Aquarius H2O Dynamics Private Limited vs M/S Riddhi Siddhi Metals Through Its ...

[Arising out of the Impugned Order dated 29.11.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Ahmedabad Bench-I in C.P.(IB)/211(AHM)/2024]

In the matter of: Aquarius H2O Dynamics Private Limited (CIN: U41000GJ2018PTC102816) Having Registered Office at: 803-A/3, Nr. Patel Air Temp Ind. Village: Ranakpur, Taluka: Kalol, Gandhinagar, Gujarat- 382721 Email: acquarius@h2odynamics.in

...Appellant Versus M/s Riddhi Siddhi Metals Through its Partner, Mr. Hardik Jain, Having Registered Office at: 47/3, Lala Bhore Lal ni chali, Nagarwel Hanuman Mandir Road, Rakhial, Ahmedabad, Gujarat- 380023 ...Respondent

Present: For Appellant : Ms. Nitu Mittal, Advocate. For Respondent : Mr. Pradhuman Gohi and Mr. Sahithya Krishna A., Advocates.

JUDGMENT

(Hybrid Mode)

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

29.11.2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench-I) in C.P. (IB)/211(AHM)/2024. By the impugned order, the Adjudicating Authority

has admitted the Section 9 application filed by the present Respondent-

Operational Creditor admitting the present Appellant-Corporate Debtor into

Corporate Insolvency Resolution Process ("CIRP" in short). Aggrieved by the

impugned order, the present appeal has been preferred by the Appellant-

Suspended Director of the Corporate Debtor.

2. Coming to the brief facts of the case, a Section 9 petition was filed by M/s

Riddhi Siddhi Metals-Operational Creditor seeking initiation of CIRP against M/s

Aquarius H2O Dynamics Pvt. Ltd.-Corporate Debtor for an outstanding debt of

Rs. 1,16,40,233/- including Rs. 15,19,753/- as interest as of 15.03.2024. As part

of their business transactions, the Corporate Debtor accepted the goods of the

Operational Creditor without dispute and had made partial payment but had

failed to clear the entire outstanding dues. The Operational Creditor therefore

sent a Section 8 IBC demand notice to the Corporate Debtor on 19.03.2024.

When the matter came up for hearing before the Adjudicating Authority, even

though notice was issued on 12.07.2024, the Corporate Debtor had failed to

appear. Due to non-appearance of the Corporate Debtor even after issue of

publication of notice in newspapers, the Adjudicating Authority closed the reply

rights of the Corporate Debtor and subsequently admitted the Section 9 petition

ex-parte.

3. Making her submissions, the Ld. Counsel for the Appellant submitted that

the Respondent has deliberately suppressed material facts before the

Adjudicating Authority with regard to payments of approximately Rs. 11 lakhs

made by the Corporate Debtor to the Operational Creditor before the issuance of

the Section 8 Demand Notice and filing of the Section 9 application. It was Page 2 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 submitted that the accounting entries reflecting these payments are annexed as

Annexure A-2 at page 53 in the Appeal Paper Book. It was also submitted that

these payments amounting Rs 11 lakhs made to the Operational Creditor was

duly recorded in the bank account statement of the Operational Creditor. The

Operational Creditor however deliberately failed to disclose these receipts in the

ledger of the Corporate Debtor maintained by them. The Appellant submitted

that the Respondent has played fraud by suppressing material facts. It was

vehemently contended that if these payments are taken into cognisance, the

outstanding amount claimed by the Respondent in the Section 9 application will

fail to meet the mandatory minimum threshold of Rs. 1 crore thereby making the

Section 9 petition non-maintainable. Since the impugned order was obtained by

misrepresenting facts and misleading the Adjudicating Authority, it deserves to

be set aside. In support of their contention that the Section 9 application is not

maintainable due to non-fulfillment of the mandatory minimum default

threshold of Rs. 1 crore, reliance has been placed on the judgement of this

Tribunal in M/s Netfinity Solutions vs. M/s Karvy DigiKonnect Ltd. in

(CA)(AT)(Ins) No. 1067 of 2022 and in Hyline Mediconz Pvt. Ltd. vs.

Anandaloke Medical Centre Pvt. Ltd. (CA)(AT)(Ins) No. 1036 of 2022 wherein

it has been held that any application under Section 9 must comply with Section

4 of IBC which mandates a minimum default amount of Rs 1 crore, effective from

24.03.2020, and that no application can be maintained below this statutory

threshold. Submission was also pressed that since notice in the matter was

served at an incorrect address, the Appellant could not be present before the

Adjudicating Authority. The Appellant was deprived of a fair opportunity to

present its defence before the Adjudicating Authority. Since the impugned order

Page 3 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 was passed without giving the Appellant a fair chance to be heard, the principles

of natural justice were violated thereby making the order liable to be set aside.

4. Refuting the contentions of the Appellant, the Ld. Counsel for the

Respondent submitted that they had supplied goods and services to the

Corporate Debtor and raised corresponding tax invoices. The Corporate Debtor

had accepted the goods without any demur and made partial payments without

disputing the quality or quantity of goods supplied. The default by the Corporate

Debtor is clearly recorded with the NeSL. The ledger accounts and GST records

also substantiate the outstanding dues. It is further contended by the

Respondent that the payments which have been claimed to have been made by

the Corporate Debtor were not payments made by the Corporate Debtor. The

purported payment of Rs 9.50 lakhs claimed to have been made by the Corporate

Debtor was made by a different entity other than the Appellant and this payment

related to a transaction separate from transactions entered into with the

Corporate Debtor. It was also pointed out that their bank statement clearly

reveals that some of the payments which were claimed to have been made by Mr.

Chirag Patel-suspended Director of the Corporate Debtor was actually made by

a person named Mr. Simon Patel who was not an erstwhile Director of the

Corporate Debtor. Thus, the Appellant had produced incorrect information in

the ledger account of the Operational Creditor maintained by them to mislead

this Tribunal and derail the insolvency proceedings. The Appellant's attempt to

contest the default is baseless and intended only to delay the resolution process.

The Respondent further submitted that the Appellant had falsely claimed that it

was unaware of the proceedings initiated before the Adjudicating Authority. The

statutory demand notice under Section 8 was correctly served upon the Page 4 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 Corporate Debtor. Despite sufficient opportunities given by the Adjudicating

Authority, the Corporate Debtor had deliberately chosen not to appear

compelling the Adjudicating Authority to proceed ex-parte.

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

for both the parties and perused the records carefully.

6. The short point for consideration is whether the threshold limit of

operational debt claimed by the Operational Creditor qua the Corporate Debtor

in the present facts of the case has been met or otherwise.

7. At the outset, we would like to take note that in terms of the guiding

principles laid down by the Hon'ble Supreme Court in Mobilox Innovations Pvt.

Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC 353, the Adjudicating

Authority while examining an application under Section 9 is required to inter-

alia determine whether there is an operational debt exceeding the amount

prescribed under Section 4 of the IBC which is Rs 1 Crore effective from

24.03.2020.

8. It is the case of the Appellant that payment of Rs 11 lakhs was made by

the Corporate Debtor to the Operational Creditor before the issue of Section 8

Demand Notice. This material fact has been suppressed by the Operational

Creditor. If the payment of Rs 11 lakhs is taken into account, then the threshold

limit of the outstanding liability claimed by the Operational Creditor comes below

the threshold limit prescribed under Section 4 of the IBC for entertaining of a

Section 9 application. To substantiate the fact that Corporate Debtor had paid

Rs 11 lakhs to the Operational Creditor, the Ld. Counsel for the Appellant

adverted attention to the Bank Account Statement of the Operational Creditor

Page 5 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 which has been placed on record by the Respondent in their Rejoinder Reply at

Annexure-R-1 from pages 7-9 of their Rejoinder Reply.

9. When we peruse the above-mentioned Bank Account Statement of the

Operational Creditor, we find that a payment of Rs 9.50 lakhs has been made to

the Operational Creditor by Shreeji Equipments on 11.10.2023 as placed at page

7 of the Reply Rejoinder by the Respondent. At page 8 of the said statement, we

also notice that five payments of Rs 50,000/- each, aggregating Rs 2.50 lakhs,

has been made on 10.11.2023 by one Mr. Simon Kumar Patel. Further, another

payment of Rs 1 lakh by Shri Rameshbhai Patel dated 31.01.2024 is reflected at

page 9 of the Reply Rejoinder.

10. The Ld. Counsel for the Respondent however denied that the amount of

Rs 9.50 lakhs received by the Operational Creditor from Shreeji Equipment was

payment on behalf of the Corporate Debtor. It was stated that Shreeji Equipment

was a sister concern of the Corporate Debtor. Hence, this amount cannot be

treated as payment by the Corporate Debtor. Moreover, this payment was made

for certain purchase orders which were given by Shreeji Equipment which were

independent of the business transactions between the Corporate Debtor and

Operational Creditor and therefore has no relevance to the facts of the present

case. Submission was also pressed that the Appellant had fabricated the Ledger

Account of the Operational Creditor at page 53 of the Appeal Paper Book and

tried to mislead this Tribunal by changing the name of Mr. Simon Kumar to Mr.

Chirag Patel to falsely claim that payment was made on behalf of the Corporate

Debtor.

Page 6 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025

11. Rebutting the contention of the Respondent, it has been explained by the

Appellant that the payment of Rs 9.50 lakhs dated 11.10.2023 is to be treated

as payment made by the Corporate Debtor to the Operational Creditor since

Shreeji Equipment was a proprietary firm of Mr. Chimanbhai Patel, one of the

erstwhile Directors of the Corporate Debtor. The payment of Rs 2.50 lakhs on

10.11.2023 was also payment on behalf of the Corporate Debtor as it was made

by Mr. Simon Kumar Patel, who was an employee of the Corporate Debtor. The

payment of Rs 1 lakh on 31.01.2024 by Mr. Rameshbhai Patel was also on behalf

of the Corporate Debtor since Mr. Rameshbhai Patel was also the erstwhile

director of the Corporate Debtor.

12. It was further pressed by the Ld. Counsel for the Appellant that the

Operational Creditor has failed to place complete purchase orders received from

Shreeji Equipment for the full amount of Rs 9.50 lakhs. It was pointed out that

the Respondent in their Reply Rejoinder had only placed a purchase order at

Annexure-R-3 at pages 11-12 for only Rs 80,000/-. Furthermore, while the

purchase orders were for supply of "Fitting Materials", the invoice claimed

related to supply of "Pipe" and not "For Fitting Materials" as may be at Annex-

R-4 at page 14 of Reply Rejoinder. It was further pointed out that the delivery

challan shows supply of "Pipe" only and that too for an amount of Rs 2,000/-

only.

13. Having heard the rival contentions of both the parties and after perusal of

material on record, what we find most intriguing is that the payments made by

the Simon Kumar Patel and Rameshbhai Patel has been shown by the

Respondent in the Ledger Account of Shreeji Equipment as placed at Annexure-

Page 7 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 R-2 at page 10 of the Reply Rejoinder of the Respondent. The said copy of the

Ledger Account of Shreeji Equipment is as extracted below:

When asked to explain as to why the payments made by Simon Kumar Patel and

Rameshbhai Patel have been reflected in the Ledger Account of Shreeji

Equipment, the Ld. Counsel for the Respondent failed to give any credible

explanation. Since the Respondent failed to offer any cogent explanation as to

why these entries made by the erstwhile director and an employee of the

Corporate Debtor figured in the Ledger Account of Shreeji Equipment and not in

the Ledger Account of Corporate Debtor, this puts serious question marks on

the Ledger Account being maintained by the Operational Creditor in respect of

the Corporate Debtor.

Page 8 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025

14. When we further look at the Ledger Account of the Corporate Debtor as

placed by the Respondent at page 19 of their Reply affidavit at Annexure-R-4,

we find that only the payments received by them from the Corporate Debtor till

12.05.2023 have only been reflected. This statement does not reflect the

payments claimed to have been made by the Corporate Debtor after 12.05.2023

viz. Rs 9.50 lakhs on 11.10.2023; Rs 2.50 lakhs on 10.11.2023 and Rs 1 lakh

on 31.01.2024 at a time when their Bank Account Statements showed that these

amounts have been received by them. The Ledger Account of the Corporate

Debtor in the record of the Respondent is as shown below:

Page 9 of 12

Company Appeal (AT) (Insolvency) No. 39 of 2025 There is a clear mis-match between the Ledger Account of the Corporate Debtor

as submitted by the Respondent in their Reply Affidavit at Annexure-R-4 and

their own Bank Statement Account submitted in their Reply Rejoinder at

Annexure-R-1.

15. From the material placed before us, we are inclined to agree with the

Appellant that the entire payments made by them to the Operational Creditor

has been suppressed by the Operational Creditor. Prima-facie, we are persuaded

to infer that the Ledger Account of the Corporate Debtor as maintained by the

Operational Creditor is not an updated Ledger Account and did not depict the

true and correct status of payments received by them from the Corporate Debtor.

If the payment of Rs 11 lakhs claimed to have been made by the Corporate

Debtor after 12.05.2023 is taken into account, the outstanding liability falls

below Rs 1 Cr. and thus fails to meet the minimum threshold limit prescribed

under Section 4 of the IBC. The Adjudicating Authority was therefore misled into

admitting the Corporate Debtor into CIRP. We are also mindful of the fact that

the impugned order of the Adjudicating Authority was passed exparte and the

Appellant did not get an opportunity to defend themselves.

16. A pointed query was made by this Bench to the Appellant with respect to

the fact that the Operational Creditor had claimed an outstanding amount of Rs

1.17 Cr. and even if the purported payment of Rs 11 lakhs by the Corporate

Debtor is squared off, even then the outstanding amount would still be exceeding

Rs 1 Cr. In their defence, the Ld. Counsel for the Appellant submitted that the

principal amount claimed has always been Rs 1.01 Cr. However, the Operational

Page 10 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 Creditor has added Rs 15 lakhs unilaterally towards interest liability. This

amount has been added by the Operational Creditor on their own and therefore

needs to be disregarded. It was further asserted that the interest amount was

not payable since there was no contract between the two parties which

contemplated interest liability. Nor has the Corporate Debtor ever paid interest

to the Operational Creditor in the past in relation to these transactions.

17. In the absence of provision of interest in the contract and no practice of

interest payment having been demonstrated by the Operational Creditor, we are

inclined to agree with the Appellant that the Operational Creditor has tried to

cleverly add interest liability to cross the Section 4 threshold criteria. If the

payments made by the Corporate Debtor after 12.05.2023 are factorised, the

debt due to the Operational Creditor was clearly below the prescribed minimum

threshold limit of Rs 1 Cr. and hence the Section 9 application of the Operational

Creditor was not maintainable. Triggering of CIRP in the present facts of the case

where, prima-facie, the outstanding liability is below the threshold limit is

unwarranted.

18. With the aforesaid discussion, we are of the considered view that the

Adjudicating Authority has erroneously admitted the application under Section

9 of the IBC. The Appeal is admitted. We therefore set aside the impugned order.

The order passed by the Adjudicating Authority initiating CIRP against the

Corporate Debtor and all other orders pursuant to impugned order are set aside.

The Corporate Debtor Company is freed from the rigours of CIRP and is allowed

to function independently with immediate effect. The Respondent is however

Page 11 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025 allowed the liberty to resort to other remedies available under any law for

effecting recovery of their dues in accordance with law. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 26.03.2025

Abdul/ Harleen

Page 12 of 12 Company Appeal (AT) (Insolvency) No. 39 of 2025