Alcon Laboratories (India) Private ... vs Emco Tech Equipments Private Limited

IN THE MATTER OF: Alcon Laboratories (India) Pvt. Ltd. ...Appellant

Versus

Emco Tech Equipments Pvt. Ltd. ...Respondent Present: For Appellants : Mr. Krishnendu Datta, Sr. Adv., with Mr. Vaijayant Paliwal, Mr. Nihil Mathur, Advocates For Respondent : Mr. Roshan Santhalia, Mr. Puja Jakhar, Advocate

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 03.01.2023, passed by

the Adjudicating Authority (National Company Law Tribunal, Court No. III,

New Delhi) by which an application bearing C.P. (IB)/278/ND/2022 filed by

the Appellant (Operational Creditor) under Section 9 of the Insolvency and

Bankruptcy Code, 2016 (In short 'Code') r/w Rule 6 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (in short

'Rules') against the Respondent (Corporate Debtor) has been dismissed.

2. Before filing the application under Section 9 of the Code, the Appellant

sent a demand notice dated 30.07.2021 under Section 8 of the Code, calling

upon the Respondent to pay the operational debt of Rs. 10,87,79,899/-.

This notice was replied by the Respondent on 18.08.2021, denying its

liability but reserved its right to recover the amount of Rs. 3,25,00,000/- on

account of alleged excess payment having been made.

3. It is the case of the Appellant that since there were some

typographical errors in the demand notice dated 30.07.2021, therefore, the

Comp. App. (AT) (Ins) No. 215 of 2023 2

Appellant served a fresh statutory demand notice dated 25.01.2022 under

Section 8 of the Code, calling upon the Respondent to pay the operational

debt of Rs. 12,66,14,411/-. This notice was also replied by the Respondent.

4. As per the Appellant, it entered into an agreement dated 18.08.2014

with the Respondent for sale of imported products and equipment on a non-

exclusive basis for the onward supply/distribution of the products and

equipments to the customers. There was another agreement entered into

between the parties on 30.03.2019. On the basis of the agreement, the

Respondent issued various purchase orders to the Appellant for supply

which were duly complied with and invoices were raised periodically from

09.05.2019 to 07.05.2021 but the Respondent failed to pay the outstanding

invoices from June, 2018 onwards despite several emails exchanged

between the parties.

5. In the defence, the Respondent alleged that it sent an email dated

26.04.2021 to the Appellant, requesting for the reconciliation of the

accounts but it was not provided rather the Appellant sent an email dated

21.05.2021, demanding a sum of Rs. 8.66 Crores. It is also the case of the

Respondent that the cheque drawn by the Respondent in favour of the

Appellant was dishonoured with the remarks 'returned for exceeds

arrangement' for which a notice dated 25.05.2021 under Section 138 of the

NI Act was sent by the Appellant to the Respondent. The Respondent sent a

reply to the notice on 09.06.2021 informing the Appellant that after the

finalization of the internal audit of the accounts, it has been ascertained

that an excess payment of Rs. 3.25 Crores has been made and the Appellant

was asked to provide for the account statement for the reconciliation of the

accounts otherwise it was stated to be presumed that an amount of Rs.

Comp. App. (AT) (Ins) No. 215 of 2023 3

3.25 Crores is receivable by the Respondent. It is also the case of the

Respondent that a legal notice dated 23.06.2021 was sent to the Appellant

for the recovery of the amount of Rs. 3.25 Crores. It is further pleaded by

the Respondent that a complaint before the Economic Offences Wing, Delhi

Police (EOW) was filed by the Respondent on 27.08.2021 against the

Appellant for the acts of cheating and criminal breach of trust etc. and

causing loss to the tune of Rs. 11 Crores and that a complaint was made

before the CJM, Patiala House Courts on 29.09.2021 under Section 156(3)

of CrPC under the relevant provisions of the IPC.

6. On the basis of the pleadings and material on record, the Adjudicating

Authority recorded a finding in Para 13 of the impugned order on the basis

of which the petition filed by the Appellant under Section 9 of the Code has

been dismissed. For the purpose of quick reference to the finding recorded

by the Adjudicating Authority, Para 13 of the impugned order is reproduced

as under:-

"13.We have considered the arguments of both sides and have perused the record. We observe from the emails dated 26.04.2021, 28.04.2021, 21.05.2021, 09.06.2021 all exchanged between the parties, before the issuance of the first demand notice dated 30.07.2021 and wherein it is seen that the corporate debtor wrote a letter to the applicant informing them about the internal audit and requested them to share the accounts for the reconciliation. However, the applicant has not provided the same to corporate debtor. Secondly, the existence of dispute can be perceived from the legal notice sent by the corporate debtor to the applicant vide letter dated 23.06.2021 for the recovery of the amount of Rs 3.25 crores, wherein the applicant was called upon to pay the outstanding amount. Further, a notice dated 25.05.2021 filed u/s 138 NI Act, was sent by the applicant to the corporate debtor for the recovery of the amount of the dishonored cheque dated 23.04.2021. Further, from the 'Reply' to the two Demand Notices, read with the legal notice dated 23.06.2021 communicated by the corporate debtor to the applicant, it is seen

Comp. App. (AT) (Ins) No. 215 of 2023 4

that the Corporate Debtor had claimed an excess payment of Rs 3.23 crores to the applicant by the corporate debtor. Further, it is in disputed that prior to the issuance of second demand notice dated 25.01.2022, the corporate debtor filed a complaint dated 27.08.2021 before the EOW for cheating and criminal breach of trust against the applicant in respect of the same business transactions giving rise to the impugned debt-claims. The corporate debtor also filed a complaint dated 29.09.2021 before the CJM Patiala House Court against the applicant for acts punishable under the sections of IPC 1860 accompanied by an application u/s 156(3) CrPC due to delay in preliminary investigation by the EOW, wherein the Ld. CJM sought for the action taken report from the EOW. The EOW after conducting a detailed preliminary enquiry into the complaint of the corporate debtor, found that the allegations made against the operational creditor/applicant herein are prima facie correct and further registered an FIR no. 0058/2022 for offences punishable u/s 420, 406 and 120B of the LP.C. against the applicant herein and other accused persons. The copy of the FIR No. 0058/2022 is annexed with the reply of the corporate debtor.

The aforesaid material on record, evidences that the 'Dispute' in the instant case is not 'transaction centric' but is an ongoing 'Dispute' between the parties. The correspondence between the parties establishes that the 'Dispute' is with respect to the amount of debt claimed to be payable to the applicant. The Hon'ble Supreme Court in Transmission Corporation of Andhra Pradesh Limited V/s. Equipment Conductors and Cables Limited reported in (2019)12 SCC 697, categorically laid down that 'IBC was not intended to be a substitute to a recovery forum and that whenever there was existence of a real 'Dispute', IBC provisions could not be invoked'. The object of the Code, at least insofar as Operational Creditors are concerned, was to initiate Insolvency Process against the Corporate Debtor only in clear cases where a real 'Dispute' between the parties as to the 'debt owed' did not exist. In the instant case, on a thorough consideration of the facts and circumstances as brought out by material placed on record, this Adjudicating Authority is of the considered view that there is sufficient evidence on record to exhibit a 'Pre-Existing Dispute' between the parties prior to the issuance of the First and Second Demand Notices dated 30.07.2021 and 25.01.2022 respectively, as issued by the applicant herein under Section 8, IBC, 2016."

7. Counsel for the Appellant has submitted that the Respondent has

been acknowledging the debt on the basis of summaries of reconciliation of

Comp. App. (AT) (Ins) No. 215 of 2023 5

accounts and in this regard accounts statement dated 31.03.2019,

30.06.2019, 31.10.2019, 31.12.2019, 31.03.2020 and 31.08.2020 have

been referred to which are also reproduced as under:

Comp. App. (AT) (Ins) No. 215 of 2023 6

Comp. App. (AT) (Ins) No. 215 of 2023 7

Comp. App. (AT) (Ins) No. 215 of 2023 8

8. He has further submitted that pre-existing dispute has to be seen

before the issuance of demand notice and not to be raised for the first time

in the reply to the demand notice. In this context, he has submitted that a

complaint before the EOW on 27.08.2021 and a complaint filed before the

CJM Patiala House Courts on 29.09.2021 are both after the demand notice

issued on 30.07.2021 and are of no use. It is therefore submitted that the

only document available on record, discussed in Para 13 of the impugned

order (Supra), are the emails exchanged between the parties dated

Comp. App. (AT) (Ins) No. 215 of 2023 9

26.04.2021, 28.04.2021, 21.05.2021 and 09.06.2021 as these are before the

cut-off date of demand notice dated 30.07.2021. It is submitted that the

Respondent gave a post dated cheque no. 137742 dated 23.04.2021 of Rs.

1.5 Crores and sent an email dated 21.12.2020. In this regard, the

Appellant sent a letter dated 22.12.2020 about the receipt of cheque, also

mentioned therein that Respondent is yet to pay Rs. 8,65,66,175/-and this

letter was signed by Harshit Sharma, present director and son of erstwhile

director of the Respondent. The said letter dated 22.12.2020 is also

reproduced as under:-

9. It is further submitted that since the aforesaid cheque was signed by

late Pradeep Kumar Sharma who had unfortunately expired, therefore, on

22.03.2021, the Respondent through Harshit Sharma informed the

Comp. App. (AT) (Ins) No. 215 of 2023 10

Appellant that a fresh cheque is being sent as the earlier cheque became

redundant due to the death of the signatory and also stated therein that the

amount is being paid keeping in view of the commitment and mutual

undertaking signed by him previously. The said email dated 22.03.2021 is

reproduced as under:-

10. It is further submitted that fresh cheque no. 137742 dated

23.04.2021 of an amount of Rs. 1.5 Crores was deposited by the Appellant

for realization but it was bounced on the ground 'exceeds arrangements' and

thereafter, on 26.04.2021, Harshit Sharma sent an email to the Appellant in

which he referred to the cheque dated 23.04.2021 and stated that the

cheque has been stopped for the purpose of payment because of certain

unmatched accounts to the tune of Rs. 3.80 Crores approximately. He also

stated therein that he will issue a fresh cheque as soon as the accounts are

settled. The said email dated 26.04.2021 is also reproduced as under:-

Comp. App. (AT) (Ins) No. 215 of 2023 11

11. Besides the email dated 26.04.2021, the Respondent has relied upon

another email dated 28.04.2021 in which it was urged by the Respondent

that a sum of Rs. 10,43,11,561.18/- has been paid in excess and in this

regard only a prima facie opinion is drawn. The said email dated 28.04.2021

is also reproduced as under:-

Comp. App. (AT) (Ins) No. 215 of 2023 12

12. Both these emails were denied by the Appellant through its email

dated 21.05.2021 which is also reproduced as under:-

13. The Adjudicating Authority has then referred to reply to the notice

dated 09.06.2021 which was sent by the Respondent through its Advocate.

This reply is about the statutory notice issued under Section 138 of the NI

Act, 1881. The said reply is also reproduced as under:-

Comp. App. (AT) (Ins) No. 215 of 2023 13

Comp. App. (AT) (Ins) No. 215 of 2023 14

Comp. App. (AT) (Ins) No. 215 of 2023 15

Comp. App. (AT) (Ins) No. 215 of 2023 16

14. Besides these documents, the Appellant has referred to email dated

29.05.2020 to contend that the Respondent had admitted its liability (debt)

and also referred to the payment plan. The said email dated 29.05.2020 is

also reproduced as under:-

Comp. App. (AT) (Ins) No. 215 of 2023 17

15. As regards the notice dated 23.06.2021, it was sent through a counsel

by the Respondent by which the Respondent has asked for the payment of

Comp. App. (AT) (Ins) No. 215 of 2023 18

excess amount of Rs. 3.25 Crores. The said notice is also reproduced as

under:-

Comp. App. (AT) (Ins) No. 215 of 2023 19

Comp. App. (AT) (Ins) No. 215 of 2023 20

Comp. App. (AT) (Ins) No. 215 of 2023 21

16. The Adjudicating Authority also observed that since notice dated

25.05.2021 was sent by the Appellant to the Respondent in respect of

dishonoured cheque dated 23.04.2021, therefore, it is a dispute between the

parties which was existing before the demand was raised on 30.07.2021 by

way of a notice issued under Section 8 of the Code. Counsel for the

Appellant has argued that pending of proceedings under Section 138 of the

NI Act, 1881 would not amount to a dispute under the provisions of the

Code and would not preclude an applicant from seeking its remedy under

the Code. He has referred to two decisions of this Tribunal rendered in the

case of Sudhi Sachdev Vs. APPL Industries Ltd., CA (AT) (Ins) No. 623 of

2018 and V. Venkata Satyanarayana Vs. Pattabi Enterprise, CA (AT) (CH)

(Ins) No. 427 of 2022. He further argued that though the Respondent has

urged in its email dated 26.04.2021 that account has to be reconciled but

Comp. App. (AT) (Ins) No. 215 of 2023 22

till the issuance of notice dated 30.07.2021 and filing of the application

under Section 9 of the Code, no account much less prepared by the

Respondent, showing even prime facie, that the Respondent has to recover

the excess amount from the Appellant, about which there is a dispute has

seen the light of the day. It is thus argued that it is a concocted story by the

Respondent for the purpose of denying its liability. In this regard, he has

relied upon a decision of the Hon'ble Supreme Court rendered in the case of

Mobilox Innovations Pvt. Ltd. Vs. Kirusaa Software Pvt. Ltd. (2018) 1 SCC

353 in which it has been held that 'the dispute should not be a patently

feeble legal argument or assertion of fact unsupported by evidence. The

dispute which are spurious, hypothetical or illusory ought not be permitted

to stall the proceedings under Section 9 of the Code.

17. In the end, it is submitted that the Adjudicating Authority has erred in

only referring to the documents placed on record by the Respondent while

making its observation for dismissing the application filed by the Appellant

and has not adverted to even a single document placed by the Appellant in

support of his case. It is further submitted that the defence of the

Respondent has to be looked into only in context with the case set up by the

Appellant which is conspicuous by its absence in the present case as stated.

18. On the other hand, Counsel for the Respondent, while defending the

impugned order, has submitted that there is no error in the impugned order

which may call for any interference by this Court. It is submitted that the

dispute was raised by the Respondent on 26.04.2021 in its email when it

was brought to the notice of the Appellant that because of certain

unmatched accounts to the tune of Rs. 3.80 Crores, the cheque presented

by the Appellant for an amount of Rs. 1.50 Crores, has been dishonoured as

Comp. App. (AT) (Ins) No. 215 of 2023 23

the bank was asked to stop the payment and has also referred to email

dated 23.04.2021. However, he has been candid enough to admit during the

course of hearing that the cheque was not dishonoured because the Bank

was informed to stop the payment rather it was dishonoured because

'exceeds arrangements'. He also admitted that neither the email dated

26.04.2021 nor email dated 28.04.2021 and any account showing the

payment of excess money to the tune of Rs. 3.80 Crores as per email dated

26.04.2021 and Rs. 10,43,11,561.18/- as per email dated 28.04.2021 was

shared with the Appellant or even set up in defence in its reply. He has also

fairly conceded that any dispute post issuance of notice under Section 8 of

the Code is not required to be looked into and therefore, relied upon emails

dated 26.04.2021 and 28.04.2021. He has argued that there has been a pre-

existing dispute between the parties, therefore, the order has rightly been

passed by the Adjudicating Authority.

19. We have heard Counsel for the parties and perused the record with

their able assistance.

20. The summary of reconciliation produced by the Appellant dated

31.03.2019, 30.06.2019, 31.10.2019, 31.12.2019, 31.03.2020 and

31.08.2020 would show that the Respondent was in debt of the amount to

be paid to the Appellant. We have also found that post dated cheque dated

23.04.2021 of Rs. 1.5 Crores given by the Respondent to the Appellant on

21.12.2020 was accepted by the Appellant and in that acknowledgement the

Appellant has raised the issue of payment of Rs.8,65,66,175/- which was

duly acknowledged by the Respondent (Harshit Sharma as a director) and

had at no point of time raised any dispute regarding irregularity in the

accounts. It so happened that since the cheque no. 137742 was drawn by

Comp. App. (AT) (Ins) No. 215 of 2023 24

Pradeep Kumar Sharma (since deceased), therefore, Harshit Sharma, vide its

email dated 22.03.2021, brought to the notice of the Appellant that since

the signatory of the cheque died, therefore, he would require to give another

cheque and again he stated that he is giving its amount for settling

recoveries. On 23.04.2021 the cheque was bounced and from then onwards

the relationship between the parties became sour as the Respondent then

sent an email dated 26.04.2021 and for the first time stated that the cheque

has not been honoured on their instruction as according to the Respondent

it had to recover an amount of Rs. 3.80 Crores, paid excess to the Appellant

but this assertion was made in the email without any supporting evidence.

Thereafter, on 28.04.2021 this amount was raised to Rs. 10.43 Crores i.e.

within two days without supported any evidence much less prima facie, in

order to inspire confidence, that the Respondent is justified in raising the

dispute but the Adjudicating Authority has accepted the assertion made in

both emails as a gospel truth despite the fact that the Hon'ble Supreme

Court in the case of Mobilox Innovations Pvt. Ltd. (Supra) has held that the

dispute should not be a patently feeble legal argument or assertion of fact

unsupported by evidence. The dispute which are spurious, hypothetical or

illusory ought not be permitted to stall the proceedings under Section 9 of

the Code and in the present case we could not find any evidence on record

except the bald assertion of the Appellant that it had paid an excess of Rs.

3.80 Crores thought it had been continuously accepting the reconciliation

accounts.

21. In such circumstances, we are of the considered opinion that there is

an error on the part of the Adjudicating Authority in dismissing the

application. Consequently, the appeal is hereby allowed and the impugned

Comp. App. (AT) (Ins) No. 215 of 2023 25

order is set aside. The application filed under Section 9 is admitted.

However, for the purpose of further proceedings i.e. appointment of IRP and

other orders to be passed under Section 14 of the Code, the matter is sent

back to the Adjudicating Authority. The parties are directed to appear before

the Adjudicating Authority on 11th December, 2023.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

New Delhi

22nd November, 2023

Sheetal

Comp. App. (AT) (Ins) No. 215 of 2023