BEFORE THE NATIONAL COMPANY LAW TRIBUNAL

MUMBAI BENCH
CP No. 1356/IBC/NCLT/MB/MAH/2017
Under Section 9 of the Insolvency and
Bankruptcy Code, 2016 r.w. Rule 6 of the
Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016

In the matter of
Gujarat Urja Vikas Nigam Limited
...Operational Creditor
(Petitioner)
v.
Nitash Co-generation Private Limited
..Corporate Debtor
(Respondent)
Heard on : 22.04.2019
Order delivered on : 08.05.2019

Coram :
Hon’ble M. K. Shrawat, Member (J)
For the Petitioner :
Advocate Sakil Ansari a/w Advocate Pratap Nimbalkar.

For the Respondent :

Adv Ishita Advani i/b Desai & Diwanji.

Per: M.K. Shrawat, Member (Judicial)

ORDER

1. This is a Petition filed under section 9 of Insolvency & Bankruptcy Code, 2016
(hereinafter as Code) read with Rule 6 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 (hereinafter as Rules) on
08.09.2017 by the Petitioner ‘Gujarat Urja Vikas Nigam Limited’ in the capacity
of “Operational Creditor”, against Nitash Co-generation Private Limited
(hereinafter as ‘Corporate debtor’) having registered address at 218, Wadala
Udyog Bhavan, Naigaum Cross Road, Wadala, Mumbai-400031.
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2. The Petitioner has submitted Form-5 as prescribed under the rules. In the
requisite Form, under the Head “Particulars of Operational Debt” the total
amount in default is stated as ₹6,59,19,000/-, as on 05.01.2014.
A. Background of the Case :
3. The Operational Creditor and the Corporate Debtor entered into a Power
Purchase Agreement (“Agreement”) dated 07.06.2007, wherein the Corporate
Debtor was to set up a Co- generation facility under the Gujarat Electricity
Regulatory Commission (Power procurement from renewable sources)
Regulations, 2005. It was agreed between the parties that the Respondent
Company would arrange with Gujarat Energy Transmission Corporation Limited
for the construction, ownership, operation and maintenance of appropriate
transmission line and inter-connection facilities upto the delivery point and
would supply electricity/power to the Applicant Company up to the “contracted
capacity” of 47.7 MW power during the crushing season and 60.2 MW during
the non-crushing season annually.
4. The Scheduled Commercial Operation Date “SCOD” was agreed to be 48
months from the date of the execution of the Power Purchase Agreement i.e. by
06.06.2011. As per Clause 4.3 of the Agreement, it was agreed between the
parties that in the event of delay in commissioning of the project beyond the
SCOD, the Corporate Debtor would be liable to pay to the Operational
Creditor liquidated damages for the delay @₹3000 per day per MW for a
maximum of 365 days. It was further agreed that in case the Corporate Debtor
fails to pay the impugned ‘liquidated damages’ within the stipulated time period,
the Operational Creditor may terminate the agreement at its discretion.
5. The Corporate Debtor at the time of executing the Agreement assured the
Operational Creditor that it shall complete the construction of the project on or
before the SCOD which was 06.06.2011. However, the Corporate Debtor failed
to make any progress for setting up of the project due to which it failed to
commence supply of power to the Operational Creditor by SCOD.
6. The Corporate Debtor defaulted in complying with the terms and conditions of
the Agreement, alleged by the Operational Creditor.
B. Submissions by the Operational Creditor
7. The Operational Creditors submits that a Letter dated 04.10.2011 was issued to
the Corporate Debtor to pay the liquidated damages @ Rs.3000/- per day per
MW to the Operational Creditor as per clause 4.3 of the Agreement. However,
the letter was not replied to by the Corporate Debtor.
8. A Final Notice dated 17.11.2011 was issued to the Corporate Debtor to pay the
amount of Rs. 6,59,19,000/-. This letter also was not replied by the Corporate
Debtor. Nor any payment has been paid for the outstanding amount.
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Consequently, the Operational Creditor filed a Petition No. 1202 of 2012 on

06.03.2012 under Section 86 (1)(f) of Electricity Act, 2003 before the ‘Gujarat
Electricity Regulatory Commission’ for Adjudication on the liability of the
amount payable i.e. Rs. 6,59,19,000/- towards liquidated damages with interest
@15% per annum.
9. The State Commission vide order dated 06.11.2012 decided the Petition in
favour of the Operational Creditor and directed the Corporate Debtor to pay the
liquidated damages as aforesaid to the Operational Creditor. This order was
based on the specific undertaking/consent given by the Corporate Debtor for
payment of amount towards liquidated damages within a period of 14 months.
10. Despite the direction of the State Commission, the Corporate Debtor did not
make any payment in terms of order dated 06.11.2012, hence an Execution
Petition being EP No. 1459/2014 was filed on 10.11.2014 before the learned
Gujarat Electricity Regulatory Commission, Gandhinagar, for execution of the
order dated 06.11.2012.
11. The Ld. State Commission passed an order in Execution Petition in favour of the
Operational Creditor stating that the Operational Creditor “may take appropriate
course of action as per the provisions of the applicable law of recovery of
liquidated damages as decided in Commission’s Order dated 06.11.2012”. It is
further stated that the Corporate Debtor failed to make payment despite the
repeated requests made by the Operational Creditor and the order of the learned
State Commission.
12. The Operational Creditor submits that the Corporate Debtor, pursuant to a
direction of the learned State Commissions filed an affidavit dated 13.08.2016
stating that the Corporate Debtor does not hold any properties or assets of
whatever kind or nature in or outside India. Therefore, it can be inferred that the
Corporates Debtor is unable to pay and honour its legal and subsisting dues
towards the Operational Creditor.
13. Further, on 25.11.2016, the Operational Creditor issued a Legal Notice under
Section 434 R/w 433 (e) of the Companies Act, 1956 to the Corporate Debtor to
pay the admitted outstanding amount of Rs.6,59,19,000/- due and payable to the
Operational Creditor. However, nothing fructified. The Corporate Debtor in
reply to the above notice sent a letter dated 21.12.2016 seeking 4 week’s time to
file reply to the above said notice issued by the Operational Creditor. However,
no such reply has been received till date, which further substantiates the inability
of the Corporate Debtor to repay the amount due or to give any reasonable
explanation for non-payment.
14. Thereafter, on 31.05.2017, the Operational Creditor issued Demand Notice u/s 8
of the Code R/w Rule 5 demanding the amount due. The Corporate Debtor on
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10.06.2017 replied to the Demand Notice seeking another 2 years for payment of
the Operational Debt , however, not cleared the debt till date.
15. The Operational Creditor has produced on record the affidavit as per Section
9(3)(b) of the Code stating that no notice of dispute has been received from the
Corporate Debtor. A copy of the certificate from Chartered Accountant firm has
been produced on record stating that they have verified the Bank Books & Bank
Statements of the Operational Creditor and no payment of the relevant unpaid
operational debt is received by the Operational Creditor.
16. It is argued that in view of the judgement of Hon’ble NCLAT in the case of
Annapurna Infrastructure Pvt. Ltd. v. M/s Soril Infra Resources Ltd., [Company
Appeal (AT) (Insolvency) No. 32 of 2017], Order dated 29.08.2017, the
Appellate authority held that NCLT can be moved for enforcement of an arbitral
award. It said in Para 33:
“....For the reasons aforesaid, while we hold that Corporate
Insolvency resolution process can be initiated for default of debt, as
awarded under the Arbitration Act, we further hold that the finding of
the learned Adjudicating Authority that it is an executable matter is
against the essence of the I&B Code. The question of availing any
effective remedy, in case of default of debt for an ‘operational
creditor’, as held by the learned Adjudicatory Authority, is not based
on any sound principle of law….”
17. It is submitted that the present application is filed to enforce the order dated
20.09.2016 of the Gujarat Electricity Regulatory Commission where in it
directed the Operational Creditor to ‘take appropriate course of action as per the
provisions of applicable law for recovery of the liquidated damages as decided
in the Commission’s order dated 06.11.2012 in Petition No. 1202 of 2012’.
Therefore, to say that this Tribunal has been moved in order to execute the
aforesaid order, is not barred anywhere in view of the NCLAT’s Judgement
(supra).
18. It is finally argued that since the Debtor is not making the payment and all the
procedural formalities have been complied with, this Petition/Application may be
Admitted for the initiation of the CIRP.
C. Contentions of the Corporate Debtor:
19. In the reply letter dated 10.06.2017 to the Demand Notice sent by the
Operational Creditor, the Corporate Debtor has acknowledged the liability by
seeking two years’ time for making the payment. The debt has not been denied.
There is no affidavit in Reply filed by the Corporate Debtor to the present
petition. However, the Corporate Debtor has placed its contentions through
Written Submissions on record.
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20. The first and foremost contention of the corporate Debtor is that the Advocate
through which the Demand Notice has been sent is not authorised by the Board
of Directors of the Operational Creditor to send the Demand Notice U/s 8 of the
Code.
21. Secondly, the Corporate Debtor contends that the debt in hand is not an
‘operational debt’ within the meaning of S.5(21) of the Code. As per Section
5(21) of the Code, the Operational Debt is confined to following four categories:
a. Goods
b. Services
c. Employment
d. Government dues
22. It is submitted that the claim in hand purports to be in respect of losses in form of
‘liquidated damages’. This is not a claim for providing goods or services. The
meaning of damages is clear from the decision of the Bombay High Court in the
case of Iron & Hardware (India) Co. V. Shamlal [ILR 1954 BOM 739], Order
dated 14.01.1954, wherein it was observed that “damages are compensation
which a court of law gives to a party for the injury which he has sustained”.
Therefore, the present claim is out of the ambit of the provisions of the code.
23. The Corporate Debtor’s next contention is that whether the NCLT is an executor
/ administrative court or not, is not the question in hand. Dealing with the
judgement of Hon’ble NCLAT in the case of Annapurna Infrastructure Pvt. Ltd.
v. M/s Soril Infra Resources Ltd., the Corporate Debtor argues that though the
Hon’ble NCLAT has held that pendency of execution is not a bar to file
insolvency proceedings and hence execution of an award can be done in NCLT.
This is a settled law. But the question remains that this case was pertaining to
lease rentals however the present case is not at all covered by the definition of
operational debt.
24. The Corporate Debtor further submits that there is a separate procedure for
recovery of electricity dues under the Electricity Act, 2003 and these dues can be
recovered as per the procedure laid down by the aforesaid act and by no other
means. For this contention, the Corporate Debtor has relied on the order dated
11.02.2019 passed by this very Bench in the matter of Bombay Stock Exchange
Limited V. Asahi Infrastructure & Projects Limited [CP NO.
1718/IBC/NCLT/MB/MAH/2017].
25. The Corporate Debtor also contends that the petition is barred by limitation.
D. Findings
26. On hearing the rival contentions and after perusing the documents placed on
record, it is worth to note that the Order dated 20.09.2016 passed by the Ld.
Gujarat Electricity Regulatory Commission gives the liberty to the Operational
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Creditor to “take appropriate course of action as per the provisions of applicable

law for recovery of the liquidated damages as decided in the Commission’s order
dated 06.11.2012 in Petition No. 1202 of 2012”. In view of this order it can be
ascertained that the debt in hand pertains to ‘liquidated damages’ and is not an
Operational Debt within the meaning of Section 5(21) of the Code. The
Liquidated damages are the damages whose amount the parties designate
during the formation of a contract for the injured party to collect as
compensation upon a specific breach, such as in this case, non-performance.
27. As held by the Hon’ble Supreme Court in the case of Union of India V. Raman
Iron Foundry, [1974 AIR 1265], order dated 12.03.1974:
The Indian Legislature has sought to cut across the web of rules and
presumptions under the English common law, by enacting a uniform
principle applicable to all stipulations naming amounts to be paid in case of
breach, and stipulations by way of penalty, and according to this principle,
even if there is a stipulation by way of liquidated damages, a party
complaining of breach of contract can recover only reasonable compensation
for the injury sustained by him, the stipulated amount being merely the
outside limit. It, therefore makes no difference in the present case that the
claim of the appellant is for liquidated damages. It stands on the same
footing as a claim for unliquidated damages. Now the law is well settled that
a claim for unliquidated damages does not give rise to a debt until the
liability is adjudicated and damages assessed by a decree or order of a Court
or other adjudicatory authority. When there is a breach of contract, the
party who commits the breach does not eo instanti incur any pecuniary
obligation, nor does the party complaining of the breach becomes entitled
to a debt due from the other party. The only right which the party aggrieved
by the breach of the contract has is the right to sue for damages. That is not
in actionable claim and this position is made amply clear by the amendment
in s. 6(e) of the Transfer of Property Act, which provides that a mere right to
sue for damages cannot be transferred.
28. Further, in the case of E-City Media Pvt. Ltd. V. Sadhrta Retail Ltd., [CP
367/2009] the Hon’ble Bombay High Court held that:

“If the clause in the present case is regarded as being a clause which
stipulates the payment of a named sum by way of liquidated damages a debt
will become crystallized only upon an adjudication of damages in a suit.
Prior to an adjudication, it still constitutes a claim for damages. The decree
of the Court is what transforms the claim into a stated sum due and payable
by way of damages. Whether the amount is reasonable or by way of a
penalty are evidential matters which cannot be decided in a petition for
winding up. For, as the judgment in Saw Pipes holds, even if the sum
stipulated by way of liquidated damages is clear, the jurisdiction of the Civil
Court extends to determining whether it is unreasonable or by way of
penalty. All these issues have to be decided in a suit.
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Whether or not evidential proof will be required to sustain such a claim is

again a matter for the trial Court or, as the case may be, an arbitral forum to
decide. The Petition for winding up would manifestly not be maintainable.
Until an adjudication results in duly constituted proceedings, it cannot be
held that there is a debt due and payable”.

29. Similar question arose before NCLT, Mumbai in the matter of Tata Chemicals V.
Raj Process Equipments & Systems Pvt. Ltd., [CP
21/I&BP/NCLT/MB/MAH/2018], wherein inter alia it was held that:
“It is also important to point out that Petitioner had neither provided
any goods nor any services to the Corporate Debtor. There is no amount
given by the Petitioner to the Respondent in nature of debt. On the other
hand, the Corporate Debtor is a vendor, and the applicant has not made
payment to it. Hence the petitioner is not an Operational Creditor as
defined under the Insolvency and Bankruptcy Code”.
30. A conclusion can be drawn from a plain reading of the above said judgements
that the liquidated damages arises on breach of contract for which a suit can be
filed wherein the damages are required to be ascertained because the said
damages must not be allowed arbitrarily. Hence, liquidated damages can be
crystallised only after adjudication from a court of law. Its reasonableness is also
decided by a court of law. on the other hand, the insolvency proceedings are not
the appropriate forum to decide the reasonability of the liquidated damages or to
file claim for damages. Hence, the damages claimed in the present case cannot
be adjudicated as the same is the subject matter of a civil suit. Liquidated
damages are not an actionable claim, until and unless adjudicated. This is the
first reason for not considering the liquidated damages as ‘operational debt’.
31. Liquidated damages are provided in certain legal contracts as an estimate of
otherwise intangible or hard-to-define losses to one of the parties. As against
that, the meaning of ‘Operational Debt’ is a claim in respect of goods supplied,
or services rendered as defined in section 5(21) of the Code. Therefore, it can be
concluded that the impugned claim of damages, neither ascertainable nor
crystallised, hence out of the ambits of the Operational Debt. This is the second
reason for rejection.
32. In addition to the reasoning assigned in above paragraph, it is an admitted fact
that the Petitioner had neither supplied any goods nor rendered any service to the
other side, hence, there was no relationship of creditor on one hand and the
debtor on the other hand as defined under section 5(21) of the Code. The contract
was for the performance of Power Purchase Agreement wherein the Corporate
Debtor had to set up a project before the Scheduled Commercial operation date
which was 06.06.2011. The Corporate Debtor failed to do the same and thus it
was merely in the nature of impugned penalty for damages caused due to non-
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performance of contract. The scope of liquidated damages is distinct from

Operational Debt, albeit, very thin. As far as this case is concerned, the admitted
facts itself have drawn this distinction broadly. This is the third reason for not
considering this claim as operational debt.
33. It is worth to note that the scope and jurisdiction of this Tribunal is limited and
also confined to the provisions of Insolvency Code only while dealing a Petition
filed under Section 9, therefore, the impugned Debt in question does not fall
within those ambits. However, the claim under any other law, if permissible, can
be pursued by the Petitioner as prescribed under that law. Any observation, legal
or factual, shall not prejudice the rights of the Petitioner, if to be exercised under
any other law.
34. Therefore, in view of above, this petition stands outside the scope of the Code
and S.9 thereof. Hence, dismissed on maintainability. The liberty is granted to
the Operational Creditor to move the appropriate forum for this claim.
35. With foregoing observations and considering the totality of the facts along with
the circumstances of the case and law applicable, this Petition does not survive
under the Insolvency Code, hence hereby “Dismissed”.
36. Registry is directed to close the file by consigning the Petition to records.

SD/-
Date: 08.05.2019 M. K. SHRAWAT
js MEMBER (JUDICIAL)

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