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Kumar Dutta v/s Simplex Infrastructure Limited

    C.P. (IB) No. 337/KB of 2018

    Decided On, 23 July 2018

    At, National Company Law Tribunal Kolkata

    By, THE HONOURABLE MR. K.R. JINAN
    By, JUDICIAL MEMBER

    For the Appellant: Anirban Kar, Avishek Guha, S.K. Sharukh Raja, Advocates. For the Respondent: Anirban Ray, Ishani Sengupta, Advocates.



Judgment Text

1. This is an application filed by the operational creditor, namely, Mr. Kumar Dutta, Proprietor K. D. Trading under section 9 of the Insolvency and Bankruptcy Code, 2016 (in short I & B Code) for initiating Corporate Insolvency Resolution Process as against the corporate debtor/Simplex Infrastructure Limited alleging that the corporate debtor defaulted in repayment of Rs. 17,51,781.00 towards principal amount and Rs. 17,82,760.60 towards interest upto November, 2017.

2. Briefly stating the fact as follows:-

(i) The operational creditor on the basis of work orders for construction of structural shed with gantry, administrative and other buildings along with ancillary works in connection with setting up of Diesel Loco Component Factory for manufacturing and sub-assembling of EMD Locos, etc. at Dankuni of the Eastern Railway in the State of West Bengal, India undertaken infrastructure job at the project site. As per the Work Orders the operational creditor completed the work. An amount of Rs. 6,39,831.00 is outstanding against the work order being WO-2588 which was for Rs. 1,27,96,395.00. Such amount fell due on 30/09/2013 and Rs. 11,11,950.00 which is outstanding against work order being WO-2814 which was for Rs. 11,597,485.00 and that amount fell due on 30/09/2014.

(ii) The operational creditor/applicant raised bills after deductions of sales tax and copies of bills is produced and marked as Annexures C, D, E and F. As per the Work Orders the work at the Diesel Locomotive Workshop Project Site of Railways was completed by the operational creditor in terms of the Work Orders on 31/03/2013 and the work at the Electro Loco Factory Project Site of Railways was done upto March 2014. Upon raising the bills the amount referred to above is outstanding and despite repeated demands the corporate debtor failed to repay the amount and, therefore, the applicant is entitled to interest thereon @ 18% p.a. Despite issuing notice the corporate debtor did not repay the amount thereby a demand notice as per Section 8(2) of the I & B Code has been sent to the corporate debtor dated 12/12/2017 demanding the amount. Despite receipt of the demand notice respondent did not repay the amount but sent a reply dated 12/01/2018 contending untenable contentions. Upon said contentions the applicant prays for admitting the application.

3. The respondent entered appearance and filed reply affidavit contending in brief is the following:-

(i) The application is mala fide, misconceived and liable to be dismissed in limine. The application has been filed to harass the corporate debtor. The claim of the operational creditor is completely disputed. The operational creditor tried to raise unlawful demands on several occasions. The operational creditor issued a winding up notice against the corporate debtor. In reply to the winding up notice the corporate debtor categorically disputed the claim of the operational creditor in the said winding up notice. Despite raised dispute the operational creditor did not pursue the matter any further after receipt of the reply of the corporate debtor against the winding up notice. The operational creditor was awarded several Work Orders between 2011 and 2014 for various development and connected infrastructure jobs at the Electro Loco Factory Project Site of Railway Vikas Nigam Limited at Dankuni and Diesel Locomotive Workshop Project Site of Railway Vikas Nigam Limited at Dankuni in which corporate debtor is one of the contractors for carrying out various work. Pursuant to such Work Orders the operational creditor undertook the work and the corporate debtor made payment to the operational creditor as against work done by the operational creditor from time to time based on the bills raised by the operational creditor. The work awarded to operational creditor was inclusive of taxes, like Value Added Tax. The operational creditor was contractually or statutorily bound to file correct tax returns disclosing the value of work done or turnover of materials supplied by them on behalf of the corporate debtor, which the operational creditor failed to do. The work contract taxes deducted from the bills of the operational creditor were duly deposited by the corporate debtor with the statutory authorities. At the same time the operational creditor was also required, inter alia, to disclose sales turnover and contract transfer price and pay taxes accordingly to the Sales Tax Authorities on the statutory date prescribed. The corporate debtor duly filed its Sales Tax Returns for each year between 2011-12 and 2014-15 pertaining to the said project and claimed benefits and deductions available to the corporate debtor under the prevailing laws. However, when the audit and assessment was done by the authorities under the WBVAT Act and Rules, it appeared that the operational creditor did not disclose and/or wrongly disclosed its sales turnover. That is to say that the operational creditor raised various bills on the corporate debtor but did not disclose the turnover arising out of such bills to the tax authority. This is apparent from the audit report of the Directorate of Commercial Taxes, Government of West Bengal. The operational creditor has, therefore, not paid taxes as per its actual sales turnover as it has not disclosed its actual turnover to the tax authorities for reasons best known to the operational creditor. Due to such deliberate and wrongful disclosure and/or suppression of fact by the operational creditor, the corporate debtor faces a huge liability to the Sales Tax Authorities on account of deductions disallowed, for various months throughout the period of the contract amounting to lakhs. Such deductions are rightfully available to the corporate debtor under the prevailing law but the corporate debtor is being unlawfully deprived of the same due to operational creditor's wilful and deliberate default in meeting its statutory obligations. As such the corporate debtor is entitled to claim the entire amount of Sales Tax liability, which was not become a financial liability on the corporate debtor, from the operational creditor and reserves its right to do so at the relevant point of time, once the assessment of corporate debtor's liability is completed by the Directorate of Commercial Taxes, Govt, of West Bengal. The corporate debtor will also be charged interest and huge penalty by the tax authorities due to the operational creditor's deliberate act of not disclosing its actual turnover and/or not paying its taxes as per actual turnover.

(ii) The corporate debtor has suffered damages due to breach of the contract by the operational creditor. The corporate debtor is taking steps to initiate proceedings for damages as against the operational creditor by way of invocation of arbitration under the arbitration clauses. Since there exist possible dispute in relation to the claim made by the operational creditor and such dispute pre-existed on the date of issuance of the demand notice and initiations of the instant proceedings under the I & B Code is not maintainable. Upon said contentions the respondent/corporate debtor prays for rejection of the application.

4. The operational creditor filed rejoinder denying the allegations levelled by the respondent/corporate debtor in the reply affidavit and produced a copy of tax returns submitted to the Commercial Tax Authorities, West Bengal. Upon filing the rejoinder the application further contends that Joint Commissioner of Commercial Taxes has accepted all the returns filed by K.D. Trading up-to-date and to substantiate its contention produced Annexure A to the rejoinder the copy of returns filed before the Joint Commissioner of Sales Tax.

5. Corporate debtor in turn filed sur-rejoinder reiterating tine contentions raised by it in the reply affidavit. In addition to the said contentions the corporate debtor contends that the claim, if any, barred by limitation. The recovery against the Works Orders is on the face of it time barred. Whether there has been extension of the time period of limitation is a question of dispute. Upon the said contentions the corporate debtor also annexed an Annexure to sur-rejoinder to show that there was no tax disclosure made by the operational creditor with regard to the transactions with the corporate debtor. Upon the said contentions the corporate debtor prays for rejection of the application.

6. Heard both sides. Perused the records and citations referred to by the Ld. Counsel for the applicant as well as the Ld. Counsel for the respondent.

7. Upon hearing the arguments and on consideration of the contentions raised on both sides, the point that arises for consideration is whether the respondent/corporate debtor succeeds in proving existence of disputes in respect of the claim of the operational creditor 'If not, whether the applicant is barred by limitation'

8. The application is filed by one Mr. Kumar Dutta, sole proprietor of K.D.Trading/the operational creditor for initiating Corporate Insolvency Resolution Process as against the Simplex Infrastructure Limited/the corporate debtor.

9. The respondent/corporate debtor is a construction company dealing with infrastructure/construction industry. The corporate debtor issued various work orders between 01-03-2011 and 01-01-2014 to the applicant/operational creditor, who was appointed as a sub-contractor of the corporate debtor, for carrying out infrastructure job for various developmental works at the Electro Loco Factory Project Site of Railway Vikas Nigam Ltd. at Dankuni and Diesel Locomotive Workshop Project Site of Railway Vikas Nigam Ltd. at Dankuni. The details of Work Orders referred to in the application is admittedly issued by the corporate debtor to carry out the work. Admittedly the operational creditor substantially completed the work entrusted to it.

10. The operational creditor contends that the bills generated by the operational creditor was timely presented to the corporate debtor and payment has been made on the basis of issuance of the bills. But the corporate debtor did not fully discharged the entire debt due to the operational creditor and retained an amount of Rs. 17,51,781/- as the principal amount. The said amount is due with an interest @ 18% per annum and applicant claimed an amount of Rs. 35,34,541.60 as the outstanding amount due as on date of filing the application. According to the applicant despite demand the corporate debtor failed to repay the debt and therefore, there is a default and hence filed application for initiating Corporate Insolvency Resolution Process.

11. The respondent/corporate debtor disputed the claim of the operational creditor. Firstly, contended that there exists dispute regarding the amount claimed by the operational creditor long before the issuance of the demand notice and, therefore, the Adjudicating Authority is not competent to examine about the merit of the dispute and since there is pre-existing dispute the application is liable to be rejected. Secondly, contended that the claim of the applicant, if any, is barred by limitation.

12. The applicant filed this application along with an affidavit under section 9(3)(b) and bank certificate under section 9(3)(c) of the I & B Code and produced tine demand notice, reply notice received by the applicant and did not propose Resolution Professional. The application of the applicant is, therefore, complete and all the requirement to be meted out for consideration of an application of this nature is fulfilled on the side of the applicant. However, the claim of the applicant is in dispute by the corporate debtor. The balance amount claimed by the operational creditor is allegedly the aggregate amount retained by the corporate debtor raising frivolous allegations regarding the payment of taxes deducted at source by the corporate debtor. To substantiate the contention of the respondent that there exist a dispute regarding the amount retained by the respondent, the Ld. Counsel appearing on the side of the respondent referred to 2 (two) prior demand notices issued by tine operational creditor. Admittedly the operational creditor issued a demand notice dated 19/08/2016 demanding the very same amount from the corporate debtor and to the said demand notice corporate debtor sent a reply raising the very same contentions as raised in the reply notice given to the operational creditor dated 12/01/2018.

13. Annexure G at page 102 of the application is the copy of demand notice issued by the operational creditor under section 433(e) and under section 434 of the Companies Act, 1956 demanding Rs. 17,51,781.00 as the outstanding debts with 18% p.a. Interest to the tune of Rs. 6,93,256.50 towards interest calculated upto 31st July, 2016 informing the corporate debtor that failing to pay the said amount within 21 days of the receipt of the said notice the applicant shall be constrained to initiate proceedings for winding up. To the said notice the corporate debtor issued reply notice dated 24/09/2016. A copy of the reply notice produced on the side of the applicant is marked as Annexure H at page 111 of the application. Admittedly work orders were issued to the operational creditor between 2011 and 2014. In the said reply notice the respondent disputed the claim and contended that it has no liability to pay the amount demanded by the operational creditor. The dispute raised by the respondent in its reply notice dated 24.09.2016 read as follows:-

"3. (b) Pursuant to such work orders, your client undertook the work and our client made payments to your client as against work done by your client from time to time based on the bills raised by your client. The work awarded to your client was inclusive of taxes like value added taxes (VAT). As a registered dealer, your client was contractually as well as statutorily bound to file timely and correct tax returns disclosing the value of work done or turnover of materials supplied by them on behalf of our client, which they have failed to do, as will appear hereafter.

(c) On the other hand, our client, after deducting the works contract taxes at source from the bills of your client, duly deposited the same with the statutory authorities.

(d) At the same time, your client was also required, inter alia, to disclose its sales turnover and contract transfer price and pay taxes accordingly to the Sales Tax Authorities on the statutory date prescribed.

(e) Our client duly filed its Sales Tax Returns for each year between 2011-2012 and 2014-15 pertaining to the said project and claimed benefits and deductions available to our client under the prevailing laws.

(f) However, when the audit and assessment was done by the authorities under the WBVAT Act and Rules, it appeared that your client did not disclose and/or wrongly disclosed its sales turnover and did not discharge its tax liabilities for various bills raised on our client for supply of material for various periods during the period of the contract. This is apparent from he audit report of the Directorate of Commercial Taxes, Government of West Bengal.

(g) Due to such deliberate and wrongful disclosure and/or suppression of fact by your client, our client faces a huge liability to the sales tax authorities on account of deductions disallowed, for various months throughout the period of contract amounting to lakhs.

(h) Such deductions are rightfully available to our client under the prevailing laws but our client is being unlawfully deprived of the same due to your client's wilful and deliberate default in meeting it statutory obligations.

(i) As such our client is entitled to claim the entire amount of sales tax liability, which has now become a financial liability on our client, from your client and reserves its right to do so at the relevant point of time, once assessment of our client's liability is completed by the Directorate of Commercial Taxes, Government of West Bengal. The authorities will also recover interest and huge penalty from our client due to your client's deliberate act of not disclosing its actual turnover and/or not paying its taxes as per actual turnover."

14. A reading of the reply notice it is understood that a genuine dispute has been set out in regards to the amount admittedly retained by the respondent on account of the Work Orders awarded to the operational creditor and that claim of the respondent was seen not settled till the demand notice (Annexure J) issued under Section 8 of the I & B Code. It is also significant to note that one another notice dated 16/01/2017 was also issued by the operational creditor to the corporate debtor despite challenge raised by the respondent in its reply notice dated 24/09/2016. Ignoring the contentions raised by the corporate debtor in its reply (Annexure H), the operational creditor issued the notice dated 16.01.2017 under section 271(2)(a) of the Companies Act, 2013 demanding the very same amount with interest to the tune of Rs. 8,76,634.00 towards interest calculated upto 31/12/2016 @ 18% p.a. In the said notice also the corporate debtor was warned if not paid within 21 days the applicant will initiate proceedings for winding up.

15. It is submitted on the side of the respondent that to the said notice similar reply as referred to at page 111 of the application (Annexure H) has been send by the respondent but the applicant neither challenged any one of the reply notice send by the respondent nor issued rejoinder notice to the respondent. While the dispute raised by the respondent was pending with the applicant the demand notice was issued. In the demand notice also the applicant did not raise any challenge or denied the allegations raised by the respondent in the earlier reply notice issued to the applicant. On receipt of the demand notice the respondent replied by repeating the very same dispute as seen raised upon receipt of the two demand notice received prior to the demand notice was received by the respondent under section 8 of the I & B Code, 2016. In the reply notice dated 12/01/2018 (Annexure K) the respondent reiterated the dispute and referred to the earlier reply notice send by it. It is good to read its contention in its own words. Paragraph 2(d) at page 165 reads as follows:-

"2(d) We duly replied to such claim on February 14, 2017 . In such reply, it was reiterated that your claim was not payable by us as per our books of accounts as we have suffered due to your non-disclosure and/or wrong disclosure of your sales turnover and non-discharge of your tax liabilities for various bills raised on us for supply of material for various periods during the period of the contract. We are burdened with liabilities payable to Directorate of Commercial Taxes, Government of West Bengal solely due to your mala fide acts and/or omissions. "

16. The reply notice above referred also clearly reveals that the dispute regarding nondisclosure or wrong disclosure of sales turnover by the operational creditor and nondischarge of operational creditor's tax liability that enabling the corporate debtor to demand back the amount deducted was unsolved in between the operational creditor and the respondent/corporate debtor.

17. Ld. Counsel for the applicant at this juncture referring to the Annexure A, copies of tax returns filed by the operational creditor before the Joint Commissioner of Commercial Taxes, submitted that the operational creditor has paid taxes and the copies of returns prove payment of tax in respect of the work contract entered into between the operational creditor and the corporate debtor here in the case in hand.

18. Referring to the returns produced on the side of the operational creditor Ld. Counsel appearing on behalf of the respondent/corporate debtor contends that in the demand notice or in the application there is no reference to the return and that it is a new introduction of fact which was not pleaded in the application and that reference to the copy of return not at all proves with the turnover sales mentioned in the returns includes the work contract in between the operational creditor and the corporate debtor. The submissions on the side of the respondent seems to have some force. There is serious contentions on the side of the corporate debtor long before the date of issuance of the demand notice alleging that corporate debtor incurred huge liability to the Sales Tax Authorities on account of deductions allowed for various months throughout the period of contract amounting to lakhs and there is breach of contract on the side of the applicant. The question arises whether the corporate debtor is entitled to claim the entire amount of Sales Tax liability as as claimed by the respondent in its reply notice evidently issued prior to the service of demand notice to the applicant. So also question arises whether the copies of return produced on the side of the applicant along with the rejoinder related to the Work Orders in question or not 'Whether the operational creditor had deposited TDS with respect to the disputed liability claimed on the side of the respondent'; Whether there is breach of contract on the side of the applicant' are questions germane for consideration in the case in hand'

19. Bare in mind the proposition laid down in the Mobilox Innovations Private Limited vs. Kirusa Software Private Limited Case (2018) 1 SCO 353 I have no doubt to hold that the respondent/corporate debtor herein proved existence of a bona fide dispute, in respect of its liability to pay the amount claimed by tine operational creditor. The respondent has succeeded in establishing that there is pre-existing dispute in respect of the amount allegedly due to the operational creditor from the corporate debtor.

20. One another contention raised on the side of the corporate debtor is that the claim, if any, is barred by limitation. Admittedly the last bill on completion of the work contract by the operational creditor claimed by the operational creditor allegedly due arising out of Work Orders issued between 30/09/2013 and 30/09/2014. The application in the case in hand has been filed on 09/02/2018. Therefore, the claim of the amount due on the basis of above referred Work Orders is time barred. At this juncture Ld. Counsel for the operational creditor referring to the reply notice dated 24/09/2016 submits that there is an admission of amount retained by the corporate debtor and therefore, the period of limitation, if any, only runs from the date of admission, i.e., 24/09/2016 and therefore, there is no limitation.

21. To prove the admission ld Counsel for the applicant referred to Paragraph 3(1) in Annexure H at page 112. It reads as follows:-

"3(1) Our client has rightfully retained a portion of the billed amount out of the bills raised by your client until your client meets its contra

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ctually and statutory obligation of correctly disclosing the contract transfer price to the Directorate of Commercial Taxes, Government of West Bengal for annual sales tax returns for the duration of the contract. " 22. This paragraph in the reply notice cannot be read separately as red by the Ld. Counsel for the applicant. If read the reply notice in its entirety there is specific denial of the liability with a claim for damages seen set up by the respondent in it. Moreover, what amount the corporate debtor has retained is also not at all specified in the said paragraph. So it cannot be a wilful admission of the amount claimed by the operational creditor. Therefore, it appears to me that there is no admission of the amount in demand and therefore there is no extension of period of limitation as submitted by the operational creditor. 23. At this juncture one another argument was advanced by referring Company Appeal (AT) (Insolvency) No. 312 of 2018 (Mr. Brijesh Kumar Agarwal vs. Punjab National Bank & Anr.) of the Hon'ble NCLAT, New Delhi. According to him the period of limitation, if any, runs only from the 1st December, 2016 as the Insolvency and Bankruptcy Code, 2016 come in force on the said date. The Hon'ble Supreme Court in Neelkanth Township construction Pvt Ltd vs. Urban Infrastructure Trustee Ltd Civil Appeal No. 10711 of 2017 (2018) 2 Comp Cas OL 60 (SC) upon considering the question of application of Limitation Act in a proceedings initiated under the provisions of the l&B code, has held that "the question of law viz. Whether the limitation Act would apply to this proceedings, open". Bare in mind the above said proposition it appears to me that application of question of law of Limitation has to be dealt with the facts of the case in hand. More over as per the Amendment Ordinance 2018 the provisions of the Limitation Act,1963 mad applicable to the proceedings before the NCLT. Therefore no doubt the Law of Limitation is applicable and applying the Law of Limitation it appears to me the claim of the applicant is also barred by limitation. Accordingly the existence of a bona fide dispute established in the case in hand and the claim, if any, is found barred by limitation. This application is therefore, liable to rejected under section 9 (5) (ii)(d) of l&B code. 24. In the result this application is rejected. However, no order as to costs. 25. Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.
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