Embee Software Pvt. Ltd vs Solicon Pvt. Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeal (AT) Insolvency No. 780 of 2019 [Arising out of Order dated 11.06.2019 passed by the Adjudicating Authority (National Company Law Tribunal) New Delhi, Court No. IV in Company Petition No. IB-1209/ND/2018]

IN THE MATTER OF: M/s Embee Software Pvt. Ltd. .....Appellant Vs. M/s Solicon Pvt. Ltd. ......Respondent

Present :

For Appellants: Mr. Lzafeer Ahmad, Advocate

For Respondent: Mr. Anshuman Bahadur, Advocate for Mr. Sahil Mullick, Advocates.

J U D G M E N T

VENUGOPAL M. J.

Heard the Learned Counsel for the Appellant / Applicant and the Learned

Counsel for the Respondent.

2. According to the Appellant / Applicant, the instant Company Appeal (AT)

Insolvency No. 780 of 2019 has been filed with a delay of 15 days beyond the period

as enunciated u/s 61(2) of the Insolvency & Bankruptcy Code, 2016. It is the

specific plea of the Appellant that the impugned order was pronounced by the

Adjudicating Authority ('National Company Law Tribunal'), New Delhi, Court No. IV 1 Company Appeal (AT) Insolvency No. 780 of 2019 on 11th June, 2019 in Company Petition No. (IB)-1209(ND)/2018 and the copy of the

said order was uploaded only on 15th June, 2019, which was immediately

communicated by the Learned Counsel for the Appellant to the Appellant's office and

its officials.

3. After detailed deliberations, the Appellant's officials sought legal advice on

available remedies and later the Appellant had applied for certified copy of the

impugned order on 17th June, 2019, which was prepared on 25th June, 2019. Due

to the intervention of summer vacation and on account of bereavement in the family

of the Learned counsel for the Appellant, the copy of the impugned order was

collected in July, 2019. In this process, the delay in preferring the present Appeal

has occurred, which is neither an intentional nor a wilful one. The Applicant /

Appellant has prayed for the condonation of delay of 15 days in preferring the present

appeal.

4. Taking into consideration the fact that the Applicant / Appellant has come out

with the reasons in the Interlocutory Application that due to intervention of summer

vacation and bereavement in the family of its Learned Counsel that the copy of the

impugned order was collected in July, 2019 and after indulging in internal

deliberations it took some time to approach this Tribunal, after the prescribed period

of 30 days u/s 61(2) of the 'I&B' Code for filing of an Appeal had lapsed and that

apart the present Appeal having been filed within the period of 15 days as prescribed

under the Proviso to Section 61(2) of 'I&B Code'; this Appellate Tribunal by taking a

lenient, liberal, meaningful and purposeful view and also after being successfully 2 Company Appeal (AT) Insolvency No. 780 of 2019 satisfied with the reasons ascribed for the delay in question, allows the Interlocutory

Application without costs, in furtherance of substantial cause of justice.

5. The Appellant / 'Operational Creditor'/ Applicant has focussed the present

Company Appeal (AT) Insolvency No. 780 of 2019 as an 'affected' person in respect

of the impugned order dated 11th June, 2019 passed by the Adjudicating Authority

('National Company Law Tribunal') New Delhi, Court No. IV in dismissing the

application filed u/s 9 of the 'I&B' Code read with Rule 6 of 'I&B' Code (application

to Adjudicating Authority Rules, 2016).

6. The Adjudicating Authority by means of the Impugned order dated 11th June,

2019 at para 21 and 22 had observed as under: -

"21 Nowhere in the application any document

has been produced to support that the alleged

Purchase Order has been executed between the

Operational Creditor and the Corporate Debtor.

The Corporate Debtor has placed various

correspondences regarding the liability of SRS

Group of Companies as per the terms of

Commercial Proposal, Agreements and Purchase

Orders on record. The claim made by the

applicant is untenable without any supportive

evidence reflecting the liability of the Corporate

3 Company Appeal (AT) Insolvency No. 780 of 2019 Debtor as per the terms of alleged Purchase

Order.

22. Further the Hon'ble Supreme of India in

Mobilox Innovations Private vs. Kirusa

Software Private Limited has observed that-

"The adjudicating authority, when

examining an application under Section 9 of the

Act will have to determine:

(i) Whether there is an "operational

debt" as defined exceeding Rs. 1

lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence

furnished with the application

shows that the aforesaid debt is due

and payable and has not yet been

paid? And

(iii) Whether there is existence of a

dispute between the parties or the

record of the pendency of a suit or

arbitration proceeding filed before

the receipt of the demand notice of

4 Company Appeal (AT) Insolvency No. 780 of 2019 the unpaid operational debt in

relation to such dispute?

If any one of the aforesaid conditions is

lacking, the application would have to be

rejected.

Apart from the above, the adjudicating

authority must follow the mandate of

Section 9, as outlined above, and in

particular the mandate of Section 9(5) of

the Act, and admit or reject the application,

as the case may be, depending upon the

factors mentioned in Section 9(5) of the

Act."

As per the reply filed by the Corporate

Debtor, it can be inferred and concluded that

there is no establishment of 'Operational debt'

against the Corporate Debtor and the same is

disputed by the Corporate Debtor and falls well

within the definition of 'Dispute' as per Section

5(6) which is reproduced below:

5 Company Appeal (AT) Insolvency No. 780 of 2019 "Dispute" includes a suit or arbitration

proceedings relating to - (a) the existence

of the amount of debt; (b) the quality of

goods or service; or (c) the breach of a

representation or warranty."

and ultimately came to the conclusion that there was no establishment of

'Operational Debt' against the 'Corporate Debtor' which comes within the definition

of 'Dispute' as per Section 5(6) of 'I&B' Code and dismissed the application.

7. The Learned Counsel for the Appellant submits that the Appellant being an

authorised re-seller of Microsoft (India) Pvt. Ltd. for supply of Microsoft Licenced

programme had submitted a proposal to the Respondent on 23.12.2015 in regard

to the "Microsoft Licenced Programme" and that on 30.12.2015, a 'Purchase Order'

was sent by the Respondent through e-mail to the Appellant.

8. The Learned Counsel for the Appellant brings to the notice of this Appellate

Tribunal that the Purchase Order was issued by one 'SRS Real Infrastructure Ltd.'

to the Appellant, appointing the Respondent as party on whom invoices would be

raised by the Appellant. Also, it is represented on behalf of the Appellant that on

30.12.2015 the Microsoft licences were activated and a three year 'Microsoft

Enterprise Agreement' was executed on 01.01.2016.

9. The Learned Counsel for the Appellant proceeds to point out that as per the

terms of agreement and understanding among the parties, the Appellant would

6 Company Appeal (AT) Insolvency No. 780 of 2019 supply Microsoft licenced programmes on a three-year licence to SRS Group of

Companies and that the invoice would be raised on an 'Annual Basis' on the

Respondent, by the Appellant and in fact the Respondent was required to make

payments to the Appellant within the period specified in the invoice. Therefore, the

plea is taken on behalf of the Appellant that the Respondent by its conduct had

accepted its Liability to make payment by virtue of having invoices issued in its

name and making payments in regard to the service provided by the Appellant 'SRS

Group'.

10. The Learned Counsel for the Appellant contends that from the year 2016-

2018 the Appellant had supplied Microsoft programmes to SRS Group of

Companies and raised invoices on the Respondent based on the agreement,

understanding instructions of the Respondent and the details of the same are as

under:-

S.No. Date Invoice No. Total Amount (in Rupees)

1. 21.01.2016 DS11516-60647 4003866.00

2. 19.01.2017 DS11617-60790 4020619.00

3. 17.01.2018 DGS11718-60464 3953609.00

In reality, the said invoices were acknowledged and accepted by the Respondent

without any protest, dissent or demur.

7 Company Appeal (AT) Insolvency No. 780 of 2019

11. The Learned Counsel for the Appellant submits that the Respondent made

payments including the delay interest towards the Appellant's Invoice Nos.

DS11516-60647 dated 21.01.2016 and DS11617-60790 dated 19.01.2017

respectively without any protest. However, the Appellant in the year 2018 had

supplied the Microsoft License Programme which was accepted by the end-

customer. Moreover, the Appellant raised the Invoice No. DGS11718-60464 dated

17.01.2018 for a sum of Rs. 39,53,609/- on the Respondent which received,

acknowledged and accepted without any protest and the said invoices was raised

after confirmation of GSTIN No. by the Respondent through e-mail dated

11.01.2018.

12. The grievance of the Appellant is that the Respondent was required to make

50% of the advance payment and the balance 50% was to be paid within 30 days

neither of which paid so far (had not paid the same). Apart from that, the

Respondent had stopped payments for the reasons best known to it and resultantly

a sum of Rs. 39,53,609/- remained unpaid as per invoice dated 17.01.2018.

13. The Learned Counsel for the Appellant emphatically contends that the

Respondent and the Appellant had spoken telephonically in regard to payment

schedule on 12.02.2018 and that the Respondent had exchanged the existence of

'Debt' and its inability to provide a time line for payment as per e-mail dated

23.03.2018. Further, the aforesaid e.mail clearly showed the 'admission' liability

of the Respondent to make payments to the Appellant and the Respondent had

8 Company Appeal (AT) Insolvency No. 780 of 2019 delayed the payment for no good reason, notwithstanding the fact, that the

Appellant had made a request in this regard.

14. The Learned Counsel for the Appellant submits that the Respondent

intentionally began to avoid the calls and also not responded to the e-mails of the

Appellant, which resulted in the Appellant to issue a Demand Notice dated

08.05.2018 as per Form 3 of IBC Regulations, on the Respondent, claiming an

outstanding sum of Rs. 39,53,609/- together with interest @ 24% per annum. The

Respondent through its Learned Counsel sent a Reply dated 17.05.2018 to the

Appellant and in the said Reply the existence or the sum of unpaid 'Operational

Debt' was not disputed.

15. The Learned Counsel for the Appellant puts forth an argument that on an

erroneous view of the matter, the Learned Adjudicating Authority ('National

Company Law Tribunal') New Delhi Court No. IV had dismissed the application

filed by the Appellant / Applicant on the basis that there was no supportive

evidence reflecting the liability of the Respondent and that there was no

'Operational Debt', which needs to be set aside in the interest of justice.

16. It is the submission of the Learned Counsel for Respondent that the

Respondent is a 'Disclosed Agent' on behalf of the 'SRS Group of Companies', which

fact was well within the Appellant's knowledge and that there exists a Principal -

Agent relationship between the Respondent and SRS as per Section 230 of the

Indian Contract Act, 1872.

9 Company Appeal (AT) Insolvency No. 780 of 2019

17. The Learned Counsel for the Respondent takes a stand that there was a

'Tripartite Agreement' between Microsoft Corporation (India) Pvt. Ltd. as the

Service Provider, the Appellant as the re-seller of Microsoft Corporation (India) Pvt.

Ltd. and SRS group of Companies as their customer and in short, the Respondent

was only a 'Collecting Agent' on behalf of SRS Group of Companies and there was

no agreement between the Respondent and the Appellant.

18. The Learned Counsel for the Respondent points out that an 'Agreement' in

the nature of Purchase Order was raised by SRS to the Appellant and the

Respondent was neither a 'Beneficiary' nor the 'Recipient' of any service from the

Appellant.

19. The Learned Counsel for Respondent refers to Clause 4 and 6 of the Purchase

Order dated 30.12.2015 which runs as under:-

"(4) Payment Terms: 16 Lac advance along with

Purchase Order in favour of M/s Solicon Pvt. Ltd.

and rest within 30 days from the date of PO.

Payment to be made by Solicon to Embee Software

Pvt. Ltd. Embee Software Pvt. Ltd. to bill to Solicon

Pvt. Ltd."

(6) Delivery At : IT Office, SRS Tower, Faridabad"

20. Added further, it is the contention of the Learned Counsel for the

Respondent that the arrangement in view of the aforesaid Purchase Order dated 10 Company Appeal (AT) Insolvency No. 780 of 2019 30.12.2015 was valid only for a period of one year i.e. 2016 and no Purchase

Order was ever delivered or provided to the Respondent by the Appellant. Viewed

in this perspective, the Respondent pleads that it cannot be held liable to pay any

amount.

21. The Learned Counsel for the Respondent contends that the Respondent

through the e-mail dated 23.03.2018 had intimated to the Appellant that the

payments were not received from the customer SRS and that the initiation of

dispute relates back to the year August, 2016 and hence, it was unable to forward

the payment to the Appellant.

22. The Learned Counsel for the Respondent comes out with a legal plea that

the Appellant's claim does not fall within the ambit of the definition of

'Operational Debt' u/s 5(21) of the 'I&B' Code, 2016 as the same is neither against

any goods purchased by the 'Corporate Debtor' nor is against any service availed

by the 'Corporate Debtor'. Besides this, the 'Purchase order' relied upon by the

Appellant was not addressed in favour of the Respondent.

23. The Learned Counsel for the Respondent submits that in the application,

the Appellant / Applicant had not shown SRS as a proper and necessary party

with a view to prove the nexus of 'Debt' payable, if any.

24. The Learned Counsel for the Respondent contends that in the application

filed by the Appellant before the Adjudicating Authority no evidence was produced

11 Company Appeal (AT) Insolvency No. 780 of 2019 to support that the purported Purchase Order had created any liability on the

part of Respondent / 'Corporate Debtor in the payment of any dues.

25. By way of Reply, the Learned Counsel for the Appellant submits that the

'alleged principal' is merely a licencee of the software programme and that all

the liability and obligation to make payments was assumed by the 'Corporate

Debtor' which is evidenced by the fact that the proposal was submitted to the

Respondent / 'Corporate Debtor' and that the invoices were raised only on the

'Corporate Debtor'. Furthermore, in the e-mail dated 23.03.2018 addressed by

the Respondent / 'Corporate Debtor' to the 'Operational Creditor', the Respondent

refers to the alleged 'principal' as its customer. Also in terms of liability to make

payment in an agreement for the benefit of third party does not establish a

Principal-Agent relationship.

26. The Appellant had issued a Demand Notice dated 08.05.2018 to the

Respondent demanding a payment of the unpaid 'Operational Debt' from the

Respondent and that a total amount of Rs. 42,00,574 was claimed as on

07.05.2018 (principal amount) Rs, 39,53,609.00 and interest sum of Rs.

2,46,965.16/-. The Respondent had sent a reply to the Appellant on 17.05.2018

through its advocate stating that there was no commercial or business

relationship between the Appellant and itself. Further in the said reply it was

stated that the Respondent was not a 'Beneficiary' nor a 'Recipient' of any service

from the Appellant that the Respondent was only a 'Collecting Agent' acting as an

Agent for SRS, to receive payments from SRS and disburse the same. 12 Company Appeal (AT) Insolvency No. 780 of 2019

27. It is to be pointed out that a mere glance of the Reply notice dated

17.05.2018 makes it placidly clear that the Respondent had in a crystalline

fashion stated in the e-mail dated 23.03.2018 that payment had not come from

its customer i.e. SRS nor SRS was reachable.

28. The Respondent in its Reply notice dated 17.05.2018 addressed to the

Appellant had also stated that the arrangement between the Appellant and

Respondent was valid only for a period of one year as the Purchase Order was

only for the 1st year and more importantly, there was no Purchase Order after

the said year was ever delivered, provided or given to it by SRS.

29. It is also the stand of the Respondent in the reply notice dated 17.05.2018

that the notice on the Company in Form-4 cannot be said to be a Demand Notice

u/s 8(1) of the 'I&B' Code.

30. As seen from the invoice dated 17.01.2018 of the Appellant addressed to

the Respondent a sum of Rs. 39,53,609/- was the amount that remained unpaid

according to the Appellant. The Respondent had sent an e-mail addressed to the

Appellant wherein the GSTIN Number was mentioned. It is represented on behalf

of the Appellant that the e-mail correspondence dated 8.8.2016 and 5.9.2016 are

not related to the Appellant.

31. It is to be borne in mind that Section 5(20) of 'I&B' Code defined

'Operational Creditor' means a person to whom the 'Operational Debt' is owed

and includes any person to whom such debt has been legally assigned or

13 Company Appeal (AT) Insolvency No. 780 of 2019 transferred. Section 5(21) of the 'I&B' Code speaks of 'Operational Debt', meaning

a claim in respect of the provision or goods or service including employment or

debt in respect of payment or dues assigning in law for the time being in force

and payable to the Central Government, in State Government or in Local

Authority. Section 5, 6 of the 'I&B' Code defines that dispute which includes a

suit or arbitration proceedings relating to (a) the existence of amount of debt (b)

the quality of goods or services or (c) the breach of a representation or warranty.

32. As far as the present case is concerned, the Respondent through e-mail

dated 23.03.2018 had intimated the Appellant / 'Operational Creditor' that the

payments were not received and that the same could not be received from SRS in

as much as the customer 'was not reachable and in bad shape' and that they had

not received any payment from the customer till date. When the Respondent had

disputed the debt and the same being not payable by it, because of the reason

that the Purchase Order and commercial proposal was executed between the

'Operational Creditor' being a reseller of Microsoft programme and SRS group of

companies and further as a collecting Agent, the Respondent in the considered

opinion of this Tribunal cannot be held liable for the outstanding amount.

Continuing further, the SRS before the Learned Adjudicating Authority in the

application filed by the Appellant was not arrayed as one of the parties to prove

the establishment of debt payable by the Respondent.

33. In the present case, the claim of the Appellant as an 'Operational Creditor'

does not fit within the purview of the definition of the term of 'Operational Debt' 14 Company Appeal (AT) Insolvency No. 780 of 2019 u/s 5(21) of the 'I&B' Code on account of the fact that it was neither against any

goods purchased by the Respondent nor against any services availed by it. In the

absence of any material to fasten the liability on the Respondent by virtue of the

terms of the Purchase Order, which was not addressed to the Respondent the

Appellant / Applicant cannot be characterised as an 'Operational Creditor' as per

definition of Section 5(20) of the 'I& B Code.

34. It cannot be forgotten that the proceedings under the 'I&B' Code are not an

adversary litigation and that the Adjudicating Authority is not required to

determine the claim of an Applicant like a money claim in a civil suit. In fact,

the initiation of 'Corporate Insolvency Resolution Process' u/s 7 or 9 is not akin

to recovery proceedings. In deciding whether to admit or rejects the application

either u/s 7 or 9 of the 'I&B' Code, the Adjudicating Authority is not to take into

account the reasons for the Corporate Debtor's default. Moreover, the Code

cannot be pressed into service as a substitute for debt enforcement procedure.

35. In the foregoing detailed discussions and also this Tribunal taking into

account the vital fact that the Respondent in its Reply notice dated 17.05.2018

had disputed the claim of the Appellant and its liability to pay etc. by raising

serious bonafide factual pre-existing disputes, which requires an in depth

examination / investigation and the said disputes which cannot be gone into

any summary proceedings under the 'I&B' Code, it is held by this Tribunal that

the application filed by the Appellant as an Applicant before the Learned

Adjudicating Authority is not maintainable in the eye of law. Consequently, the 15 Company Appeal (AT) Insolvency No. 780 of 2019 appeals fail and the same is dismissed without costs. Before parting with the

case, it is made clear that dismissal of application filed by the Appellant before

the Adjudicating Authority will not preclude it to seek appropriate remedy before

the Competent Forum for redressal of grievance of course, in accordance with law

and in the manner known to law if it so desires/so advised.

[Justice Venugopal M.] Member (Judicial)

[Kanthi Narahari] Member (Technical)

[V.P. Singh] Member (Technical)

New Delhi

20th December, 2019

ss

16 Company Appeal (AT) Insolvency No. 780 of 2019