

a) vide letter dated 20.10.2012, the applicant was informed by the corporate debtor to complete the work and submit the final bill. The corporate

debtor has already released Rs 115284019.17 in favor of the applicant and the payment of balance amount is pending on the account of non-fulfillment

of contractual obligations by the applicant on time.

b) Further as per the work order, the delivery/time for completion of work agreed between the parties was stated in unequivocal terms that the work

was to be completed within 12 months from the issued date of letter of intent that was 20.05.2009, but however, the applicant despite having received

several inquiries by the corporate debtor for completion of contract, had delayed the completion of work and it was only in the year 2014 the work

was completed at belated stage, causing grate loss to the corporate debtor.

c) with respect to the final bills raised by the applicant certain issues were raised by the internal auditor, and the same was communicated to the

applicant, which have not been addressed by the applicant till date.

d) There were certain deficiencies in services which were communicated to the applicant for rectification that were identified by the corporate debtor

and same were communicated time and gain vide Emails dated 28.12.2013, 06.01.2014 and letters dated 29.06.2017, 23.06.2018, 23.06.2018,

23.06.2018, however the same remained un-rectified by the applicant.

e) The work order has clause of arbitration for settlement of dispute and this remedy should be availed by the parties before approaching any judicial

authority.

The corporate debtor stated that they have retained the amount as per the contract terms being envisaged in the work order, which states that

50% of security deposit amount to be released against the bank guarantee after virtual completion of work and handing over to NTC. Balance 50%

upon satisfactorily completion of defect liability period of 12 months.

The applicant has filed rejoinder and has controverted the statements made in the reply and has asserted as follows:

a) The queries raised by the internal auditors have been checked, verified and rectified by Finlay mills committee which is under process to submit to

NMTC WRO, Mumbai. The applicant has denied that there were any delay and they are required to resolve any query or to again submit the final

bills as it is submitted that the final bills were duly certified by the project consultants of the corporate debtor and were submitted after consultation

and due verification by Finlay Mills and issue of GST was also considered.

b) It is submitted that in the year 2014 work completion and handing over certificate and work completion against defect liability period certificate as

well as the balance conformation was issued by the corporate debtor.

On perusal of documents on record and submission made by the counsels, there exists a dispute which has been raised by the corporate debtor

time and time again through its letters and emails from 2013 onwards which is much prior to the issuance of section 8 demand notice.

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

initiation of the present proceedings under the code.

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. 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.

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 above discussion the present application is hereby dismissed. A copy of the order shall be forwarded to IBBI for its records. A

copy of this order be also sent to the ROC for updating the Master Data. ROC shall send compliance report to the Registrar, NCLT.