Hindustan Zinc Limited vs Mahindra Susten Pvt. Ltd

[Arising out of order dated 28.11.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench, Court-V in CP (IB) No. 81/9/JPR/2021]

IN THE MATTER OF:

Hindustan Zinc Limited Yashad Bhawan Swaroop Sagar, Udaipur Rajasthan 313 004. ...Appellant

Vs.

Mahindra Susten Pvt. Ltd. having its registered office at: Mahindra Towers Dr. GM Bhosale Marg P. K. Kume Chowk, Worli Mumbai - 400 018. ...Respondent

Present:

For Appellant: Mr. Krishnan Venugopal, Sr. Advocate with Mr. U. N. Tiwary, Mr. Akshat Tiwary, Advocates.

For Respondents: Mr. Paras Kuhad, Sr. Advocate with Mr. Jitin Chaturvedi, Mr. Rahul Sinha, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed challenging the order dated 28.11.2022 passed

by the Adjudicating Authority (National Company Law Tribunal), Jaipur

Bench on an application filed under Section 9 filed by the Respondent-

Cont'd.../ -2-

Mahindra Susten Pvt. Ltd. in C.P. No. (IB)-81/9/JPR/2021. The Adjudicating

Authority by the impugned order directed as follows:

"Heard Mr. Paras Kuhad, Sr. Adv. appearing on behalf of the Petitioner/ Operational Creditor and Mr. M.S. Singhvi, Sr. Adv. for the Respondent/ Corporate Debtor. This Order was reserved on 11.10.2022. Additional written submissions have been filed vide Diary No. 3437/2022 dated 23.11.2022 by the Respondent/Corporate Debtor before pronouncement of the Order.

Learned Senior Counsel appearing on behalf of the Respondent submits that on 14.11.2022, entire claim amount of Rs. 16,41,96,213.38/- Principal amount and applicable GST making a total amount of Rs. 18.68,55.290.82/-has been paid by the Respondent/ Corporate Debtor.

In view of the payment made, the present petition must be rejected under Section 9(5)(ii)(b) of IBC, 2016. Leamed Senior Counsel appearing on behalf of the Petitioner/ Operational Creditor submits that the entire amount has not been paid by the Respondent/ Corporate Debtor. Interest amount is also to be paid by the Respondent/ Corporate Debtor. A total Amount of Rs. 10,59,37,689/- is yet to be deposited by the Corporate Debtor. In view of the recent development in the matter, both parties are permitted to settle the matter amicably within one week."

2. The Appellant who was Respondent in the Section 9 application

impleaded as Corporate Debtor has come up in this Appeal challenging the

Company Appeal (AT) Insolvency No. 34 of 2023 -3-

order dated 28.11.2022. Brief facts of the case necessary to be noticed for

deciding this Appeal are:

i. The Respondent - Operational Creditor entered into an

agreement for supply and installation of Solar Photovoltaic Power

Generation System with the Appellant - Hindustan Zinc Ltd.

dated 30.04.2018. Supplier was to carry out work as per the

Contract. Schedule IV of the Contract dealt with Contract Price

and payment terms. As per Clause 4.2, the owner i.e. the

Appellant was to pay Anti-dumping Duty and Safeguard Duty, if

applicable.

ii. At the time of entering into contract Safeguard Duty was not

imposed. Vide Notification dated 30.07.2018, Safeguard Duty

was imposed for the period 30.07.2018 to 29.07.2020. Prior to

issuance of Notice dated 30.07.2018, the Operational Creditor

has already placed orders for Solar Modules required for the

project from China.

iii. The Corporate Debtor vide email dated 03.08.2018 sought to

terminate the contract on the ground that amount of Safeguard

Duty exceeded Rs.5 Crore.

iv. Challenge to Safeguard Duty was made before the Orissa High

Court. The Appellant also filed Writ Petition being DB CWP No.

12346/2018 before the Rajasthan High Court against levy of

Safeguard Duty. Order was passed by Orissa High Court, in

Company Appeal (AT) Insolvency No. 34 of 2023 -4-

pursuance of which, the Government of India issued an

instruction dated 13.08.2018 deciding not to insist for payment

of Safeguard Duty. The Instruction directed that the Safeguard

Duty be assessed provisionally on furnishing of simple letter of

undertaking/bond by the concerned person.

v. The Corporate Debtor issued a letter of undertaking dated

21.08.2018 in favour of Operational Creditor wherein Corporate

Debtor expressly undertook to forthwith pay the Operational

Creditor the amount of safeguard duty levied by the Customs

Authority. The Operational Creditor carried out the custom

clearance of Solar Modules imported from China through

provisional assessment.

vi. The order passed by the Orissa High Court was stayed by Hon'ble

Supreme Court vide its order dated 10.09.2018. In view of the

interim order passed by the Hon'ble Supreme Court, an

instruction was issued by Government of India dated 13.09.2018,

withdrawing earlier instruction dated 13.08.2018 with immediate

effect. As per Instruction dated 13.09.2018, all the provisional

assessments done were directed to be finalized by the Customs

Authority and safeguard duty be assessed and collected.

vii. The Operational Creditor issued Debit Note on Corporate Debtor

for an amount of Rs.18,86,68,519/- on 18.09.2018. The

Corporate Debtor did not made payment of Safeguard Duty.

Company Appeal (AT) Insolvency No. 34 of 2023 -5-

viii. The Customs Department issued notice dated 30.11.2018 to the

Operational Creditor for finalization of assessment and payment

of safeguard duty.

ix. The Operational Creditor issued a Demand Notice dated

06.11.2020 demanding total amount of debt of

Rs.18,86,68,519/-. The Corporate Debtor replied to the Demand

Notice denying its liability to pay the outstanding amount.

x. The Operational Creditor filed Section 9 application claiming an

amount of Rs.17,24,06,024/-. Section 9 application was filed on

16.07.2021. Parties were heard on issuance of notice by the

Adjudicating Authority on 10.11.2021. The Adjudicating

Authority, however, directed the Corporate Debtor to file its reply

by order dated 10.11.2021.

xi. On 07.09.2022, the Senior learned counsel for the Corporate

Debtor submitted that once assessment of safeguard duty is done

by the competent authority, the Appellant will make the payment

of the same within the stipulated period and matter was

adjourned to 11.10.2022.

xii. The Customs Department issued a final assessment of Safeguard

Duty on 04.10.2022 to the Operational Creditor demanding

Safeguard Duty + GST + Interest.

xiii. The Adjudicating Authority heard the parties and on 11.10.2022

reserved the orders. Additional written submission was filed on

Company Appeal (AT) Insolvency No. 34 of 2023 -6-

behalf of the Appellant where it was stated that on 14.11.2022,

M/s Hindustan Zinc Ltd. has paid the entire claim amount of

Rs.16, 41,96,213.38/- (principal amount) and further GST

amount of Rs.18,68,55,290.82/-. It was stated that payment has

been made under protest towards the principal amount based on

the invoice dated 28.10.2022 issued by the Operational Creditor

in favour of the Corporate Debtor.

xiv. On 28.11.2022, the Adjudicating Authority passed the order

noticing that default amount of Rs.18,68,55,290/- has been paid

by the Corporate Debtor. Adjudicating Authority also noticed the

submission of the Operational Creditor that interest amount has

also to be paid by the Corporate Debtor. The Adjudicating

Authority observed that in view of the recent development in the

matter, both parties are permitted to settle the matter amicably

within one week. The Appellant aggrieved by the said order has

come up in this Appeal.

3. We have heard Shri Krishnan Venugopal, learned senior counsel

for the Appellant and Shri Paras Kuhad, learned senior counsel appearing for

the Respondent - Operational Creditor.

4. Learned counsel for the Appellant submits that the Section 9

application was filed for Safeguard Duty reserving right to claim future

interest or penalties or delay charges. Entire Safeguard Duty having been

paid on 14.11.2022, the petition under Section 9 deserved to be rejected

Company Appeal (AT) Insolvency No. 34 of 2023 -7-

under Section 9(5)(ii)(b) of the I&B Code. The Adjudicating Authority

committed error in refusing to exercise its jurisdiction in rejecting the

application and have directed the parties to settle amicably between

themselves, which order is not in accordance with law. It is submitted that

the debt having been paid, the Adjudicating Authority had to reject the

application. It is submitted that claim of interest was not subject matter

under Section 9 Application before the Adjudicating Authority and the

Adjudicating Authority erred in directing the parties to amicably settle the

issue of interest within one week. The claim must be crystalized and

quantified to become an operational debt. The subsequent quantification of

amounts by the Customs Authorities is irrelevant because the relevant date

to determine maintainability of the claim is the date on which the Section 9

application was filed. The Statement made by Learned Senior Counsel for the

Appellant on 07.09.2022 was only with regard to payment of safeguard duty,

which payment having been made, the same counsel requested the

Adjudicating Authority to dismiss the application. Continuation of Section 9

application for interest is not maintainable. The payment of interest has been

disputed by the Appellant. The Appellant has requested the Respondent to

challenge the demand by filing an appropriate appeal. Under the Contract

between the parties, the Operational Creditor was required to indemnify the

Appellant against all claims in connection to the Government taxes, duties,

etc. Challenge to the safeguard duty itself is sub-judicate before the Hon'ble

Supreme Court and Hon'ble High Court including Writ Petition filed by the

Appellant. Appellant is a fully solvent company with a net worth of Rs.34,281

Company Appeal (AT) Insolvency No. 34 of 2023 -8-

crores in the year 2021-22 with profit after tax of Rs.9,629 crores. There is

no justification of initiating any insolvency proceeding against the Appellant.

5. Shri Paras Kuhad, learned senior counsel appearing for the

Operational Creditor vehemently opposed the submissions of learned counsel

for the Appellant. It is submitted that as per clause 4.2 of the Contract dated

30.04.2018, it is liability of the Appellant to pay the Safeguard Duty. The

Appellant has undertaken to pay amount of Safeguard duty levied by the

Government Authorities for import of solar modules including the interest

thereon. In the Writ Petition filed by the Appellant before the Rajasthan High

Court, no protective order has been passed. As per Section 47 of the Customs

Act, 1962, imported goods were liable to be cleared for home consumption

only upon payment of import duty. Import duty is liable to be paid on the

date of presentation of the bill of entry. Failure to pay the duty within the

time specified would attract interest on the duty. The Appellant who is owner

was fully liable to pay the Safeguard Duty as well as interest. Only payment

of Safeguard Duty on 14.11.2022 shall not absolve the Appellant from its

liability to pay the Safeguard Duty and interest. Section 9 application has to

be treated as an application Safeguard Duty alongwith up to date interest.

Hence, the payment of interest is also matter of Section 9 application. It is

submitted that learned senior counsel for the Appellant made statement that

"once assessment of safeguard duty is done by the competent authority, he

will make payment of the same", which clearly meant that entire payment i.e.

Safeguard Duty and interest shall be paid by the Appellant. Appellant cannot

go back from its statement made on 07.09.2022 before the Adjudicating

Company Appeal (AT) Insolvency No. 34 of 2023 -9-

Authority. Appellant failed to make payment of Safeguard Duty, hence is fully

liable to pay the interest also. Assessment order dated 04.10.2022 crystalized

the interest which is now liability of the Appellant to clear. Demand made by

the Operational Creditor is founded on documents relating to contract for

supply of goods.

6. We have considered the submissions of learned counsel for the

parties and perused the record.

7. Before we enter into respective submissions of learned counsel for

the parties, it is relevant to notice the particulars of operational debt as

claimed in Part IV of the Section 9 application. Part IV of the Section 9

application is as follows:

PARTICULARS OF OPERATIONAL DEBT

1 TOTAL AMOUNT Total Amount of Debt Rs. 17,24,06,024.33 (Rupees OF DEBT Seventeen Crores Twenty Four Lakhs Six Thousand and Twenty Four and Thirty Three Paise only).

Comprising:

Principal CGST @ GST @ Total 2.50% 2.50% Outstanding 16,41,96,213 41,04,905 41,04,905 17,24,06,024 .65 .34 .34 .33

The Applicant reserves the right to claim further interest, penalties and/or delayed charges on the aforesaid amounts, which may be levied by the Customs department and/or incurred by the Applicant, thereon as on the Insolvency Commencement Date of the Corporate Debtor.

8. In Part IV, under the heading 'Details of transactions on account of

which debt fell due', in Para 26 and 27 following has been pleaded:

Company Appeal (AT) Insolvency No. 34 of 2023 -10-

"26. It is submitted that pursuant to the above, while finalizing the present petition, the Operational Creditor observed that an amount of Rs. 1,62,62,495.29/- has inadvertently been included in excess in the Demand Notice. Therefore, the actual amount of the demand towards Safeguard Duty is Rs. 17,24,06,024.33 (Rupees Seventeen Crores Twenty Four Lakhs Six Thousand and Twenty Four and Thirty Three Paise only) instead of Rs. 18,86,68,519.62/-.

27. The Applicant reserves the right to claim further interest, penalties and/or delayed charges on the aforesaid amounts, which may be levied by the Customs department and / or incurred by the Applicant, thereon as on the Insolvency Commencement Date of the Corporate Debtor."

9. In last part of the Part-IV, which deals with 'Amount claimed to be

in default and date on which the default occurred', following has been stated:

"Total Amount of Debt Rs. 17,24,06,024.33 (Rupees Seventeen Crores Twenty Four Lakhs Six Thousand and Twenty Four and Thirty Three Paise only).

DATE ON WHICH THE DEFAULT OCCURRED:-

September 18, 2018

Comprising:

Principal CGST @ GST @ Total 2.50% 2.50% Outstanding 16,41,96,213 41,04,905 41,04,905 17,24,06,024 .65 .34 .34 .33

Company Appeal (AT) Insolvency No. 34 of 2023 -11-

The Applicant reserves the right to claim further interest, penalties and/or delayed charges on the aforesaid amounts, which may be levied by the Customs department and/or incurred by the Applicant, thereon as on the Insolvency Commencement Date of the Corporate Debtor.

10. When we look into the Section 9 application filed by the

Respondent, the Operational Debt claimed was Rs.17,24,06,024.33 and the

column in Part IV specifically reserves right of the Operational Creditor in

following words:

"The Applicant reserves the right to claim further interest, penalties and/or delayed charges on the aforesaid amounts, which may be levied by the Customs department and/or incurred by the Applicant, thereon as on the Insolvency Commencement Date of the Corporate Debtor."

11. Admittedly, the levy by the Custom Department is by Assessment

Order dated 04.10.2022 by which finalization of duty on the bill of entry was

made. In the Safeguard Duty, on the date when application was filed, interest

could not have included as the amount of interest has been crystalized only

subsequently when provisional assessment has been finalized by letter dated

04.10.2022. We, thus, are of the view that claim of interest levied by order

dated 04.10.2022 cannot be said to be included in the debt as claimed by the

Applicant under Section 9.

Company Appeal (AT) Insolvency No. 34 of 2023 -12-

12. The impugned order records that Appellant has deposited on

14.11.2022, entire claim amount of Rs.16,41,96,213.38/- Principal amount

and applicable GST making a total amount of Rs.18.68,55.290.82/-. On

deposit of the aforesaid amount, thus, the debt as was claimed in the

application stood paid. The order further notice that submission was made

on behalf of the learned senior counsel for the Appellant that in view of the

aforesaid deposit, the application should be rejected, which was opposed by

learned counsel for the Respondent stating that interest is also to be paid by

the Corporate Debtor.

13. Operational Debt as was claimed in the application under Section

9 which is apparent from Part IV of the Application which clearly states that

the Operational Debt was only Rs.17,24,06,024/- and Applicant has reserved

its right to claim further interest, penalties or delayed charges, etc. We, thus,

are of the view that on payment of entire Operational Debt as was claimed in

the application, there was no occasion to continue the Section 9 application

any further.

14. We also notice submission of learned counsel for the Respondent

that the Appellant through its senior counsel has made categorical statement

on 07.09.2022 that once assessment is made they shall make the payment,

which statement clearly means that Appellant undertake to make the

payment of assessed amount which includes Safeguard Duty and interest.

Company Appeal (AT) Insolvency No. 34 of 2023 -13-

15. We may first notice the order dated 07.09.2022 passed by the

Adjudicating Authority recording the aforesaid statement of learned senior

counsel for the Appellant, which order is as follows:

"ORDER

"Heard Mr. Paras Kuhad, learned Senior Counsel appearing on behalf of Petitioner/ Operational Creditor. Mr. M. S. Singhvi, learned Senior Counsel appearing for the Respondent/ Corporate Debtor submits that once assessment of safeguard duty is done by the competent authority, he will make the payment of the same within the stipulated period. This matter is adjourned to 11.10.2022."

16. Mr. M. S. Singhvi, learned counsel appearing for the Appellant had

on 07.09.2022 made statement as recorded above. The statement stated that

once assessment of safeguard duty is done by the competent authority, he

will make the payment of the same within stipulated period. The statement

can be read as statement for payment of Safeguard Duty, which is clear from

the use of word 'same' in the same sentence. Furthermore, on 28.11.2022,

when the matter was heard again by the Adjudicating Authority, Mr. M. S.

Singhvi, the same counsel appeared for the Appellant and prayed that in view

of the payment of Safeguard Duty, the application be rejected. We are, thus,

unable to read the statement of Mr. M. S. Singhvi, learned counsel for the

Appellant that he made statement to make payment of Safeguard Duty with

interest.

Company Appeal (AT) Insolvency No. 34 of 2023 -14-

17. Learned counsel for the Respondent submits that now in view of

the Assessment Order, the liability has come on the Operational Creditor to

make the payment of Safeguard Duty + Interest. Only payment of Safeguard

Duty shall not absolve the Corporate Debtor from its liability to make payment

of interest and the Customs Department may take coercive action against the

Operational Creditor. It is submitted that it is obligatory on behalf of the

Appellant to make payment of interest which was its liability as per the

contract of supply.

18. Learned counsel for the Appellant submits that Appellant has made

the payment of Safeguard Duty under protest and has further requested the

Operational Creditor to challenge the interest.

19. We are of the view that it is open for the Appellant to challenge the

levy of interest, if they are so aggrieved to liability of interest which ultimately

will come on them as per the supply agreement. Appellant cannot get away

from liability of interest by saying that it has requested the Operational

Creditor to challenge the levy of interest since if the liability of the interest is

of the Appellant as per the Supply Agreement, it was open for the Appellant

to take such recourse in accordance with law challenging the levy of interest.

20. In view of the foregoing discussion, we, thus, are of the view that

Section 9 application which was filed by the Operational Creditor, the entire

Operational Debt having been paid by the Corporate Debtor, there is no useful

purpose in continuing the Section 9 proceeding any further. The Adjudicating

Authority ought to have closed the matter and the observation that the parties

Company Appeal (AT) Insolvency No. 34 of 2023 -15-

are permitted to settle the matter amicably within one week, was uncalled for.

Thus, we are of the view that Appeal deserves to be allowed closing the

application under Section 9 filed by the Operational Creditor being CP (IB) No.

81/9/JPR/2021. We, however, are also of the view that it is open for the

Appellant to take such legal proceeding as he may be advised, challenging the

levy of interest. The dismissal of Section 9 application filed by the Operational

Creditor being CP (IB) No. 81/9/JPR/2021 shall not preclude the Operational

Creditor to take such proceedings in law against the Corporate Debtor in event

the liability of interest is not discharged by the Corporate Debtor. The Appeal

is disposed of accordingly.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) NEW DELHI

29th May, 2023

Archana

Company Appeal (AT) Insolvency No. 34 of 2023