Ahluwalia Contracts (India) Ltd. Vs Logix Infratech Pvt. Ltd. (NCLAT Delhi)
Summary: NCLAT Delhi allowed the appeal filed by Ahluwalia Contracts (India) Ltd. and set aside the Adjudicating Authority’s order dated 03.06.2022 rejecting its application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Appellant had been awarded contracts by the Corporate Debtor, Logix Infratech Pvt. Ltd., for construction, civil and structural works relating to the “Logix Group Blossom Green” Project, including further balance work awarded on 11.07.2014.
After execution of the works, a final bill certificate was prepared and duly signed by both parties, under which Rs. 11 crores was payable to the Operational Creditor. Thereafter, the parties entered into a Memorandum of Understanding/settlement agreement dated 30.09.2019 prescribing the manner in which the Rs. 11 crores was to be paid. On failure to receive payment, the Operational Creditor filed a Section 9 application claiming Rs. 7,72,00,000/-. The Adjudicating Authority rejected the application on the reasoning that a Section 9 proceeding was not maintainable for breach of a settlement agreement because dues arising from such settlement might not constitute “operational debt.”
NCLAT held that this approach failed to consider the true nature of the underlying transaction. The dues had arisen from construction and structural work performed by the Appellant and therefore constituted operational debt. Crucially, the subsequent Memorandum of Understanding did not replace the underlying transaction or transform the nature of the debt; it merely provided the mode and manner for payment of an amount already crystallised under the final bill certificate.
The Corporate Debtor also did not dispute its inability to make payment under the Memorandum of Understanding and the signed final bill certificate. NCLAT therefore held that the Adjudicating Authority had erroneously concluded that the Section 9 application was not maintainable. The impugned order was set aside and the Adjudicating Authority was directed to pass an admission order and consequential orders within four weeks from receipt of the NCLAT order. The appeal was accordingly allowed.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
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 under Section 9 claiming an amount of Rs. 7,72,00,000/-.
3. The Adjudicating Authority issued notice to the parties and, after hearing the parties, rejected the application on the ground that, for breach of settlement agreement, an application under Section 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 an 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, a 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 to as 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 under Section 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 the 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, 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 judgment 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.
