Urmilla Enterprises Private Limited vs URC Construction Private Limited

It is an Insolvency Bankruptcy Application filed u/s. 9 of the Insolvency and Bankruptcy Code, 2016 ("theCode") by the Operational Creditor against the Corporate Debtor for initiation of Corporate Insolvency and Resolution Process on the ground that the Corporate Debtor defaulted in making payment of Rs. 49,22,839 as on 25.02.2019.

Looking at the submissions and the material available on record, it appears that the Corporate Debtor issued Work Order dated 15.09.2017 and amended Work Order dated 20.09.2017. Upon which, the Operational Creditor raised various Invoices, which are as follows:

Invoice No.

Dated

Amount (Rs.)

RA/441/176-18

01.11.2017

7,75,384

UEPL/559/17-18

14.11.2017

3,71,200

UEPL/706/17-18

27.01.2018

10,17,750

UEPL/707/17-18

27.01.2018

13,27,500

UEPL/760/17-18

12.02.2018

13,27,500

RA/810/17-18

01.03.2018

9,77,755

RA/811/17-18

01.03.2018

3,42,200

Total

61,39,289

Out of the above said invoice amount of Rs. 61,39,289, the Corporate Debtor having paid Rs. 3,71,200 on 20.12.2017 and Rs. 8,45,250 on 12.01.2018, the Operational Creditor has made a claim of Rs. 49,22,839deducting the amounts already received from the Corporate Debtor.

The Operational Creditor has referred a letter dated 05.01.2018 saying that the Corporate Debtor acknowledged this debt as mentioned in the letter, which is as follows:

"It has been mutually agreed that we shall clear your monthly payment as per the bills certified by our Project Manager including the advance that is to be recovered as per the conditions of our Work Order on or before 31/01/2018. Please note that we have paid Rs. 3,71,200 on 21/12/2017.

We agree to pay an interest of 2% + our CC interest rate for the amounts due right from the actual due date.

The above payment shall also be made on or before 31/01/2018.

We also hereby confirm that the monthly payments from the month of Feb 2018 shall be made as per the stipulated due dates."

The Operational Creditor counsel says, as payments have not been received from the Corporate Debtor in furtherance of acknowledgement given on 05.01.2018, this Operational Creditor issued Section 8 Notice on 29.12.2018 to the Corporate Debtor demanding payment of Rs. 49,22,839 and a sum of Rs. 6,27,661 towards interest on the total amount due, failing which, the Operational Creditor would proceed against this Corporate Debtor u/s. 9 of IBC.

On receipt of this Section 8 Notice, the Corporate Debtor replied on 05.02.2019 i.e. after expiry of 10 days from the date of receipt of Section 8 Notice, stating that in January 2018 itself, some problems started to hinder the smooth functioning of the Rig and consequently the smooth progress of the projects and it is pertinent to note that the Corporate Debtor in its letter dated 26.02.2018 written to the Operational Creditor that it had brought out all those issues and perceived difficulties due to the faulty Rig, and about issues with the Panel Board and Kelly.

It has also been said that in the last two piles during the said month (January 2018), the Rig broke down 4 times and the same would take upto 24 - 48 hours to resolve. In view of this break down, he says the claim is inconsistent with the material placed on record, therefore, the Corporate Debtor has denied the claim raised by the Creditor and expressed the debtor willingness to resolve all these issues for settlement in between the parties. The consequence of the reply is section 9 petition before this Bench.

Basing on the material placed before this Bench, the Operational Creditor counsel says that since this Corporate Debtor acknowledged the debt on 05.01.2018 and given reply to section 8 Notice only after expiry of 10 days from the date of receipt of Section 8 Notice, this Petition shall be admitted for initiation of CIRP against this Corporate Debtor.

As against this argument, the Corporate Debtor counsel has stated that this Petition is hit by existence of dispute before the operational creditor issued Section 8 Notice, whereby this Petition is liable to be dismissed.

In support of this argument, the Corporate Debtor counsel has brought our attention to the Work Order dated 15.09.2017 and amended Work Order dated 20.09.2017 disclosing that the breakdown days of the Vehicle/Piling Rig will not be paid and on any days if the Drivers/Operators are not available for the Vehicle/Piling Rig, payment for those days also will not be made.

The Corporate Debtor counsel has further stated that in the letter dated 05.01.2018, which the Operational Creditor counsel canvassing as an acknowledgement, clearly disclosing that they would clear monthly payments as per the bills certified by their Project Manager including the advance that is to be recovered as per the conditions of our Work Order on or before 31.01.2018 saying that they have already paid Rs. 3,71,200 on 21.12.2017. Thereafter, another payment of Rs. 8,45,250 was made on 12.01.2018.

Subsequent thereto, this Corporate Debtor on 26.02.2018 wrote a letter to this Operational Creditor stating that the Corporate Debtor raised some issues in respect to the Operational Creditor rendering services, which is as follows in Para-2 and last Para of (Page No. 39 of the Application) of the letter dated 26.02.2018:

"After that the Casagrande B170 rig was reached to the site on 15.10.2017. After attending to the technical faults, the rig was made available for final third party inspection on 02.11.2017. The starting hour of machine was 9917 hrs. As on date machine closing hour is 10255 hrs. The net machine running is 338 Hrs. Due to work front and traffic diversion issues machine was not utilised to its stipulated contract hours. But past 1 month the works are resumed and breakdown of machine is frequent, due to various issues such as panel board fault & Kelly fault etc. Also it takes 24-48 hrs to resolve the issue. In Last 2 piles machine breakdown occurred for 4 times resulting in frequent collapse of the bore. Further now BMRCL often raises the query about fitness of machine.

Due to very frequent breakdowns, repairs etc of your piling rigs, in addition to severe criticism from clients, we are incurring huge additional cost by way of idling of connected resources, which will be dealt as per the contract".

As against this letter disclosing existence of dispute with regard to the progress of work, the Operational Creditor has not placed any material before this Bench disclosing that the issues raised in the letter dated 26.02.2018 were resolved by the Operational Creditor. This has been referred in the reply dated 05.02.2019 to the section 8 Notice saying dispute arose in January 2018 itself, which is as follows:

"some problems started to hinder the smooth functioning of the Rig and consequently the smooth progress of the projects and it is pertinent to note that my Client in its letter dated 26.02.2018 issued to the Operational Creditor had brought out all of the said issues and perceived difficulties due to the faulty Rig, more so due to issues with the Panel Board and Kelly. In the last two piles, during the said month (January 2018) the Rig broke down 4 times and the same would take upto 24 - 48 hours to resolve. Your client has been aware of the said issues which has caused a huge financial burden on my client".

By making these submissions, the Corporate Debtor counsel has concluded that whatever payments that were to be made as on 05.01.2018, they were made on 20.12.2017 and 12.01.2018, therefore the letter dated 05.01.2018 could not be treated as an acknowledgement by the corporate debtor in respect to the claim basing on the invoices raised subsequent to the letter dated 05.01.2018, the Corporate Debtor written to the Operational Creditor.

Since the letter dated 26.02.2018 having raised dispute in respect to the performance of the work of the Operational Creditor, the same being mentioned in the reply Notice dated 05.02.2019, and the letter dated 26.02.2018 is predated to Section 8 notice given by the operational creditor, the Corporate Debtor counsel has sought for dismissal of this Company Petition.

On hearing the submissions of either side, it is evident that the issues in respect to break downs cropped up subsequent to the letter dated 05.01.2018 and the same was brought to the notice of the Operational Creditor long before issual of Section 8 notice i.e., on 26.02.2018 itself. Thereafter, since there is no material from the side of the operational creditor disclosing that the Operational Creditor already resolved those issues, except filing this case basing on the section 8 notice sent by the Operational Creditor, it is to be construed that dispute in respect to the break downs has remained in existence as on the date the Creditor issued Section 8 notice. When there is material disclosing existence of dispute even before section 8 notice is issued, it does not make any difference as to whether reply to section 8 notice has been given within 10 days or after 10 days.

In this case, dispute with regard to the performance of work done by the operational creditor was disputed on 26.02.2018 itself, moreover by the time the corporate debtor wrote a letter on 5.01.2018, for there being no dispute and the dues payable by that time were already paid by the corporate debtor in the month of January 2018, the letter dated 5.1.2018 cannot be seen as acknowledgement for the invoices raised after 05.01.2018. Since the corporate debtor already raised dispute with regard to the invoices raised after 05.01.2018, that letter dated 05.01.2018 will not have any bearing over the invoices raised after 05.01.2018.

In view of the reasons aforementioned, this Bench having come to a conclusion that dispute has been in existence as on the date section 8 notice was issued by the Operational Creditor, we hereby dismissed this Company Petition holding that dispute is in existence in between the parties as on 26.02.2018.

Accordingly, this Company Petition is hereby dismissed.