Amit Wadhwani vs M/S Global Advertisers

(Arising out of Judgement dated 02.08.2021 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench IV, Mumbai in CP (IB)No.1393/MB-IV/2020). In the matter of: Amit Wadhwani, Flat No.B 6, Gurukrupa Tarrace, CHS, Opp New Police Station, Chembur, Naka, Mumbai 400092 Appellant

Vs

1. M/s Global Advertisers, 6th Floor, Shree Ram Trade Centre SVP Road, Borivali West Mumbai 400092

2. Mr UVG Nayak, Interim Resolution Professional 303/305, Rajmata CHS Ltd, Near RTO, Four Bungalows, Andheri (W), Mumbai 400053

For Appellant: Mr. Ramji Srinivasan, Sr. Advocate, Mr Kush Chaturvedi, Mr Dharam Jumani, Mr. Suraj Iyer, Ms Priyashree Sharma, Ms Gauri Joshi, Advocates. For Respondent: Mr. Mohit Chaudhary, Mr. Girishi B Kedia, Advocates for R1. JUDGEMENT

VIRTUAL MODE JUSTICE RAKESH KUMAR, MEMBER (JUDICIAL)

The present Appeal has been preferred by one of the suspended Board

of Directors and shareholder of M/s Sai Estate Consultants Chembur Pvt Ltd

Company Appeal (AT)(Ins) No.616/2021 2

('Corporate Debtor'). The Appeal has been preferred against an order dated

2nd August, 2021 passed by the Adjudicating Authority, National Company

Law Tribunal, Mumbai Bench IV, Mumbai (hereinafter referred to as

'Adjudicating Authority') in CP(IB)No.1393/MB-IV/2020. By the said order

the Adjudicating Authority acting upon petition filed under Section 9 of the

Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the 'IBC') has

initiated Corporate Insolvency Resolution Process (CIRP) and appointed

Interim Resolution Professional namely Mr. UVG Nayak by M/s Global

Advertisers, a Sole Proprietary Firm-Operational Creditor.

2. The Operational Creditor on the basis of outstanding dues had issued

Notice under Section 8 of the IBC against Respondent No.1. As allegedly since

no tangible dispute was raised by the Respondent No.1 an application under

Section 9 of IBC was filed and thereafter impugned order was passed.

3. One of the Member of the suspended Board of Directors and a

shareholder of Sai Estate Consultants Chembur Pvt Ltd, Corporate Debtor,

has filed the present Appeal. Initially in the Appeal the IRP was not arrayed

as Respondent. On 18.08.2021, a Coordinate Bench of this Tribunal directed

for impleading IRP as Respondent, besides issuing necessary directions. The

order dated 18.08.2021 is quoted hereinbelow:

"Heard Learned Sr. Counsel for the Appellant

2. Learned Sr. Counsel vehemently argued and submitted that there is a

preexisting dispute. The Learned Sr. Counsel referred to Letter at Page

178 of the Appeal Paper Book which was sent in the context of Letter

dated 11th March, 2020 to point out that there is a pre-existing dispute.

Company Appeal (AT)(Ins) No.616/2021 3

Ld. Sr. Counsel is trying to show that both the parties did agree that

reconciliation was required. Ld. Sr. Counsel submitted that the CIRP

needs to be stayed and Interim Relief to that effect may be ordered.

3. We have gone through the Record and Impugned Order. The Impugned

Order in Paragraphs 48 to 52 has discussed the respective cases of the

parties.

4. Whether or not, a Letter communicating requirement of reconciliation

can be said to be raising of a dispute is matter to be decided. We do not

find any reason to grant any Interim Relief as procedure under IBC are

time bound and delay would defeat the objective of IBC.

5. The Corporate Debtor through IRP has not been made Respondent.

Appellant to array the Corporate Debtor through IRP as Respondent No.

2. Notice be served on Respondent No. 2. Learned Counsel for

Respondent No. 1 is present.

6. The Appellant/Promoters/Directors of the 'Corporate Debtor' are

directed to handover the assets and records of the 'Corporate Debtor' to

the 'Interim Resolution Professional' immediately (if not yet handed over).

The 'Interim Resolution Professional'/ RP will make effort that the

Company remains a going concern and will take assistance of the

(suspended) Board of Directors and the officers/Director/Employees. The

persons who are working will, at present continue to perform their duties,

including the paid Directors. The person who is authorized to sign the

bank cheques may sign cheques only after authorization of the 'Interim

Company Appeal (AT)(Ins) No.616/2021 4

Resolution Professional' with counter signature of the 'Interim Resolution

Professional'/ RP at the back side of the cheques.

Only in such case, the Bank shall release the payment. The

'Interim Resolution Professional' will place this order before the Banks,

in which accounts of 'Corporate Debtor' are maintained. The Bank

Account(s) of the 'Corporate Debtor' be allowed to be operated through

IRP/RP for day-to-day functioning of the Company such as for payment

of Current Bills of the Suppliers, Salaries and Wages of the

employees'/workmen, electricity bills etc.

7. Respondents on service to file Reply-Affidavits within two weeks.

Rejoinder, if any, may be filed within a week, thereafter. Parties to file

brief 'Written-Submissions' not more than three pages along with 'Copies

of Judgments' they want to refer or rely on, within three weeks.

8. List the Appeal 'For Admission (After Notice)' Hearing on 07th October,

2021."

4. In the Appeal filed before this Tribunal which was numbered as

Company Appeal (AT)(Insolvency) No.616/2021, the Appellant besides

making prayer for setting aside of the impugned order dated 2nd August, 2021

also prayed for stay of operation of the impugned order during the pendency

of the Appeal. Since while issuing notice and directing to implead IRP as 2nd

Respondent no 'Stay order' was passed by the Coordinate Bench' of this

Tribunal. The Appellant preferred an Appeal before the Hon'ble Supreme

Court which was number as Civil Appeal No.4967/2021. The Hon'ble

Supreme Court vide its order dated 31st August, 2021 disposed off the Civil

Company Appeal (AT)(Ins) No.616/2021 5

Appeal primarily observing for passing suitable orders on 'Stay Application' of

the Appellant. It is better to reproduce the order dated 31st August, 2021

passed in Civil Appeal No.4967/2021 as follows:-

"Heard learned counsel for the appellant and perused the record.

Considering the fact that the matter relates to non-grant of interim

order by the Tribunal for which 07.10.2021 has been fixed and also

keeping in view that in the meantime if certain actions are taken, the

appellant would suffer irreparably, we direct that the matter be taken up

by the NCLAT on 07.09.2021 instead of 07.10.2021 for passing suitable

orders on stay application of the appellant. We further direct that any

action taken in the meanwhile, will be subject to further orders passed

by the NCLAT while considering the application for interim order.

The appellant is at liberty to inform the other side about the

preponement of the date before the NCLAT.

The appeal is disposed of accordingly.

Copy of this order be sent by the Registry to NCLAT through e-mail

within 24 hours."

5. In view of the order dated 31st August, 2021 of the Hon'ble Supreme

Court, this Tribunal on 07.09.2021 while fixing the case for orders on 'Stay

Application', directed IRP not to take any steps in CIRP till next date of

hearing. On 24.09.2021, Learned Counsel for the parties were heard on 'Stay

Application' and 'Order' was reserved. Thereafter on 28th September, 2021

the Coordinate Bench of this Tribunal instead of granting a 'Stay' disposed of

Company Appeal (AT)(Ins) No.616/2021 6

the Appeal in view of the inclination shown by the Learned Counsel for

Appellant and fixed the Appeal for final hearing to 9th November, 2021. Again

against the order dated 28th September, 2021 passed by this Tribunal, the

Appellant moved before the Hon'ble Supreme Court of India by filing a Civil

Appeal which was numbered as Civil Appeal No.907/2022. In the said Appeal

the Hon'ble Supreme Court passed some interim order and finally disposed

off the said Appeal vide its order dated 19th May, 2022. The operative portion

of the order dated 19th May, 2022 of the Hon'ble Supreme Court is quoted

hereinbelow:

"The appeal stands disposed of.

It goes without saying that we have not made any comments on the

merits of the case either way and even the observations occurring in the

impugned order dated 24.09.2021 shall also not be decisive of the

consideration of the appeal on its 4 merits.

As the matter is already fixed before the Appellate Tribunal and the

parties are before us, to avoid any ambiguity, we also make it clear that

the parties through their respective counsel shall stand at notice to

appear before the Appellate Tribunal on 23.05.2022. The interim

arrangement, as indicated above, shall continue until final disposal of

the appeal.

We would also request the Appellate Tribunal to assign a reasonable

priority to the appeal for expeditious consideration."

Company Appeal (AT)(Ins) No.616/2021 7

6. Thereafter the present Appeal was listed on 26.05.2022. Since there

was paucity of time the Appeal could not be taken up and was directed to

listed on 30th May, 2022 on which date after hearing Learned Counsel for the

parties, the 'Order' was 'Reserved'.

7. The case of the Appellant is in its Memo of Appeal has been described

as follows:-

"7.1 The Respondent carries on the business of display of advertisements

on hoardings within the area of Mumbai, Thane and rest of Maharashtra

for several years.

7.2 Since the inception of the Respondent's commercial relationship with

the Corporate Debtor, on account of a close friendship between the

Respondent's representative Mr. Vicky Gupta and the Corporate Debtor's

representative Mr. Amit Wadhwani i.e. the Appellant and the Corporate

Debtor's Managing Director, it had always been the understanding that

in respect of the services being provided by the Respondent, the

Corporate Debtor would only pay on a "payable when able" basis.

7.3 Apart from the friendly relations between the Respondent and the

Corporate Debtor, the reason for such an understanding was also the

nature of the services being provided by the Respondent. Given the

peculiar nature of the services that were to be provided by the

Respondent to the Corporate Debtor, for a meaningful scrutiny of invoices

and release of payment, the Corporate Debtor would have to reconcile its

accounts and also verify the supporting materials evidencing the actual

provision of services, which would demonstrate the proof of services

Company Appeal (AT)(Ins) No.616/2021 8

being rendered and the accounts between the parties. Hence, despite

invoices being raised, the same did not stipulate a time limit for payment,

since accounts were to be reconciled and the supporting materials were

to be verified prior to making of payment.

7.4 Further, this was also necessitated since the invoices raised by the

Respondent were in fact vague, devoid of basic particulars of the services

actually provided such as period, specifications, locations, rates, etc. and

hence the provision of services were required to be verified / reconciled

prior to making of payments. According to the Respondent, it was

pursuant to written confirmation letters issued by the Respondent from

time to time that the Respondent carried out display of advertisements

and hoarding on various sites between the period commencing from 10th

March 2017 to 29th June 2019 and after displaying the said

advertisements, the Respondent raised 30 invoices aggregating to Rs.

4,74,55,683/- (Rupees Four Crores Seventy Four Lakhs Fifty Five

Thousand Only). A perusal of the Petition demonstrates that although the

Respondent claims that the invoices were issued pursuant to written

confirmations (which are annexed after each invoice in the Petition), in

fact, the invoices do not even refer to the date or number of the written

confirmation and the same are ex-facie not corelatable. Many of the

invoices in fact bear an endorsement that they had been received for

verification and/or had not been checked. Even some of the tabulated

statements which were received bear a similar endorsement. Some

Company Appeal (AT)(Ins) No.616/2021 9

invoices were raised almost 1.5 years after the alleged provision of

services.

7.5 The Respondent also sought to rely upon certain tabulated

statements in the Petition an impression is sought to be created as if the

same were part of the invoices/ written confirmation. That was not the

case. The said statements were not provided with the invoices / written

confirmations and most of them do not even co-relate to the invoices.

There is / are no tabulated statements in support of some of the invoices

/ written confirmations. There is no acceptance shown of the details

shown in the tabulated statements. Some of the tabulated statements do

not even bear the acknowledgement of receipt by the Corporate Debtor

and may not have been provided to it prior of the filing of the Petition.

7.6 In fact, pursuant to the receipt of some of the tabulated statements at

different / random points in time, the Corporate Debtor vide

correspondence issued by it in February and March 2020 (i.e. much prior

to the issuance of Section 8 Notice in June 2020) sought reconciliation of

accounts and verification of material evidencing the actual provision of

services, the specifications thereof, locations, etc. and listed out the

specific information and documents that were needed for the same. The

Respondent, however, avoided the same by not providing the specific

information / documents sought and rushed to issue the Section 8 Notice

on 12th June 2020 and then filed the present Petition to try to coerce the

Corporate Debtor to pay amounts which are disputed and not payable,

which speaks volumes in itself.

Company Appeal (AT)(Ins) No.616/2021 10

7.7 Further, this was also in line with the understanding between the

Corporate Debtor and the Respondent. The payments were to be made

on a "payable when able" basis, and hence the Corporate Debtor was

not liable to pay the Respondent any monies unless it was able to

undertake and complete a reconciliation of accounts and verification

exercise. This is borne out from the conduct of parties and the

understanding which has been accepted in correspondence.

7.8 The process of reconciliation involved not just proof of delivery of an

invoice but also, furnishing of supporting documents along with the

invoice which would mean, furnishing the prior email confirmation from

the Corporate Debtor which was the basis on which the advertisement

and promotional material was published; the actual proof that the

advertisement was published / put up on hoardings as per the agreed

specifications and locations; proof that the Respondent had made the

necessary payment to the publisher, etc. and the confirmation of

estimates, if any.

7.9 The reason why the aforesaid process and practice was followed is

to avoid a situation in which advertisements were published without the

go ahead from the Corporate Debtor and to avoid the Corporate Debtor

being wrongly billed for the same without the Respondent actually

putting up the hoardings as per the agreed specifications and/or at the

agreed locations. Another reason why the reconciliation was important is

to ensure that the Corporate Debtor is not billed or made liable for

Company Appeal (AT)(Ins) No.616/2021 11

advertisements which it had not consented to or which in fact had not

been published/put up.

7.10 This is a standard practice followed by all clients of agencies such

as the Respondent because it is a known business hazard that unless

these minimum supportings and documents are required and furnished,

a client must not be held liable for advertisements even if published

because it is often that agencies such as the Respondent indulge in

rampant publication of advertisements so as to show that they are

internally adding and growing their business. It could be that

overenthusiastic employees of the Respondent may proceed and publish

/ put up advertisements to meet their internal targets within the

Respondent's organization. That, however, cannot lead to the Corporate

Debtor paying for advertisements which it had not permitted; not given a

go ahead or in respect of which either invoices were never raised or

sufficient proof has not been furnished of actual publication/ putting up

on hoardings as per agreed specifications and at agreed locations. For

all these reasons the Corporate Debtor had raised issues disputing debt,

quality of service so provided and even breach of fundamental obligations

and sought a reconciliation/ verification exercise by specifying the details

/ documents required much prior to the issuance of the Section 8 notice.

7.11 The Respondent had however sought to avoid the reconciliation /

verification exercise and instead sought to invoke the provisions of the

Code in a mala fide attempt to coerce the Corporate Debtor to make

Company Appeal (AT)(Ins) No.616/2021 12

payments to the Respondent, which are not due to it and avoid the

verification exercise.

7.12 It was an undisputed in the Application that the Respondent despite

being in custody of 10 postdated cheques, returned to the Corporate

Debtor 8 cheques (aggregating to Rs. 40 lakhs). It was the Corporate

Debtor's case that it is inconceivable commercial conduct that when the

Respondent claims to be entitled to an alleged debt of Rs.1,98,47,520/-,

and after two out of the 10 postdated cheques were dishonored, the

Respondent would return 8 cheques aggregating to Rs.40 lakhs. In this

regard, the Corporate Debtor had in its Reply to the Application, pointed

out that the Respondent had made a false statement in the Application

by alleging that 8 postdated cheques were returned back to the Corporate

Debtor on an alleged assurance that the Corporate Debtor would

discharge its alleged liability (which is denied) by making payment

through RTGS or pay order. There was no material whatsoever to support

the allegation made by the Respondent in this regard. In fact, even the

correspondence (prior to the Section 8 notice) addressed by the

Respondent does not even state this allegation about return of the

cheques on the basis of the alleged assurance provided by the Corporate

Debtor about payment by RTGS. The Corporate Debtor had totally denied

this allegation in its pleading before the NCLT-4. In view of the above, the

provision of the cheques was of no assistance to the Respondent in light

of the subsequent return thereof (without reservation of any rights) to the

Corporate Debtor. The Corporate Debtor had in fact pleaded and

Company Appeal (AT)(Ins) No.616/2021 13

submitted that the cheques were returned since the Respondent

acknowledged that the amounts due had to be reconciled / verified and

hence there was no occasion for the Respondent to present those cheques

for payment. That is also the reason why the Respondent did not initiate

proceedings under Section 138 of the Negotiable Instruments Act, 1881

and did not even send a legal demand notice thereunder in respect of the

two dishonoured cheques.

7.13 It was because of the accounts reconciliation exercise that was

necessary to be undertaken that the Corporate Debtor had refused any

further payment to the Respondent and had demanded that the 8

cheques be returned. The Respondent was conscious of the position and

hence agreed to return the cheques without any protest or reservation of

rights or subject to any condition. They were not returned on any

assurance of payment to RTGS.. Ordinarily, in day to day commercial

activities, no creditor would return postdated cheques if amounts were

due to it. The return would only happen once payment has been received

through other modes. The Corporate Debtor had (in pleadings) pointed

this out as a crucial instance of falsehood which the Respondent had

indulged in whilst justifying its false claim.

7.14 The fact that an account reconciliation had been demanded and

discrepancies had been pointed out was apparent from the fact that in

response to the Respondent's wrongful letters dated 2nd August 2019

and 8th February 2020, the Corporate Debtor vide its Reply dated 20th

February 2020 clearly stated that there were no supporting documents

Company Appeal (AT)(Ins) No.616/2021 14

provided for the bills raised and the supporting documents were pending

even in respect of the on account of payment of Rs.1.25 Crores. It was in

this letter, reiterated that the Corporate Debtor through its

representatives Mr. Amit Wadhwani and the Respondent's

representative Mr. Vicky Gupta always had an understanding that

money would only be payable by the Corporate Debtor when it was able

to do so. Integral to this understanding was the requirement of

reconciliation of records and accounts. The Corporate Debtor vide its reply

dated 20th February 2020 correctly asserted that the understanding that

was always followed was that the liability to make payment was on a

"payable when able basis".

7.15 It is significant to note that in response to the Corporate Debtor's

letter dated 20th February 2020, the Respondent in its letter dated 11th

March 2020, did not deny the assertion made by the Corporate Debtor

that the understanding between the Parties was always that payment

would be made on "payable when able" basis. Moreover, if there was no

need for reconciliation of accounts and records and the understanding of

"payable when able" was not the understanding between the parties,

then no occasion would have arisen for the Respondent to agree to the

exercise of reconciliation of accounts which it did by fixing an

appointment on 14th March 2020 and/ or for returning the cheques.

7.16 Owing to the threat of covid-19 a physical meeting for reconciliation

of records and accounts could not take place on 14th March 2020.

Company Appeal (AT)(Ins) No.616/2021 15

7.17 Subsequently by its letter dated 14th March 2020 (wrongly dated

14th March 2019), the Corporate Debtor set out in detail, the documents

which were necessary for the purpose of an effective exercise of

reconciliation of accounts and records. There has been no response to the

Corporate Debtor's detailed requisitions vis-à-vis the necessary

documents in order to carry out a reconciliation exercise. There is no

explanation in the Petition as to why the requisition raised in the

Corporate Debtor's letter dated 14th March 2020 was not provided and/

or as to why it is not necessary or relevant. There was no denial in the

Petition of the correctness of the contents of the Corporate Debtor's letter

dated 14th March 2020. As such, the contents of the Corporate Debtor's

letter dated 14th March 2020 were accepted.

7.18 Thereafter, the Respondent simply proceeded to issue the demand

notice dated 12th June 2020. Hence, the Respondent has proceeded to

institute the insolvency petition without completing an important exercise

of reconciliation of accounts and records. Furthermore, the demand for

reconciliation of accounts and records was coupled with an assertion of

the understanding between the Parties that monies are to be paid on a

"payable when able" basis. The understanding of payable when able is

intrinsically linked with a need to reconcile accounts and records. This is

simply because one ought not to pay for services being provided by the

Respondent unless one is able to reconcile the monetary demands made

in respect of thereof with the proof of services provide. It is for this reason

that an ad-hoc payment was only made on an account basis and the

Company Appeal (AT)(Ins) No.616/2021 16

balance was to be made post reconciliation of accounts and verification

of supporting information/ documents.

7.19 It is in the aforesaid background that the Application was filed on

28th July, 2020.

A copy of the Application filed before the Ld. National Company Law

Tribunal, Mumbai Bench is annexed hereto and marked as Annexure "C".

7.20 The Corporate Debtor filed its Affidavit in Reply dated 6th July

2021. A perusal of the Affidavit in Reply demonstrates that the following

was the broad stand taken:

(i) since the understanding between the parties was that the

Corporate Debtor would make payments on a "payable when able"

basis which meant that liability accrued upon completion of a

reconciliation of accounts and verification exercise (which was yet

to be carried out), there was an existence of a dispute between the

Corporate Debtor and the Respondent and the Corporate Debtor

was not liable to make any payment to the Respondent until that

exercise was completed;

(ii) The Corporate Debtor had specifically stated that the postdated

cheques aggregating to Rs.40 lakhs had been returned by the

Respondent to the Corporate Debtor since the Corporate Debtor

had refused to make any payments to the Respondent unless the

exercise of reconciliation and verification had been completed.

(iii) The invoices did not stipulate any date of default.

Company Appeal (AT)(Ins) No.616/2021 17

(iv) The application was not maintainable as each invoice pertained

to different and distinct transactions/ contracts.

A copy of the Affidavit in Reply dated 6th July 2021 is annexed

hereto and marked as Annexure "D". 7.21 The application was

heard on 7th July 2021.

7.22 The Respondent filed its Written Submissions on 8th July 2021. The

Corporate Debtor filed its Written Submissions on 9th July 2021. The

Corporate Debtor also filed Supplemental Written Submissions dated 9th

July 2021.

A copy of the Written Submissions filed by the Operational Creditor dated

08.07.2021 is annexed hereto and marked as Annexure "E" A copy of the

Written Submissions filed by the Corporate Debtor dated 09.07.2021 is

annexed hereto and marked as Annexure "F" A copy of the Supplemental

Written Submissions filed by the Corporate Debtor dated 07.07.2021 is

annexed hereto and marked as Annexure "G".

7.23 It appears that on 2nd August 2021, the matter was listed in the

cause list of NCLT-4 under the caption, "for pronouncement of judgment"

and the Impugned Order was passed. However, the Corporate Debtor

and/or its Advocates were unaware of the matter being on board since

the name of the Corporate Debtor's Advocate was omitted to be

mentioned in the cause list. The Corporate Debtor has suffered a

procedural unfairness on account of this. The Corporate Debtor was

therefore not present when the Impugned Order was being pronounced.

The Impugned Order was eventually communicated to the Corporate

Company Appeal (AT)(Ins) No.616/2021 18

Debtor / Appellant on 4th August 2021 and accordingly, the Appellant

has with utmost speed and dispatch, approached this Hon'ble Appellate

Tribunal.

7.24 The impugned Order is essentially an unreasoned order which fails

to appreciate the Corporate Debtor's contentions and renders findings

contrary to the record and shockingly, disregards the binding judicial

precedents of the Hon'ble Bombay High Court that were placed before

the NCLT. The impugned Order gravely prejudices the Appellant and the

Corporate Debtor since it has admitted the Section 9 Petition and

appointed an IRP over the Corporate Debtor.

8. In the present case initially the IRP after receipt of the Notice has

submitted 'Status Report dated 6th September, 2021 wherein he described as

to what steps he had taken after the order dated 2nd August, 2021 passed

under Section of the IBC by the Adjudicating Authority. The Respondent

No.1/Operational Creditor has also filed detailed reply dealing with averments

made in the Memo of Appeal. The Respondent in its reply has stated as

under:-

"1. The present reply is being filed by M/s Global Advertisers through its

proprietor Mr. Sanjiv Gupta (hereinafter referred to -as the "Original

Petitioner" for the convenience of this Hon'ble Appellate Tribunal) for the

purpose of opposing the present Appeal as well as Interlocutory

Application No. 1649 of 2021 filed by the Appellant seeking a stay of the

order dated the 2nd of August, 2021, passed by the Adjudicating

Authority in Company Petition No. (IB) 1393 of 2020 (hereinafter referred

Company Appeal (AT)(Ins) No.616/2021 19

to as the "impugned order" for the convenience of this Hon'ble Appellate

Tribunal). Through the impugned order, the company by the name of Sai

Estate Consultants Chembur Private Limited (hereinafter referred to as

the "Corporate Debtor" for the convenience of this Hon'ble Appellate

Tribunal) was ordered to undergo Corporate Insolvency Resolution

Process (hereinafter referred to as "CIRP" for the convenience of this

Hon'ble Appellate Tribunal).

2. The Appellant abovenamed has filed the present appeal under section

61 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to

as the "IBC" for the convenience of this Hon'ble Appellate Tribunal)

seeking to challenge the impugned order on the ground better set out

therein. The impugned order arose out of Company Petition No. (18) 1393

of 2020 which had been filed by the Original Petitioner under section 9

of the IBC (hereinafter referred to as the "said petition" for the

convenience of this Hon'ble Appellate Tribunal). At the very outset, the

Original Petitioner repeats and reiterates the contents of the said petition

and denies anything contained in the present appeal which is contrary

thereto. The Original Petitioner is filing the present reply for the limited

purpose of putting on record certain objections to the present appeal as

well as to Interlocutory Application No. 1649 of 2021. To that extent,· the

Original Petitioner shall not be dealing with the individual assertions and

allegations set out in the appeal and the same ought to be denied to the

extent they are contrary to what is contained in the said petition. Nothing

Company Appeal (AT)(Ins) No.616/2021 20

contained in the present appeal ought to be considered to have been

admitted merely for the lack of a specific denial.

3. The Appellant has purported to set out the facts of the case in

paragraph 7 of the memorandum of appeal. I deny the same to the extent

there are contrary to what had been set out in the said petition.

4. With respect to paragraph 7.2 and 7.3 of the memorandum of appeal,

the Original Petitioner denies that it had agreed that the services were

being provided on the basis that consideration for the same would be on

"payable when able" basis. This assertion was taken up by the Corporate

Debtor for the first time in a letter dated the 20th of February 2020, which

was sent in response to reminder letters dated the 2nd of August, 2019,

and the 5th of February 2020, sent by the Original Petitioner seeking

payment towards the outstanding invoices. As was set out in the said

petition, the unpaid invoices raised by the Original Petitioner were issued

between the 28th of February 2018, and the 29th of June, 2019. There

was no correspondence between the parties during this time, or even

after the invoices were sent, suggesting that the modus operandi agreed

to between the parties was that the invoices would be on "payable when

able" basis. It is only after almost a year of following up by the Original

Petitioner that the Corporate Debtor asserted that the arrangement

between the parties was on a "payable when able" basis.

5. At any rate, even assuming that such was the arrangement between

the parties, the interpretation which is now sought to be put on the phrase

"payable when able" by the Appellant is clearly facetious and erroneous.

Company Appeal (AT)(Ins) No.616/2021 21

As per its literal interpretation, the phrase "payable when able" suggest

that the Corporate Debtor sought to make payment only when it is

financially capable of doing so. In other words, the very usage of the

defence of "payable when able" shows that the Corporate Debtor is an

insolvent entity. It is only now that the Appellant seeks to suggest that

this phrase means that payment was to be made by the Corporate Debtor

to the Original Petitioner after reconciliation of accounts. This could not

possibly be the true meaning behind the arrangement of "payable when

able".

6. Furthermore, in the paragraphs under reply, the Appellant also seeks

to suggest that the invoices raised by the Original Petitioner did not

specify any due date. However, a perusal of the chart at pages 73-74 of

the memorandum of appeal (which forms part of the ~ Form V filed by the

Original Petitioner with the Adjudicating Authority) sets out the date of

defaults with respect to each of the unpaid invoices. As per the

Confirmation Letters issued by the Original Petitioner and countersigned

by the Corporate Debtor (which formed the agreement between the

parties) payments were either to be made in advance of the services

being rendered or within 60 days of raising of the invoices. Considering

the cordial relationship with existed between the parties, the Original

Petitioner did not insist on advance payment prior to rendering the

services. At any rate, even if it is assumed that the Confirmation Letters

and the Invoices did not specify a due date of payment, the provisions of

the Contract Act, 1972, make it clear that payment would have to be

Company Appeal (AT)(Ins) No.616/2021 22

made within a reasonable period of time. In the present case, invoices

between the 28th of February 2018, and the 29th of June, 2018, are

outstanding. It is therefore clear that the Corporate Debtor had committed

a default in making payments towards the same.

7. With respect to paragraph 7.4 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. The Appellant seeks to contend that the invoices raised by

the Original Petitioner were vague and/or devoid of basic particulars.

What the Appellant is conveniently omitting to state is that there would

detailed charts along with each and every Confirmation Letter

countersigned by both the parties containing details of the locations,

durations, and rates of the advertisement services being provided by the

Original Petitioner to the Corporate Debtor. These detailed charts were

prepared jointly by the parties, which is clear from the fact that they were

countersigned by both of them. Thus, the Corporate Debtor was, at all

points of time, fully aware of the extent of the services being provided by

the Original Petitioner. In fact, the locations and durations of the

advertisements put up by the Original Petitioner on behalf of the

Corporate Debtor were as specifically agreed beforehand, as is clear from

a perusal of the documents on record. The Appellant seeks to contend

that the invoices had no correlation with the written confirmation letters,

which is demonstrated false upon a bare perusal of the invoices and the

confirmation letters themselves. Even otherwise, it is important to note

that each of the invoices stipulates that any objections to their contents

Company Appeal (AT)(Ins) No.616/2021 23

ought to be taken within a period of 7 days of the receipt. Admittedly, the

Corporate Debtor has never raised any objections to any of the invoices.

It is certainly a moonshine defence to seek to cast doubt upon the invoices

years after they are raised and only after receiving notices for payment.

The Appellant has admitted that the Corporate Debtor had received all of

the invoices which is clear from the fact that each of them also contains

an endorsement to that effect along with the seal on stamp of the

Corporate Debtor. Notably, the invoices have not been denied.

8. With respect to paragraph 7.5 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. The falseness of the assertion of the Appellant is clear from

the fact that each of the tabular statements containing details of the

services rendered bears the stamp and seal of the Corporate Debtor.

Furthermore, these tabular charts can easily be co-related b with the

confirmation letters insofar as the total amounts payable under both

match. It is clear that these are baseless assertions being put forth by

the Appellant with the sole intention of avoiding the admitted liability

owed by the Corporate Debtor to the Original Petitioner.

9. With respect to paragraph 7.6 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. The letters dated the 20th of February, 2020, and the 19th

of March, 2020, sent by the Corporate Debtor to the Original Petitioner

were in response to notices sent to it demanding payment. In fact, neither

of the 2 letters relied upon by the Appellant make any reference tothe

Company Appeal (AT)(Ins) No.616/2021 24

tabular charts which had been shared with the Corporate Debtor much

prior to the issuance.

10. It is further submitted that a perusal of the letters dated the 20th of

February 2020, and the 14th of March, 2020, sent by the Corporate

Debtor show that it had not raised any "dispute" with respect to the

services provided by the Original Petitioner per se. The Corporate Debtor

merely sought to avoid making payment on the flimsy ground that it

seeks to conduct the exercise of reconciliation of accounts. However, the

definition of the phrase "dispute" under section 5 (6) of the IBC specifies

that the dispute must relate to either (A) the existence of the amount of

debt, or (B) the quality of goods or services, or (C) the breach of a

representation or warranty. Neither of the 2 letters dated the 20th of

February 2020, or the 14th of March, 2020, reason any "dispute" falling

in either of the 3 categories. In fact, a perusal of these letters would show

that it is not the case of .the Corporate Debtor or the Appellant tha;:r.

services were not rendered or that the services were insufficient or

defective; instead, an assertion is made that a reconciliation of a counsel

is required before the Corporate Debtor could make payments. There is

no positive assertion from the side of the Corporate Debtor that no

payment is required to be made to the Original Petitioner. Similarly, there

is no assertion that services were not rendered to the Corporate Debtor.

In fact, neither the Corporate Debtor nor the Appellant have anywhere in

their pleadings stipulated what is the position of the accounts between

the parties. The Corporate Debtor never produced its own ledger account

Company Appeal (AT)(Ins) No.616/2021 25

before the Adjudicating Authority, and neither has the Appellant in the

memorandum of appeal. Neither the Corporate Debtor nor the Appellant

have stated how much according to them is due and payable to the

Original Petitioner. It is submitted that merely seeking reconciliation of

accounts without putting forward any actual "dispute" cannot amount to

a pre-existing dispute as understood under the provisions of the IBC.

11. The falsity in the case of the Appellant is further clear from the fact

that the Original Petitioner agreed to meet with the Corporate Debtor on

the 14th of March, 2020, for the purpose of reconciliation of accounts.

However, instead of meeting the Original Petitioner, the Corporate Debtor

sent a letter to him on the 14th of March, 2020, (i.e., the date upon which

reconciliation was to take place) seeking to stall the meeting by calling

for documents which were already available with it. In fact, a perusal of

this letter dated the 14th of March, 2020, itself shows that the Corporate

Debtor could not put up any case beyond making bare denials. Even

through this letter, the Corporate Debtor has not raised any "dispute" in

terms of section 5 (6) of the IBC but has simply denied its liability in toto

and called for documents. If the Corporate Debtor were genuinely

interested in a reconciliation of accounts, then it would have participated

in the meeting proposed by the Original Petitioner to do so. It is clear from

a perusal of the documents on record that the Corporate Debtor only

sought to scuttle its liability by attempting to frustrate the Original

Petitioner by making bare denials devoid of any substance. The same

Company Appeal (AT)(Ins) No.616/2021 26

could not possibly be construed to be a "pre-existing dispute" in terms of

the provisions of the IBC.

12. With respect to paragraph 7.7 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. The Appellant is seeking to misconstrue the simple phrase

"payable when able". The literal interpretation of that phrase would

suggest that it is the case of the Corporate Debtor that it would only make

payments when it has the financial ability to do so. By no stretch of

imagination can the phrase "payable when able" suggest that

reconciliation exercise was a condition prior to payment. At any rate, it is

clear from the record that the Corporate Debtor did not even seek

reconciliation of accounts until after receiving reminder notices for

payment from the Original Petitioner. It is clear that this defence taken

by the Corporate Debtor was a moonshine defence devoid of any

substance or merit. Furthermore, by stating that the invoices raised on

"payable when able" basis, the Corporate Debtor only acknowledge that

it lacks the financial capability to service its debts. It is therefore clear

that the Corporate Debtor is an insolvent entity which ought to undergo

CIRP in l accordance with the provisions of the IBC.

13. With respect to paragraph 7.8 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. As has already been set out above, the Corporate Debtor had

acknowledged receipt of the confirmation letters, the details of the

services provided, the tabulation charts of the same, as well as the

Company Appeal (AT)(Ins) No.616/2021 27

invoices. It is also pertinent to note that despite having received the

invoices which are now claimed to be incomplete, the Corporate Debtor

remained silent for more than 18 months and did not raise any allegation

that the services were not actually rendered. In fact, even today it is not

the case of either the Corporate Debtor or the Appellant that services were

not rendered by the Original Petitioner. Rather, the Corporate Debtor

seeks to avoid making payment on the frivolous ground that it wants to

review all of the correspondence and documents relating to the amounts

sought without raising any concrete dispute about the same.

14. With respect to paragraphs 7.9 and 7.10 of the memorandum of

·appeal, the Original Petitioner denies the contents therein as they are

false and misleading. The Appellant is seeking to raise this case for the

first time in the present appeal. A perusal of the documents on record will

go to show that there was no such practice between the parties as is now

sought to be alleged in the paragraph under reply. Rather, the documents

on record show that detailed confirmation letters were issued by the

Original Petitioner and were countersigned by the Corporate Debtor. It is

also clear that details of the services which are being provided by the

Original Petitioner were contained in the form of tabular charts which

were countersigned by the Corporate Debtor. At no point of time as the

Corporate Debtor raised an allegation that services claim to have been

rendered were not actually done so. Even today, this is not the case of

the Appellant. The Appellant is merely stating that it seeks to conduct the

exercise of reconciliation to ascertain whether or not there is any

Company Appeal (AT)(Ins) No.616/2021 28

deficiency in .the services rendered by the Original Petitioner. This cannot

be a means of thwarting an admitted and legitimate debt. In fact, the

contents of paragraph 7.10 proceed on the basis of nothing but

conjecture. The Appellant is resorting to alluding to hypothetical

scenarios in order to justify its baseless demand for reconciliation of

accounts. It is important to note that while the Appellant has portrayed

several different imaginary cases in which a dispute could be said to

have been raised, he has not raised any such dispute in the facts of the

present case. The Appellant states that the Original Petitioner could not

charge for advertisements which were not actually published but fails to

make any allegation that the Original Petitioner has actually done so.

This is clear from a perusal of the documents on record.

15. With respect to paragraph 7.11 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. A perusal of the record would go to show that the Original

Petitioner had in fact agreed to meet with the Corporate Debtor on the

14th of March, 2020, to discuss the reconciliation of the accounts. It is in

fact the Corporate Debtor which avoided doing such a reconciliation as it

was fully cognizant of the fact that it has no dispute against the Original

Petitioner in relation to the services// rendered by him. With respect to

paragraph 7.12 of the memorandum of appeal, the Original Petitioner

denies the contents therein as they are false and misleading. As has been

set out in the said petition, the post-dated cheques were returned to the

Corporate Debtor at its request. It is pertinent to note that the Appellant

Company Appeal (AT)(Ins) No.616/2021 29

has himself stated that he as well as other promoters/directors of the

Corporate Debtor shared cordial relations with the Original Petitioner. It

is certainly not inconceivable that the Original Petitioner agreed to return

the postdated cheques as a result of this cordial relationship on the basis

that the dues would be transferred through wire transfer at a subsequent

point of time. At any rate, even if what is stated in the paragraph under

reply is considered to be true, the same does not absolve the Corporate

Debtor of its default to make payment towards the admitted operational

debt owed by it to the Original Petitioner. Nothing contained in the

paragraph under reply would amount to a pre-existing dispute as

understood by the provisions of the IBC.

17. With respect to paragraph 7.13 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. The Appellant has not been able to produce any document

corroborating his baseless assertion set out in the paragraph under reply.

This assertion is nothing but an afterthought on the part of the Corporate

Debtor with the intention of scuttling/avoiding the initiation of its CIRP.

18. With respect to paragraph 7.14 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are false and

misleading. As has been stated above, the Corporate Debtor was in

receipt of invoices, confirmation letters, and tabular charts of services

rendered, and had not raised any dispute upon the same for more than

a year. In fact, even in its letters dated the 20th of February 2020, and

the 14th of March, 2020, the Corporate Debtor did not raise any dispute

Company Appeal (AT)(Ins) No.616/2021 30

or deficiency with respect to the documents which had admittedly been

received by it. It only sought reconciliation for the purpose of stalling its

liability to make payment. There was no positive denial of the debt owed

by the Corporate Debtor to the Original Petitioner. The so-called

preexisting disputes sought to be urged by the Appellant are nothing but

a moonshine defence devoid of any substance or merit. It is also pertinent

to note that the Original Petitioner had also issued various work

completion reports which were also countersigned by the Corporate

Debtor. These work completion reports are also on record and were

considered by the Adjudicating Authority at the 1 time of passing the

impugned order. What is pertinent to note is that the Corporate Debtor

received these work completion reports on the 20th of January, 2018,

(page: 116), the 12th of July, 2018, (page: 126) and the 30th of August,

2018, (page: 130) but has not, at any point of time, raised any dispute

that the same are incorrect or false. In fact, the Corporate Debtor has not

done so till date and neither has the Appellant done so in his

memorandum of appeal. With respect to the assertion of the Appellant

that the payments were to be made by the Corporate Debtor on "payable

when able" basis, the same has already been dealt with extensively

above.

19. With respect to paragraph 7.15 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they false and

misleading. The Original Petitioner has already extensively dealt with the

purport of the phrase "payable when able" above. Further, as has been

Company Appeal (AT)(Ins) No.616/2021 31

set out by the Original Petitioner above, the Corporate Debtor sought to

take this moonshine and baseless defence (if it all it can be considered

as a defence) only after receiving multiple reminders for payment. The

Original Petitioner repeats and reiterates what has been set out in the

present counter-affidavit in this regard.

20. With respect to paragraph 7.16 of the memorandum of appeal, the

contents therein are expressly contrary to the letter of the Corporate

Debtor dated the 14th of March, 2020, as is clear from a bare · perusal

thereof. Nowhere in the letter dated the 14th of March, 2020, has the

Corporate Debtor even mentioned the pandemic or COVID19. The falsity

of the contentions of the Appellant are laid bare through the paragraph

under reply.

21. With respect to paragraph 7.17 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they false and

misleading. The assertions of the Appellant in the paragraph under reply

are please false in light of the documents on record and what has been

stated by the Original Petitioner above. It is clear that the bogeyman of

reconciliation was raised by the Corporate Debtor for the sole purpose of

delaying and avoiding the payments admittedly due and payable by it.

Rather than accepting the request of the Original Petitioner to meet on the

14th of March, 2020, for the purpose of discussing reconciliation of

accounts, the Corporate Debtor are sought to further obfuscate the matter

by calling upon the Original Petitioner to submit documents which were

admittedly in its possession. It is pertinent to note that the Corporate

Company Appeal (AT)(Ins) No.616/2021 32

Debtor did not raise any "dispute" with respect to the services rendered

by the Original Petitioner but only sought reconciliation of accounts. The

Corporate Debtor did not deny its liability nor did it make any positive

assertion as to its lack of liability to make payment to the Original

Petitioner. In fact, as were set out in the said petition, the Corporate

Debtor had paid TDS upon the outstanding invoices thereby

acknowledging and admitting that it was liable to the Original Petitioner.

The Appellant has no explanation as to why TDS was paid to the revenue

on account of the invoices raised by the Original Petitioner if the Corporate

Debtor had a grievance with respect to those very invoices. It is clear that

the Appellant, much like the Corporate Debtor before it, is only indulging

in making baseless and frivolous claims and allegations in order to avoid

CIRP of the Corporate Debtor. It is also important to note that the

Corporate Debtor did not send any substantive response to the demand

notice issued by the Original Petitioner under section 8 of the IBC. This

itself shows that the Corporate Debtor does not have any difference to

the said petition and cannot avoid undergoing CIRP.

22. With respect to paragraph 7.18 of the memorandum of appeal, the

Original Petitioner denies the contents therein as they are full misleading.

The Original Petitioner craves the leave of this Hon'ble Appellate Tribunal

to refer to and rely upon the demand notice dated the 12th of June, 2020,

for its true and correct interpretation. The allegations made by the

Appellant in the paragraph under reply are a repetition is of what has

already been dealt with earlier in the present counter-affidavit.

Company Appeal (AT)(Ins) No.616/2021 33

23. With respect to paragraphs 7.19 to 7.22 of the memorandum of

appeal, the Original Petitioner craves the leave of this Hon'ble Appellate

Tribunal to refer to the pleadings before the Adjudicating Authority for the

true and correct interpretation.

24. With respect to paragraph 7.23 of the memorandum of appeal, the

Original Petitioner denies that any injustice has been caused to the

Corporate Debtor or the Appellant as has been alleged or otherwise. The

Appellant is merely grasping at straws in order to justify the present

appeal.

25. With respect to paragraph 7.24 of the memorandum of appeal, the

Original Petitioner denies that the impugned order is liable to be set

aside."

9. Shri Ramji Srinivasan, Learned Senior Counsel during the course of

hearing has argued that since there was pre-existing dispute, the Learned

Adjudicating Authority has incorrectly and illegally passed the impugned

order. The Learned Senior Counsel has taken the Court to number of

documents brought on record in the present Appeal, which were according to

the Learned Senior Counsel for the Appellant were produced before the

Adjudicating Authority, vividly shows that there was pre-existing dispute

between the parties. He has referred to number of documents which were in

existence much prior to issuance of Notice under Section 8 of the IBC by the

Operational Creditor/Respondent No.1. According to Learned Counsel for the

Appellant if there were pre-existing dispute, there was no reason for the

Adjudicating Authority to entertain the Application under Section 9 of the IBC

Company Appeal (AT)(Ins) No.616/2021 34

filed by the Operational Creditor/Respondent No.1. He submits that the

Learned Adjudicating Authority ignoring those documents and also

overlooking the pre-existing dispute has passed the impugned order.

According to the Learned Counsel for the Appellant the order impugned is in

the teeth of judgement of Hon'ble Supreme Court passed in Mobilox

Innovations Pvt Ltd V Kirusa Software Pvt Ltd (2018) 1 SCC 353. Besides

making oral submissions the Learned Counsel for the Appellant has also filed

Notes of Written Submissions which is reproduced hereinbelow:-

"1.1 The Operational Creditor was to provide advertisement services

through outdoor hoardings to the Corporate Debtor.

1.2 Given the nature of these services, prior to payment being made

under an invoice raised by the Operational Creditor, the Corporate Debtor

would have to be convinced that the Operational Creditor had put up the

hoarding advertisements (i) as per the agreed size / specifications of the

hoardings, (ii) as per the creative / design provided, (iii) for the agreed

time / tenure for each hoarding, and (iv) at the agreed location/s of the

hoardings, etc.

1.3 Therefore, the Operational Creditor was required to provide

appropriate documentary proof such as photographs of the hoardings on

the relevant dates and proofs of creatives, etc. to demonstrate the

provision of the hoarding advertisements and to justify the invoices

raised. Such proof goes to the root of the matter i.e. in relation to the

quantity and quality of the services provided, and was required to be

provided and verified prior to the Corporate Debtor being liable to pay

Company Appeal (AT)(Ins) No.616/2021 35

any amounts to the Operational Creditor. This is the nature of the

reconciliation and verification exercise that would be required to be

carried out.

1.4 The Corporate Debtor admittedly sought for such a reconciliation and

verification exercise almost 4 months prior to the issuance of the Section

8 notice (see letters dated 20th February, 2020, and 14th March, 2020).

As was pointed out during the hearing held on 30th May, 2022, the

Operational Creditor itself agreed to the carrying out of a such

reconciliation and verification exercise vide its letter dated 11th March,

2020 (pg nos. 144 - 147)

1.5 Hence, given the nature of the services being provided, merely on the

basis of receiving invoices, it cannot be assumed that the Corporate

Debtor was liable to pay the amounts of the invoices and it could not be

expected that the Corporate Debtor was to make payment under the

invoices, which had not been verified and reconciled in the aforesaid

manner. A reconciliation exercise of the nature described above, was

absolutely necessary and mandatory.

1.6 It is also pertinent to point out that no such proof is to be found in the

Section 8 Notice and/ or in the Section 9 Petition. Even today, the

requisite proof has not been placed on record by the Operational Creditor

before the Learned NCLT and/ or this Hon'ble Tribunal and/ or the

Hon'ble Supreme Court of India.

2. The pre-existing dispute:

Company Appeal (AT)(Ins) No.616/2021 36

2.1 The Section 8 Notice in the present case was issued on 12th June

2020 (pg.149).

2.2 The conduct of the Parties and stand taken in correspondence

exchanged prior to 12th June 2020 plainly demonstrates the existence of

a pre-existing dispute: (Pg. 174 para-viii)

2.2.1 The Corporate Debtor specifically took the stand in its letter dated

20th February 2020 (Pg.144- 145) that the alleged liability / claim was

disputed / not admitted and that the supporting documents had not been

provided despite repeated requests and reminders. Hence, it had not

been able to verify whether the services had actually been provided or

not, and there was a need for reconciliation/ verification (paras 2 to 4).

The same are reproduced hereinbelow for ease of reference:

"2. At the outset, we state and submit that the amount of debt sought to

be claimed by you is denied by us in toto, even the debit note raised by

your goodselfs are been denied. Infact you have sought to miss-

appropriate the amounts paid by us as per your own whims and fancies,

thereby causing a huge challenge for reconciliation of accounts, for this

reasons alone the alleged claims raised by you along with interest is

disputed.

3. At the further this is to place on record that there are no supporting

documents provided for the bills raise and in good faith we have paid to

you a on account payments to the tune of Rs.1,25,00,000/- for which the

supporting documents are still awaited in spite of several verbal promises

and reminders are not yet received by us which you may kindly note.

Company Appeal (AT)(Ins) No.616/2021 37

4. We further deny that there was any understanding with Vicky Gupta

and our Mr. Amit B Wadhwani sought to be alleged infact meeting could

have occurred between both as they are friend and have cordial

relationship, but there was never any discussion in respect of the alleged

claims raised by you or the promises for payment as sought to be alleged.

Infact the claims raised by you need to be reconciled." \

2.2.2 In this letter (paragraph 5), the Corporate Debtor has specifically

demanded a reconciliation exercise. For ease of reference, para 5 is set

out hereinbelow:

"5. We deny the contents of the debit note in toto and state that

there is no any debt or liability payable by us. Infact we along with

your Vicky Gupta always had an understanding of "payable when

able" because our Amit B Wadhwani and Vicky Gupta shared and

presently still share a cordial relationship with each other, this fact

is also corroborative the invoices raised by you as the invoices

never mentioned any dude date or period by when the given

amounts were required to be paid. For this reason also if you are

inclined to demand payment, we would have to first reconcile the

accounts posy which if anything is due would be paid."

i) From the Operational Creditor's response letter dated 11th March 2020

(pgs.146 and 147), it is most pertinent to note that the Operational

Creditor itself agreed to the reconciliation exercise and fixed an

appointment on 14th March 2020 for the same. Once the Operational

Creditor agreed to the reconciliation exercise, it is inconceivable as to how

Company Appeal (AT)(Ins) No.616/2021 38

it could have filed the Section 9 petition, without first completing the

reconciliation and verification exercise. Reliance in this regard is placed

on the judgement of the Hon'ble High Court of Bombay in the case of Tata

Advanced Materials Ltd. v. Tool tech Global Engineering (P) Ltd. (2012)

SCC Online Bom 1566 - Paragraphs 12 to 16.

2.2.3 In its letter dated 14th March 2020 (Pg. No. 148-149 of Appeal), the

Corporate Debtor specifically took the stand that the Operational Creditor

had excessively billed the Corporate Debtor and specifically listed out the

documents/ information that was required for the reconciliation /

verification exercise (see para 4). Para 4 of this letter is set out

hereinbelow for ease of reference:

"4. From the aforesaid circumstances it appears that you have

excessively billed us we will be only be in a position to a way

forward only after the below mentioned are provided to us.

i. Details ledger of global Advertisers.

ii. Copies of all hoardings and supporting documents as

a part of monitoring activities including dates on

which hoardings were live

iii. copy of creative used for every hoarding.

iv. Signed hard copes of all invoices that need to be

reconciled

v. PO/Confirmation emails for all orders sent across

from our side to Global Advertisers

Company Appeal (AT)(Ins) No.616/2021 39

vi. Also allocation of 1.25 Crore which has already been

paid to you."

2.2.4 It is most important to note that there was NO response whatsoever

to the 14th March, 2020 letter from the Operational Creditor. No

supporting documents were provided post 14th March, 2020 till date by

the Operational Creditor to the Corporate Debtor in support of its alleged

claim. The meeting fixed for reconciliation on 14th March, 2020 could not

be held in view of the COVID 19 pandemic (see para 5(xv) at Pg.175 of

Reply) that had started and also because the Corporate Debtor first

asked for the documentary material to verify the provision of services

prior to meeting physically (see para 5 of 14th March, 2020 letter at Pg.

No. 178-179).

2.2.5 The Operational Creditor respectfully submits that the aforesaid

correspondence dated 20th February 2020, 11th March 2020 and 14th

March 2020 (all much prior to the Section 8 Notice dated 12th June 2020)

clearly reflect the existence of a pre-existing dispute vis-à-vis the

Operational Creditor's claim. This pre-existing dispute is in relation to

both the quantum of services provided as well as quality. It is therefore,

as fundamental a pre-existing dispute as one can be, given the nature of

the services provided.

2.2.6 In the face of the aforesaid pre-existing dispute, the Operational

Creditor in fact rushed to issue the Section 8 Notice in June, 2020,

without providing the documents or carrying out the reconciliation.

Clearly, this was done with a view to avoid/ circumvent the legitimate

Company Appeal (AT)(Ins) No.616/2021 40

demand for reconciliation and verification sought for by the Corporate

Debtor.

2.2.7 No documents are annexed to the Section 9 Petition also to evidence

that the services were actually provided. This ought to be have annexed,

in view of the dispute / denial raised by the Corporate Debtor in its letters

prior to the Section 8 notice.

2.2.8 In any case, it is inconceivable that an OC can seek initiation of the

CIRP without placing on record documents to prima facie demonstrate the

actual provision of services, especially when a dispute was raised in

relation thereto prior to invocation of the provisions of the Code.

2.2.9 It is the pleaded case of the Corporate Debtor (see para 5 of Reply

@Pg. 168- 177) that given the nature of the advertisement services,

reconciliation of accounts and more particularly verification of

documentary materials evidencing the actual provision of services was a

prerequisite prior to making of payments. This was also necessitated in

view of the fact that the invoices were vague and devoid of basic

particulars (see para 5 (iii) of Reply @ Pg. 169-170). The Operational

Creditor chose not to file a rejoinder. None of these contentions are

denied.

2.3 Case Law:

ii) Mobilox Innovations Private Limited v Kirusa Software Private Limited

(2018) 1 SCC 353 - Paragraph 51 - (Pg. No. 222 Vol-II)

Company Appeal (AT)(Ins) No.616/2021 41

"40. It is clear, therefore, that once the operational creditor has filed

an application, which is otherwise complete, the adjudicating

authority must reject the application Under Section 9(5)(2)(d) if

notice of dispute has been received by the operational creditor or

there is a record of dispute in the information utility. It is clear that

such notice must bring to the notice of the operational creditor the

"existence" of a dispute or the fact that a suit or arbitration

proceeding relating to a dispute is pending between the parties.

Therefore, all that the adjudicating authority is to see at this stage

is whether there is a plausible contention which requires further

investigation and that the "dispute" is not a patently feeble legal

argument or an assertion of fact unsupported by evidence. It is

important to separate the grain from the chaff and to reject a

spurious defence which is mere bluster. However, in doing so, the

Court does not need to be satisfied that the defence is likely to

succeed. The Court does not at this stage examine the merits of the

dispute except to the extent indicated above. So long as a dispute

truly exists in fact and is not spurious, hypothetical or illusory, the

adjudicating authority has to reject the application."

2.4 The Corporate Debtor respectfully submits that the record clearly

reflects a dispute between the Operational Creditor and the Corporate

Debtor vis-à-vis both quantum and quality of services provided. An

exercise of reconciliation of accounts and verification is always to

ascertain this position and until it is completed, the Parties have all along

Company Appeal (AT)(Ins) No.616/2021 42

agreed that there is no liability which can be stated to be due and

payable from the Corporate Debtor to the Operational Creditor. Hence,

this is dispute which in the Corporate Debtor's respectful submission,

exists prior to the Section 8 Notice. This dispute truly exists and cannot

be stated to be spurious, hypothetical or illusory. The Application is

therefore required to be rejected.

2.5 Post-dated cheques:

2.5.1 Firstly, the reliance sought to be placed by the Operational Creditor

on the post dated cheques is misconceived, since the Operational Creditor

returned 10 (ten) cheques to the Corporate Debtor without any

qualification or caveat and without initiating any legal proceedings on the

basis of those cheques against the Corporate Debtor. The previous 10

(ten) cheques are of no assistance, since they were towards payment of

the previous invoices (which are not the subject matter of the Section 9

petition filed by the Operational Creditor).

2.5.2 Secondly, in the Affidavit in Reply (para 5 (xi) / Pg. No. 173) to the

Appeal, the Corporate Debtor has specifically stated that this was done

because the Operational Creditor had agreed that a reconciliation was to

be done and had therefore returned the cheques. There is no denial of

this position since no rejoinder has been filed. Moreover, the Corporate

Debtor's stand visà-vis the cheques is also contained in paragraph 6 of

its letter dated 20th February 2020 (pg.144@145). Hence, this is not a

new stand taken for the first time after issuance of the Section 8 Notice.

2.5.3 Thirdly and in any event, it is inconceivable commercial conduct

Company Appeal (AT)(Ins) No.616/2021 43

that the Operational Creditor would return post-dated cheques if it truly

believed the Corporate Debtor owed its monies.

2.5.4 Hence, on every count, the Corporate Debtor respectfully submits

that no case is made out for any admission of liability on the basis of the

post-dated cheques and in fact, the conduct of the Parties' is a relevant

indicator vis-à-vis these cheques.

3. Reliance on Invoices / Written Confirmations is misplaced:

3.1 The written confirmation / purchase orders were necessarily issued

prior to the provision of the services and hence are of no assistance to the

Operational Creditor to prove whether services were actually provided or

not.

3.2 As for the invoices, they are vague, devoid of basic particulars of the

services actually provided such as period, specifications, locations, rates,

etc. Some of the invoices were raised several months after the alleged

provision of services. Hence, the issuance of the invoices by itself does

not demonstrate that the services were provided. In any case, all the

invoices in fact bear an endorsement that they had been received without

being checked and / or bear an endorsement that they had been received

for verification (see the handwritten endorsements at the bottom of pgs.

88, 94, 97,101,104,109,113,117,121,123,131,133,135). This further

substantiates the stand of the Corporate Debtor that verification was

mandatory and in the absence thereof, the Operation Creditor cannot

claim monies to be due or the Corporate Debtor to be in default. (see para

5(iii) at Pg. No. 169 ).

Company Appeal (AT)(Ins) No.616/2021 44

3.3 Though the Petitioner claims that the invoices were issued pursuant

to certain written confirmations (which are annexed after each invoice in

the Petition), the fact is that the invoices do not even refer to the date or

number of the written confirmation and hence the same are ex facie not

co relatable (see para 5(iii) at Pg.169).

3.4 The Petitioner has sought to rely upon certain tabulated statements

in the Petition and an impression is portrayed as if the same were part

of the invoices / written confirmations. That was not the case. The said

statements were not provided with the invoices / written confirmations

and most of them do not even co-relate to the invoices. There is / are no

tabulated statements in support of some of the invoices / written

confirmations, which are at pgs. 94 and 121. There is no acceptance

shown of the details shown in the tabulated statements. Some of the

tabulated statements do not even bear acknowledgement of receipt by

the Corporate Debtor (see pgs. 90 and 125) and have not been provided

to it prior to the filing of the Petition. As for the others, they merely bear

an acknowledgement of receipt and most of them bear an endorsement

that they are received for verification (see para 5(iv) at pp. 5-6 of Reply).

3.5 It is in the aforesaid context that this Hon'ble Tribunal must

appreciate that pursuant to the receipt of some of the tabulated

statements at different / random points in time, the Corporate Debtor vide

correspondence issued by it on 20th February, 2020 and 14th March,

2020 (i.e. much prior to the issuance of the Section 8 Notice in June, 2020)

sought reconciliation of accounts and verification of material evidencing

Company Appeal (AT)(Ins) No.616/2021 45

the actual provision of the services, the specifications thereof, locations,

etc. and listed out the specific information and documents that were

needed for the same (see para 5(v) at Pg. No. 170 of Appeal). The

Petitioner however avoided the same by not providing the specific

information/ documents sought and rushed to issue the Section 8 Notice

(see para 5(x) at Pg. No. 172 of Appeal). Hence, these tabulated

statements are of no consequence / assistance.

3.6 Lastly, the purported work completion reports (Pg. Nos. 116, 126,

130) can in no manner take the Applicant's case any further. This is

because: (a) these work completion certificates by themselves do not

indicate the value of the services which they claim to have been provided;

(b) these have also been only received by the Corporate Debtor subject to

verification and do not constitute an acceptance of liability; and (c) in any

event, it is post these purported certificates that parties agreed to carry

out the exercise of accounts reconciliation and verification.

4. Re: Deposit of TDS does not amount of acknowledgment of liability:

4.1 The Operational Creditor has relied upon the fact that the Corporate

Debtor has deposited TDS amounting to Rs.3,96,540/- in respect of the

Operational Creditor. According to the Operational Creditor, this

constitutes an acknowledgment of liability. In the Corporate Debtor's

respectful submission, this, neither in fact nor in law can be stated to be

an acknowledgement of liability in favour of the Operational Creditor.

4.2 Factually, the aforesaid chain of correspondence and stand taken

therein clearly reflects that the Corporate Debtor had denied its liability

Company Appeal (AT)(Ins) No.616/2021 46

towards the Operational Creditor, whilst seeking an accounts

reconciliation and verification exercise. Moreover, no TDS certificate has

been produced by the Operational Creditor. Apart from a bare statement

in the Application, there is no document which indicates what this TDS is

towards.

4.3 Legally also, it has been consistently held by various binding judicial

precedents that deposit of TDS is at best an acknowledgment of an

expected liability and by itself, it does not give any basis for claiming

recovery of dues / monies.

4.4 Case Law:

i) S.P. Brothers v Biren Ramesh Kadakia 2008 SCC Online Bom 1599 -

Para 8 - (Pg. No. 276)

ii) ACTAL Vs. India Infoline Limited: MANU/MH/1768/2012 - Judgment

dated 9th October 2012 - Bombay High Court - (Pg. No. 285)

iii) N.N. Valecha v I.G. Petrochemicals Ltd. 2006 SCC Online Bom 1289 -

Para 11 - (Pg. No. 297)

iv) Bluesquare Travel Pvt. Ltd. v Pricewaterhouse Coopers Services

Delivery Centre (Kolkata) Pvt. Ltd. (2019 SCC OnLine NCLT 5851 -

Paragraphs 18-20 and 36-44 - (Pg. No. 304)

5. For all of the above reasons, it is respectfully submitted that the Appeal

is liable to be allowed with costs."

10. Mr Mohit Chaudhary, Learned Counsel for Respondent No.1 supporting

the impugned order submits that the Corporate Debtor has never raised any Company Appeal (AT)(Ins) No.616/2021 47

dispute regarding claim raised by the Respondent No.1. He submits that in

terms of oral agreement entered in between the parties the Operational

Creditor has rendered its services by way of fixing Signs Board etc and from

time to time submitting working completion report. The Appellant was

repeatedly asked to make payment of Rs.2,54,40,604/- Rs.516027/- and

overdue interest of Rs.5359186/- plus further interest from August, 2019 to

1st January, 2020 of Rs.2656596/-. Since the payment was not made even

vide letter dated 06.02.2020 the Appellant was intimated that if outstanding

payment including interest is not paid within a specified time the Respondent

No.2 may take appropriate legal action. He further submits that various

communications were made to make payments. He further submits that

outstanding dues has not been disputed by the Appellant considering the fact

that the Operational Creditor received Rs.35 lakhs and there was a shortfall

of Rs.95 lakhs. Earlier 20 cheques of Rs.5 lacs each were also issued by the

Appellant. However, some of the cheques were dishonoured. According to

the Learned Counsel for the Respondent there was no genuine dispute rather

outstanding dues were without any dispute but once Operational Creditor

intimated the Appellant regarding the legal action as an afterthought

insignificant dispute was raised by the Appellant. The Learned Adjudicating

Authority considering the fact that there was no pre-existing genuine dispute,

has rightly entertained the petition filed under Section 9 of the IBC and

initiated CIRP. According to him the impugned order warrants no

interference. The Learned Counsel for the Respondent has also filed Notes of

Written Submissions in the present Appeal. Its written submissions is

reproduced hereinbelow:

Company Appeal (AT)(Ins) No.616/2021 48

"1. OC [M/s Global Advertisers] occupied in the work of putting up

billboards and Hoardings. CD [M/s Sai Estate Consultants Chembur Pvt.

Ltd.} is a real estate agent. OC and the CD are in business relationship

regarding carrying out Display and Mounting of advertisements for the

projects provided by the CD.

2.As per the written confirmation letters issued by the OC and duly

signed by the CD, OC carried out display of advertisements on hoardings

at various sites BETWEEN THE PERIOD COMMENCING FROM

10.03.2017 to 29.06.2019, and after displaying the advertisements, the

OC raised 30 Invoices for the services rendered aggregating to a sum of

Rs.4,74.55,683/- and against receipt of the same invoice, CD made part

payment of Rs.2,72,02,520/- and have paid TDS on all outstanding bills

amounting to Rs.3,96,540/- (except last 3 invoices thus leaving behind

an outstanding principle sum of Rs.1,98,47,520/- and interest there on

at the rate of 18% pa.

NOTE: At the back side of the invoices there are photographs of the

execution of work. Acceptance of invoices from time to time is admitted

by the CD.

As per the terms of invoices, dispute if any was to be raised within 7

days and, payment was to be made by CD within 60 days from the date

of invoices, failing which CD was liable to pay interest @ 18% p.a. After

the last invoice was raised, the CD paid 43,75,000/- from 26.02.2019 to

11.09.2019.

Company Appeal (AT)(Ins) No.616/2021 49

02.08.2019, in view of the non-payment, letter was written by the OC

calling upon the CD to pay outstanding payment [Letter dated

02.08.2019@ Page 141 of Appeal]

After receipt of letter dated 02.08.2019, the CD issued 20 cheques of 5

lakhs each for discharge of their liability aggregating to Rs.1,00,00,000/-

here also no dispute was ever raised

Out of 20 cheques, 10 cheques amounting to Rs.50,00,000/- were

honoured and 2 cheques of Rs.5,00,000/- each were dishonoured with

the remark FUNDS INSUFFICIENT. And even after dishonour of cheque,

no dispute was raised.

06.02.2020 OC raised a demand to clear outstanding dues or legal action

would be initiated [Letter dated 02.08.2019 @Page 142-143 of Appeal]

20.02.2020 First time CD after completion of transaction since long back,

called upon, for reconciliation of accounts* Here for the first time he says

as per the arrangement, CD will pay the amount "PAYABLE WHEN ABLE"

which means liability is not disputed.

11.03.2020 OC responded, that the outstanding amount claimed is as

per the confirmation letter and all details are with CD but OC in good faith

said that the CD can attend on 14.03.2020 for reconciliation of account.

[Letter dated 11.03.2020 @ Page 146-147 of Appeal]

14.03.2020 The CD failed to attend the meeting, and asked for his own

documents which were already in his possession. [Letter dated

14.03.2020 @Page 178 of Appeal]

12.06.2020 The OC issued Demand Notice forwarding along with the

notice, photocopies of all the documents as called for by the CD in their

Company Appeal (AT)(Ins) No.616/2021 50

letter dated 14.03.2020. [Letter dated 12.06.2020@ Page 149- 156 of

Appeal]

23.06.2020 The CD inspite of receipt of all the documents as called by

him, never disputed, nor denied the contents/authenticity of documents,

contending there is a pre-existing dispute. [Letter dated 23.06.2020@

Page 157-158 of Appeal]

NOTE: Till date no dispute of any nature in respect of the display of the

advertisement carried out, amount claimed in the petition or about the

payment of TDS admitted paid by the CD on all the invoices, or denied or

disputed the claim made by the CD in the petition save and except false

and frivolous contention, with regard to any specific invoice or work

mentioned therein is raised. Chart of page numbers of Invoices with dates

and that of Confirmation with dates is at APPENDIX-1.

3. Statement of Account from 01.04.2020 to 30.06.2020 reflecting the total

display of advertisements carried out by the OC (as per invoices raised)

on behalf of the CD amounting to Rs. 4,74,55,683/-. [Statement of

Account- Pg. 81} [Statement reflecting the payment made by the CD- Pg.

82-83}

NOTE: That the statement of accounts has been verified and accepted by

the RP and report to that effect is filed before NCLAT [@Pg. 87 (agenda 5)

of the Status Report by RP dated 04.09.2021] The RP in terms after

verifying the books of accounts of the CD has in terms confirmed a sum

of Rs. 3,32,52,188/- as claimed by the OC is reflected in the books of

accounts of the CD.[Ref: Status report filed by the RP @Page 71)

Company Appeal (AT)(Ins) No.616/2021 51

4. Accepting the liability under the invoices so generated CD issued 20

Cheques (of Rs. 5L each) to OC and deducted applicable TDS. In so far

as TDS is concerned it is duly paid and reflected in 26AS. While 10

cheques were honoured and 2 cheques were dishonoured on

presentation due to "insufficient funds" the remaining 8 cheques were

returned to the CD on the assurance that the CD will discharge its liability

by making remaining payment through RTGS or Pay Order. {Copy of 10

honoured cheques issued by CD@ Page 137-140 of Appeal]

NOTE: This formed part of pleadings before Ld. NCLT@ Page. 76 bottom

and is mentioned in Para 8 of the impugned order. Till date there is no

explanation with regard to the non-payment under the said cheques.

5.CORRESPONDENCE BETWEEN PARTIES

i. On 02.08.2019, OC sent a letter to the CD, reminding of the

assurance of payment and requesting it to make the payment for

entire overdue outstanding amount. [@Pg.141of Appeal].

ii. In addition to above, more letters are written by OC to CD asking

for payments on 03.08.2019,20.08.20219, 04.09.2019,

30.09.2019.

iii. On 06.02.2020, OC issued 6th letter to the CD requesting to make

the payment for the entire overdue outstanding amount within 15

days failing which proceedings will be filed before NCLT. [@Pg.142-

143 of Appeal]

iv. iv. After threat of NCLT filing, it is for the first time i.e. on

20.02.2020, CD responded to all the 6 letters of OC, where at Para

5 it is mentioned by the CD itself that the understanding between

Company Appeal (AT)(Ins) No.616/2021 52

the parties was 'PAYABLE WHEN ABLE'. It is further noteworthy

that even in this letter of CD no performance issue is raised, no

quality issue is raised, no quantity issues is raised, moreover there

is no dispute raised with regard to any specific invoice or specific

work ofOC. [@Pg. 144-145}

NOTE: In law, vague denials cannot be construed as 'dispute', it

must be substantive. In other words, there is nothing substantial

in this letter, which CD could have met.

v. On 11.03.2020, OC issued 7th Communication to CD placing that:

Each display was carried out as per the confirmation letter

executed by the CD and all invoices were duly submitted after

execution of work as detailed in the confirmation letters. [@Page

146-147 of Appeal]. However, as a good gesture an appointment

was also fixed on 14th of March.

NOTE- CD never attended any the meeting. (Ld. Counsel verbally

mentioned reason for non-meeting as 'COVID' during arguments,

which otherwise is dehors the pleadings.)

vi. On 14.03.2020, in order to avoid meeting, CD wrote a

communication to OC, without raising any substantial dispute but

by making a vague statement(s). CD sought certain documents

from OC, which documents were in fact already available with the

CD.[@ Page 178-179].

NOTE- Till this date there is no dispute of any nature raised by the

CD.

Company Appeal (AT)(Ins) No.616/2021 53

vii. On 12.06.2020, CD served Demand Notice to OC. [@ Page 151-156

of Appeal].

NOTE: All documents being Statements, Invoices, Confirmation

Letters, Xerox of cheques, Out-standing sheets, letters etc. were

attached with the demand notice. [Ref: S. No. 7 on Page 155].

viii. After having received all relevant documents as attachment to

Demand Notice and the Demand Notice under the IB Code. CD

failed to point out any dispute of substantial nature. Reply to

Demand Notice was issued by CD on 23.06.2020. No performance

issue is raised, no quality issue is raised, no quantity issues is

raised, moreover there is no dispute raised with regard to any

specific invoice or specific work of OC. [@ pg. 157-158].

NOTE- Test in Mobilox Innovations Vs. Kirusa Softwares (2018) 1

SCC 353, by Apex court is that: Following conditions are satisfied:

(i) the defence of the debtor company is genuine, substantial and

in good faith;

(ii) the defence is likely to succeed on a point of law; and

(iii) the debtor company adduces prima facie proof of the facts on

which the defence depends.

Tested on above parameters case of CD falls under the category of

defence being sham, spurious, hypothetical, illusory and

misconceived.

6.IMPUGNED ORDER[@ Page 39-56 of Appeal]

Company Appeal (AT)(Ins) No.616/2021 54

While admitting the petition, NCLT has found [Ref: from Page 51

onwards] that:

Paragraphs 48-50 -

Cheques were given against the invoices raised. -

TDS was deducted and deposited on the invoices before issuing

cheques. -

Issue of reconciliation without anything specific is a 'lame excuse'.

At Paragraphs 51-53 -

CD has not raised any 'pre-existing dispute even after receipt of

the Demand Notice'.

7. RESPONSE TO ARGUMENTS IN APPEAL

i. No substantial ground is raised by the Appellant to seek

interference.

ii. It is a chance litigation, in view of the fact that the RP has verified

the claims and found it to be correct.

iii. Issue as raised during arguments i.e. the place/time of

hoardings are required is a 'bogey' a non-existent issue for various

reasons, viz.

- Admittedly the confirmation letter issued by the OC, duly

acknowledged by the CD for allocating the work.

Admittedly all the invoices, including the outstanding invoices

were received by the CD in their office by endorsing the

acknowledgment.

Admittedly no dispute in respect of the display work, display of

advertisement, amount claimed in the invoices, were ever raised

Company Appeal (AT)(Ins) No.616/2021 55

within 7 days from the receipt of invoices, till filing of the present

appeal.

Admittedly the CD made part payment of Rs.2,72,02,520/-

against total invoice amounting to Rs.4,74,55,683/- leaving behind

principle sum of Rs.1,98,47,520/- along with interest at 18% pa.

For the delayed period.

As there was outstanding due, in respect of last 3 invoices, cash

payment is made.

After 2-8-19, in response to the OC letter, CD issued 20 post-dated

cheques of Rs.S,OO,OOO/- each, out of which 10 cheques were

honoured and 2 dishonoured for FUNDS INSUFFICIENT, and 8

cheques were returned on the assurance that the same will

replaced by pay order /RTGS and still no dispute raised. -

20.02.2020 - Without disputing the liability, the CD contended

PAYABLE WHEN ABLE and failed to explain the said contention

despite the honourable court repeated asked to explain the same.

- Frivolous dispute is sought to be raised that the documents

sought vide letter dated 14.03.2020 are not supplied, which is

incorrect on record in as much as everything supposed to be

supplied as per the understanding between the parties were duly

furnished along with the 'demand notice' dated 12.06.2020.

- The amount claimed in the Petition by the OC is duly reflected in

the COs Books of Accounts as confirmed by the RP is due and

payable in COs audited books of accounts.

Company Appeal (AT)(Ins) No.616/2021 56

- The liability of the CD far exceeds its Assets and CD is unable to

discharge its liabilities in the normal and ordinary course of

business and several others petitions have already been filed by

various claimants before NCLT, Mumbai, against the CD and the

claim thereof is also confirmed by the RP.

- The Bank Account of CD is already declared NPA. Thus, no case

is warranted for interfering with the order passed by the

Honourable NCLT, Mumbai and appeal needs to be dismissed. -

Despite being in possession of all the documents and record (as

provided again under the Demand Notice dated 12.06.2020) no

substantial defence is raised which merit trial.

iv. If vague denials without any specifics are treated to be pre-

existing dispute, then no case would be able to qualify Sec. 9 IBC.

It is necessary to note that in a given case there must be an

"existence of a dispute" not a "contemplation of dispute" or

'imagination of dispute'. Letter dated 14.03.2020 and reply to

Demand Notice dated 23.06.20202 by CD fail to identify any

"existence of a dispute" which is substantial and real. Thus,

present appeal must fail with cost."

11. The Learned Counsel for the Respondent has also taken us to some

invoices at Page 88 to 94. We have also examined the same and at least in

one of the invoice which was shown by the Learned Counsel for the

Respondent, which is at Page 94, in the bottom itself an endorsement has

Company Appeal (AT)(Ins) No.616/2021 57

been made "Received (not checked)". This indicates that though invoice was

raised but unless it was checked it cannot be inferred that the amount of

invoice was admitted.

12. Besides hearing the Learned Counsel for the parties, we have minutely

perused the materials available on record and after going through the same

we are of the opinion that the Corporate Debtor has made out a case that

there were pre-existing disputes between the parties. Without going in detail,

it can be held that the documents reflect regarding pre-existence of dispute

between the parties. As claimed by the Operational Creditor outstanding was

lying since the year 2019 and vide letter dated 06.02.2020 issued by the

Respondent No.1 addressed to the Appellant, it appears that Respondent No.1

admitted that he had received payment of Rs.35 lakhs till 1st August, 2019.

In the said letter the Respondent has given detail regarding outstanding dues.

The letter dated 06.02.2020 which is at running page 142 and 143 is

reproduced herein below:

"Pursuant to our written Confirmation letter issued by our Office duly

accepted by you, for providing Billboards for the various displays

approved by you, wherein we had carried out the Display and Mounting

of advertisement on your behalf at various location in Mumbai, Thana,

Mira-Bhayandar & Virat as set out in the Work Completion report and

had submitted the necessary invoices issued to you and these invoices

were duly accepted and acknowledged by you, without raising any

objection as to the contents of display till date.

Company Appeal (AT)(Ins) No.616/2021 58

In our previous meeting in May, 2019, at your office you had

committed to Pay us Rs.1.30 cr by July, 2019 but out of this, we received

only Rs.35 lacs till 1st August, 2019, thereby a shortfall of 95 lacs which

was required to be paid till the 10th August, 2019.

After a lot of follow-up, meetings and calls, and since no payments

were forthcoming we wrote a letter dated 02.08.2019 (send by speed

post) which was received by you.

On receipt of our letter dated 02.08.2019, you called Mr.Vicky

Gupta for a meeting to discuss and finalise the interest rate @ 18% p.a.

which was levied on the total outstanding from the start till date of

realisation or payment till 2nd August, 2019. The interest Debit note was

accepted by you. Since the interest figure as per the debit Note attached

had crossed Rs. One Crore mark, you have issued One Crore PDC as part

payment towards the interest so that the interest burden would be

reduced, this was accepted by Mr. Vicky Gupta. Also it was accepted by

you that further interest shall be paid by you @ 18% from 3rd Aug till date

of realisation of the principal amount but due to financial constraints you

requested us to meet again after 15th Dec once your brother's marriage

would be over by then.

Against the interest overdues you gave us 20 PDC cheques of Rs.5

lacs each (list annexed) of which 10 cheques of Rs.5 lacs each worth i.e.

Rs.50 lacs were exchanged to your Mumbai Dist Central Bank and then

were cleared by you and 2 more cheques from his list got exchanged to

Company Appeal (AT)(Ins) No.616/2021 59

Mumbai Dist Central bank but when deposited in the Bank to our shock

both cheques were stopped payment for reasons not known to us.

You then called us for a meet again at your office wherein Mr.

Sanjiv Gupta, Mr. Amit Gupta, and Mr. Vicky Gupta had come together in

Jan 2020 and you promised to release the balance 10 cheques of 5 lacs

each which were originally issued towards interest from the Mumbai Dist

Central Bank account by the 25th Jan 2020 and requested to send the

old cheques back (2 stop payment and 8 undeposited). In good faith we

have returned these 10 cheques to you, but till date were have not

received these new cheques.

You had also promised to pay part principal amount of Rs.50 lacs

till Feb 2020 by issuing two cheques of Rs.25 lacs each but nothing has

been done on that front till date.

We now call upon you to immediately pay us Rs.254,40,604/- plus

Rs.5,16,027/- and overdue interest of Rs.53,59,186/- plus further

interest from 3rd August, 2019 to 31st Jan 2020 of Rs.27,56,595/-

We hereby call upon you to make the entire outstanding payment

including the overdue interest within the next 15 days failing which,

necessary legal action against you company for realization of the Dues

under rules and regulation of NCLT and failure to comply with the

requisite contained herein, it shall be deemed and mean that you are

unable to discharge your liability in the normal and ordinary course of

business and your company is commercially insolvent and you will have

to bear the consequences for this legal suit, which please note.

Company Appeal (AT)(Ins) No.616/2021 60

We hope that you will cooperate with us and clear the entire

overdue outstanding against your account at the earliest. We would

appreciate your prompt action and would be pleased to receive your

payment as this amount is long overdue from your end.

We look forward to a better and cordial business relationship with

you organisation in all our future business endeavour.

Yours faithfully,

For Global Advertisers

Sd/- Rajiv Gupta

CA to Proprietor."

13. The Appellant's letter dated 20th February, 2020 which was addressed

to Respondent No.1 reflects regarding pre-existing dispute. In its letter dated

20th February, 2020 while referring to letters of Respondent No.1 dated 2nd

August, 3rd August, 2019, 20th August, 2019, 4th September, 2019 30th

September, 2019 and 6th February, 2020, the Appellant in categorical term

had denied regarding demand raised by Respondent No.1. The letter dated

20th February, 2020 at Page 144 and 145 of the Memo of Appeal is reproduced

herein below: -

"We the undersigned address you as under:

1. At the outset we deny each and every insinuations set out in the said

letters and state and submit that the averments and insinuations are

untenable and invalid.

Company Appeal (AT)(Ins) No.616/2021 61

2. At the outset, we state and submit that the amount of debt sought to

be claimed by you is denied by us in toto, ever the debit note raised

by your goodselfs are been denied. In fact you have sought to miss-

appropriate the amounts paid by us as per your own whims and

fences, thereby causing a huge challenge for reconciliation of

accounts, for this reasons alone the alleged claims raised by you

alongwith interest is disputed.

3. At the further this is to place on record that there are no supporting

documents provided for the bills raise and in good faith we have paid

to you a on account payments to the tune of Rs.1,25,00,000/- to which

the supporting documents are still awaited in spite of several verbal

promises and reminders are not yet received by us which you may

kindly note.

4. We further deny that there was any understanding with Vicky Gupta

and our Mr. Amit B Wadhwani sought to be alleged infact meeting

could have occurred between both as they are friend and have cordial

relationship, but there was never any discussion in respect of the

alleged claims raised by you or the promises for payment as sought

to be alleged, infact the claims raised by you need to be reconciled.

5. We deny the contents of the debit note in toto and state that there is

no any debt or liability payable by us. In fact we alongwith your Vicky

Gupta always had an understanding of "payable when able" because

our Amit B Wadhwani and Vicky Gupta shared and presently still

share a cordial relationship with each other. This fact is also

corroborated in the invoices raised by you as the invoices never

Company Appeal (AT)(Ins) No.616/2021 62

mentioned any due date or period by when the given amounts were

required to be paid. For this reason also if you are inclined to demand

payment, we would have to first reconcile the accounts post which if

at all anything is due would be paid.

6. With regards to replacement of cheques and honouring of certain

cheques were nothing but payment made due to friendly relationship

which our client shared with your client and later it was realized that

such huge payment cannot be made without proper reconciliation of

accounts. It would be legally incorrect and impermissible to make any

payments to you.

7. In view of the aforesaid, we deny that the amount of Rs.3,54,40,604/-

plus Rs.5,16,027/- overdue interest plus Rs.53,59,186/- plus further

interest of Rs.27,56,595/- is due and payable. These amount per-se

are contrary to the understanding and as such the demand of these

amounts are premature and therefore the demand raised under the

said letters are illegal and incorrect.

8. Without prejudice to our rights and contents and as we have had a

friendly understanding, we forthwith invite you to meet the

undersigned and resolve the difference, if any, hope better sense shall

prevail.

Yours Truly,

For Sai Estate Consultants Chembur Private Ltd

Sd/- Vicky Wadhwani

Director

Company Appeal (AT)(Ins) No.616/2021 63

14. Besides other documents letter dated 11th March, 2020 addressed to

the Corporate Debtor issued on behalf of the Operational Creditor makes it

clear that for reconciliation of account date was fixed to 14th March, 2020.

However, record shows that thereafter no reconciliation of accounts had taken

place in between the parties. It goes without saying that in accounting,

reconciliation is the process of ensuring that two sets of records are in

agreement. Accordingly it can be inferred that in absence of reconciliation of

accounts there was pre-existing dispute between the parties. At this juncture

it is necessary to reproduce the letter dated 11th March, 2020 issued by the

'Operational Creditor' to the Appellant.

"We are in receipt of your Reply dated 20th February, 2020 in response

to our letters addressed by the undersigned from time to time and after

going through your reply under reference, we have to reply the same as

under:

1. At the outset, we repeat and confirm that the amount claimed in our

letters dated 02.08.2019 and 6.02.2020 is due and payable by you

to us in respect of the display of advertisement boardings carried out

by us pursuant to the instructions issued by you from time to time.

2. It is a matter of record that each display was carried out as per the

confirmation letters executed by you and we have submitted all the

invoices alongwith the copy f the confirmation leters forwarded to you

and also submitted details of the outstanding Dues submitted by us

from time to time.

Company Appeal (AT)(Ins) No.616/2021 64

Therefore we failed to understand the grievance regarding non-

supporting of documents as alleged by you.

3. In any event, to avoid any controversy, as requested you you we

hereby fix an appointment on 14th day of March, 2020 for

reconciliation of the accounts and accordingly you are requested to

remain present in our office or depute your representative along with

the necessary statement of account for reconciliation of the accounts.

4. Please note that if the aforesaid exercise is not done within 7 days

from the receipt of this letter, we will be constrained to proceed legally

for recovery of outstanding.

5. In view of the above, all the allegations contained in your letter under

reference are denied in toto."

15. On perusal of paragraph 3 of letter dated 11th March, 2020 it is evident

that date for reconciliation of account was fixed by the Operational Creditor

to 14th March, 2020. It goes without saying that since there was no settlement

of account in between the parties and there were some disputes, the

Respondent No.1 had agreed for fixing a date for reconciliation of the account.

This fact is itself enough to infer that demand raised by the Operational

Creditor/Respondent No.1 was not undisputed rather there was some

dispute. Once under the provisions of Section 9 of the IBC, a Corporate

Debtor is in a position to satisfy that there was pre-existing dispute, there is

no requirement for initiation of CIRP. The Hon'ble Supreme Court in Mobilox

Innovations Private Limited v Kirusa Software Private Limited (2018) 1 SCC 353

Company Appeal (AT)(Ins) No.616/2021 65

has already set the present position at rest. It would be profitable to quote

para 40 of the said Judgement, which is as follows:-

"40. It is clear, therefore, that once the operational creditor has filed

an application, which is otherwise complete, the adjudicating

authority must reject the application Under Section 9(5)(2)(d) if

notice of dispute has been received by the operational creditor or

there is a record of dispute in the information utility. It is clear that

such notice must bring to the notice of the operational creditor the

"existence" of a dispute or the fact that a suit or arbitration

proceeding relating to a dispute is pending between the parties.

Therefore, all that the adjudicating authority is to see at this stage

is whether there is a plausible contention which requires further

investigation and that the "dispute" is not a patently feeble legal

argument or an assertion of fact unsupported by evidence. It is

important to separate the grain from the chaff and to reject a

spurious defence which is mere bluster. However, in doing so, the

Court does not need to be satisfied that the defence is likely to

succeed. The Court does not at this stage examine the merits of the

dispute except to the extent indicated above. So long as a dispute

truly exists in fact and is not spurious, hypothetical or illusory, the

adjudicating authority has to reject the application."

16. Admittedly before the Adjudicating Authority, Application under

Section 9 of the IBC was filed on 28.07.2020 whereas there are materials on

record which we have discussed hereinabove suggests that dispute was

Company Appeal (AT)(Ins) No.616/2021 66

continuing in between the parties regarding outstanding claim and this was

the reason that the Respondent No.1 had fixed the date as 14.03.2020 for

reconciliation of the account and reconciliation had never been done.

17. In view of the facts and circumstances of the case as well as in view of

law laid down by the Hon'ble Supreme Court in Mobilox Innovations Pvt Ltd

(Supra), we are of the opinion that the Learned Adjudicating Authority has

incorrectly allowed the application filed under Section 9 of the IBC on behalf

of the Operational Creditor/Respondent No.1 which requires interference.

Accordingly, order dated 2nd August, 2021 passed by learned National

Company Law Tribunal, Mumbai Bench IV in CP(IB)/1393/MB-IV/2020 is

hereby set aside. It goes without saying that the setting aside of the impugned

order may not be treated as a hurdle for the Operational Creditor to take other

action in accordance with law, if any. The Appeal is allowed. The order

impugned dated 2nd August, 2021 is set aside.

(Justice Rakesh Kumar) Member (Judicial)

(Dr. Ashok Kumar Mishra) Member (Technical) 5th July, 2022

bm

Company Appeal (AT)(Ins) No.616/2021