Interpretation of Debt under Insolvency & Bankruptcy Code: Analysis of Rs Infra Project v. Supreme Infrastructure India Limited

Introduction

The case of Rs Infra Project v. Supreme Infrastructure India Limited adjudicated by the National Company Law Tribunal (NCLT), Mumbai Bench on March 20, 2020, serves as a significant examination of the provisions under Section 9 of the Insolvency & Bankruptcy Code, 2016 (I&B Code). This dispute revolves around the initiation of the Corporate Insolvency Resolution Process (CIRP) by RS Infra Projects, acting as an operational creditor, against Supreme Infrastructure India Limited, the corporate debtor. The core issues pertain to the legitimacy of the claimed debt, the validity of contractual agreements, and adherence to procedural compliances mandated by the National Highways Authority of India (NHAI).

The parties involved include RS Infra Projects, represented by its proprietor Mr. Ram Babu Sharma, and Supreme Infrastructure India Limited. The contention arises from the alleged non-payment of services rendered by RS Infra Projects as subcontractors for infrastructure development on KM Toll Road NH 8A in Gujarat.

Summary of the Judgment

RS Infra Projects filed an application under Section 9 of the I&B Code seeking initiation of CIRP against Supreme Infrastructure India Limited for an outstanding amount of ₹3,14,83,817. The petitioner based its claim on an alleged agreement dated July 20, 2015, asserting that it had provided various services as a subcontractor. Supreme Infrastructure contested the claim, arguing that the document in question was merely a Letter of Intent (LOI) and not a binding agreement, and further alleged the submission of bogus invoices by RS Infra Projects.

After a thorough examination of the submissions, the NCLT Bench observed that:

The document was an LOI, not a finalized agreement, pending acceptance by RS Infra Projects.
No evidence of work performed or joint volumetric measurements as stipulated in the LOI was provided.
The invoices presented lacked necessary validations, such as signatures, site addresses, CIN numbers, and were not served to the respondent.
No compliance with NHAI procedures, including royalty payments and material sourcing approvals, was demonstrated.

Consequently, the Bench dismissed the petition, concluding that there was no debt due and payable under Section 9 of the I&B Code.

Analysis

Precedents Cited

While the judgment does not explicitly cite previous cases, it extensively references and applies the provisions of the Insolvency & Bankruptcy Code, 2016. The decision underscores the importance of substantiating claims with concrete evidence, as mandated by the I&B Code. It aligns with the judiciary's trend of scrutinizing the bona fide nature of claims under insolvency proceedings, ensuring that only legitimate debts are entertained.

Legal Reasoning

The Tribunal's legal reasoning hinged on the distinction between a Letter of Intent and a binding agreement. The LOI explicitly stated that a detailed agreement would follow upon acceptance, which did not occur. This lack of a formal contract weakened the petitioner's position. Additionally, the absence of joint volumetric measurements, verified invoices, and compliance with NHAI procedures further undermined the legitimacy of the claimed debt.

The Bench emphasized the necessity of procedural adherence in contractual and billing processes. Without proper verification, certification, and compliance with the terms outlined in the LOI, the petitioner could not substantiate its claim of owed payments.

Impact

This judgment reinforces the critical nature of documentation and procedural compliance in insolvency claims. It serves as a precedent emphasizing that:

Letters of Intent do not automatically translate into enforceable agreements unless accepted and formalized.
Evidence of work performed, such as joint measurements and verified invoices, is indispensable for substantiating claims.
Adherence to regulatory procedures, especially in infrastructure projects governed by bodies like NHAI, is paramount.

Future litigants must ensure meticulous documentation and adherence to contractual terms and regulatory guidelines to avoid dismissal of their claims under the I&B Code.

Complex Concepts Simplified

Letter of Intent (LOI) vs. Agreement

A Letter of Intent (LOI) is a preliminary document outlining the terms and intent of parties to enter into a formal agreement. It signifies the willingness to negotiate but does not constitute a legally binding contract. An Agreement, on the other hand, is a finalized contract with definitive terms and obligations enforceable by law.

Section 9 of Insolvency & Bankruptcy Code

Section 9 pertains to the initiation of the Corporate Insolvency Resolution Process (CIRP) by operational creditors. For a claim to be valid under this section, the creditor must demonstrate that a debt is due and payable by the debtor, substantiated by valid contractual agreements and evidence of services or goods provided.

Volumetric Measurement

Volumetric Measurement refers to the quantification of work done based on volume, commonly used in construction and infrastructure projects. It involves precise calculation of materials moved or utilized, serving as a basis for billing and payment.

Corporate Identification Number (CIN)

A Corporate Identification Number (CIN) is a unique identifier assigned to companies registered in India. It provides essential information about the company, including its registration details, nature of business, and legal status, ensuring transparency and accountability.

Conclusion

The judgment in Rs Infra Project v. Supreme Infrastructure India Limited underscores the judiciary's commitment to upholding the principles of due diligence and procedural compliance within insolvency proceedings. By meticulously evaluating the legitimacy of the claimed debt, the NCLT Bench highlighted the necessity for operational creditors to present concrete evidence and adhere to agreed-upon contractual terms. This case serves as a pivotal reference for future insolvency litigations, emphasizing that mere assertions without substantive proof and procedural adherence are insufficient to invoke CIRP under the Insolvency & Bankruptcy Code, 2016. Consequently, it fortifies the standards for debt recognition and reinforces the integrity of the insolvency resolution framework.