Bharat Pipe Fitting Co. Ltd vs Prowess International Private Limited

[Arising out of order dated 13.06.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Kolkata Bench in CP(IB) No.1337/KB/2019]

IN THE MATTER OF:

Bharat Pipe Fitting Company 40, Strand Road, 3rd Floor, Room No.15/5, Kolkata - 700 001 ...Appellant

Versus

Prowess International Private Limited A-18, Phase-VI, Industrial Area, Adityapur, Jamshedpur - 832108 ...Respondent

Present:

Appellant: Mr. Abhijeet Sinha, Ms. Neha Tandon, Mr. Aditya Shukla, Advocates.

For Respondent: Mr. A.K. Shrivastava and Mr. Akash Sharma, Advocates.

Company Appeal (AT) (Ins.) No. 1070 of 2022 1 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

13.06.2022 (hereinafter referred to as "Impugned Order") passed by the

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

CP(IB) No.1337/KB/2019. By the impugned order, the Adjudicating

Authority rejected the Section 9 application filed by Bharat Pipe Fitting

Company-Operational Creditor/present Appellant seeking initiation of

Corporate Insolvency Resolution Process ("CIRP" in short) against Prowess

International Private Limited, Corporate Debtor/present Respondent and held

that the resolution plan of the Corporate Debtor having already been approved

and the claims of the Operational Creditor not being part of the resolution

plan, the right of the Operational Creditor in respect of their claims stood

extinguished. Aggrieved by the impugned order, the present appeal has been

filed by the Operational Creditor.

2. Briefly coming to the factual matrix of the case, it is noticed that the

Operational Creditor had supplied goods to the Corporate Debtor pursuant to

purchase orders issued between 23.07.2013 and 10.10.2015. The materials

having been delivered, tax invoice and challans were raised on the Corporate

Debtor. Though payments were made from time to time, the Corporate Debtor

defaulted in this regard and according to the Operational Creditor the alleged

date of default was 24.07.2013 following which several reminders for making

payments were issued by the Operational Creditor with the last one being

Company Appeal (AT) (Ins.) No. 1070 of 2022 2 issued on 14.06.2019. Since the reminder emails remained unresponded and

payments were not forthcoming, a Section 8 demand notice was issued on

06.07.2019 which also was not replied to. On the basis of balance

confirmation, after due reconciliation of accounts, purportedly issued by the

Corporate Debtor to the Operational Creditor, the Operational Creditor filed a

Section 9 application and claimed an outstanding amount of Rs. 59.32 lakhs

including an interest amount of Rs. 30.68 lakhs. In the meantime, prior to

filing the present Section 9 application, CIRP was initiated against the present

Corporate Debtor on 20.04.2017. Subsequently, a resolution plan was also

approved by the Adjudicating Authority and CIRP was completed on

17.10.2017 vide orders issued in CP No. 150/IB/KB/2017. As the

Appellant/Operational Creditor had not filed any claim with the Resolution

Professional after the Corporate Debtor was admitted into CIRP and has now

filed the Section 9 petition only after the approval of the resolution plan, the

Adjudicating Authority held that the right of the Operational Creditor to seek

remedy under Section 9 of the IBC stood extinguished and rejected their

application leading to this appeal.

3. It is submitted by the Learned Counsel for the Appellant that the

Corporate Debtor having received goods from the Operational Creditor which

had been accepted without any demur cannot evade payment. The date of

default in making payments by the Corporate Debtor with regard to goods

received was 24.07.2013 but this date fell within the limitation period since

the Corporate Debtor had issued several balance confirmations of the

defaulted amount as due and payable by them to the Corporate Debtor. These

balance confirmations were issued from time to time and finally on

01.04.2018. It is the claim of the Operational Creditor that since the

Company Appeal (AT) (Ins.) No. 1070 of 2022 3 Corporate Debtor issued confirmation of accounts time and again

acknowledging liability in respect of the operational debt, this has the effect

of a continuous admission of liability. Moreover, these balance confirmations

having not been disputed by the Corporate Debtor, the question of limitation

does not arise. Furthermore, the Operational Creditor had reminded the

Corporate Debtor by sending emails regarding outstanding debt. Since the

Corporate Debtor refused to issue any balance confirmation in favour of the

Operational Creditor after 21.02.2019 and also failed to make any payments,

the Appellant/Operational Creditor was compelled to institute Section 9

proceedings before the Adjudicating Authority.

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

the Operational Creditor was entitled for admission of the Section 9 petition

since their claims in respect of the invoices raised were an undisputed claim

and there was clear default by the Corporate Debtor. Further keeping in view

that supply of goods was admitted and operational debt acknowledged by

issuance of Balance Confirmation Statements the debt was established and

default having occurred, it was a fit case for admission of Section 9

application. Given this backdrop, the decision of the Adjudicating Authority

dated 17.10.2017 in CP No. 150/IB/KB/2017 approving the resolution plan

without settling the dues of the Appellant, being one of the Operational

Creditors, it was contended that the Corporate Debtor cannot start on a clean

slate. Under such circumstances, the present impugned order by holding that

the claims as provided in the resolution plan stood frozen and that claims

which are not part of the resolution plan stands extinguished does not hold

to reason. It was contended that the resolution plan was not approved in

conformity with Sections 30 and 31 of the IBC.

Company Appeal (AT) (Ins.) No. 1070 of 2022 4

5. Making rival submissions, it has been contended by the Learned

Counsel for the Respondent that the Corporate Debtor did not have any debt

outstanding qua the Operational Creditor. It has been strongly refuted that

the Corporate Debtor had admitted any debt payable to the Operational

Creditor. It has been further stated that the balance confirmation purportedly

submitted by the Corporate Debtor is a forged document. It has thus been

denied by the Corporate Debtor that any balance confirmation was issued by

them to the Operational Creditor after reconciliation of accounts. Post-

reconciliation of accounts, the Corporate Debtor was not required to make

any payments to the Operational Creditor and this has been correctly

adjudicated by the Adjudicating Authority. Since the claims of the Operational

Creditor had already been settled, there arose no default on the part of the

Corporate Debtor. Further, the claim made by the Operational Creditor in the

demand notice of 08.07.2019 pertain to the period 2013 to 2015 which was

prior to the period of CIRP. Since these outstanding amounts pertained to

period prior to CIRP, the same cannot be entertained at this stage as the said

claims are barred by limitation.

6. Since the Corporate Debtor has started on a clean slate on the basis of

a resolution plan duly approved and dues of all creditors as per list finalized

by the Resolution Professional and approved by the CoC having been settled,

the claim of the present Appellant/Operational Creditor has no merit and

hence the rejection of their claims by the Adjudicating Authority is well

reasoned.

7. We have duly considered the arguments advanced by the Learned

Counsel for the parties and perused the records carefully.

Company Appeal (AT) (Ins.) No. 1070 of 2022 5

8. The moot question before us is whether in the facts of the present case

where the Appellant as Operational Creditor not having filed their claims

before the Resolution Professional and the resolution plan having already

been approved and CIRP having terminated, claims which did not constitute

part of the resolution plan stood extinguished and, if so, whether the

Appellant can file a Section 9 application at this stage in respect of such

extinguished claims.

9. The Learned Counsel for the Appellant has relied on the judgment of

the Hon'ble Supreme Court in Swiss Ribbons (P) Ltd. v. Union of India

(2019) 4 SCC 17 to contend that Appellant has a right of payment in respect

of operational debt particularly when the debt has been acknowledged vide

balance confirmations and goods had been received and acknowledged

through the issuance of C-Forms. It is their case that these balance

confirmations were issued from time to time and finally on 01.04.2018. The

Appellant has also submitted that the subsequent balance confirmations for

FY 2016-17, 2017-18 and 2018-19 have been placed on page 178-180 of the

Appeal Paper Book ("APB" in short). We also notice that it is the case of the

Appellant that these balance confirmations have not been disputed by the

Corporate Debtor and hence do not attract the question of limitation. The first

time the balance confirmation was denied was only after the Operational

Creditor had filed the Section 9 application. Submission has also been

pressed that reminders for payments were sent by way of emails which have

been placed at pages 184-197 of the APB which emails have not been denied

by the Corporate Debtor either. It is further the case of the Operational

Creditor that the Corporate Debtor neither replied to the Section 8 demand

Company Appeal (AT) (Ins.) No. 1070 of 2022 6 notice nor made any payments in respect of the outstanding debt and hence

Section 9 application against the Corporate Debtor was justified.

10. The counter submissions pressed by the Respondent is that the

Appellant/Operational Creditor did not file any claim with the Resolution

Professional after the Corporate Debtor was admitted into CIRP on

20.04.2017. Placing reliance on the judgement of the Hon'ble Apex Court in

Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction

Company Ltd. (2021) 9 SCC 657 ("Ghanshyam" in short), the Learned

Counsel for the Respondent has asserted that all unpaid liabilities and claims

that are not filed with the Resolution Professional before the approval of the

resolution plan and those which are not included in the said resolution plan

would stand extinguished. Moreover, these debts having been claimed by the

Operational Creditor way back in 24.07.2013 makes the debt barred by

limitation. It is further contested that the three opening balances shown by

the Appellant to show continuing liability cannot be relied upon as these are

ex-facie forged documents. Both the stamp of the Corporate Debtor on the

balance confirmation statement and the signature thereon by one Mr. Sumit

Kumar on behalf of the Corporate Debtor are forged since no such person was

ever in the employment rolls of the Corporate Debtor. It was emphasized that

his name did not figure in the list of employees maintained by the resolution

applicant as part of the resolution plan which was submitted before the

Adjudicating Authority. It is also the claim of the Corporate Debtor that the

so-called emails sent by the Operational Creditor from 27.01.2018 to

14.06.2018 also cannot be relied upon since these were created with mala-

fide motives. These emails do not mention the fact that CIRP has already been

initiated against the Corporate Debtor on 20.04.2017. Moreover, the

Company Appeal (AT) (Ins.) No. 1070 of 2022 7 Corporate Debtor was not obliged to respond to any statutory notice once it

had started its operations on a clean slate after the Adjudicating Authority

had terminated the CIRP.

11. Before we dwell into the issue outlined for our consideration at para 8

above, it may be useful and constructive to see how the Adjudicating

Authority has dealt with the said matter. The relevant excerpts of the

impugned order are as reproduced below:

"25. The date of default mentioned by the Operational Creditor is 24 July 2013, and the instant petition was filed on 09 August 2019. It is to be noted that the Corporate Debtor had was admitted into CIRP vide order dated 20 April 2017 in Company Petition 150/2017. Subsequently, a resolution plan also been approved by this Adjudicating Authority vide order dated 17 October 2017. The Operational creditor had not filed any claim with the Resolution Professional after the Corporate Debtor was admitted into CIRP and has filed the instant petition after the approval of the resolution plan. The same indicates gross negligence on part of the Operational Creditor.

26. The Hon'ble National Company Law Appellate Tribunal, in the matter of Sanjay Chemicals (India) Private Limited vs. Sharon Bio-Medicine Limited', held that since the outstanding dues were prior to the period of initiation of 'Corporate Insolvency Resolution Process' and the creditor had not filed the claim at that stage, the application under Section 9 of the Code after completion of the 'Corporate Insolvency Resolution Process' against 'Corporate Debtor' was not maintainable [Para 3].

27. Further, the judgment of the Hon'ble Supreme Court in Ghanashyam Mishra & Sons Pvt Ltd v Edelweiss Asset Reconstruction Company Ltd. lays down that when the resolution

Company Appeal (AT) (Ins.) No. 1070 of 2022 8 plan is approved by the Adjudicating Authority, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor, and its employees, members, creditors, including the central and state government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims which are not a part of resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan. [Para 95]

28. In light of the said legal precedents, this Adjudicating Authority is satisfied that the right of the Operational Creditor to seek remedy under section 9 of the Code has been extinguished and as such, the instant petition being CP(IB) 1337/KB/2019 shall stand dismissed."

(Emphasis supplied)

12. The Operational Creditor has assailed the impugned order on the

ground that the essential ingredients required to be met in approving the

resolution plan particularly the feasibility or viability of the resolution plan

has not been examined by the Adjudicating Authority. It has been contended

that since the resolution plan was not approved in conformity with Sections

30 and 31 of the IBC, the principles enunciated in the decision of the Hon'ble

Supreme Court of India in the matter of Ghanshyam supra do not apply in

the present case. It is the contention of the Operational Creditor that the

Corporate Debtor having received goods from them which had been accepted

without any demur cannot evade payment by claiming that the balance

confirmation document is a forged document without prima facie evidence to

show that the document is a false creation and has relied on the judgment of

this Tribunal in Prayag Polytech Pvt. Ltd. v. I World Digital Solutions Pvt.

Ltd in CA(AT) (Ins.) 625/2019 ("Prayag" in short) that a document cannot

Company Appeal (AT) (Ins.) No. 1070 of 2022 9 be held as forged unless there is prima-facie evidence to that effect. It has also

been pointed out by the Learned Counsel for the Appellant by way of an

additional affidavit that the resolution plan provided that Operational

Creditors who have not claimed but claims are duly acknowledged by the

Corporate Debtor as debt in their books of accounts, the same would continue

to be paid. It was therefore asserted that the resolution plan clearly provided

that Operational Creditor whose dues have not been settled are required to be

settled notwithstanding the resolution of the Corporate Debtor. It has been

further stated that in the Balance Sheet of the Corporate Debtor as on

31.03.2017, in the column of "Trade Payables" an amount of Rs.

24,17,46,497/- were shown as due and payable by the Corporate Debtor. This

column clearly indicates that the Corporate Debtor had not paid all

operational creditors including the Appellant.

13. Countering these assertions, it is submitted by the Learned Counsel for

the Respondent that the contention of the Operational Creditor that some

Sumit Kumar had furnished the opening balance of the Corporate Debtor qua

the Appellant as on 01.04.2016, 01.4.2017 and 01.04.2018 is a false claim.

It was pointed out that his name did not figure in the list of employees

maintained by the resolution applicant as part of the resolution plan which

was submitted before the Adjudicating Authority. It has been argued that

acknowledgment of debt is the prerogative of the Board and/or has to be

approved by shareholders in the Annual General Meeting in terms of Section

291 of the Companies Act, 1956. In the present case the Operational Creditor

has failed to produce any document to show that there has been

acknowledgment of debt by a Director of a Corporate Debtor. In support of

their contention, reliance has been placed on the judgment of the Hon'ble

Company Appeal (AT) (Ins.) No. 1070 of 2022 10 Supreme Court in Asset Reconstruction Company (India) Ltd. v. Bishal

Jaiswal (2021) 6 SCC 366 to claim that Sumit Kumar did not have the locus

standi to acknowledge the debt of a company under the Companies Act.

14. Analyzing the facts of the present case in the light of the rival

contentions made by both parties, material on record and the orders of the

Adjudicating Authority dated 17.10.2017 and 13.06.2022, we notice that it is

an admitted fact that the Corporate Debtor was admitted into CIRP on

20.04.2017. It has not been controverted or challenged that the Resolution

Professional had prepared an updated list of assets and liabilities on the basis

of the claims of the creditors. The creditors who had sought their dues to be

cleared were paid and their accounts settled. Undisputedly, the Operational

Creditor did not file his claims before the Resolution Professional. The

resolution plan was approved by the Adjudicating Authority following which

CIRP was terminated on 17.10.2017. Moreover, the resolution applicant had

been handed over the books of accounts and computer system updated by

the Resolution Professional on 17.10.2017 and it is contended by the

Corporate Debtor that the name of the Operational Creditor/Appellant was

not figuring therein.

15. For reasons of clarity, it may be useful to glance through the orders of

the Adjudicating Authority dated 17.10.2017 which has not been challenged

by the Appellant which is to the effect:

"......The account with the Punjab National Bank is a standard account, and the Bank has not recalled its dues. Only two other claims from operational creditors (Parker Hannifin India Pvt. Ltd. And Poonam Enterprise) had been received, and both have been settled to the satisfaction of the claimants. No other claim from any other Operational Creditor had been accepted. As per the Regulations, a Company Appeal (AT) (Ins.) No. 1070 of 2022 11 creditor, who failed to submit proof of claim within the time stipulated in the public announcement, may submit such evidence to the interim resolution professional or the resolution professional, as the case may be, till the approval of a resolution plan by the committee........

......Therefore, it is clear that operational creditors' claim has been settled with the corporate debtor and financial creditor Punjab National Bank itself has certified that accounts of the corporate debtor are classified in their books of accounts as a standard asset. So, in this condition it is clear that no debt is outstanding as on today on the corporate debtor and Committee of Creditors with 100% own shares has made a recommendation for closing the Insolvency Proceedings.

Given the resolution passed by Committee of Creditors Resolution Plan submitted by the Resolution Professional deserves to be accepted....."

16. This order of 17.10.2017 clearly shows that the dues of all claims from

operational creditors had been settled by the time the CIRP was terminated.

Only two claims from the category of operational creditors (Parker Hannifin

India Pvt. Ltd. and Poonam Enterprise) had been received and both were

settled to the satisfaction of the claimants. No other claim from any other

Operational Creditor had been accepted. As per the Regulations, any creditor,

who had failed to submit proof of claim within the time stipulated in the public

announcement, was given opportunity to submit such evidence to the interim

resolution professional or the resolution professional, as the case may be, till

the approval of a resolution plan by the committee. This opportunity had

clearly not been availed by the Appellant to submit their claims.

17. The very fact that the Appellant had not formally lodged their claims

with the Resolution Professional before the approval of the resolution plan by

Company Appeal (AT) (Ins.) No. 1070 of 2022 12 the Committee of Creditors has rightly been held as gross negligence on the

part of the Operational creditor in the instant impugned order. There is no

data or document which evidence the existence of the Operational Creditor or

their dues prior to termination of the CIRP on 17.10.2017. Even if we accept

the contention of the Appellant that there was a "Trade Payables" column in

the balance sheet and it showed an amount of Rs 2417 lakhs as amount

payable for FY ending 31.03.2017, there is nothing which specifically

mentions about the Appellant being one of the Operational Creditors to whom

the trade payable was attributable. This brings us to the averment made by

the Appellant regarding acknowledgment of outstanding balance by one

Sumit Kumar on behalf of the Corporate Debtor and denial thereof by the

Corporate Debtor as being a false claim. We have no quarrel with the

proposition of law laid down in Prayag judgement supra of the need of prima-

facie evidence to establish fraudulent creation of a document which has been

referred to by the Appellant, we hold that both the Adjudicatory and the

Appellate Tribunals having been vested with summary jurisdiction, we desist

to enter the realm of finding out whether any fraud has been created in the

acknowledgment of debt in the balance-sheet by one Sumit Kumar. In sum,

we cannot subscribe to the contention of the Appellant that the claim of the

Appellant was reflected in the records of the Corporate Debtor.

18. Having come to the finding that the Appellant had not filed their claims

before the Resolution Professional before approval of the resolution plan by

the Adjudicating Authority and that there is no unambiguous proof that the

claim of the Appellant was reflected in the records of the Corporate Debtor we

now make a foray into the question whether the claims which did not

constitute part of the resolution plan stood extinguished and, if so, whether

Company Appeal (AT) (Ins.) No. 1070 of 2022 13 the Appellant can file a Section 9 application at this stage in respect of such

extinguished claims.

19. It is undisputed that the Corporate Debtor had started its operations

with a clean slate after settlement of dues with the creditors in terms of the

orders of the Adjudicating Authority dated 17.10.2017. It is also a well settled

legal precept that a resolution applicant cannot be expected to make a

provision in relation to any creditor who has failed to make a claim within the

stipulated time-line. It logically follows therefore that there is no legitimate

scope in the IBC framework for agitating or initiating any proceeding in

respect of a claim which was not part of the resolution plan or was not

preferred at the relevant time. We would like to refer to the judgement of the

Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Ltd

v Satish Kumar Gupta & Ors (2020) 8 SCC 534 where the clean slate

principle has been enunciated to obviate the possibility of a successful

resolution applicant being subjected suddenly to "undecided" claims. In yet

another recent judgement of the Hon'ble Supreme Court in RPS

Infrastructure Ltd v Mukul Kumar & Anr in CA No. 5590 of 2021, it has

been laid down that after approval of the plan by the CoC, the hydra-headed

monster of undecided claims cannot be unleashed on the resolution

applicant. Applying the above ratios, in the present case, when CIRP has been

terminated way back in 2017 and the Corporate Debtor is already in saddle

after following the due process, allowing a Section 9 application to proceed on

the basis of an extinguished claim which had not been preferred before the

Resolution Professional within the stipulated time cannot be countenanced.

The Operational Creditor has endeavoured to indirectly assail the approval of

Company Appeal (AT) (Ins.) No. 1070 of 2022 14 a resolution plan after more than 5 years by initiating a separate Section 9

proceeding which to our minds is legally not tenable.

20. We therefore are of the considered view that no error has been

committed by the Adjudicating Authority in rejecting the Section 9

application. In this view of the matter, we do not find any reason to interfere

with the impugned order. The Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 06.12.2023

PKM

Company Appeal (AT) (Ins.) No. 1070 of 2022 15