M/s. Ahluwalia Contracts (India) Limited v. Logix Infratech Private Limited, National Company Law Appellate Tribunal, Judgment, Law, casemine.com

Factual and Procedural Background

This appeal arises from an order dated 03.06.2022 passed by the Adjudicating Authority in CP (IB) No. 882/ND/2022, rejecting the appellant's application filed under Section 9 of the Insolvency and Bankruptcy Code, claiming Rs. 7,72,00,000/- as operational debt. The appellant, Ahluwalia Contracts (India) Ltd., was awarded a contract by the corporate debtor, Logix Infratech Pvt. Ltd., to carry out civil and structural work for the "Logix Group Blossom Green" project and related works. After completion of the work, a final bill was prepared and signed by both parties, followed by a Memorandum of Understanding (MoU) dated 30.09.2019 that outlined the payment terms for Rs. 11 crores due to the appellant. The appellant filed the Section 9 application due to the corporate debtor's breach of payment obligations. The Adjudicating Authority rejected the application on the ground that dues arising from the settlement agreement may not constitute an operational debt, rendering the Section 9 application not maintainable.

Legal Issues Presented

Whether the dues arising from the breach of a settlement agreement (Memorandum of Understanding) entered after a contract and final bill certificate can be considered an operational debt under Section 9 of the Insolvency and Bankruptcy Code.

Whether the Section 9 application filed by the operational creditor is maintainable when the corporate debtor has breached the payment terms agreed in the MoU.

Arguments of the Parties

Appellant's Arguments

The appellant was an operational creditor awarded the contract for construction works by the corporate debtor.

A final bill for payment was prepared and duly signed by both parties, confirming the amount due.

The parties entered into a Memorandum of Understanding on 30.09.2019, which referred to the contract and set the terms for payment of Rs. 11 crores.

The corporate debtor breached the payment terms under the MoU, entitling the appellant to file an application under Section 9.

The rejection of the Section 9 application by the Adjudicating Authority was incorrect as the dues claimed constitute operational debt.

Respondent's Arguments

The respondent supported the order of the Adjudicating Authority rejecting the Section 9 application.

However, the respondent did not dispute the corporate debtor’s inability to make payment as per the MoU and final bill certificate.

Court's Reasoning and Analysis

The court examined the nature of the contractual relationship and the subsequent Memorandum of Understanding between the parties. It noted that the appellant was awarded the contract for construction work and that the final bill certificate, signed by both parties, acknowledged the amount due. The MoU only regulated the mode and manner of payment after the final bill was certified. The Adjudicating Authority had relied on prior NCLT orders to hold that the appellant was not an operational creditor and thus the Section 9 application was not maintainable. The court found this conclusion erroneous, emphasizing that the dues claimed arose from an operational debt related to construction work performed. The Adjudicating Authority failed to consider the true nature of the transaction and wrongly rejected the application. The court also noted that the respondent conceded the corporate debtor’s inability to pay as per the MoU.

Holding and Implications

The court allowed the appeal and set aside the order of the Adjudicating Authority. It directed the Adjudicating Authority to admit the Section 9 application and pass consequential orders within four weeks from the date of receipt of the order. The decision directly benefits the appellant by reinstating their claim under the Insolvency and Bankruptcy Code. No new precedent was established beyond the immediate effect of correcting the maintainability of the application in this case.

M/s. Ahluwalia Contracts (India) Limited v. Logix Infratech Private Limited

Company Appeal(AT) (Insolvency) No. 696 of 2022

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,

NEW DELHI

Company Appeal(AT) (Insolvency) No. 696 of 2022

IN THE MATTER OF:

Ahluwalia Contracts (India) Ltd. …Appellant Versus

Logix Infratech Pvt. Ltd. …Respondent Present:

For Appellants : Mr. Nikhil Nayyar, Sr. Advocate, Mr. Paras Mittal, Mr. Mritunjay Kr. Singh, Mr. Dhruv Rohatgi, Ms. Shairya Singh, Advocates

For Respondent : Mr. Nitish K. Sharma, Advocate

ORDER

08.09.2022: Heard Learned Counsel for the Appellant as well as Learned Counsel appearing for the 'Corporate Debtor'.

2. This appeal has been filed against the order dated 03.06.2022 passed by the Adjudicating Authority in CP (IB)No.882/ND/2022 in the application filed by the Appellant u/s 9 claiming an amount of Rs. 7,72,00,000/-.

3. The Adjudicating Authority issue notice to the parties and after hearing the parties, had rejected the application on the ground that for breach of settlement agreement, application u/s 9 is not maintainable since the dues arising out of settlement may not be an 'operational debt'.

4. The Appellant challenging the order, contends that the Appellant was Operational Creditor who was awarded contract by the Corporate Debtor to

carry on civil and structural work. It is submitted that after the award of contract, final bill for payment was prepared which was duly signed by both the parties. Consequently, Memorandum of Understanding / settlement agreement was entered between the parties on 30.09.2019 where the earlier contract as well as the subsequent Memorandum of Understanding were referred as to contract and according to settlement agreement, the amount of Rs. 11 crores was to be paid to the Appellant towards work done under the contract. It is submitted that there being breach in the payment to the Appellant/Operational Creditor, the application was filed u/s 9 which has been wrongly rejected.

5. Learned Counsel for the Respondent has supported the order of Adjudicating Authority. However, he does not dispute that Corporate Debtor was unable to make the payment to the Appellant as per Memorandum of Understanding and as per the final bill certificate signed by both the parties. We have considered the submissions of the parties and perused the records.

6. Present is a case, where the Appellant was awarded contract by the Corporate Debtor for construction of 'Logix Group Blossom Green' Project and another work was awarded on 11.07.2014 to construct balance work of non tower area for same project.

7. The Operational Creditor has carried out the work and as per the final bill certificate, an amount of Rs. 11 crores was to be paid. Subsequently, Memorandum of Understanding was entered on 30.09.2019 laying down the manner of payment of Rs. 11 crores amount on breach of which compelled the Appellant to file section 9 application.

8. The Adjudicating Authority has in the impugned order relied on the two orders passed by NCLT and has held that Applicant is not covered as Operational Creditor, hence the application is not maintainable.

9. Present is a case where the Appellant was awarded the contract to carry on construction and structural work and the dues claimed by the Appellant are operational debt. The Memorandum of Understanding entered between the parties was only with regard to mode and manner of payment, that too after final bill certificate which was duly signed by both the parties.

10. Adjudicating Authority did not consider the nature of transaction between the parties and has erroneously come to the conclusion that section 9 application was not maintainable. The judgement of Adjudicating Authority cannot be sustained.

11. Learned Counsel for Respondent has also fairly submitted that Corporate Debtor is unable to make payment.

12. In view of the above, we allow the appeal by setting aside the order of Adjudicating Authority directing the Adjudicating Authority to pass an order of admission and other consequential order within a period of four weeks from the date of receipt of this order. The appeal is allowed accordingly. [Justice Ashok Bhushan]

Chairperson

[Mr. Barun Mitra]

Member (Technical)

ss/nn

Company Appeal(AT)(Ins) - 696/2022

M/s. Ahluwalia Contracts (India) Limited v. Logix Infratech Private Limited

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

M/s. Ahluwalia Contracts (India) Limited v. Logix Infratech Private Limited

Comments