Amrop India Pvt. Ltd vs The Hi Tech Gears Limited

[Arising out of order dated 16.06.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Jaipur Bench in CP (IB) No.84/9/JPR/2019]

IN THE MATTER OF:

Amrop India Private Limited Global Business Park, 7th Floor, Tower B, Mehrauli - Gurgaon Road, Gurgaon - 122002 ...Appellant

Versus

The Hi-Tech Gears Limited A-589, Industrial Complex, Bhiwadi, Alwar - 301019 ...Respondent

Present:

Appellant: Mr. Angad Varma and Mr. Prashat Kumar, Advocates.

For Respondent: Mr. Nishant Datta, Mr. Pradeep Bharwat, Mr. Chirag Rathi, Mr. Aditya Narain, Advocates.

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code, 2016 ("IBC" in short) by the Appellant arises out of the Order dated

16.06.2023 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, Jaipur Bench) in CP

Company Appeal (AT) (Ins.) No. 1251 of 2023 1 (IB) No.84/9/JPR/2019. By the impugned order, the Adjudicating Authority

rejected the Section 9 application filed by the Operational Creditor (the

present Appellant) seeking initiation of Corporate Insolvency Resolution

Process ("CIRP" in short) against the Corporate Debtor-M/s Hi-Tech Gears

Ltd. (the present Respondent). Aggrieved by this impugned order, the present

appeal has been preferred by the Operational Creditor.

2. The brief factual matrix of the case is that the Corporate Debtor had

entered into two separate contracts dated 12.02.2018 and 08.03.2018 with

Amrop India Consultants Pvt. Ltd. ("AICPL" in short) for filling up two

vacancies in their company. AICPL raised four invoices for the services

rendered. AICPL subsequently sold their business to Amrop India Pvt. Ltd.,

the present Appellant by entering into a Slump Sale Agreement with them.

Claiming that all properties, assets, liabilities, rights, benefits and interests

of AICPL stood transferred to them, the Appellant sent a letter on 28.06.2018

demanding payment of Rs.29,65,732/- from the Corporate Debtor. The

Corporate Debtor replied on 13.07.2018 denying the outstanding amount and

instead raised a counter-claim of Rs.137.53 lakh. The Appellant thereafter

sent a demand notice under Section 8 of IBC to the Corporate Debtor on

30.07.2018 to which the Corporate Debtor sent a notice of dispute on

09.08.2018. The Appellant then filed the Section 9 application before the

Adjudicating Authority to which the Corporate Debtor filed reply affidavit on

29.03.2022. The Adjudicating Authority passed the impugned order on

16.06.2023 rejecting the Section 9 application. Assailing the impugned order,

the Operational Creditor has preferred this appeal.

Company Appeal (AT) (Ins.) No. 1251 of 2023 2

3. The Learned Counsel for the Appellant while making his submissions

stated that the Adjudicating Authority after examining the Slump Sale

Agreement had gone into the question of whether an operational debt had

become due and payable to the Appellant. The Adjudicating Authority had

rightly held that in view of the Slump Sale Agreement, the invoices raised by

AICPL on the Corporate Debtor had become payable to the Appellant.

However, where the Adjudicating Authority went wrong was in coming to the

conclusion that there was a pre-existing dispute between the parties by

relying on certain emails of the Corporate Debtor in which the deficiency of

services had been raised. It was pointed out that the emails by which the

Corporate Debtor had raised allegations of dispute were not applicable to the

payments claimed in the first invoice raised by the Operational Creditor

against the Corporate Debtor. Hence, the alleged disputes do not constitute a

pre-existing dispute in the context of the outstanding operational debt which

has been claimed by the Appellant. It was also submitted that all the

ingredients of a Section 9 application were fulfilled since there was an

operational debt which had become due and payable and the said debt was

free of any pre-existing dispute. It was therefore emphasized that the rejection

of the Section 9 application by the Adjudicating Authority does not satisfy the

test of a reasoned order.

4. Rebutting the arguments advanced by the Appellant, it was contended

by the Learned Counsel for the Respondent that the Adjudicating Authority

after considering all facts and circumstances had arrived at the correct finding

that there was sufficient material on record which evidenced pre-existing

disputes. It was also contended that the Operational Creditor was trying to

hoodwink the existing disputes by trying to create a confusion that the

Company Appeal (AT) (Ins.) No. 1251 of 2023 3 Executive Search Contract was not a composite contract by contriving

artificial stages in the contract. It was also pointed out that the Operational

Creditor had been informed by an email dated 29.04.2018 about gaps in the

performance of the search contract which were followed up by several other

emails highlighting their performance failure in filling up the two vacancies

as per the search contract besides calling them for meetings to discuss how

to find a solution to the impasse which had arisen. These emails having been

issued prior to the Section 8 demand notice clearly signify the existence of

pre-existing disputes. It was also pointed out by the Learned Counsel for the

Respondent that due to gross deficiencies in the services of the Operational

Creditor, the Corporate Debtor had to suffer substantial damages due to non-

appointment of executives and opportunity costs. The Corporate Debtor had

claimed from the Operational Creditor Rs.137.53 lakhs towards damages and

loss caused to them. It was also submitted that the Corporate Debtor had not

unequivocally agreed to making any payments but had made them

conditional upon resolution of performance issues. It has therefore been

contended that the Adjudicating Authority was fully justified in rejecting the

Section 9 application of the Operational Creditor.

5. We have duly considered the arguments advanced by the Learned

Counsel for the parties and perused the records carefully. The short point for

consideration is whether there was any genuine pre-existing dispute

surrounding the debt claimed by the Operational Creditor to be due and

payable to them by the Corporate Debtor.

6. Before dwelling on the facts of the present case, a quick glance at the

relevant statutory construct of IBC would be useful. Section 8 of the IBC

Company Appeal (AT) (Ins.) No. 1251 of 2023 4 requires the Operational Creditor, on occurrence of a default by the Corporate

Debtor, to deliver a Demand Notice in respect of the outstanding Operational

Debt. Section 8(2) lays down that the Corporate Debtor within a period of 10

days of the receipt of the Demand Notice would have to bring to the notice of

the Operational Creditor, the existence of dispute, if any. Section 8 of the IBC

is as follows:

"8. Insolvency resolution by operational creditor- (1) An

operational creditor may, on the occurrence of a default, deliver a

demand notice of unpaid operational debt or copy of an invoice

demanding payment of the amount involved in the default to the

corporate debtor in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the

receipt of the demand notice or copy of the invoice mentioned in

sub-section (1) bring to the notice of the operational creditor--

(a) existence of a dispute, if any, or record of the pendency of

the suit or arbitration proceedings filed before the receipt of

such notice or invoice in relation to such dispute;

(b) the payment of unpaid operational debt--

(i) by sending an attested copy of the record of electronic

transfer of the unpaid amount from the bank account of

the corporate debtor; or

(ii) by sending an attested copy of record that the

operational creditor has encashed a cheque issued by the

corporate debtor.

Explanation.--For the purposes of this section, a "demand notice"

means a notice served by an operational creditor to the corporate

Company Appeal (AT) (Ins.) No. 1251 of 2023 5 debtor demanding payment of the operational debt in respect of

which the default has occurred."

7. This now brings us to the statutory construct of IBC post issue of

demand notice by the Operational Creditor as laid down in Section 9 of IBC.

Under Section 9(1), if the Operational Creditor does not receive payment from

the Corporate Debtor or notice of the dispute under Sub-section (2) of Section

8, he may file an Application under Section 9(1) of the Code.

8. For convenience, we reproduce Section 9(1) of IBC which is to the

following effect:

"9. Application for initiation of corporate insolvency

resolution process by operational creditor.- (1) After the

expiry of the period of ten days from the date of delivery of the

notice or invoice demanding payment under sub-section (1) of

section 8, if the operational creditor does not receive payment from

the corporate debtor or notice of the dispute under sub-section (2)

of section 8, the operational creditor may file an application before

the Adjudicating Authority for initiating a corporate insolvency

resolution process."

Section 9(5)(ii) is as follows:

"(5) The Adjudicating Authority shall, within fourteen days of the

receipt of the application under subsection (2), by an order--

(i).....

(ii) reject the application and communicate such decision to

the operational creditor and the corporate debtor, if--

Company Appeal (AT) (Ins.) No. 1251 of 2023 6

(a) the application made under sub-section (2) is

incomplete;

(b) there has been payment of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for

payment to the corporate debtor;

(d) notice of dispute has been received by the operational

creditor or there is a record of dispute in the information

utility; or

(e) any disciplinary proceeding is pending against any

proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an

application under sub-clause (a) of clause (ii) give a notice to the

applicant to rectify the defect in his application within seven days

of the date of receipt of such notice from the adjudicating

Authority."

9. From a plain reading of the above provisions, it is clear that the

existence of dispute and its communication to the Operational Creditor is

therefore statutorily provided for in Section 8. In the present case, it is an

undisputed fact that the demand notice was issued by the Operational

Creditor on 30.07.2018 and notice of dispute raised by the Corporate Debtor

on 09.08.2018. It is also an undisputed fact in the present matter that the

Operational Creditor did not receive any payment from the Corporate Debtor

and therefore proceeded to file an application under Section 9 of IBC.

10. It is the case of the Appellant that as per their contract terms, the first

invoice became due and payable upon the signing of the contract. It was

Company Appeal (AT) (Ins.) No. 1251 of 2023 7 asserted that the first invoice pertained to payments which had become due

and payable on confirmation of the assignment/signing of the contracts. The

amount payable against this invoice had become due and payable on the

signing of the contract itself and therefore this payment cannot be linked to

the quality of services delivered by the Operational Creditor. There were no

disputes surrounding the first invoice. As such the disputes which have been

levelled by the Corporate Debtor relate only to the second stage/milestone of

payment which has no nexus with the first invoice. Hence the claim of pre-

existing dispute lacks foundation. It is also the contention of the Appellant

that the Corporate Debtor in their emails/communications dated 29.04.2018

and 30.04.2018 had on their own volition stated therein that they would like

to make good the outstanding payments which shows that they had never

disputed these outstanding amounts. The disputes now being raised are an

afterthought and therefore should have been disregarded by the Adjudicating

Authority.

11. It is the case of the Respondent that the Executive Search contract was

a single, composite contract and the Operational Creditor not having

discharged their primary obligation in terms of the contract, they were not

entitled to their claims of payment. There have been gross deficiencies in the

services rendered by the Operational Creditor. The candidates sent for the

relevant positions clearly did not meet the specifications. When the objection

was raised by the Corporate Debtor, the Managing Partner of the Operational

Creditor on 04.04.2018 admitted error on her part in sending the list of the

candidates who did not meet the specifications. Thereafter, the deficiencies in

the services have been pointed out by the Corporate Debtor repeatedly in their

emails dated 29.04.2018, 11.05.2018, 28.05.2018 which pre-dated the

Company Appeal (AT) (Ins.) No. 1251 of 2023 8 issuance of demand notice. Thus, the debt claimed by the petitioner is highly

disputed and requires a proper and thorough adjudication which does not fall

within the purview of the summary jurisdiction of the Adjudicating Authority.

It is also the case of the Corporate Debtor that a civil suit demanding damages

of Rs. 137.53 lakhs stood registered as Civil Suit which also testifies a dispute.

12. It is a well settled proposition that for a pre-existing dispute to be a

ground to nullify an application under Section 9, the dispute raised must be

truly existing at the time of filing a reply to notice of demand as contemplated

by Section 8(2) of IBC or at the time of filing the Section 9 application.

13. Given this backdrop, it will be useful to find out how the Adjudicating

Authority has considered the spectrum of facts to arrive at the conclusion that

there existed pre-existing disputes. The relevant portions of the impugned

order is extracted hereunder:

"19. It is apparent that the Corporate Debtor has employed the services of the Applicant for engaging candidates for the post of CFO and Business Head. As per the trail of e-mails, it appears that the candidates provided were not as per the specifications laid down by the Corporate Debtor. The same has been pointed out by the Corporate Debtor in its e-mails as well as letters preferred to the Applicant.

20. The Corporate Debtor, in such circumstances, time and again through e-mails sought a meeting with the Applicant to amicably settle the dispute which has arisen. Also, the Corporate Debtor has vide e-mails and letters repeatedly stated that the Board of the Corporate Debtor has incurred significantly cost due to not hiring for the 2 business critical roles. Moreover, it is noted that all the e-mails and letters are dated prior to the issuance of the Demand Notice under section 8 of the Code i.e. 30.07.2018 and the Corporate Debtor in the reply to the demand notice on 09.08.2017 has again raised the aspects which were earlier contended in the emails and letters. Owing to the circumstances mentioned in the e-mails, it is clear that the Corporate Debtor is rightly alleging a pre- existing dispute on the basis of deficiency in services.

Company Appeal (AT) (Ins.) No. 1251 of 2023 9

21. The Adjudicating Authority while examining an application under Section 9 of the Code has to ensure that there exists no dispute between the parties from the documents placed before it. Dispute does not necessarily suit or arbitration proceedings pending before receipt of a Section 8 notice but can also be inferred from correspondence between the parties to the case regarding the existence of the amount of Debt, the quality of goods or services or the breach of representation or warranty. Correspondence between the parties is general proof of dispute in matters pertaining to Section 9 of the Code. From the documents put before us, we can safely conclude that there exists a genuine dispute between the parties to the Case.

22. In the present matter, there exists a pre-existing dispute between the parties to the case. The conditions laid down under Section 9 of the Code are not fulfilled. Therefore, we are not inclined to initiate CIRP of the Corporate Debtor as envisaged under the provisions of IBC. This order shall not act as a bar to the Applicant in pursuing any other remedies available to it, under the prescribed provisions of law."

(Emphasis supplied)

14. Before we go into the reply filed by the Corporate Debtor to the Section

8 Demand Notice, we feel it pertinent to notice the reply which had been

fielded by the Corporate Debtor on 13.07.2018 in response to the legal notice

dated 28.06.2018 sent to them by the Operational Creditor. The reply clearly

articulates the ongoing disputes between the two parties as may be seen from

the excerpts of the said reply as under:

"13th July, 2018 To, MS.SANJU PREET KAUR AMROP INDIA PRIVATE LIMITED GLOBAL BUSINESS PARK, 7TH FLOOR, TOWER B, M.G.ROAD, GURGAON-122002, HARYANA.

Dear Ma'am,

Company Appeal (AT) (Ins.) No. 1251 of 2023 10 Kindly refer to your legal notice dated 28.6.2018 which was received by us on 30.6.2018 through hard copy. In this regard all the allegations and claims made in the said legal notice are denied except those specifically referred to in this response. It is stated as follows:

1. At the outset, it is stated that the demand being made by Amrop India Private Limited is without any basis and In fact, The Hi-Tech Gears Ltd., have a substantial claim against you on account of time, cost and opportunity cost due to the significant non-performance by Amrop.

2. While discussing the engagement with Amrop Indla Private Limited, It was represented by you that Amrop having been in this field of offering services in Executive search, had a substantial database and network which could be tapped for suggested candidates for the position of CFO and Business Head (South). Based on this representation and the assurances given by Amrop India Private Limited that they would give priority as well as their best professional services, HTG had considered the engagement of Amrop India Private Limited as a Consultant.

3. ...............

4. ...................

5. You had also made a representation that you had the capability and the experience to deliver a CFO and the Business Head in line with the specifications laid down by the company.

6. As various correspondences exchanged between the The Hi-

Tech Gears Ltd., and Amrop India Private Limited, shows that despite the company having given specific needs and requirements for the two positions, you had not adhered to the specifications and sent a list of candidates which did not meet the specifications set out by the company.

7. There were gross deficiencies in the services of Amrop India Private Limited. At your request that the candidates would meet the specifications, the company organized an interview of the suggested candidates with the Board Committee for 3rd and 4th April, 2018. As mentioned above, this was a very high level Board Committee consisting of various professionals who had taken time away from their professional assignments to attend this meeting. The candidates sent by you clearly did not meet the specifications and two candidates did not even bother to attend, one was not keen on the role and one was not qualified as per the specifications. This clearly shows that you were never serious about carrying out this assignment and sent a list which was not in adherence to the specifications.

Company Appeal (AT) (Ins.) No. 1251 of 2023 11

8. Immediately after this fiasco, the representatives of the company had a reflection session with Ms Preety Kumar, Managing Partner, Amrop India Private Limited and it was admitted by her that there was a gross error on their part in sending a list of candidates who did not meet the specifications. She also admitted during this session that:

a. The candidates presented were not as per the specification given by HTG b. Candidate assessment by Amrop was inadequate c. Candidate assessment parameters were to be re-done and signed off by the Board Selection committee

9. Post this meeting, the Company has been requesting representatives of Amrop India Private Limited to come and have a discussion and to explain as to how Amrop_India Private Limited could make up for the significant non-performance but despite various e-mails and telephonic requests and Amrop India Private Limited having undertaken to come up with a revised hiring plan and valuation criteria on 9.4.2018, no steps were taken by Amrop India Private Limited to address the issue of non-performance and deficiency of service.

10. In fact, after the fiasco of the meeting on 3rd and 4th April, 2018, Amrop India Private Limited has realised from the contract and taken no further steps. Our clients having banked on Amrop India Private Limited carrying out their obligations as represented by them have suffered substantial damages on account of delay in appointment of the CFO as well as the Business Head, South. Besides this, as mentioned earlier, a substantial amount of the Board's time has been wasted and the company has incurred substantial cost in regard to this by way of meetings organized on 3rd and 4th April, 2018 based on your assurances that you had the candidates suitable for these posts which were admitted by you subsequently that this was an Incorrect assurance given by you. ................

11. ..........

12. Through this letter, we hereby demand that you pay us the above amount of Rs.137.53 Lakh within the next 7 days of receipt of the present notice.

We are open to any suggestions from you to resolve this matter amicably.

Sincerely,

Sanjay Singh For The HI-Tech Gears Ltd."

(Emphasis supplied)

Company Appeal (AT) (Ins.) No. 1251 of 2023 12

15. Now coming to the reply of the Corporate Debtor to the demand notice,

as placed at pages 105-112 of Appeal Paper Book ("APB" in short), we notice

that it has been clearly mentioned therein about the series of correspondences

between the two parties from April 2018 onwards where disputes were raised.

The reply notice of dispute also clearly makes a mention of the counter claim

raised by the Corporate Debtor vide letter of 13.07.2018 which was prior to

the demand notice. The reply notice also lists out the deficiencies in the

services rendered by the Operational Creditor for having sent a list of

candidates who did not meet the specifications and adverts to admission of

these errors by the Managing Partner of the Operational Creditor. We also

find that the Corporate Debtor has mentioned therein the inefficiency on the

part of the Operational Creditor to carry out their obligations and therefore

no right to claim any payment from the Corporate Debtor. The reply notice

also highlighted that the Operational Creditor on the contrary had to pay them

Rs.137.53 lakh on account of opportunity costs and for payment in lieu of

damages suffered by them on account of business loss due to failure in

positioning of critical manpower in a timely manner.

16. The Learned Counsel for the Appellant has contended that the

Corporate Debtor cannot escape their liability to repay the claim raised in the

first invoice. In support of their contention, reference has been made to the

judgment of this Tribunal in Aroon Kumar Aggarwal v. ABC Consultants

Pvt. Ltd. in CA (AT) (Ins.) No. 409 of 2020 wherein it has been held that the

plea of pre-existing dispute must co-relate with the amount claimed by the

Operational Creditor and the dispute should be qua the payable debt to the

Operational Creditor and default on the part of the Corporate Debtor thereto.

Company Appeal (AT) (Ins.) No. 1251 of 2023 13 We however are of the view that the facts of the two cases are distinguishable

since in that case the issue related to employment agreement and terms and

conditions of termination contained therein but in the present case dispute

has been raised on the tenability of payment with respect to part-invoice

raised in respect of a consolidated, full-fledged contract in view of non-

performance of obligations to be discharged by Operational Creditor. Thus,

the facts being quite different, this ratio does not come to the help of the

Appellant.

17. We also notice that the Adjudicating Authority has taken note of the

correspondences exchanged between the two parties prior to the Section 8

demand notice to determine the issue of pre-existing dispute. Two of such

communications dated 29.04.2018 and 30.04.2018 sent by the Corporate

Debtor to the Operational Creditor have been reproduced at para 18 of the

impugned order. From the email of 29.04.2018, it is clear that the Corporate

Debtor gave opportunities to the Operational Creditor to sit across the table

to sort out their problems amicably. In the other email issued on 30.04.2018

as extracted in the impugned order, the Corporate Debtor invited the

Operational Creditor to share the revised work plan to take the process of

Executive Search forward and made the payment contingent thereto. Besides

these two emails reproduced in the impugned order, we find that in another

email dated 28.05.2018 the Corporate Debtor highlighted that though

significant costs had been incurred yet they were still not able to hire two

senior management functionaries and hence had invited the Operational

Creditor for a meeting for an amicable closure of this situation as placed on

record at page 142 of APB. A similar letter was issued earlier on 11.05.2018

requesting for a meeting to discuss the matter to sort out the impasse as

Company Appeal (AT) (Ins.) No. 1251 of 2023 14 placed at page 144 of APB. The very fact that the payment was made

contingent upon holding meetings between themselves show that there were

pre-existing disputes. Similarly, we also find emails from the Operational

Creditor to the Corporate Debtor dated 29.04.2018 (at page 141 of APB),

30.04.2018 (at page 145-146 of APB), 12.05.2018 (at page 143 of APB) and

24.05.2018 (at page 142 of APB) highlighting that their invoices have

remained held up and that payments be released. A holistic analysis of these

emails leads us to the inescapable conclusion that genuine pre-existing

disputes were there and the Adjudicating Authority therefore committed no

error in drawing similar conclusion of pre-existing disputes.

18. In the present factual matrix, the defence raised by the Corporate

Debtor therefore cannot be held to be moonshine, spurious, hypothetical or

illusory. The tone and tenor of the emails exchanged between the two parties

clearly manifest existence of dispute which antedates Section 8 demand

notice. It is well settled that in Section 9 proceeding, there is no need to enter

into final adjudication with regard to existence of dispute between the parties

regarding operational debt. For such disputed operational debt, Section 9

proceeding under IBC cannot be initiated at the instance of the Operational

Creditor. The Adjudicating Authority has therefore correctly noted that the

conditions laid down in section 9 having not been fulfilled, the application

deserved to be rejected.

19. Given this backdrop, we have no reasons to disagree with the findings

of the Adjudicating Authority. Considering the overall facts and circumstance

of the present case, and in view of the foregoing discussion, we are satisfied

that the Adjudicating Authority did not commit any error in rejecting the

Company Appeal (AT) (Ins.) No. 1251 of 2023 15 Section 9 Application filed by the Appellant. There is no merit in the Appeal.

Appeal is dismissed. We however make it clear that it will remain open to the

Appellant to resort to other remedies that may be available to it under any

other law. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 11.10.2023

PKM

Company Appeal (AT) (Ins.) No. 1251 of 2023 16