National Company Law Appellate Tribunal
Hardwin Construction Private Limited vs Ongc Petro Additions Limited on 14 March, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Insolvency) No. 585 of 2021
IN THE MATTER OF:
Hardwin Construction Pvt. Ltd. ...Appellant
Versus
ONGC Petro Additions Ltd. Respondent
Present:
For Appellant: Mr. Jayendra M. Shah, Advocate.
For Respondent: Mr. Akshat Khare, Advocate.
ORDER
(Virtual Mode) 14.03.2022: Heard Shri Jayendra M. Shah, learned counsel for the Appellant and Shri Akshat Khare, learned counsel for the Respondent. This Appeal has been filed against order dated 02.02.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Court No. 1 by which, application filed under Section 9 by the Appellant - Operational Creditor has been dismissed.
2. The Appellant (hereinafter referred to as 'Operational Creditor') was issued two Work Orders by 'Fernas Construction India Pvt. Ltd.' (hereinafter referred to as 'FERNAS'/ 'FCIPL') on 16.05.2014 and 17.08.2016. The Corporate Debtor i.e. 'M/s ONGC Petro Additions Ltd.' issued Letter of Assurance dated 24.03.2015 and 02.09.2016 to the Operational Creditor assuring that all conditions of the contracts will be honoured and the Corporate Debtor will make payments directly to the Operational Creditor after receipt of invoice duly certified by FCIPL and EIL (Engineers India Ltd.). After 2 the aforesaid Letter of Assurance, certain payments were directly made to the Operational Creditor by the Corporate Debtor. Certain bills and invoices were raised by the Operational Creditor and the notice under Section 8 was issued by the Operational Creditor on 25.05.2018 demanding payment from the Corporate Debtor for works performed by the Operational Creditor to the extent of Rs.1,51,14,649/-.
3. The Section 8 notice was replied by the Corporate Debtor denying the claim of the Operational Creditor. It was stated in the reply that the Corporate Debtor has decided to make direct payment to the Sub-contractor/Vendors of FCIPL including the Operational Creditor for the works to be executed w.e.f. 01.09.2014 only with a view to get the work of the contract done smoothly in the interest of the Corporate Debtor and subject to methodology agreed between Corporate Debtor and FCIPL which includes certification of works done by Operational Creditor from FCIPL and EIL. In the reply all claims made by the Operational Creditor were refuted. The Appellant thereafter filed application under Section 9 claiming the payment from the Corporate Debtor for the amount indicated in the notice under Section 8. The reply was filed to Section 9 application by the Corporate Debtor refuting the claim of the Appellant. It was pleaded by the Corporate Debtor that all bills issued by the Operational Creditor which have been certified by FCIPL and EIL as per methodology indicated in the Assurance Letter have already been paid and there is no claim of the Operational Creditor received with regard to payment of bills which have been certified by FCIPL and EIL.
Company Appeal (AT) (Insolvency) No. 585 of 2021 3
4. The Adjudicating Authority after hearing both the parties held that there was no privity of contract between the Operational Creditor and Corporate Debtor, hence, the application cannot be admitted. In paras 6 and 7 of the order of the Adjudicating Authority following observations have been made:
"6. From the perusal of the above, we find sufficient merit in the claims made by and on behalf of the alleged Corporate Debtor as these letters merely state that the payment due to the work done by the main contractor i.e. M.S FCIPL through the Operational Creditor would be made directly to the Operational Creditor. In our considered view, this is the real substance of these two letters. Further, this also requires various formalities to be completed before such payment could be released. We also find that the direct payments were to be made for the works to be executed w.e.f. 10.09.2014 only and this arrangement has been made to complete the balance pending work. We also find that the payment as per assurance can be made only when invoices are duly certified by the main contractor as well as Project Manager of M/s Engineers India Ltd. with the specific recommendation as to the amount which could be paid. The said assurance is not provided, hence, in our view, no liability can be imposed upon the alleged Corporate Debtor on the basis of said letters of assurance. We also find that the deduction for retention money has also been made by FCIPL as far as Operational Creditor is considered and not by the alleged Corporate Debtor. We have also taken note of the fact that neither such retention money has been deducted by Company Appeal (AT) (Insolvency) No. 585 of 2021 4 the alleged Corporate Debtor nor it is a subject matter of the said letters of assurance. We also find that the main contractor has not raised the bills for the alleged outstanding amounts as well as retention money nor any claim till then had been filed before the RP of FCIPL who was undergoing CIRP. We also find that the reply to notice of demand issued under Section 8 of IBC, 2016, alleged Corporate Debtor has clarified its stand and opposed the demand so raised.
7. Thus, considering the fact and circumstance of the case, we conclude that in the absence of privity of contract and non-compliance of the submission of invoices/bills by the main contractor along with necessary back up documents required as 0per the contractual provisions, the said letters of assurance do not result into a cause of action against the alleged Corporate Debtor. We also find that the Corporate Debtor is Public Sector Undertaking (PSU), hence, instead of pursuing its claim with the main contractor, the Operational Creditor has chosen to file this application. Normally, in these circumstances, we could have imposed costs for abuse the process of law but considering the fact that some correspondence executed between the Operational Creditor as well as alleged Corporate Debtor, we give benefit of doubt and refrain from doing so."
5. Learned counsel for the Appellant challenging the order of the Adjudicating Authority contends that when the Corporate Debtor by Letters of Assurance dated 24.03.2015 and 02.09.2016 has undertaken to honour all Company Appeal (AT) (Insolvency) No. 585 of 2021 5 conditions of the contract, it was incumbent upon the Corporate Debtor to make all payments pertaining to bills of the Operational Creditor after 01.09.2014. It was submitted that when FERNAS was expelled by the Corporate Debtor there was no occasion for the bills to be certified by the FERNAS. It is submitted that the Appellant has completed its work but no payment has been received. It is submitted that it is liability of the Corporate Debtor to make payment against all works done.
6. Learned counsel for the Respondent refuting the submission of the Appellant contends that all payment of the bills submitted by the Operational Creditor which were duly certified as per the methodology have already been cleared and there is no bill which is due on the Corporate Debtor which was certified by the FCIPL and EIL. It is submitted hat the Corporate Debtor has never stepped into the shoes of FERNAS and only limited undertaking to make payment directly to the Operational Creditor in the interest of the work was made which was subject to certification of bills by FERNAS and EIL. It is submitted that Appellant cannot claim any payment on bills which are not certified by FERNAS and EIL.
7. We have considered submissions of learned counsel for the parties and perused the record.
8. Work Order to the Operational Creditor was issued by FERNAS on 16.05.2014 and 17.08.2016. Under the Work Order issued by FERNAS the work was to be carried on by the Operational Creditor. The FERNAS was the Principal Contractor of the Corporate Debtor. For exigencies of work Company Appeal (AT) (Insolvency) No. 585 of 2021 6 Corporate Debtor issued two letters dated 24.03.2015 and 02.09.2016 to the Operational Creditor. It is useful to extract letter dated 24.03.2015 which was issued by the Corporate Debtor to the Operational Creditor, which is to the following effect:
"Date 24/03/2015 To, M/s Hardwin Construction Pvt. Ltd., B-106, Kukreja Centre, Sector-11, CBD, Belapur Navi Mumbai 400 614 Kind. Attn. Mr. Anil Kumar Singh Subject: Assurance for payment to M/s Hardwin Construction Pvt. Ltd.
Reference- Work order nos.
FCIPL/OPaL/Contracts/311 dated 26 November,
2014 (amended), FCIPL/OPaL/Contracts/325 dated 29 August, 2014 and FCIPL/OPaL/Contracts/328 dated 8 September, November, 2014 placed by M/s th FERNAS on M/s Hardwin Construction Pvt. Ltd.
Dear Sir, With reference to the Work Orders mentioned above, placed by M/s FCIPL on you with regard to supply of various items as mentioned in WO, fabrication and erection of fire sprinkles, installations & dismantling of scaffoldings, OPaL is hereby confirming that all the conditions of the contracts will be honored and the Company Appeal (AT) (Insolvency) No. 585 of 2021 7 payment w.e.f. 1 September, 2014 will be paid to you st directly by OPaL within 15 days from the date of receipt of invoices duly certified by M/s FCIPL and EIL.
Thanking you, Yours faithfully, Sd/-
K. Satyanarayana CEO OPaL"
9. To the similar effect is next letter dated 02.09.2016 which stated that the Corporate Debtor is confirming that all the conditions of the contract will be honored and Corporate Debtor shall make the payments directly to the Operational Creditor once services as per aforesaid mentioned letter will be provided and after the receipt of invoice duly certified by M/s FCIPL and EIL.
10. One of the submissions which has been raised by learned counsel for the Appellant is that in view of the aforesaid Letter of assurance the Corporate Debtor is substituted in the shoes of FERNAS and all liabilities under the Contract/ Work Order with the FERNAS had been undertaken by the Corporate Debtor, hence, all work which was done by the Operational Creditor will be liable to be paid by the Corporate Debtor.
11. When we look into the Letter of Assurance issued by the Corporate Debtor, it is clear that the Corporate Debtor undertook to make payment directly to the Operational Creditor w.e.f. 01.09.2014 which was subject to receipt of invoices duly certified by M/s FCIPL and EIL. Thus, certification of Company Appeal (AT) (Insolvency) No. 585 of 2021 8 invoices by M/S FCIPL and EIL was condition precedent for making payment. Said Letter of Assurance cannot be stated to be a letter by which the Corporate Debtor substituted itself in the shoes of FERNAS. The assurance was for limited purpose and Corporate Debtor was liable to adhere to the assurance as per assurance given in the said letter.
12. Learned counsel for the Respondent has placed reliance on judgment of Hon'ble Supreme Court in "Essar Oil Ltd. vs. Hindustan Shipyard Ltd. & Ors.', judgment reported in (2015) 6 SCC 642, in case of similar facts, where ONGC was making direct payment to the sub-contractor, it was held that ONGC cannot be substituted in place of the Principal Contractor. In Paras 24, 25 and 26 of the Judgment following has been laid down:
"24. It is true that the ONGC had made payment to the appellant directly on several occasions. Upon perusal of the correspondence, we find that some understanding, but not amounting to any agreement or contract, was arrived at between the ONGC and the Respondent for making direct payment to the Appellant, possibly because the Respondent was not in a position to make prompt payments to the Appellant. It also appears that on account of the delay in making payment to the Appellant, the work of the ONGC was likely to be adversely affected. The ONGC was interested in getting its work done promptly and without any hassles. In the circumstances, upon perusal of the correspondence, which had taken place between the ONGC and the Respondent, it is clear that so as to facilitate the Respondent, the ONGC had made Company Appeal (AT) (Insolvency) No. 585 of 2021 9 payments on behalf of the Respondent to the Appellant directly.
25. Simply because some payments had been made by the ONGC to the Appellant, it would not be established that there was a privity of contract between the ONGC and the Appellant and only for that reason the ONGC cannot be saddled with a liability to pay the amount payable to the Appellant by the Respondent.
26. It is also pertinent to note that the Arbitration Agreement was only between the Appellant and the Respondent. The ONGC was not a party to the Arbitration Agreement. When a dispute had arisen between the Appellant and the Respondent in relation to payment of money, the Appellant had initiated the arbitration proceedings. As the ONGC was not a party to the Arbitration Agreement, it could not have been represented before the Arbitral Tribunal. If the ONGC was not a party before the Arbitral Tribunal, the Tribunal could not have made any Award making the ONGC liable to make payment to the Appellant. In the aforestated factual and legal position, the Arbitral Tribunal could not have made the ONGC liable in any respect and rightly, the majority view of the Arbitral Tribunal was to the effect that the ONGC, not being a party to any contract or Arbitration Agreement with the Appellant, could not have been made liable to make any payment to the Appellant."
Company Appeal (AT) (Insolvency) No. 585 of 2021 10
13. We, thus, are of the view that the present is the case where Corporate Debtor shall not be treated to be substituted in place of the Original Contractor and limited liability to make payment was accepted by the Corporate Debtor subject to certification of the bills by the Original Contractor. Before the Adjudicating Authority itself, the Corporate Debtor has filed detailed reply where with regard to all items of the claim made by the Operational Creditor detailed reply was given. It was clearly pointed out in Para 21 of the Reply that the bills which are claimed by the Appellant could not be paid due to non- certification of invoices and in Para 21 following pleadings has been made by the Corporate Debtor:
"21. I say and submit that with reference to first allegation regarding non-payment of some of the alleged invoices namely (RA bill No. 03A, RA-07, RA-
08, RA-09, RA-28) amounting to Rs. 3,767,647.5/, it is submitted that same has not been paid by respondent due to certain deficiencies i.e. non-
compliance of the following explicit conditions:
I. Non-amended work order;
II. Non-submission of the Undertakings by FCIPL; III. Non-certification of the invoices by FCIPL and; IV. Not providing indemnity.
Hence, in view of the above deficiencies, the aforesaid invoices were not processed by OPaL. In Company Appeal (AT) (Insolvency) No. 585 of 2021 11 other words as the Petitioner had not complied with the explicit conditions of the Letter of Assurance issued by OPaL, there cannot be any liability posed qua the said unpaid bills because of noncompliance of aforementioned deficiencies. Thus, these bills cannot be considered as a debt in any stretch of imagination over the Respondent OPaL and thus the said petition is required to be rejected being a misuse of the process of law by the petitioner."
14. With regard to retention of money, in Para 23 it was mentioned that the retention money has not been deducted by the Corporate Debtor and there is no claim of payment of retention money. The claim of TDS has been dealt with in Para 24 of the Reply.
15. Thus, the plea of the Corporate Debtor was on fore-front that it has undertaken to make payment of only those bills which were certified by FCIPL and EIL. The Appellant's submission that since FERNAS was expelled by the Corporate Debtor there was no need for the Operational Creditor to get bills certified, cannot accepted. From the invoices which are on the record, it is clear that invoices were issued to the FCIPL and invoices were not directly issued to the Corporate Debtor. The invoices were issued to the FCIPL only for the purpose of due certification by FCIPL and EIL, so that the Corporate Debtor may make the payment. In facts of the case, we are of the view that the Adjudicating Authority has not committed any error in rejecting the Company Appeal (AT) (Insolvency) No. 585 of 2021 12 Section 9 Application filed by the Operational Creditor. There is no merit in the Appeal. The Appeal is dismissed.
[Justice Ashok Bhushan] Chairperson [Dr. Alok Srivastava] Member (Technical) Archana/nn Company Appeal (AT) (Insolvency) No. 585 of 2021