Bcpl International Ltd vs Kalimata Ispat Industries Pvt. Ltd

Company Appeal (AT)(Insolvency) No. 890 of 2022

[Arising out of order dated 25.05.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Kolkata Bench-I in CP(IB) No.2023/KB/2019]

IN THE MATTER OF:

B.C.P.L. International Ltd. 4, Synagogue Street, Room No.810, 8th Floor, Kolkata - 700001, West Bengal ...Appellant

Versus

Kalimata Ispat Industries Pvt. Ltd. 14/2, Old China Bazar Street, Room No.213, 3rd floor, Kolkata-700001, West Bengal ...Respondent

Present:

For Appellant: Mr. Abhijeet Sinha, Mr. Akshay Goel, Advocates

For Respondent: Mr. Sanjiv Sen, Sr. Advocate, Mr. Siddhant Jaiswal, Mr. Mridul, Ms. Shreya, 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

25.05.2022 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, Kolkata Bench-I) in CP

(IB) No. 2023/KB/2019. By the Impugned Order, the Adjudicating Authority has

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

Appellant) seeking initiation of Corporate Insolvency Resolution Process ('CIRP' in Company Appeal (AT)(Insolvency) No. 890 of 2022

1 short) against Corporate Debtor-Kalimata Ispat Industries Private Ltd. (the

present Respondent). Aggrieved by this impugned order, the present appeal has

been preferred by the Operational Creditor.

2. Giving the factual background, the Learned Counsel for the Appellant

submitted that the Operational Creditor sold steel products to the Corporate

Debtor. In the course of their business transactions, 129 invoices had been raised

by the Appellant of which 46 invoices remained unpaid by the Corporate Debtor.

The unpaid invoices aggregated to an amount of Rs.3,01,89,141/- only which

included interest @ 18% per annum. This amount being due and payable by the

Corporate Debtor, the Appellant had sent a Section 8 demand notice on

28.06.2019. It was submitted that the Respondent sent reply to the notice much

beyond the statutory period of 10 days prescribed by the IBC, thus being non-est

in the eyes of law. As no further payment was forthcoming from the Respondent,

a Section 9 application was filed by the Appellant.

3. It has been further contended by the Learned Counsel for the Appellant that

the Corporate Debtor in order to evade payment of outstanding liabilities created

a moonshine defence of pre-existing disputes. Holding the grounds of defence to

be only a mirage, it was stated that the first set of fictitious disputes were allegedly

raised through three communications. The first two dated 01.07.2017 and

03.10.2017 raised alleged disputes centering around defective goods having been

supplied by the Operational Creditor. These were followed by a third

communication dated 25.04.2019 wherein the Corporate Debtor had notified

termination of contract and reiterated the removal of rejected goods from their

premises.

Company Appeal (AT)(Insolvency) No. 890 of 2022

2

4. Substantiating their contention that these disputes were fictitious and

fabricated; it is submitted that these letters were actually never issued by the

Corporate Debtor and were disclosed for the first time by the Corporate Debtor in

their reply Affidavit to Section 9 application. These letters did not either figure in

the reply to the Section 8 demand notice and thus it can be inferred that these

letters were created later. Furthermore, the letters were never received by the

Appellant as they were issued from a non-existent post office as per confirmation

received from the Department of Posts basis an RTI application. Thus, the

handwritten postal receipt from a post- office which had already closed cannot be

credible evidence of dispatch and delivery of the said letters. To top it, the first

two communications dated 01.07.2017 and 03.10.2017 were addressed to the

registered office of the Operational Creditor which came into existence only on

28.06.2018 which made it clear that the letters were forged and fabricated later.

5. The Learned Counsel for the Appellant further pointed out that the

Respondent had acknowledged their liability to pay Rs.2,20,00,724/- on

01.04.2019 by sending a communication captioned "Confirmation of Accounts".

However, a defence has been raised by the Respondent by raising the issue about

two credit notes raised upon the Operational Creditor on 31.01.2018 amounting

to Rs.14,03,472/- and that this was only a ruse to escape from their liability to

pay. That the Respondent continued to accept supplies from the Appellant and

also made payments for materials supplied, even after the issue of the credit notes,

showed that there is no foundation of any genuine dispute.

6. On the plea of the Respondent that two communications dated 02.05.2019

and 04.06.2019 had also been sent asking the Appellant to give a credit note of

Rs.2,25,53,061/-, it was contended by the Learned Counsel for the Appellant that Company Appeal (AT)(Insolvency) No. 890 of 2022

3 these two communications were never delivered to the Appellant nor any material

has been brought on record evidencing their delivery. Moreover, as the credit

notes were disclosed by the Respondent through a supplementary affidavit before

the Adjudicating Authority, the Appellant was denied an opportunity to deal with

the same. It was asserted that the Adjudicating Authority by placing reliance on

documents which were not on record had committed an error and hence the

impugned order suffers from illegality.

7. Making his submissions further, it was stated that the admission of non-

payment of Rs.2,20,00,724/- by the Corporate Debtor is in itself a sufficient

ground to admit the Section 9 application. It has been contended by the Learned

Counsel for the Appellant that the Corporate Debtor had admitted to the existence

of 129 invoices aggregating Rs.10,16,11,515/- against which admittedly a

payment of only Rs.7,96,10,791/- was made. Thus, a substantial sum beyond

the threshold limit still remained due and payable by the Corporate Debtor to the

Operational Creditor.

8. Refuting the above submissions, the Learned Senior Counsel for the

Respondent stated that much prior to the issue of Section 8 demand notice,

communications had been sent to the Operational Creditor disputing the quality

of goods. On 01.07.2017, it had been clearly pointed out that in-house tests had

revealed that the material supplied by the Operational Creditor was sub-standard

and not in conformity with the production requirements. The Operational Creditor

had also been advised to improve the quality of supply failing which they would

be compelled to terminate the business relationship. This was followed by another

communication dated 03.10.2017 wherein it was pointed out that a large quantity

of materials upon being tested had to be rejected. It was stated that this was also Company Appeal (AT)(Insolvency) No. 890 of 2022

4 informed to a representative of the Operational Creditor who was asked to remove

the rejected goods from the factory premises and replace with goods meeting

quality specifications failing which termination of relationship and claim for

damages was notified. Again on 25.04.2019, it was stated that since the

Operational Creditor had failed to improve the quality of products, the Corporate

Debtor delisted them from their list of suppliers. A list of invoices was also sent

by the Corporate Debtor to the Operational Creditor of the materials rejected. The

Operational Creditor had been asked to remove the rejected goods besides

reserving right to charge damages.

9. It was further emphasized that this dispute relating to inferior quality of

goods had been raised in the reply to the Section 8 demand notice as well as in

the Reply affidavit to Section 9 application. The reply notice had clearly disputed

the claim of the operational debt made by the Operational Creditor amounting to

Rs. 3,01,89,141/-. It was also mentioned that the list of pending invoices raised

by the Operational Creditor were false and fabricated documents and that these

fabricated invoices were precipitated merely because of the issue of termination

letter dated 25.04.2019.

10. We have duly considered the arguments and submissions advanced by the

Learned Counsel for the parties and perused the records carefully.

11. The basic issue which needs consideration is whether operational debt

above the statutorily prescribed threshold limit, as claimed by the Operational

Creditor, had become due and payable, and if so, whether there has been any

default in respect of such payment on the part of the Corporate Debtor and

whether the debt has been disputed. This examination would be in consonance

Company Appeal (AT)(Insolvency) No. 890 of 2022

5 with the test laid down by the Hon'ble Supreme Court in Mobilox Innovations

Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC 353 (hereinafter

referred to as 'Mobilox').

12. The first set of dispute raised is the issue of credit notes in the context of

outstanding dues. It is the case of the Appellant that the Respondent had clearly

admitted their liability to pay Rs.2,20,00,724/- in their Account Confirmation

Statement of 01.04.2019 as placed at page 253-256 of Appeal Paper Book ('APB'

in short). Thus, it is a fit case for admission of Section 9 application. It has also

been contended that the Corporate Debtor failed to respond to letter dated

05.06.2019 from Operational Creditor seeking outstanding dues. The Learned

Senior Counsel for Respondent denied the receipt of letter dated 05.06.2019 and

further submitted that the Account Confirmation Statement was a forged and

fabricated document and that the Corporate Debtor had therefore filed a police

complaint with Hare Police Station on 07.03.2020 to lodge an FIR against the

Operational Creditor for use of counterfeit stamp/seal of the Corporate Debtor as

placed at page 252 of APB.

13. We also notice that the Corporate Debtor has placed on record counter

claims of credit notes issued by them. Two credit notes had been issued on

31.01.2018 for a sum of Rs.7,96,809/- and Rs.6,03,663/- by the Operational

Creditor as communicated by an email dated 04.04.2018. These having been

issued by the Operational Creditor, it is, therefore, contended by the Learned

Senior Counsel for the Respondent that it amplifies that in the past too

consignments were supplied by the Operational Creditor which were defective and

not found conforming to the quality specifications laid down by the Corporate

Debtor. This has been disputed by the Appellant on the ground that the email ID Company Appeal (AT)(Insolvency) No. 890 of 2022

6 from which the credit notes were sent to the Corporate Debtor did not belong to

the Operational Creditor. This matter has been looked into by the Adjudicating

Authority and held that though the email ID birdhi123@gmail.com does not match

the email ID of the Operational Creditor as reflected in the master data but the

Board Resolution filed in the rejoinder reflects this to be the email ID of the

Operational Creditor. It has therefore been held by the Adjudicating Authority

that the credit notes sent via the email are genuine and the issuance of the said

letters further confirms the Corporate Debtor's contention that the instant petition

has pre-existing disputes. That apart we notice that at pages 309 and 310 of APB,

two letters dated 02.05.2019 and 04.06.2019 have been sent by the Corporate

Debtor requesting the Operational Creditor to issue credit notes for a balance sum

of Rs.2,11,52,579/- on the ground that material worth of Rs.2.25 crore had been

rejected by them.

14. We are satisfied with the finding of the Adjudicating Authority that the

balance amount claimed as operational debt has been unequivocally disputed by

the Corporate Debtor and no liability admitted on this count. The present is

therefore not a case where there is an undisputed debt for which Corporate Debtor

can be brought under the rigors of CIRP.

15. The second realm of dispute centers around three communications

purportedly issued by the Corporate Debtor. In the first communication of

01.07.2017, the Corporate Debtor had alleged the supply of defective goods of

substandard quality on the basis of in-house test report. The second

communication dated 03.10.2017, the Corporate Debtor had raised the issue of

removal of the rejected goods from their factory premises and their replacement

with proper quality goods. In the third communication dated 25.04.2019 notifying Company Appeal (AT)(Insolvency) No. 890 of 2022

7 termination of the contract by the Corporate Debtor on account of failure on the

part of the Operational Creditor to improve the quality of their products, it

reiterated removal of rejected materials and reserved the right to claim damages.

16. It is, however, the case of the Appellant that the three communications

dated 01.07.2017, 03.10.2017 and 25.04.2019 were false and fabricated and had

never been delivered to the Appellant prior to issue of demand notice. The letters

were purportedly posted with a manually signed postal receipt from a post office

at 'Hide Road'. However, based on information as confirmed by the Department

of Posts following an RTI query as placed on record at pages297-299 of the APB,

it was asserted that there was no post office nomenclated as 'Hide Road' Post

Office. There was a post office named 'Hyde Road' but that was already closed on

28.02.2017. The closure of the said post office was prior to the date of issue of the

said letters thus raising doubts about these having been issued. That these letters

were never delivered is further substantiated by the fact that the postage receipt

did not have tracking number of the courier and there is no delivery report

produced by the Respondent. It has been further contended that the letters dated

01.07.2017 and 03.10.2017 had been sent to the Appellant at the address 4,

Synagogue Street, Room No.810, 8th Floor, Kolkata while the registered office of

the Appellant at that time was at 27, Biplabi Trailokya Maharaj Sarani, Narayan

Building, 7th Floor, Room No. 703, Kolkata-700001. It was therefore contended

that as the two letters were addressed to the new registered office which came into

existence much after the date of issue of the letter, it can well be inferred that the

letters were belatedly fabricated.

17. This was countered by the Learned Senior Counsel for the Respondent by

stating that operations of the Hyde Road Post Office were continuing and had only Company Appeal (AT)(Insolvency) No. 890 of 2022

8 been tagged with Brace Bridge Post Office. It was also contended that the service

of the letter was done in a bona-fide manner and postage receipts have also been

placed on record. It was further vehemently contended that issues relating to

forgery of documents do not fall within the ambit of the Adjudicating Authority for

adjudication as it is not akin to a trial court.

18. The Learned Counsel for the Appellant has contended that this Tribunal in

CA (AT)(Ins.) No.164 of 2019 has held that dispatch and delivery of letters must

be supported by proof of service. In the present case, the facts are distinguishable

in that the Respondent has submitted the postage receipts. However, in the

present case, the availability of postage receipts is not in question but it is the

authenticity of the postage receipt which has been disputed. We are of the

considered view that this citation therefore does not come to the aid of the

Appellant.

19. We find that the Adjudicating Authority in the impugned order has duly

considered this aspect and relied on the decision taken by this Tribunal in the

matter of Shelendra Kumar Sharma v. DSC Limited in Company Appeal (AT) (Ins.)

1459 of 2019 wherein it has been held that the question as to whether documents

are forged or not cannot be decided by the Adjudicating Authority.

20. We agree that the authenticity of the postal stamps on the postage receipts

are not the subject matter which can be decided by the Adjudicating Authority or

this Tribunal in view of summary jurisdiction having been conferred on them by

the IBC. Enquiry into such allegations and counter-allegations would entail

detailed investigation and the legislative intent of the IBC does not clothe the

Adjudicating Authority with such powers of investigation. We are thus of the

Company Appeal (AT)(Insolvency) No. 890 of 2022

9 considered view that the Adjudicating Authority has not committed any error by

restraining itself from entering into any sort of roving enquiry on this issue.

21. At this stage, what we need to find out is whether these three letters had

raised a semblance of dispute and if so whether the dispute is patently feeble. The

guiding precepts have been laid down in the ratio of Mobilox supra and the

relevant para is extracted as hereunder:

"51. 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."

22. A plea was taken by the Learned Counsel for the Appellant that these letters

were fabricated as they do not find specific mention in the reply to demand notice. Company Appeal (AT)(Insolvency) No. 890 of 2022

10 It is also the contention of the Appellant that the letter only states in generic terms

that 'materials' were defective shorn of specific details. It has also been stated that

the details of the tests certificate were also not produced. We are not persuaded

to accept this argument since neither the Adjudicating Authority nor this Tribunal

is required to go into the details of the goods found defective or enter into the

procedural modalities of how they were detected as defective. There is no doubt in

our mind that the three letters have consistently raised concerns about quality of

goods as not matching the specifications besides replacement and removal of the

defective goods. The letters also contained warning of termination of business

which finally culminated in the delisting of the Operational Creditor by the

Corporate Debtor.

23. It is sufficient to notice that the Corporate Debtor in the reply to statutory

Demand notice made a categorical statement that whatever was due and payable

has been paid and the amount withheld was on account of goods found defective

dehors specifications. It may be useful to take note of the relevant portion of the

reply notice dated 10.07.2019 at pages 243-247 of APB as reproduced below:-

"1. That, the items which has been supplied to us by you and/or your

organization viz. BCPL International Ltd. (BCPL) in course of our business

dealings were some defective in nature & were of extreme low quality. The

said items could not be used by us in our manufacturing activity, as we

has a goodwill & reputation in our business sphere, alternatively, if used

the said supplied items of BCPL would definitely hampered our said

goodwill & reputation. We earlier used very few of your supplied materials

in our manufacturing process & for your kind information, the quality of the

finished product/s made out of the said materials was of extreme inferior

Company Appeal (AT)(Insolvency) No. 890 of 2022

11 quality which was not fit to be supplied to our customers. Hence, times

without number, we severally requested BCPL and /or your office

representatives either to replace the aid materials or to take return back

the same & issue credit note to us. But, neither of your

representatives/officials acted as per our requests & hence ultimately the

said delivered items served none of our purpose. The said inferior

materials are still lying with us & has become scrap over a period of time.

To maintain good relationship, you are again requested to remove/take

back the said materials at any point of time with a prior

permission/intimation to us. We, as a business entity definitely would not

pose loss and/or hamper our business because of your's deficiency."

(Emphasis supplied)

So long as the reply to demand notice captures the essence of these disputes, it

fulfils the requirements of Section 8(2)(1)(a) of IBC and in the present case the

reply notice had adequately highlighted these disputes.

24. In sum, looking conjointly at the three communications issued by the

Corporate Debtor regarding supply of defective goods and other related issues on

01.07.2017, 03.10.2017 and 25.04.2019 as also the credit notes issued on

31.01.2018, 02.05.2019 and 04.06.2019 questioning the existence of any

operational debt, we have no hesitation in concurring in the findings recorded by

the Adjudicating Authority in that there was sufficient foundation of genuine

disputes between the two parties. The Adjudicating Authority has also not erred

by not getting into the allegations and counter-allegations regarding forgery and

fabrication of documents/postage receipts as such conduct of such enquiries/

investigations is beyond the remit of summary proceedings. Company Appeal (AT)(Insolvency) No. 890 of 2022

12

25. In view of the foregoing discussion, we are satisfied that the Adjudicating

Authority did not commit any error in rejecting the Section 9 application on the

ground of pre-existing dispute. There being no merit in the appeal, the same is

dismissed. However, the Appellant will have the liberty to resort to other remedies

in accordance with law. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 26.04.2023

PKM

Company Appeal (AT)(Insolvency) No. 890 of 2022

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