(2023) ibclaw.in 1056 NCLT
IN THE NATIONAL COMPANY LAW TRIBUNAL
Hyderabad Bench
K. Lakshma Reddy
v.
Telangana State Rajiv Swagruha Corporation Ltd.
CP No. 180/9/HDB/2022
Decided on 07-Dec-23
Coram: Coram: Shri Rajeev Bhardwaj (Judicial Member) and Shri Sanjay Puri (Technical Member)
Add. Info:
Case Status: Upheld by NCLAT, reported at (2024) ibclaw.in 325 NCLAT.
Corporate Debtor: Telangana State Rajiv Swagruha Corporation Ltd.
For Appellant(s): Mr. S.V. Akarsh, Advocate
For Respondent(s): Mr. Ganesh Pratapaneni, Advocate
Brief about the decision:
Facts of the case
- The application under Section 9 of the IBC has been filed by Mr.K.Lakshma Reddy, (operational creditor/applicant) for initiating CIRP against M/s.Telangana State Rajiv Swagruha Corporation (corporate debtor/respondent).
- M/s. Telangana State Rajiv Swagruha Corporation Limited had invited tenders for the construction of 57 Intrinsic Duplex Houses including infrastructure facilities for “Akshaya” colony in Karimnagar District under Rajiv Swagruha Scheme (Package II). The operational creditor, who is a contractor, also participated in the bidding process and the tender was awarded to him.
- The last date for submission of the bills was 14.02.2017 making the claim of the respondent unreliable that final bill was submitted on 04.09.2014.
Decision of the Adjudicating Authority
A. Period of limitation
- It is settled law that Article 137 is applicable for filing petition under Section 9 of the IBC. Hence, the applicant was required to approach this Authority within three years from 14.02.2020. In view of the Hon’ble Supreme Court Order in Suo Motu Writ Petition (C) No.3/2020, the period from 15.03.2020 till 28.02.2022 is to be excluded for determining the limitation. The demand notice was given on 02.02.2022 and the present petition was filed in May, 2022. Accordingly, the present petition is within the limitation period.(p12)
B. Process of Sec. 9 application
- An application under Section 9 of the Code, requires a ‘strict proof’ of ‘Debt and Default’. Before filing an application, the operational creditor is required to meet the requirements of Section 8, meaning that operational creditor must first send a notice to the corporate debtor calling him to pay the debt and when the default has occurred. After receiving the notice, the corporate debtor is to respond to this demand notice within 10 days, and apprise the operational debtor of (a) either the payment of the debt or (b) the existence of a dispute, if any, with regards to the debt. If, on the expiry of the 10 days, the operational creditor does not receive (a) the payment or (b) the notice of a dispute by the corporate debtor, the operational creditor may file an application.(p16)
- The operational creditor can send the demand notice either in Form 3 or Form 4 under Section 8 read with Rule 5 of the AAA Rules, 2016. Rule 5 provides the manner in which the demand notice under Section 8(1) has to be delivered.(p17)
- Thus, an operational creditor can send the demand notice through two methods: (i) a demand notice in Form 3; or (ii) a copy of an invoice attached with a notice in Form 4.(p18)
- It is clear that the applicability of Form 3 or Form 4 depends on whether the invoices were generated during the course of transaction or not. In case the demand notice is sent in Form 3, then the submission of a copy of the invoice along with the application in Form 5 is not a mandatory requirement, provided the documents to prove the existence of operational debt and the amount in default is attached with the application. Here we rely upon the decision in Neeraj Jain Director of M/s Flipkart India Private Limited versus Cloudwalker Streaming Technologies Pvt. Ltd. [2020] ibclaw.in 221 NCLAT.(p19)
- The applicant has sent the notice in Form 3, but he has failed to submit any documents to prove in existence of the operational debt and the date of default. Against column No.2, he has not given the date of default. Similarly, no document has been attached against column No. 7 in support of the operational debt except representation made to the government. The representation did not mention the date of sending it or who was the addressee, which will not meet the requirements of law that the debt must be supported by documents. The applicant has filed only synopsis of the details of the transaction in separate annexure attached with the demand notice, but no document supporting the debt has been attached. In Kodeboyina Srinivas Krishna versus PVM Innvensys Pvt. Ltd. (2020) ibclaw.in 92 NCLAT, it was held that the Demand Notice in Form 3 requires the date of default to be explicitly mentioned in the notice so that on the basis of documents the debt amount and the date of default could be ascertained. Hence, we think that the applicant failed to prove that legal notice was given to the respondent.(p21)
C. Whether Contractor of construction of flats for the Corporate Debtor is an operational creditor
- For an amount to be classified as an operational debt under the IBC, it is required to be proved:
- Firstly, the amount should fall within the definition of ‘claim’ as defined under section 3(6) of the IBC;
- Secondly, such a claim should be within the confines of a ‘debt’ as defined under section 3(11);
- Thirdly, such a debt should fall strictly within the scope of an ‘Operational Debt’ as defined under section 5(21) of the IBC.(p23)
- In view of Section 5(21), we can say that there are three types of operational creditors, namely: –
- (i) Those who supplied goods and/or rendering services to the ‘corporate debtor’;
- (ii) Employees of the ‘corporate debtor’; and
- (iii) Who has to pay dues arising under any law for the time being in force and payable under the existing law to the Central Government or State Government or local authority.(p24)
- It is in the context of definition of operational debt, the status of the applicant is to be determined. The applicant was to construct the flats for the respondent, therefore, it is clear that at least he does not fall either under clause (ii) or (iii).(p25)
- As such, the applicant has to prove that claim regarding the construction of flats would fall either under the term ‘goods’ or ‘services’. Goods are physical, tangible articles, while Services are nonphysical and intangible in nature and can also satisfy a need like goods. Examples of services are like banking, telecom, courier, hotel, airline, multiplex, train, doctors, lawyers, healthcare. Goods can be used, stored, evaluated, taken home, or consumed.(p26)
- Word ‘goods’ has not been defined under the IBC. However, this term has been defined under the Sale of Goods Act, 1930.(p27)
- Similarly, the term “services” used in the definition of 5(21) has not been defined under the IBC. Services are intangible and value-added activities. The expression “services” as per Black Law Dictionary is “the act of doing something useful for a person or company, usually for a fees”. Another meaning as per the Dictionary is, “an intangible commodity in the form of human effort, such as labour, skill or advises”. Likewise, meaning of “Service Charge” as per the Dictionary is a charge accessed for performing a service. Here we may also refer to the decision in Sanjaya Kumar Ruia versus Magna Opus Hospitality Pvt. Ltd. [2017] ibclaw.in 08 NCLT.
- Refer the decisions of the Hon’ble Apex Court in Pioneer Urban Land and Infrastructure Ltd. versus Union of India (2019) ibclaw.in 13 SC, wherein the term ‘operational creditor’ has been explained in the context of goods or services.(p29)
- In another decision in Swiss Ribbons (P) Ltd. v. Union of India (2019) ibclaw.in 03 SC, the constitutionality of certain provisions of the IBC was challenged, with the focus being on the difference of rights provided to the financial and operational creditors, when the interpretation of goods and services also arose.(p30)
- In view of the elucidation of the terms ‘goods’ and ‘services’, it is to be decided whether the applicant can be considered as operational creditor. The applicant has constructed flats for the corporate debtor and the dispute is about payment of dues for constructing flats. However, on that basis, the applicant can’t claim himself as operational creditor as dues to be paid does not relate to goods or services.(p31)
D. Other issue
- The applicant has not relied upon the bills which he raised for doing the work and similarly, the respondent has also not furnished the receipts showing the payment made to the applicant. Now it is to be determined whether the applicant is entitled for enhancement of rates as per G.O.Ms.No.35, Transport, Roads & Buildings (R.I) Department, dated 30.01.2009.(p32)
- Therefore, no enhancement has been given for steel and cement work. At the same time, it is required that progress of work etc. shall be basis for price adjustment which should have been approved by the competent authority.(p33)
- Thus, it is to be approved by the respondent that the bills have been raised on the basis of G.O.Ms.No.35 and the conditions of this letter have been fulfilled by the applicant. However, no such bill has been produced by the applicant to show that such demand was raised with the respondent. He has straight away filed tabulation sheet indicating the payment to be made on the basis of revised rate as per G.O.Ms.No.35, which calculation is also imaginary as no supporting document has been filed. The onus to prove that such type of work as given in the tabulation sheet at pg.387 to 421 was done by the applicant, but there is no such evidence. Hence, the loss to the applicant is not crystallized. This Authority exercising summary jurisdiction cannot determine the claim amount and initiate the corporate insolvency resolution process.(p33)
As a sequel to our findings as above, there is no merit in the present application. As a result, CP No.180/9/HDB/2022 is dismissed.(p34)
Judgment/Order:
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