Apavarga Trading Company vs Hazel Foods Pvt. Ltd

[Arising out of order dated 13.09.2022 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench-II, New Delhi passed in C.P. No. (IB) 314/ND/2019]

IN THE MATTER OF:

Apavarga Trading Company Partnership firm through its partner Shri Moti Kumar Khasra No.52/21, GF Street No.2, Block A, Pardhan Enclave Village, Burari, Delhi - 100084 ....Appellant

Vs.

Hazel Foods Pvt. Ltd. Registered Office at: C-36, Phase I, Okhla Industrial Area, New Delhi - 110020 ....Respondent

Present:

For Appellant: Appearance not marked

For Respondent: Appearance not marked

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 arising out of the Order dated

13.09.2022 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-

Company Appeal (AT) (Ins.) No. 1416 of 2022 1 II, New Delhi) in CP(IB) No.314/ND/2019. By the Impugned Order, the

Adjudicating Authority has dismissed the Section 9 petition filed by the

Appellant seeking to bring the Corporate Debtor under the rigours of

Corporate Insolvency Resolution Proceedings ('CIRP' in short). Aggrieved by

this impugned order, the present appeal has been preferred.

2. The Learned Counsel for the Appellant submitted that Apavarga

Trading Company, present Appellant /Operational Creditor is a partnership

firm engaged in the business of trading of kirana goods and supplied grocery

items to the Corporate Debtor /Respondent. It has been claimed that the

Corporate Debtor received grocery items on credit basis from the Operational

Creditor without any advance payment on the assurance that the Corporate

Debtor would pay within 15 days on the raising of invoices. But payments

were made irregularly by the Corporate Debtor on running account basis. The

last payment was made on 05.05.2016 and this payment was duly accounted

for in the statement of account on 01.06.2016.

3. The Learned Counsel for the Appellant further submitted that the

Corporate Debtor was sent all the invoices against orders placed by them and

that the Corporate Debtor is liable to pay an amount of Rs.72,31,268.36

against outstanding bills. Further, interest at the rate of 24 per cent was

additionally chargeable as per market practice and as mentioned in the

invoice. However, since the Corporate Debtor did not clear the outstanding

dues after May 2016, the Appellant issued a demand notice under Section 8

of IBC on 22.11.2018. The notice was delivered on the Corporate Debtor on

26.11.2018. Since the corporate debtor did not reply to the demand notice

Company Appeal (AT) (Ins.) No. 1416 of 2022 2 and did not make any further payments to discharge their outstanding

liability and furthermore no notice of dispute was received, application under

Section 9 was filed before the Adjudicating Authority for initiation of CIRP

against the Corporate Debtor.

4. The Learned Counsel for the Respondent refuting the contentions made

by the Appellant stated that in their reply before the Adjudicating Authority it

was submitted that no default had occurred in the discharge of their liabilities

and that the claim of the Operational Creditor contained disputed question of

facts which require investigation by civil courts. It is further submitted that

one Shri Moti Kumar was working as an accountant with the Corporate

Debtor from 12.08.2002 till 08.10.2016. However, without their prior

permission and knowledge, Shri Moti Kumar during this period had joined as

a partner in the partnership firm of the Operational Creditor. The Learned

Counsel for the Respondent contended that Shri Moti Kumar in connivance

with the Operational Creditor manipulated and forged records to show

purchase orders having been placed by the Corporate Debtor with the

Operational Creditor and that the Corporate Debtor had also lodged a police

complaint against Shri Moti Kumar on 23.05.2019 for fraud, forgery and

misappropriation of funds.

5. We have duly considered the detailed arguments and submissions

advanced by the Learned Counsel for both the parties and perused the records

carefully.

Company Appeal (AT) (Ins.) No. 1416 of 2022 3

6. Coming to the role of Shri Moti Kumar in the transactions conducted

between the Operational Creditor and Corporate Debtor as a ground of

dispute, we note that the Learned Counsel for the Appellant has admitted that

Shri Moti Kumar worked with the Corporate Debtor for nearly 12 years before

he joined as a partner of the partnership firm of the Operational Creditor. It

was also submitted that Shri Moti Kumar continued to work with the

Corporate Debtor even after joining as a partner in the partnership firm but

with the prior knowledge and instructions of the Corporate Debtor and that

the Corporate Debtor had in fact on his own volition waived the condition of

employment by Shri Moti Kumar in the partnership firm. The Appellant has

thus contended that the Respondent was fully aware while sourcing material

from the Operational Creditor that Shri Moti Kumar was working as a partner

in the partnership firm of the Operational Creditor. It has also been stated

that the police complaint filed by the Corporate Debtor against Shri Moti

Kumar was 31 months after his resignation. Moreover, the complaint having

been lodged with the police much after the Section 9 application was filed

before the Adjudicating Authority, this police complaint has to be rejected as

a spurious defence.

7. We note that the Adjudicating Authority took cognisance of the fact that

Shri Kumar joined the Corporate Debtor as an accountant on 12.08.2002 and

continued to work there until he resigned on 08.10.2016. The impugned

order has also taken note of the fact that Clause 4 of the letter of appointment

of Shri Moti Kumar as accountant with the Corporate Debtor stipulated that

he shall not take up directly or indirectly any outside duties, works or

Company Appeal (AT) (Ins.) No. 1416 of 2022 4 consultancy while in employment of the company without express written

permission from the management. The Adjudicating Authority after perusing

the partnership deed dated 14.02.2014 has also noted that at the point of

time when Shri Moti Kumar was admitted as one of the partners in the

partnership firm of the Operational Creditor, he was still working as an

accountant with the Corporate Debtor and therefore this conduct was in

breach of the prohibition imposed by Clause 4 of his appointment letter. We

also note that no material document has been produced by the Appellant to

show that the Shri Moti Kumar worked with the Operational Creditor while

also serving as an accountant with the Corporate Debtor with express written

permission from the latter. It is an undisputed fact that Shri Moti Kumar

resigned from the Corporate Debtor firm finally on 08.10.2016 at which point

of time he worked both with the Corporate Debtor and the Operational

Creditor. There is also no doubt in our mind that at the time of joining the

partnership firm, he was barred from taking any outside duties in terms of

the appointment letter issued by the Corporate Debtor. Given the above, we

are satisfied that the doubts expressed by the Adjudicating Authority about

the questionable role of Shri Moti Kumar is not unfounded.

8. It has also been observed by the Adjudicating Authority that the

Operational Creditor actively concealed this material fact in their Section 9

application that their partner Shri Moti Kumar was working as an accountant

in the Respondent Company during 2014 to 2016 when the transactions

under reference have occurred between the parties. The Adjudicating

Authority has therefore come to the conclusion that this dual employment of

Company Appeal (AT) (Ins.) No. 1416 of 2022 5 Shri Moti Kumar not only casts serious doubt on the transactions carried out

between the Operational Creditor and the Corporate Debtor during the period

of February 2014 to May 2016 but also points towards possible manipulation.

9. While analysing the dispute raised by the Corporate Debtor, it has also

been noted by the Adjudicating Authority that the appointment letter and

resignation letter of Shri Moti Kumar and the relevant invoices pertain to a

date prior to issuance of the demand notice.

10. The Learned Counsel for the Respondent further submitted that the

Respondent in their reply before the Adjudicating Authority had pointed out

that during this period when the Shri Moti Kumar was working concurrently

for the Corporate Debtor and Operational Creditor without any prior

permission of the Corporate Debtor, he was on the one hand placing purchase

orders for the Corporate Debtor being his employee and on the other hand

supplying goods to the Corporate Debtor from the partnership firm of the

Operational Creditor where he was also a partner. It has therefore been

contended that Shri Moti Kumar made payments illegally to the Operational

Creditor. It was further submitted that no authorised person of the Corporate

Debtor has signed and stamped the receipt of several invoices. The name of

the persons who signed the said invoices is also not mentioned. In support of

their contention, reference was made to pages 314-317, 320-323 of Appeal

Paper Book ('APB' in short) which contain invoices which clearly show stamp

without any signature endorsement. In some invoice there is no stamp of the

Corporate Debtor embossed thereon. It is further noted from certain invoices

that curiously the date of receipt of goods precedes the date of invoices as at

Company Appeal (AT) (Ins.) No. 1416 of 2022 6 pages 139, 145, 146 of APB. Furthermore, some invoices submitted are

marked with handwritten MRN number without any receipt delivery stamp

which are placed from pages 378-400 of APB. It was therefore submitted that

the invoices lack authenticity being forged and fabricated and thus the

liability of the Corporate Debtor has been created by fraudulent means.

11. We note that the Adjudicating Authority having noted the material

concealment of the fact by the Operational Creditor regarding the fact that

Shri Moti Kumar was working concurrently in both the entities i.e. the

partnership firm of the Operational Creditor and the Corporate Debtor at the

time of transactions and after having considered the rival submissions and

after seeing the documents on record have held that it raises serious doubts

as to whether the Respondent really committed any default or there is an

element of fraud in the transactions. It has therefore held that the dispute

needs more investigation and beyond the scope of the Adjudicating Authority

in terms of the judgement of the Hon'ble Supreme Court in (2018) 1SCC 353

Mobilox Innovations Pvt Ltd vs Kirusa Software Pvt Ltd ('Mobilox' in

short). It would be useful to peruse the relevant excerpts of the impugned

order at paras 19 and 20:

"19. In this context, the reliance can be placed on the judgement

dated 21.09.2017 of Hon'ble Supreme Court in the matter of Mobilox

Innovations Private Limited Vs Kirusa Software Private Limited in Civil

Appeal no. 9405 of 2017, wherein the Hon'ble Apex Court held that:

Company Appeal (AT) (Ins.) No. 1416 of 2022 7

40. ........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.

20. In the light of the aforesaid discussion, we conclude that in the

instant case, there is a possible element of fraud qua the

transactions, which requires further detailed investigation, which

is not possible in the summary jurisdiction of this Adjudicating

Authority. Accordingly, the present petition is Dismissed with

no order to costs."

12. It is well settled that in section 9 proceeding, the Adjudicating Authority

is not to enter into final adjudication with regard to existence of dispute

between the parties regarding the operational debt. What has to be looked

into is whether the defence raises a dispute which needs further adjudication

by a competent court. If we apply the above cited test laid down in Mobilox

Company Appeal (AT) (Ins.) No. 1416 of 2022 8 by the Hon'ble Supreme Court to the facts of the present case, it is clear that

defence was raised by the Corporate Debtor in their detailed reply filed in

Section 9 application which in our considered view is not illusory or

moonshine and that the nature of dispute raised was such that it required

adjudication by competent court. The Adjudicating Authority has therefore

correctly applied the ratio of the Mobilox judgement.

13. For the foregoing reasons, we are of the view that the Adjudicating

Authority has rightly dismissed the application of the Appellant filed under

Section 9 of IBC. We are satisfied that the impugned order does not warrant

any interference. We however make it clear that in the event the Appellant

seeks remedy before any other appropriate forum, it shall be open for the

Appellant to raise all pleas as permissible in law. There is no merit in the

Appeal. The Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 06.01.2023

PKM

Company Appeal (AT) (Ins.) No. 1416 of 2022 9