Bhaaskaran Rangarajan vs Info Drive Software Ltd

IN THE MATTER OF: Mr. Bhaaskaran Rangarajan .....Appellant Vs. M/s. Info Drive Software Ltd. ......Respondent

Present : For Appellant: Mr. Jayant Mehta, Ms. Sanjana Saddy, Mr. Sanyat Lodha, Advocates For Respondents: None

26.08.2019 - This appeal has been preferred by 'Mr. Bhaaskaran

Rangarajan' ('Operational Creditor') against order dated 14th March, 2019

passed by the Adjudicating Authority ('National Company Law Tribunal')

Divisional Bench, Chennai rejecting the application u/s 9 of the Insolvency

& Bankruptcy Code, 2016 ('I&B' Code, for short).

2. The claim of the Appellant is that the Appellant was engaged for

consultancy services and Respondent defaulted in paying Rs. 50 lacs against

the service provided by the Appellant ('Operational Creditor') to 'M/s. Info

Drive Software Ltd.' ('Corporate Debtor'). The Adjudicating Authority noticed

that the Appellant raised invoices on 19th August, 2018 for Rs. 50 lacs

Company Appeal (AT) (Insolvency)No. 493 of 2019 against the 'Corporate Debtor' observed that the Appellant has not

mentioned TDS deduction therein thereafter the Adjudicating Authority had

some observation as mentioned in para 8 of the impugned order dated 14th

March, 2019 as recorded below.

"8. On perusal of these documents

and references made by this Creditor

counsel, it is clear that the documents this

counsel referring to are not compatible to

each other, offer letter dated 26.11.2014,

MoU in the year 2018, no sooner raised

invoices, section 8 notice, then section 9

petition before this Bench. As to the letter

dated 26.11.2014, even if it is assumed as

a Letter of Engagement, since it is the

service to the provided to the Department of

Corporation, Government of Tamil Nadu, it

could not be blindly assumed as

Government would remain silent for more

than three years until this Operational

Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 2 Creditor engaged somebody to provide

such services basing on MoU dated

22.01.2018 alleged to have been entered

into with the Debtor. And for there being no

definite agreement between these parties,

we are unable to believe that this case is

made out u/s 9 of the Code. This kind of

circuitous approach for proving a case is not

contemplated under the Code."

From the aforesaid position, we find that merely on the basis of

presumption and in the absence of definite agreement, the application u/s 9

was not entertained.

The Hon'ble Supreme Court in "Innoventive Industries Ltd. Vs. ICICI Bank

(2018) 1 SCC 407]" while dealing with section 7 and 9 of the 'I&B' Code observed

as follows:-

"27. The scheme of the Code is to ensure that

when a default takes place, in the sense that a debt

becomes due and is not paid, the insolvency

resolution process begins. Default is defined in

Section 3(12) in very wide terms as meaning non-

Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 3 payment of a debt once it becomes due and

payable, which includes non-payment of even part

thereof or an instalment amount. For the meaning

of "debt", we have to go to Section 3(11), which in

turn tells us that a debt means a liability of

obligation in respect of a "claim" and for the

meaning of "claim", we have to go back to Section

3(6) which defines "claim" to mean a right to

payment even if it is disputed. The Code gets

triggered the moment default is of rupees one lakh

or more (Section 4). The corporate insolvency

resolution process may be triggered by the

corporate debtor itself or a financial creditor or

operational creditor. A distinction is made by the

Code between debts owed to financial creditors

and operational creditors. A financial creditor has

been defined under Section 5(7) as a person to

whom a financial debt is owed and a financial debt

is defined in Section 5(8) to mean a debt which is

disbursed against consideration for the time value

of money. As opposed to this, an operational

creditor means a person to whom an operational

debt is owed and an operational debt under Section

Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 4 5(21) means a claim in respect of provision of goods

or services.

28. When it comes to a financial creditor triggering

the process, Section 7 becomes relevant. Under the

explanation to Section 7(1), a default is in respect of a

financial debt owed to any financial creditor of the

corporate debtor- it need not be a debt owed to the

applicant financial creditor. Under Section 7(2), an

application is to be made under sub-section (1) in such

form and manner as is prescribed, which takes us to

the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016. Under Rule 4,

the application is made by a financial creditor in Form

1 accompanied by documents and records required

therein. Form 1 is a detailed form in 5 parts, which

requires particulars of the applicant in Part I,

particulars of the corporate debtor in Part II,

particulars of the proposed interim resolution

professional in part III, particulars of the financial

debt in part IV and documents, records and evidence

of default in part V. Under Rule 4(3), the applicant is

to dispatch a copy of the application filed with the

adjudicating authority by registered post or speed Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 5 post to the registered office of the corporate debtor.

The speed, within which the adjudicating authority is

to ascertain the existence of a default from the records

of the information utility or on the basis of evidence

furnished by the financial creditor, is important. This

it must do within 14 days of the receipt of the

application. It is at the stage of Section 7(5), where the

adjudicating authority is to be satisfied that a default

has occurred, that the corporate debtor is entitled to

point out that a default has not occurred in the sense

that the "debt", which may also include a disputed

claim, is not due. A debt may not be due if it is not

payable in law or in fact. The moment the

adjudicating authority is satisfied that a default has

occurred, the application must be admitted unless it

is incomplete, in which case it may give notice to the

applicant to rectify the defect within 7 days of receipt

of a notice from the adjudicating authority. Under sub-

section (7), the adjudicating authority shall then

communicate the order passed to the financial

creditor and corporate debtor within 7 days of

admission or rejection of such application, as the case

may be.

Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 6 "29. The scheme of Section 7 stands in contrast

with the scheme under Section 8 where an

operational creditor is, on the occurrence of a

default, to first deliver a demand notice of the

unpaid debt to the operational debtor in the manner

provided in Section 8(1) of the Code. Under Section

8(2), the corporate debtor can, within a period of 10

days of receipt of the demand notice or copy of the

invoice mentioned of a dispute or the record of the

pendency of a suit or arbitration proceedings,

which is pre-existing- i.e. before such notice or

invoice was received by the corporate debtor. The

moment there is existence of such a dispute, the

operational creditor gets out of the clutches of the

Code.

30. On the other hand, as we have seen, in the

case of a corporate debtor who commits a default

of a financial debt, the adjudicating authority has

merely to see the records of the information utility

or other evidence produced by the financial creditor

to satisfy itself that a default has occurred. It is of

no matter that the debt is disputed so long as the

debt is "due" i.e. payable unless interdicted by Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 7 some law or has not yet become due in the sense

that it is payable at some future date. It is only

when this is proved to the satisfaction of the

adjudicating authority that the adjudicating

authority may reject an application and not

otherwise."

From the aforesaid decision, it is clear that it is not necessary that there

should be an agreement between the parties and there being invoices, a person

can claim on the basis of such invoices as Form- 5 which is an application, u/s

9 empowers the claimant 'Operational Creditor' to file any evidence of debt and

default.

In the Form - 5 filed by the Appellant in part-IV clause 6 Appellants relied

on 8 documents to show how operational debt became due and in clause (8) the

Appellant has given details of the records - 11 enclosures to show existence of

debt and record shows default. The Adjudicating Authority has failed to consider

the same though even when 'Corporate Debtor' has claim when notice u/s 8(1)

was issued.

Inspite of service of notice, the 'Corporate Debtor' has not appeared nor

disputed the aforesaid facts and records, in Appeal.

Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 8 Learned counsel for the Appellant has brought to our notice that the

'Corporate Debtor' on the other hand accepted the amount and sought for some

time to pay the amount and failed to pay the amount.

In the facts and circumstances, it was not open to the Adjudicating

Authority to reject the application preferred by the Appellant u/s 9 of the 'I&B'

Code. We, accordingly set aside the impugned order and remit the case to the

Adjudicating Authority ('National Company Law Tribunal'), Divisional Bench,

Chennai and direct it to admit the application u/s 9 preferred by the Appellant

after notice to the Respondent (so as to enable the Respondent to pay the amount

before the order of admission).

The appeal is allowed with aforesaid observation. No costs.

[Justice S. J. Mukhopadhaya] Chairperson

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

[Kanthi Narahari] Member (Technical)

ss/gc

Company Appeal (AT) (Insolvency)No. 493 of 2019 admin 9