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M/s. RK Associates & Hoteliers Pvt. Ltd. v/s BW Business World Media Pvt. Ltd.

    Company Appeal (At)(Insolvency) No. 511 of 2020

    Decided On, 12 February 2021

    At, National Company Law Appellate Tribunal


    For the Appearing Parties: Gagan Gupta, Petal Chandhok, Rupali, Sudhanshu Pandey, Advocates.

Judgment Text

Jarat Kumar Jain, J.

1. The Appellant M/s RK Associates & Hoteliers Pvt. Ltd. filed this Appeal against the impugned order passed by the Adjudicating Authority (National Company Law Tribunal) Bench (Court No. II), New Delhi on 20.02.2020 thereby dismissed the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (In Brief I&B Code).

2. Brief facts of this case are that in June, 2018 IRCTC Ltd. issued a tender document/corrigendum for publishing and distribution of the Board magazine for Indian Railways-Rail Bandhu. On 18.06.2018 the Operational Creditor (Appellant) and Corporate Debtor (Respondent) entered into a Memorandum of Understanding (MOU) for working together on the projects in Indian Railways. The purpose of the MOU was to cooperate for jointly qualifying, developing, bidding, executing and operating the projects in publication, printing and media. Both the parties envisaged execution of further document (Shareholder's agreement dated 06.12.2018) to form a Joint Venture Special Purpose Company as a bidding consortium with participation of both the parties with interest in the ratio of 50:50. The Corporate Debtor (Respondent) participated in the IRCTC tender and on 14/16.08.2018. IRCTC issued a Letter of Award for publishing and distribution of "On board magazine for Indian Railways-Rail Bandhu" in favour of the Corporate Debtor.

3. As per the Letter of Award, the Corporate Debtor was required to submit performance guarantee to IRCTC Ltd. For the same the Operational Creditor (Appellant) on 27.09.2018 transferred total amount of Rs. 72,09,975/- to the Corporate Debtor (Respondent) into tranches Rs. 31,37,500/- as its share towards performance guarantee and Rs. 40,72,475/- as share towards first instalment for the first year revenue share. On 29.09.2018 the Operational Creditor (Appellant) transferred further amount of Rs. 50 Lakhs to the Corporate Debtor by way of NEFT transfer. On 12.03.2019 IRCTC Ltd. terminated the contract awarded to the Corporate Debtor (Respondent) and encashed the performance guarantee and further inform that the liquidated damages shall be intimated in due course. Thus, for fault of the Corporate Debtor (Respondent) the amount of Rs. 1,22,09,975/- immediately felt due to the Operational Creditor (Appellant) w.e.f 12.03.2019 with interest @ 18% per annum. The dues remain unpaid, therefore, the Operational Creditor (Appellant) had sent a demand notice dated 31.05.2019 under Section 8 of the I&B Code. The Corporate Debtor (Respondent) had replied to the demand notice vide its letter dated 14.06.2019. The Contract was terminated by the IRCTC Ltd. due to breaches and defaults by the Corporate Debtor (Respondent). Thereafter, the Operational Creditor (Appellant) filed an Application before the Adjudicating Authority for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor (Respondent) under Section 9 of the I&B Code for the Operational Debt.

4. The Corporate Debtor (Respondent) has resisted the Application on the ground that there is a pre-existing dispute between the parties and arbitration proceedings is pending between the Corporate Debtor (Respondent) and IRCTC Ltd.

5. After hearing the parties, Learned Adjudicating Authority dismissed the Application on the ground that the debt in question is arising out of the payment made by the Operational Creditor as its share for submission of performance guarantee to the IRCTC Ltd. and for business proposition, it cannot be treated as Operational Debt under Section 5(21) of the I&B Code.

6. Being Aggrieved with this order, the Appellant has filed this Appeal.

7. Learned Counsel for the Appellant submitted that the definition of the claim is very wide and includes both a right to payment and also a right to remedy for breach of contract giving rise to payment even if such right is not reduced to Judgment. There is no dispute between the parties with respect to services provided and no dispute was raised by the Respondent prior to the notice under Section 8 of the I&B Code. A perusal of clause 9(ii) (d) and clause 12(ii) of the MOU would reveal that the amount paid by the Appellant to the Respondent become an Operational Debt, immediately after termination of the contract of the Respondent by IRCTC Ltd. The Adjudicating Authority presumed that the entire amount of Rs. 1,22,09,975/- was paid by the Appellant to the Respondent as its share of performance guarantee submitted to IRCTC Ltd., actually only Rs. 72,09,975/- was paid towards performance guarantee and remaining Rs. 50 lakhs was paid for various expenses that the Respondent would incur for the execution of the project. In any case entire amount was paid in relation to services provided by the Appellant to the Respondent. Hence, the claim is Operational Debt under Section 5(21) of the I&B Code. The Corporate Debtor has defaulted in payment. No Joint Venture was formed between the parties and the Appellant was accommodated as a sub-contractor. Thus, the Operational Debt is due and Respondent committed default is proved. However, Ld. Adjudicating Authority erroneously dismissed the Application. Therefore, impugned order is liable to be set aside.

8. Per Contra Learned Counsel for the Respondent supported the impugned order and has drawn our attention towards the terms and conditions of the MOU and Shareholders agreement dated 06.12.2018 and submits that this is a case of Joint Venture. The Appellant and Respondent are partner and they have invested 50:50 and entitled for the profit for the same proportion. The Respondent was awarded a contract for publication and distribution of the board magazine for IRCTC Rail Bandhu. The Appellant remitted an amount of Rs. 72,09,975/- towards 50% share of the performance guarantee that was submitted with IRCTC Ltd. Thereafter, the Appellant further remitted an amount of Rs. 50 lakhs towards their share of various expenses that would be incurred for the execution of the project. As per the agreement between the parties, the Respondent has to publish the magazine and the Appellant has to distribute the magazine. However, the Appellant has failed to perform their part. which is evident from the termination letter dated 12.03.2019. The Appellant has not supplied any goods or provided services to the Respondent. Thus, there is no relationship between them as Operational Creditor and Corporate Debtor. The Impugned order does not require any interference by this Appellate Tribunal and the Appeal is liable to be dismissed.

9. After hearing learned counsel for the parties, we have gone through the record.

10. The Appellant and Respondent enter into MOU dated 18.06.2018, which is as under: -


11. The MOU was intended to establish the Key terms and principals of collaboration and mutual understanding of the parties. As per the terms and conditions of the MOU, the Appellant and Respondent have mutually agreed that they wish to cooperate for the purpose of evaluating the possibility of jointly qualifying, developing, bidding and successful execution and operating the projects in publication, printing and media. It was also agreed between them that they jointly submit a bid for any of the projects but where joint bid is not stipulated by the client, allow either of the parties fulfilling the qualification criteria to submit bid as a single entity and if awarded accommodate other party as sub-contractor and if the awarded any of the projects, execute their respective obligation in accordance with the terms of the provisions of the MOU and any subsequent agreements.

12. Clause 5 of the MOU provides that if so require by the tender document and if so agreed unanimously by the parties as soon as reasonably practicable following the date of being designated preferred bidder under the RIP, RKHPL and BW shall incorporate a special purpose vehicle for the sole purpose of undertaking the financing and execution of the project (Project Company). The shareholding of the project company shall also be 50:50. In furtherance of the MOU on 06.12.2018 the Appellant entered into a Shareholder's agreement with the Respondent for the purposes of executing the project. On behalf of the Appellant Company, the agreement is signed by the Rajiv Mittal, however, the Appellant in Memo of Appeal explained that the Appellant has prepared and sent to the Respondent the drafted Shareholder's agreement but the draft agreement was never signed by the Director of the Appellant. It is to be seen that the Appellant has not specifically denied that Rajiv Mittal has not signed the agreement on behalf of the Appellant Company. Counter Affidavit of Rajiv Mittal has also not been filed by the Appellant. Therefore, we are of the view that in pursuance of the Clause 5 of MOU Shareholder's agreement was executed by the parties. Clause 5 (ii) of the MOU provides that the shareholding of the project company shall be 50:50 and Clause 5 (vii) of MOU provides that if the project does not reach financial closure, the parties acknowledge and agree that none of them will neither receive any compensation nor reimbursement of their internal or external costs and that there shall be no further liability among the parties except as otherwise provided in the MOU or in any other agreement between the parties. As per the clause 12(iv) it is also agreed between the parties that in this MOU no party shall be liable to the other party for any consequential loss or damage, such as loss of profit, loss of reputation, loss of revenue, loss of interest and under or in connection with this MOU on its termination.

13. With the terms and conditions of the MOU it is clear that the project under taken by the parties is a Joint Venture and therefore, the Appellant has paid the 50% of performance guarantee though the contract was awarded to the Respondent. There is nothing in this MOU that the Appellant has to provide services to the Respondent. Even the Appellant is not able to demonstrate which type of services provided by them to the Respondent. In the Application under Section 9 of the I&B Code r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016, it is nowhere mentioned that the Appellant has provided services or supplied goods to the Respondent. The Adjudicating Authority has rightly held that the payment made towards performance guarantee or any such business pr

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oposition cannot be treated as Operational Debt under Section 5 (21) of the I&B Code. We are fully agree with findings of the Ld. Adjudicating Authority. 14. This Appellate Tribunal in the case of M/s Sree Sankeshwara Foundation and Investments Vs. M/s Dugar Housing Limited (CA (AT) (Ins) No. 515 of 2019) decided on 25.11.2019 held that: "The Appellant alongwith Respondent (Corporate Debtor) had executed Joint Development Agreement in the year 2012 for construction of structure and allotment to allottees. Both of them being parties to a joint venture project, we hold that the Appellant cannot claim to be 'Operational Creditor' as it does not relate to supply of goods nor service rendered by the Appellant. If joint venture rendered any service to the allottees and for that to pay service tax it does not mean that the parties of the joint venture will render service to each other" 15. With the above discussion, we are of the view that Adjudicating Authority has rightly rejected the Application under Section 9 of the I&B Code, as not maintainable. Accordingly, the Appeal is dismissed. However, no order as to costs.