In this case, a project was awarded to a company called M/s Consolidated Construction Consortium Limited (appellant) by Chennai Metro Rail Limited (CMRL) for light fittings. The appellant, in turn, placed three purchase orders, all dated June 24, 2013, for purchasing the abovementioned product with a sole proprietorship firm M/s Hitro Energy Solutions, (proprietary concern). The proprietary concern was required to supply the light fittings manufactured by a company M/s Thorn Lighting India Pvt. Ltd. (TLIPL).
On being awarded the purchase orders, the proprietary concern requested the appellant for an advance of ₹50,00,000. On the request of the appellant, CMRL issued a cheque of ₹50,00,000 in favour of the proprietary concern as advance payment in lieu of the purchase orders.
Subsequently, on January 2, 2014, CMRL terminated the contract for light fittings. The appellant communicated this fact to the proprietary concern on the same day. The proprietary concern, who, in the meantime had encashed the cheque of ₹50,00,000, denied the fact that they were informed about the termination on the same day.
Since the contract was terminated, CMRL demanded refund of the amount of ₹50,00,000 from the appellant and also threatened that on the appellant’s failure to do so, it would deduct the said amount from the payment of the appellant, due under some other head. The appellant, thereafter, immediately refunded the amount of ₹50,00,000 to CMRL from its own sources and intimated the said fact to the proprietary concern. The appellant also demanded the refund of ₹50,00,000 from the proprietary concern.
In the meantime, on January 28, 2014, the respondent company was incorporated and in its Memorandum of Association (MoA), one of the objects was, “To take over the existing Proprietorship firm Viz. M/s Hitro Energy Solutions having its registered office at Chennai.” Since, the aforesaid amount was not refunded by the respondent, on July 23, 2016, the appellant again requested the respondent to refund the same, and also undertook to indemnify the respondent if at all CMRL raised any claim against the respondent for the refund of the amount of ₹50,00,000.
The respondent, on July 25, 2016, denied the request of appellant on the ground that they would refund the amount directly to CMRL as they were the ones who had paid the respondent. The respondent further stated that the information about the termination of the contract between CMRL and the appellant was received by them only vide the appellant’s letter dated July 23, 2016. Subsequently, in a joint meeting held between the representatives of appellant, respondent and TLIPL, the respondent again agreed to refund the above amount, subject to the appellant arranging a letter from CMRL to the effect that no claim would be made by them against the respondent. The appellant thereafter arranged one letter from CMRL, whereby it was stated that the payment of ₹50,00,000 was made to the respondent on behalf of appellant, duly debiting appellant’s account.
However, despite the above, no payment was made by the respondent and the appellant, vide its letter dated February 27, 2017, once again demanded refund of the amount along with the interest @18% per annum. The respondent, however, vide its reply dated March 2, 2017, refused to make any payment, based on a completely new plea that the light fittings ordered by the appellant were lying in their warehouse completely unused and the same resulted in losses to the respondent. The appellant then proceeded to issue a demand notice dated July 18, 2017, under Section 8 of the Code and demanded payment of ‘debt’ amounting to ₹83,13,973 fallen due and payable as on such date. The respondent, however, vide its letter dated July 28, 2017, denied that any debt was payable by them.
Hence, the appellant filed an application under Section 9 of the Code before the National Company Law Tribunal (NCLT) seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the respondent.
Source: Barandbench
