Anshul Vashistha vs Jayhind Steel Traders & Anr

Company Appeal (AT) (Insolvency) No. 656 of 2020

[Arising out of Order dated 13.03.2020 passed by the Adjudicating Authority (National Company Law Tribunal), Indore Bench at Ahmedabad in CP (IB) 374/9/NCLT/AHM/2018]

IN THE MATTER OF:

Anshul Vashistha Shareholder & Director of M/s.Saturn Prefab India Pvt. Ltd S/o Shri Prashant Vashistha, Aged : 36 years, Add: Plot No. 727 - 728, Sector - 3, Industrial Area, Pithampur, Dist. Dhar ...Appellant

Versus

1.M/s. Jayhind Steel Traders 2, Stadium House, OPP Municipal Swimming Pool, Near Stadium Six Road, Navrangpura, Ahmadabad - 380 009 ...Respondent No.1

2.M/s.Saturn Prefab India Pvt. Ltd Through Insolvency Resolution Professional Dr. Shri G.K.Saraswat 727-728, Sector - 3, Industrial Area, Pithampur, Dist. Dhar ...Respondent No.2

Present:

For Appellant : Mr. Vijayesh Atre, Advocate.

For Respondents: Mr. Manoj Swarup Sr. Advocate with Mr. Anil.K.Sharma, Advocate for R-1. Dr. G K Saraswat, Advocate for RP. Mr. Rahul Parasarampuria, Advocate for R-2.

Company Appeal (AT) (Insolvency) No. 656 of 2020 2

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appeal has been filed by Mr. Anshul Vashistha, who is the Director of the

Suspended Board of Directors of the Corporate Debtor- M/s. Saturn Prefab India

Pvt. Ltd., (Respondent No.2) under Section 61 of the 'Insolvency and Bankruptcy

Code, 2016' (for short 'Code') against the impugned order dated 13.03.2020

passed by 'Adjudicating Authority' ('National Company law Tribunal, Indore

Bench at Ahmedabad') in CP (IB) No. 374 /9/NCLT/AHM/ 2018. The Operational

Creditor is M/s. Jayhind Steel Traders (Respondent No.1).

2. The Adjudicating Authority has initiated 'Corporate Insolvency Resolution

Process' (for short 'CIRP') against the Corporate Debtor in accordance with the

relevant provisions of the Code and has appointed Mr. Gopal Krishana Saraswat,

'Interim Resolution Professional' with a direction to follow the provisions of

Section 13, 14 and other relevant provisions of the Code.

3. Initiation of CIRP is based on the following findings:-

a) Existence of operational debt is above Rs. One Lac;

b) Debt is due;

c) Default has occurred on 30.11.2016;

d) Petition has been filed within the limitation period as the date of

default is 30.11.2016 and the petition has been filed on 11.07.2018.

e) Existence of any dispute, prior to the notice issued by the

Operational Creditor is not found.

(Para 17 of the impugned order dated 13.03.2020).

Company Appeal (AT) (Insolvency) No. 656 of 2020 3

f) Defaulted amount is Rs. 1,81,61,422.00 as per respective invoices

enclosed with the Petition.

g) Date of invoice is between April 2016 to March 2018.

h) Date of first default is 30.11.2016.

4. The Corporate Debtor/Respondent No.2 is engaged in the business of

manufacturing of pre-fabricated shed, industrial roofing sheet, pre-engineering

building etc., for which it requires various material produced by the Respondent

at various sites.

5. The Operational Creditor/Respondent No.1 is engaged in the business of supply

of Angel, Channel, TMP, GP/CR/GC Sheet.

6. The Respondent No.1 used to supply material to Respondent No.2 for completing

its various projects at various sites and it was a normal business practice to seek

delivery of required material at project site itself. It was also usual practice

between the parties to ask its clients to make direct payment to the Respondent

No.1 suppliers.

7. The Appellant has made following submissions:

a. Pre-existing dispute:-

The Operational Creditor vide email dated 05.02.2018 has sent an email

to the Corporate Debtor asking for payment of outstanding bills and has

even asked for PDC Cheque for all bills. The Respondent No.1/Corporate

Debtor has responded to the same on 29.03.2018 to the Operational

Creditor "Your ledger is not matching with our ledger and TC also not came

with the vehicle. Those invoices are not showing PO No. will not be accepted

by our accounts. Rejected materials are by UT testing still they are in our

site. Please check and revert."

Company Appeal (AT) (Insolvency) No. 656 of 2020 4

The Appellant has also submitted that the outstanding amount of

Rs.1,81,61,422/- is incorrect. Although reflected in the impugned order

both at para 5 and 16.1. They have alleged that the Adjudicating Authority

itself has given details of bills at para 4 of the order. Total 25 bills and the

amount is Rs.1,73,94,065.00. Similarly, in Para 6 of the impugned order

the figure stated is Rs.1,56,25,154.00 which is the outstanding due as per

demand notice in Form No.3 given by Operational Creditor on 13.06.2018

which was served to the Corporate Debtor on 20.06.2018. It is not in

dispute that the Operational Creditor was maintaining a Running Account

for the goods supplied to the Corporate Debtor from time to time.

b. As per the Form-5- Application by Operational Creditor to initiate CIRP

under the Code, the Operational Creditor has reflected in Part -IV the total

amount of Debt as Rs.1,56,25,154/-. Part-IV is also reflecting the total

amount of Rs.1,81,61,422/- for Debt due for the period of April 2016 to

March 2018, which includes the principal amount of invoice and interest

as per Part -IV, clause -2 amount claimed to be in default and the date on

which the default occurred here the amount is Rs.1,81,61,422/- and the

date on which default occurred is silent.

c. The Appellant has also submitted that a group firm of the Respondent No.2

Company viz. "Saturn Infra" has purchased material for Rs. 14,90,678/-

only as against which the Respondent No.1 has received payment of Rs.

42,00,000/- through Canara bank Account No.3353201000167, thereby

leaving a credit balance of Rs.27,09,322/- in favour of the Respondent

No.2 company. It is also stated by the Appellant that once client of the

Respondent No.2 company M/s. Bhagwati Constructions, has admittedly

Company Appeal (AT) (Insolvency) No. 656 of 2020 5

made a direct payment of Rs. 23,34,617/- to the Respondent No.1 for

which its advocate Mr. Hiren K.Dudhiya has also issued legal notice dated

11th Sept. 2018. The Appellant has also submitted a list claimed to be

fabricated and false invoices raised by Operational Creditor. The Appellant

has provided a list of 27 invoices with dates amount to Rs.1,04,19,944/.

d. It is also stated by the Appellant that the date of default is "imaginary or

hypothetical". They have also alleged that the statutory notice of demand

as per section 8 (1) of the Code was defective as they were not

accompanying copy of the invoices.

8. The Operational Creditor/Respondent No.1 has submitted that the Appellant was

purchasing steel material from November, 2016 to October, 2017 in the M/s.

Saturn Pre Fab India Pvt. Ltd. (Respondent No.2) and in the name of Saturn

Fabricator and has alleged that the Corporate Debtor has not produced the ledger

of M/s. Saturn Pre Fab India Pvt. Ltd (Respondent No.2) and provided the ledger

of Saturn Fabricator (Saturn Infra).

9. The Respondent No.1 has also alleged that the 27 invoices what the Appellant is

alleging as fabricated are based on purchase order/telephone calls/transport

bills etc. They have also submitted that out of the 27 invoices as per para 14 of

the counter affidavit dated 11.08.2020, there are 7 invoices which are disputed

and value of which is approx. 30 lacs they have received payment of Rs.28 lacs

as per para 15 of the same counter affidavit. The operational creditor vide para

21 of the counter affidavit dated 11.08.2020 has alleged outstanding payment of

Rs.1, 28,15,725/- as on 26.06.2017. They have also submitted that repeatedly

they are asking for release of payments. They are also alleging that material

supplied to western railway was rejected by them as alleged by corporate debtor

Company Appeal (AT) (Insolvency) No. 656 of 2020 6

as still they have not been provided with rejection letter and hence there is no

pre-existing dispute. In order to substantiate its claim, the operational creditor

has given reference to its GST Return and also submitted that the corporate

debtor has purchased total material of steel worth Rs.2,54,32,783/- in the name

of Respondent No.2 and against that they have received a payment of Rs.

69,07,629/- as also of Rs.29,00,000/- received from Saturn Fabricators (Saturn

Infra) total an amount of Rs.98,07,629/- para 29 of the Counter Affidavit. During

the course of hearing, the Respondent No.1 has submitted that there is no pre-

existing dispute and the amounts are due.

10. The IRP has issued public announcement on 18.06.2020 and has

constituted Committee of Creditors (for short 'CoC') on 08.07.2020.

11. We have heard parties. It is observed that there is business relationship

between the two parties and has gone into rough weather from March, 2018. It

is not in dispute that both the operational creditor and the corporate debtor were

maintaining Running Account.

12. It is also observed that the operational creditor is making all attempts to

realize the payment and conveniently used I & B Code, 2016 for faster realization.

13. It is also observed that the present case involves the need for reconciliation

between the parties and to firm up a particular amount and there is multiple date

of default as the purchase order seems to have a condition that payment will be

released 30 days after receipt of material (various purchase orders have different

payment terms) and other conditions as given below as for example page 292 of

the Appeal paper book:

a. Payment Terms - Payment will made 60 days after receiving the material

Company Appeal (AT) (Insolvency) No. 656 of 2020 7

b. Delivery - you will dispatch the entire ordered quantity immediately from

the receipt of the order. Test certificate should be given along with

commercial invoice with material.

c. Transportation - You shall make arrangement of transportation to send

the material to our site. Transportation charge is in you scope.

d. Dispute resolution -Any dispute arising out of or in connection with this

purchase order, including any question regarding its Existence validity of

termination, performance under this purchase order or in case of

disagreement on or non-supply of product shall be referred to sole

arbitrator and finally resolved in accordance with the provision of

Arbitrator and counsillation Act, 1996. The award passed by the sole

arbitrator shall be final and binding to both the parties. The language of

the arbitration including its proceedings and documents to be exchanged

there of with sole arbitrator and between the parties shall be Hindi. The

place of arbitrator shall be at Indore M.P.

e. Governing law and jurisdiction - the contract shall be governed by and

construed in accordance with the provisions of Indian laws. The courts at

Indore M.P. shall have exclusive jurisdiction in all the matters relating to

this purchaser order.

While purchase order at page 300 of the Appeal Paper book reflects:

f. Payment Terms - 30 days against delivery.

g. Delivery - You will dispatch the entire ordered quantity within immediate

from the receipt of the order.

Whereas the invoice is stating the conditions as follows which is mentioned at

page 175 of the Appeal Paper book:

Company Appeal (AT) (Insolvency) No. 656 of 2020 8

a. Interest will be charged @24 % per annum on all bills remaining

unpaid within due time after the date of the delivery of goods.

b. We do not accept any responsibility for loss or damage in transit.

c. Any dispute arising from this consignment will be settled by

Ahmedabad Jurisdiction only.

14. On going through the various submissions made by the parties, a clarity

is emerging that there are multiple date of default, there is an existence of dispute

on balance dues, the actual amount due needs to be reconciled and reflected.

15. The Operational Creditor is claiming that the Debt due is more than Rs.

1 lac. If, it may also be due for payment as it will be becoming the job of IRP to

reconcile and get the disputed amount segregated and the claim can be counted

provided the application meets the criteria of Section 8 & 9 of the Code. The

Object of the Code is not recovery of money but to bring out of insolvency and

maximization of value of assets of the Corporate Debtor. It is also very much clear

that if there is a dispute as per relevant provisions of the Code, it is incumbent

on the Adjudicating Authority to reject the petition/application as per the

provisions of the Section 9 of the Code. It is also very much clear in this case that

there is a dispute of the Debt and dispute resolution mechanism is also provided

in the purchase order. Since the I&B Code, 2016 debars the application of the

Code for recovery of money as well as if there is a dispute then also

petition/application requires to be rejected.

16. The Hon'ble Supreme Court has already held in Mobilox Innovations Pvt.

Ltd., Vs. Kirusa Software pvt. Ltd. [2018] 1 SCC 353, that IBC is not intended to

be a substitute for recovery forum. It is also laid down that wherever there is

existence of real dispute, the IBC provisions cannot be invoked.

Company Appeal (AT) (Insolvency) No. 656 of 2020 9

17. For better and fuller appreciation of the present subject matter in issue, it

is useful for this Tribunal to make a pertinent reference to Section 8 & 9 of the

Code which provides mechanism for Operational Creditor, which runs as under:

Section 8 - Insolvency Resolution by Operational Creditor:

8. (1) An operational creditor may, on the occurrence of a default,

deliver a demand notice of unpaid operational debtor 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, and 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 repayment 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) (Insolvency) No. 656 of 2020 10

debtor demanding repayment of the operational debt in respect of

which the default has occurred.

Section 9-application for initiation of Corporate Insolvency

Resolution Process by Operational Creditor:

Section 9 -. (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.

(2) The application under sub-section (1) shall be filed in such form

and manner and accompanied with such fee as may be

prescribed.

(3) The operational creditor shall, along with the application

furnish--

(a) a copy of the invoice demanding payment or demand notice

delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the

corporate debtor relating to a dispute of the unpaid operational

debt;

(c) a copy of the certificate from the financial institutions

maintaining accounts of the operational creditor confirming that

there is no payment of an unpaid operational debt by the corporate

debtor; and

Company Appeal (AT) (Insolvency) No. 656 of 2020 11

(d) such other information as may be specified.

(4) An operational creditor initiating a corporate insolvency

resolution process under this section, may propose a resolution

professional to act as an interim resolution professional.

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

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

(i) admit the application and communicate such decision to the

operational creditor and the corporate debtor if,--

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

(b) there is no repayment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has

been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational

creditor or there is no record of dispute in the information utility;

and

(e) there is no disciplinary proceeding pending against any

resolution professional proposed under sub-section (4), if any

(ii) reject the application and communicate such decision to the

operational creditor and the corporate debtor, if--

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

(b) there has been repayment 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

Company Appeal (AT) (Insolvency) No. 656 of 2020 12

(e) any disciplinary proceeding is pending against any proposed

resolution professional:

Provided that Adjudicating Authority, shall before rejecting an

application under subclause (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.

(6) The corporate insolvency resolution process shall commence

from the date of admission of the application under sub-section (5)

of this section.

18. Since Hon'ble Apex Court has clearly laid down the mechanism to be

operated by Operational Creditor in terms of Section 8 & 9 of the Code, it is very

clear that the undisputed debt is sine qua non of initiating CIRP as also the debt

should be due and payable. Since, the order of Adjudicating Authority in the

present case, as enumerated above, does not meet the above criteria and hence

the appeal needs to be allowed. We are not passing any comment on the merit of

the dispute between the parties and the parties are free to approach appropriate

forum for recovery or dispute resolution.

19. In a case of running account where accounts are yet to be reconciled and

settled, an email like 05.02.2018 sent before Section 8 demand notice dated

13.06.2018 asking Operational Creditor to take back the rejected material reflect

pre-existing dispute in such case Adjudicating Authority cannot sit down to settle

the account and calculate the Debt dues.

20. In view of the above the appeal is allowed. We set aside the impugned order

dated 13.03.2020 passed by the Adjudicating Authority ('National Company Law

Tribunal, Indore bench at Ahmedabad') and consequently order passed by the

Company Appeal (AT) (Insolvency) No. 656 of 2020 13

Adjudicating Authority appointing 'Interim Resolution Professional', declaring

moratorium, freezing of accounts including consequential actions taken by the

'Interim Resolution Professional' like publishing in newspapers, constitution of

committee of creditors etc., are declared illegal and set aside. The Corporate

Debtor is released from all the rigour of law and is allowed to function

independently through its Board of Directors from immediate effect. The

Corporate Debtor will, in the first instance, bear CIRP costs so far incurred by

IRP/RP & then entitled to recover it from Operational Creditor. No order as to

costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

30th September, 2020

New Delhi

RK

Company Appeal (AT) (Insolvency) No. 656 of 2020