Beetel Teletech Limited vs Arcelia It Services Private Limited

Company Appeal (AT)(Insolvency) No. 1459 of 2022

[Arising out of the order dated 17.10.2022 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench (Court II) in CP(IB) No. 58(ND)2022]

IN THE MATTER OF:

Beetel Teletech Ltd. (Erstwhile M/s Brightstar Telecommunications India Limited) First Floor, Plot No.16, Udyog Vihar, Phase IV, Gurugram, Haryana - 122015 ...Appellant

Versus

Arcelia IT Services Pvt. Ltd. Flat No.26/13, Second Floor, Deepak Building, Nehru Place, New Delhi - 110019

Also at:

Level 2, Elegance Tower, Plot No.8, Non-Hierarchical, Commercial Centre, Jasola, New Delhi - 110025 ...Respondent

Present:

For Appellant: Mr. K.P. Singh, Advocate.

For Respondents:

Company Appeal (AT)(Ins.) No.1459 of 2022 1 JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016 ('IBC' in short) by the Appellant arises out of the order

dated 17.10.2022 (hereinafter referred as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Delhi Bench (Court-II)

in CP(IB) No. 58(ND)2022. By the impugned order, the Adjudicating Authority

has dismissed the Section 9 application filed by the Operational Creditor-M/s

Beetel Teletech Limited (the present Appellant) seeking initiation of Corporate

Insolvency Resolution Process ("CIRP" in short) against the Corporate Debtor-

M/s. Arcelia IT Services Private Limited (the present Respondent). Aggrieved by

this impugned order, the present appeal has been preferred by the Operational

Creditor.

2. Briefly recapitulating the factual matrix of the present case, the Corporate

Debtor and the Operational Creditor had executed a Channel Partner

Registration Form wherein both parties had agreed to work on mutually accepted

terms and conditions. The Corporate Debtor raised a purchase order on

25.10.2019 pursuant to which the Operational Creditor supplied goods and

services and raised an invoice No.RV1927813879 dated 31.12.2019 for which

payments remained due. Despite several reminders including meetings held

between the two parties as the entire payment assured by the Corporate Debtor

was not received by the Operational Creditor, a demand notice under Section 8

Company Appeal (AT)(Ins.) No.1459 of 2022 2 of the IBC was issued by the Operational Creditor. The Corporate Debtor did not

file any reply to the statutory demand notice. Subsequently the Operational

Creditor filed a Section 9 application on 15.12.2021 seeking initiation of CIRP of

the Corporate Debtor. The Corporate Debtor filed a reply to the Section 9

application. On hearing the matter, the Adjudicating Authority dismissed the

Section 9 application as not maintainable on the ground that the Appellant had

failed to establish beyond doubt that the unpaid operational debt was subsisting

above the minimum threshold limit of Rs.1 crore. Aggrieved by the impugned

order, the Operational Creditor has come up in appeal.

3. The Learned Counsel for the Appellant submitted that as per payment

terms followed by the two parties, the payments were to be made by the

Corporate Debtor 60 days from the date of invoice. It was further submitted that

in terms of payment conditions as laid down at Clause 12.8.2, the Corporate

Debtor was liable to pay interest at the rate 18% per annum if payment was not

cleared within 60 days. The invoice raised vide No.RV1927813879 for Rs.

1,32,45,904.84 which was dated 31.12.2019 fell due for payment on 29.02.2020.

It was further submitted that though certain payments were received from the

Corporate Debtor post this invoice, these payments were adjusted both against

invoice No.RV1927813879 and other outstanding invoices. After carrying out

these adjustments, the payments still continued to remain outstanding in

respect of invoice No.RV1927813879.

Company Appeal (AT)(Ins.) No.1459 of 2022 3

4. It is further contended by the Learned Counsel for the Appellant that

though the Appellant took up the matter with the Corporate Debtor for release

of the outstanding operational debt, the Corporate Debtor released only part

payments. It was also added that a cheque issued by the Corporate Debtor also

got dishonoured compelling the Appellant to issue a Section 8 demand notice

which was allegedly never replied to nor disputed by the Corporate Debtor. It

has been further admitted that post issue of demand notice, two cheques of Rs.5

lakhs were issued which were adjusted against other pending invoices. However,

as the operational debt in respect of invoice No. RV1927813879 continued to

subsist, this constituted sufficient basis for admission of Section 9 application.

It was further pointed out that in Part IV, the operational debt claimed by the

Operational Creditor is confined only to Invoice No. RV1927813879 for an

amount of Rs.1,15,11,486/- which included a principal amount of

Rs.1,01,80,986 and an interest amount of Rs.13,30,500/- at the rate of 18% per

annum as agreed. It was vehemently contended that the Adjudicating Authority

erroneously dismissed the Section 9 application on the ground that the threshold

limit of Rs.1 crore is not fulfilled.

5. We have duly considered the detailed submissions advanced by the

Learned Counsel for the Appellant and perused the records carefully.

6. None appeared for the Corporate Debtor before this Tribunal right since

the first date of hearing on 13.12.2022. This Tribunal had directed issue of

Notice to the Respondent - Corporate Debtor on 13.12.2022. Noticing that the

Company Appeal (AT)(Ins.) No.1459 of 2022 4 Notice sent to the Respondent by speed post having been returned undelivered,

the Appellant was permitted to hand over Dasti Notice personally on 30.01.2023.

The Learned Counsel for the Appellant informed this Tribunal on 24.03.2023

that the Appellant having been denied entry by the security staff, the Notice

could not be served. This Tribunal had therefore directed that Notice be

published in two leading newspapers which is found to have been complied with

and an affidavit of service has also been filed. It is, therefore, held that service of

Notice on Corporate Debtor is sufficient and that the Corporate Debtor has not

appeared despite Notice.

7. We notice that the Adjudicating Authority has dismissed the Section 9

application of the Appellant on two grounds. One ground taken is that the period

for which interest has been claimed by the Operational Creditor falls during the

period 25.03.2020 to 24.03.2021 for which no CIRP could have been initiated in

terms of Section 10A of the IBC. This ground has been elucidated in Paragraph

9 of the impugned order, where the following has been held: -

"9. On perusal of the Part IV of the application, it is observed that the

Applicant has claimed an amount of Rs.1,15,11,486/-, comprising of

the principal amounting to Rs.1,01,80,986/- and interest

Rs.13,30,500/- from 29.02.2020 to 15.12.2021 @ 18% per annum.

From the period for which the interest is being claimed by the

Applicant, we observe that the majority of the period is falling under

the suspension period of IBC (i.e., from 25.03.2020 to 24.03.2021),

Company Appeal (AT)(Ins.) No.1459 of 2022 5 for which no CIRP can ever be initiated as stipulated under Section

10A of IBC, 2016. Hence, in our view, no interest can be claimed for

the suspension period of IBC for triggering CIRP. Further, as held in

the catena of the Judgements, this Tribunal is not a court of recovery,

therefore, we will not indulge in calculating the interest amount for the

remaining period."

(Emphasis supplied)

8. This finding of the Adjudicating Authority has been challenged by the

Appellant on the ground that the default in payment having arisen before

25.03.2020, the interest that accrued on the principal amount so defaulted is

also liable to be treated as part of operational debt and taken into account while

computing the minimum threshold limit.

9. At this stage, it may be useful to have a look at Section 10A of IBC which

is as follows: -

Section 10A: Suspension of initiation of corporate insolvency resolution process.

10A. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:

Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

Company Appeal (AT)(Ins.) No.1459 of 2022 6 Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.

10. A plain reading of Section 10A signifies that no application/ proceedings

under Sections 7, 9 and 10 can be initiated for any default in payment which is

committed during Section 10A period. Thus, what is essentially barred is

initiation of CIRP proceedings when the Corporate Debtor commits any default

during the Section 10A period. However, if the default is committed prior to the

Section 10A period and continues in the Section 10A period, this statutory

provision does not put any bar on the initiation of CIRP proceedings.

11. The law of Section 10A is well settled. The object and purpose of Section

10A has been explained in the ordinance by which Section 10A was brought into

operation. Further, the object and intent underlying the insertion of Section 10A

has also been propounded by the Hon'ble Supreme Court in its judgment of

"Ramesh Kymal vs. M/s Siemens Gamesa Renewable [Civil Appeal No. 4050

of 2020]". In consonance with the tenor and spirit of the above-mentioned

judgment of the Hon'ble Supreme Court, this Tribunal on 18.08.2023 in

Company Appeal (AT) (Ins.) No. 914 of 2023 in the matter of Raghavendra

Joshi v. Axis Bank Limited & Anr ("Raghavendra" in short) had the occasion

to notice the object of Section 10A of IBC and observed as follows:

"8. In Ramesh Kymal's Case, the Appellant had filed an Application

under Section 9 on 11th May, 2020 on the ground of default. The

Company Appeal (AT)(Ins.) No.1459 of 2022 7 ordinance No. 09/2020 was promulgated by the President of India on

05th June, 2020 by which Section 10A was inserted into the I&B Code,

2016. An Application was filed by the Corporate Debtor for dismissal of

Section 9 Application, the Section 9 Application was dismissed on the

ground of Section 10A. Challenging the order of the Adjudicating

Authority as well as Appellate Tribunal, Appeal was filed in the Supreme

Court. Argument which was advanced before the Hon'ble Supreme Court

was that Section 10A having been inserted in the statute book with effect

from 05th June, 2020, it shall not apply on the Applications filed prior to

the said date, which argument was rejected by the Hon'ble Supreme

Court and relevant observations have been made in Paragraphs 22, 23

and 24 as has been noted above. The Hon'ble Supreme Court affirmed

the Order of the Adjudicating Authority holding that default in Section 9

Application being on 30th April, 2020 it being covered by Section 10A,

Application was rightly rejected. The above judgment of the Hon'ble

Supreme Court has laid down that if the default is after 25th March,

2020, the Application is hit by Section 10A. The object as was indicated

in the ordinance for bringing Section 10A in the statute book is relevant

to notice which is to the following effect:

"AND WHEREAS a nationwide lockdown is in force since 25th

March, 2020 to combat the spread of COVID-19 which has

added to disruption of normal business operations: AND

WHEREAS it is considered expedient to suspend under Sections

Company Appeal (AT)(Ins.) No.1459 of 2022 8 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 to

prevent corporate persons which are experiencing distress on

account of unprecedented situation, being pushed into

insolvency proceedings under the said Code for some time; AND

WHEREAS it is considered expedient to exclude the defaults

arising on account of unprecedented situation for the purposes

of insolvency proceeding under this Code."

12. Further this Tribunal while taking cognizance of the above judgment of

this Tribunal in Raghavendra (supra), in the matter of Company Appeal (AT)

(Ins.) No. 294 of 2023 in Narayan Mangal v. Vatsalya Builders & Developers

Pvt. Ltd it proceeded further to answer as to whether interest payments accrued

during the Section 10A period is to be deducted while computing the threshold

and it has been held that: -

"If the default is committed prior to Section 10A period and default

continues there is no prohibition in initiating proceedings under

Section 7 and we are not persuaded to accept the submission of the

counsel for the respondent that the liability of interest which accrued

during Section 10A period should be ignored or should not be

computed in the amount while finding the threshold. Liability to pay

interest which default committed prior to Section 10A period continues

and is not obliviated by Section 10A."

Company Appeal (AT)(Ins.) No.1459 of 2022 9

13. Thus, the aim and objective of Section 10A was to protect a Corporate

Debtor from the filing of any insolvency application against it for any default

committed during the period when Covid-19 pandemic was prevailing. It was

never intended to cover any default which occurred before Section 10A period

and continuing thereafter.

14. The present is a case where default has been committed by the Corporate

Debtor since 29.02.2020 which is prior to commencement of Section 10A period.

Hence, this is a case where the default was undisputedly committed before the

bar of Section 10A came into play. There being categorical default by the

Corporate Debtor prior to Section 10A period, the Corporate Debtor was clearly

not entitled to claim the benefit of Section 10A period.

15. Further, since the default was committed prior to Section 10A period and

the liability to pay interest having clocked prior to Section 10A period, we are of

the considered opinion that the view taken by the Adjudicating Authority that

the liability of interest which accrued during Section 10A period should be

ignored or should not be computed for triggering CIRP is misconceived.

16. The second ground which has been taken by the Adjudicating Authority to

hold that the quantum of unpaid operational debt cannot be held to be above

the minimum threshold limit of Rs.1 crore is that part payments received from

the Corporate Debtor have been adjusted by the Appellant towards other debts

Company Appeal (AT)(Ins.) No.1459 of 2022 10 instead of adjusting the first against Invoice No.RV1927813879. The finding

recorded by the Adjudicating Authority in this regard is as follows: -

"12. From perusal of the aforesaid table, it is observed that whereas the payments made on the earlier dates except the payment reflected at Serial no.1 are adjusted against the invoice no. RV1927813879, the part-payments dated 03.11.2021 and 08.11.2021 made by the respondents as reflected at serial. no. 8 and 9 are adjusted towards the interest outstanding of the invoice bearing No. RV2027804572. Hence, we do not find any consistency or pattern in the treatment accorded to the part-payments, while adjusting the same towards the outstanding dues. Had the amounts mentioned at Serial No. 8 and 9 been adjusted towards the invoice RV1927813879, the principal amount would be less than the minimum stipulated threshold of Rs 1 (one) Crore.

13. We further observe that the invoice claimed in Part IV of the present application is only RV1927813879 and the other invoices as referred in aforesaid table are neither produced nor are the subject matter of the present petition. Hence, in our considered view, further investigation and scrutiny of facts is required that as to why the subsequent payments made on 08.11.2021 are adjusted against the invoice no. RV2027804572, whereas the previous payments made on 24.03.2021 and 25.03.2021 are adjusted towards the Invoice under reference i.e., RV1927813879."

(Emphasis supplied)

17. This finding of the Adjudicating Authority has been challenged by the

Appellant on the ground that a creditor is entitled to apply his own discretion to

appropriate any on-account payment received from the debtor against any

Company Appeal (AT)(Ins.) No.1459 of 2022 11 outstanding debt(s) due from the debtor in terms of the Indian Contract Act,

1872.

18. At this stage, it may be useful to have a look at Section 60 of the Indian

Contract Act, 1872 which is as follows:

Section 60. Application of payment where debt to be discharged is not indicated. - Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitations of suits. -- Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitations of suits."

19. A plain reading of Section 60 of the Indian Contract Act 1872, shows that

if the debtor makes any payment without any appropriation, then the creditor

can use his discretion to wipe out any of the remaining debt(s) which is/are due.

The right of appropriation lies with the creditor if the debtor does not indicate in

what manner the debt is to be discharged. In such circumstances, the creditor

has a lot of scope for exercising his right in such a manner so as to put himself

in the most advantageous position. It is also a well settled business practice that

Company Appeal (AT)(Ins.) No.1459 of 2022 12 in a debt where the principal amount is outstanding and interest has also

accrued on the debt, sums paid by the debtor is applied by the creditor first to

the interest. In the present facts of the case, payments received by the

Operational Creditor have been duly adjusted also against the principal amount

or interest accrued in respect of invoices other than RV1927813879 which were

all pending for payment. Without explaining how this action has Operational

Creditor has been in contravention of the statutory provisions contained in the

Indian Contract Act, it has therefore been unreasonable on the part of the

Adjudicating Authority to hold that there is an inconsistency in the pattern

adopted by the present Appellant while adjusting payments received against

outstanding dues.

20. Given the above backdrop, we therefore do not commend the finding of the

Adjudicating Authority that the Appellant/Operational Creditor by adjusting

payments received from the Corporate Debtor against the principal amount

outstanding in respect of other pending invoices or setting off these payments

against interest accrued qua these invoices had committed any anomaly. There

is no foundational basis shown by the Adjudicating Authority for disregarding

the discretion exercised by the Operational Creditor which it was clearly entitled

to exercise.

21. In sum, we have no hesitation in holding that the finding returned by the

Adjudicating Authority that the criterion of minimum threshold limit of Rs 1

Company Appeal (AT)(Ins.) No.1459 of 2022 13 crore is not met in the facts of the present case is not tenable. Considering the

overall facts and circumstance of the present case, we are of the considered view

that the order of the Adjudicating Authority is unsustainable. The impugned

order dated 17.10.2022 is set aside. In result, the appeal is allowed. The Section

9 application filed by the Appellant is revived and remanded back to the

Adjudicating Authority to be considered again in accordance with law. We

however would like to add that our observations contained herein may not

influence the Adjudicating Authority in deciding the matter on merits. No order

as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 11.09.2023

PKM

Company Appeal (AT)(Ins.) No.1459 of 2022 14