Identity Science Co. Ltd vs Sonal Plasrub Industries Private ...

(Arising out of the Impugned Order dated 06.09.2024 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Mumbai Bench-V in C.P. (IB) No. 693/MB/2021)

IN THE MATTER OF: M/s Identity Science Company Ltd. 3106, Yokohama Landmark Tower, 2-2-1, Minatomiral, Nishi-Ku, Yokohama, Kanagawa, Japan-2208131 Through its SPA holder, Mr. Penil Doshi ...Appellant

Versus

M/s Sonal Plasrub Industries Private Limited 404, Rimsan Estate Premises Co-Op. Society Chincholi Bunder Link Road, Malad (W), Mumbai-400064 ...Respondent

Present: For Appellant : Mr. S.K. Sagar, Ms. Ragini Vinaik and Ms. Anjali Sharma, Advocates

For Respondent : Mr. Deepak Biswas, Mr. Mayank Rai and Mr. Masoom Syed, Advocates.

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)] The present appeal filed by the Appellant is against the impugned order

dated 06.09.2024 passed by the Hon'ble National Company Law Tribunal

Bench-V at Mumbai in C.P. (IB) No. 693/MB/2021, dismissing its petition

under Section 9 of the Insolvency and Bankruptcy Code, 2016, to be read with

Rule 6 of the Insolvency and Bankruptcy (Application to Adjudication

Authority) Rules, 2016. The Appellant is aggrieved by the said order passed in its petition vide which it had claimed that an operational debt in the sum

of ₹ 1,12,37,646/-; and its Demand Notice dated 21.02.2020 had gone

unanswered, leading to the filing of the petition.

Submissions of the Appellant

2. The Appellant is a Japanese Company that had entered into contracts

on 18.06.2018 and 26.03.2019 with the Respondent to purchase the

chemicals 1-Bromo Butane (NBB) and Hydro Bromic Acid 48% (HBr) from it.

3. By the Sales Contract dated 18.06.2018 the Appellant placed an order

for an aggregate quantity of 140,000 kgs of the chemical named 1-Bromo

Butane at USD 3.22 per kg to be delivered at Shanghai-China, being the Port

of Discharge, during the period between July 2018 to January 2019. The

Respondent successfully delivered the 1st lot of 40,000 kgs (out of the

aggregate 140,000 kgs to be delivered). However, when the next quantity was

to be delivered, a small portion of the chemical, being 1622 kgs leaked from

the container and there was accordingly a proportionate shortfall in the

supply. For the leakage that occurred from the drum/s in which the leaked

quantity of the perilous chemical was stored, the Appellant also had to pay a

sum of USD 16,766 to Qingdao Seaport. The receipt evidencing the same,

dated 05.03.2019, is on record. It was accordingly the contention of the

Appellant before the Ld. Adjudicating Authority that the first date of default

on the part of the Respondent was 05.03.2019.

4. It was agreed that the amount paid by the Appellant to the Seaport

authorities, would be suitably adjusted by the Respondent in the 3rd order of

Company Appeal (AT) (Insolvency) No. 2063 of 2024 2 of 26 supply of the said chemical, with altered terms. Since the Respondent had

agreed to adjust said amount of USD 16,766 expended by the Appellant by

reducing the sale price of the next consignment; and accordingly, in fact, there

was no dispute regarding the same. Therefore, the submission to the contrary

on the part of the Respondent was a falsehood and an afterthought.

5. The Appellant contends that there were multiple negotiations that were

between the parties with respect to the further orders/consignments of

chemical 1-Bromo Butane. It was eventually settled that the amount paid by

the Appellant to the Seaport referred to in the previous paragraph would be

suitably adjusted by the Respondent in a 3rd order of supply of the said

chemical with altered terms. Accordingly, a new purchase order vide email

dated 17.06.2019 was issued by the Appellant for 40,000 kgs of 1-Bromo

Butane to be delivered by July 2019 at USD 2.802 per kg, instead of USD

3.22 per kg which was the originally contracted rate. However, this supply

was never made by the Respondent, and the chemical was never delivered

even though 75% of the advance amount being a sum of USD 84,060 had

been paid by the Appellant in advance to the Respondent. The delivery of the

contracted chemical was due on or before 31.07.2019, but admittedly it did

not take place. On account of its non-supply, the next day, i.e., 01.08.2019,

was considered as the date of default.

6. As against the Sales Contract dated 26.03.2019 the Appellant placed

an order for 200,000 kgs of Hydro Bromic Acid 48% (HBr) which was to be

delivered at Qingdao, China, being the Port of Discharge. The first shipment

Company Appeal (AT) (Insolvency) No. 2063 of 2024 3 of 26 for a small sample quantity of 40,000 kgs was agreed to be delivered in April

2019. Further, 100% payment in advance against it was made by the

Appellant as per the Respondent's alteration of conditions in policy, i.e., 100%

advance instead of 75% advance. A sum of Japanese Yen 62,40,000 was paid.

This delivery was to take place on or before 30.04.2019, but it never actually

happened despite receipt of the advance payment by the Respondent.

7. The Appellant submits that in this manner, despite payment of the

contracted advance sums, the delivery of 40,000 kgs of the product 1-Bromo

Butane (NBB) and sample quantity of 40,000 kgs of the product Hydro Bromic

Acid 48% (HBr) was not made by the Respondent and has not been made even

until this date. What is highly significant is that the advance amounts paid

by the Appellant have not been returned by the Respondent despite its failure

to perform its part of the contracts, i.e., supply the contracted chemicals.

8. Consequently, on 21.02.2020, Demand Notice in Forms 3 & 4 was sent

by the Appellant to the Respondent, claiming an amount of ₹ 1,12,37,645.54

as being the sum in default. This notice was delivered on 27.02.2020 via

FedEx courier service.

9. However, no reply was received from the Respondent, and therefore the

Appellant filed its petition under Section 9 of the Insolvency and Bankruptcy

Code, which was numbered as C.P. (IB) No. 693/MB/2021. It is noteworthy

that in the reply to petition, the Respondent had admitted receipt of advance

Company Appeal (AT) (Insolvency) No. 2063 of 2024 4 of 26 payment for goods that it had failed to supply; and also admitted the fact that

it had not returned the advance payment received by it.

10. It is pertinent that the Respondent vide its email dated 12.07.2019

issued to the Appellant, had undertaken to repay the advance payments

made. This is apparent from the annexures which were filed along with the

reply to petition by the Respondent on 16.04.2022. The relevant excerpts are

as follows:-

"We will repay you the advance that you have remitted to us for NBB and HBr. I will ask the accounts for the complete advances we are holding from you and within the next week only we will give you timelines for the repayment of your advance payment."

.......

"You will have re-payment scheduled within the next week and the payment will be refunded as per the schedule."

11. However, no repayment scheduled was ever provided to the Appellant

and no money was ever transferred to it by the Respondent.

12. The petition under Section 9 of the IBC was filed within the prescribed

period of limitation. Moreover, the Demand Notice was issued on 21.02.2020

by Federal Express courier to two locations, i.e., the registered office of the

Respondent, as well as at the director's residence. The same was received by

the Respondent on 27.02.2020.

13. Appellant claims that not only the Respondent fail to reply to the

Demand Notice issued by the Appellant; rather they were not able to establish

pre-existing disputes either vide the reply filed by them before the

Adjudicating Authority or even by way of written submissions filed post

Company Appeal (AT) (Insolvency) No. 2063 of 2024 5 of 26 conclusion of the arguments. Moreover, they were not even able to establish

repayment of outstanding sums. On the contrary, they have perhaps admitted

that the advance received by them for the contracted supplies was not repaid.

Curiously however, this aspect was not noticed by the Adjudicating Authority.

The Reply to the Petition that was filed by the Respondent is otherwise largely

based on various technical objections, and in fact they were unable to

substantially rebut the contentions on the part of the Appellant. It is also

apparent from the balance sheet of the Respondent filed in March, 2022, that

it is facing serious liquidity constraints. The Adjudicating Authority however

termed the Respondent company as 'solvent' without there being any material

on record to corroborate the same. It is also significant that the Respondent

has faced and is facing other insolvency petitions before the Adjudicating

Authority.

14. The appellant claims that the amount claimed vide the Demand Notice

which was issued on 21.02.2020 from the Appellant's office at Japan, was a

sum of ₹ 1,12,37,645.54 only. This sum remains outstanding to the Appellant

from the Respondent.

15. Appellant further claims that without noticing the admission on the

part of the Respondent, and noticing various arguments advanced by the

Appellant, the impugned order dated 06.09.2024 came to be passed by the

Ld. Adjudicating Authority dismissing the petition filed by the Appellant.

16. The Appellant contends that a pre-existing dispute cannot be deemed

Company Appeal (AT) (Insolvency) No. 2063 of 2024 6 of 26 to exist between a seller and a buyer of goods, when the seller does not dispute

that advance payment received by it against goods that were not supplied,

was never returned by it to the buyer. The Appellant further claims that an

obvious rebate offered on future supplies by a seller, to a buyer on account of

leakage of contracted chemical and consequently diminished supply thereof,

should not have been taken by the Adjudicating Authority as an amount in

the nature of 'damages', especially since the short supply was being made

good by the seller and no dispute was raised with respect to the same.

Appellant further claims that mere an exchange of correspondence and

discussion including acrimonious discussion too between a seller and a buyer

of goods cannot qualify as pre-existing dispute as it does not engages

determination, and that too when the seller does not dispute that the advance

payment received by it from the buyer for goods that it failed to supply, was

never returned by it to the buyer.

17. Further claims that failure on the part of the Appellant to file an

affidavit in terms of Section 9(3)(b) of the Insolvency and Bankruptcy Code

was a curable defect.

18. Appellant further contends that amount payable to the Appellant had

to be calculated at the exchange rate prevalent on the date of default or at

least on the date of Demand Notice, and not at the exchange rate prevalent

on the date of actual payment of advance amounts by the Appellant to the

Respondent.

Company Appeal (AT) (Insolvency) No. 2063 of 2024 7 of 26 Submissions of the Respondent

19. The Appellant Operational Creditor i.e., Identity Science Co. Ltd., is a

Company based in Japan. The Appellant had entered into a continuous sales

contracts with the Corporate Debtor i.e., the Respondent, between period of

June 2018 to March 2019, for supplying of the chemicals products 1-BROMO

BUTANE(NBB) AND HYDRO BROMIC ACID 48% (HBr). Accordingly, the

parties entered into a continuous sales contract dated June 18, 2018. The

Respondent supplied six consignments to the Appellant between October 26,

2017 and December 12, 2018 under CFR (Cost and Freight) terms, wherein

marine insurance liability for shipping of goods rests solely with the buyer,

i.e., the Appellant. One consignment, shipped under Bill of Lading dated

December 19, 2018, sustained damage during transit. Despite being entitled

to claim insurance, the Appellant, without disclosing the insurance proceeds,

sought to wrongfully recover the alleged loss from the Respondent. The

Respondent repeatedly requested for disclosure of the actual loss and

insurance claim amount, but the Appellant failed to furnish any such details,

and instead sought unilateral deductions from payments due to the

Respondent. The Respondent took all necessary measures and precautions

including but not limited to shipping the consignment using UN-approved

HDPE drums, identical to those used in prior successful shipments. However,

due to unavoidable circumstances some drums were damaged. It is pertinent

to mention here that the damage admittedly occurred at the consignee's port,

and since that falls outside the scope of the Respondent's liability under CFR,

which limits the Respondent's liability of arranging for the carriage of the

Company Appeal (AT) (Insolvency) No. 2063 of 2024 8 of 26 consignment by sea to the destination port. The Respondent has successfully

discharged its aforesaid obligation and hence is not liable for any damage to

the consignment after it had reached the destination port. Disputes thus

arose prior to issuance of the demand notice, and continued thereafter. The

Appellant exerted undue pressure on the Respondent and attempted to make

the Respondent absorb the losses, coercing a supply at reduced rates and

withholding legitimate payments under the guise of damage adjustment. The

Respondent informed the Appellant of various bona fide constraints, including

rise in raw material prices and governmental restrictions in the MIDC area

affecting production. Despite this, the Appellant issued threats, including to

take over the Respondent's factory, and used abusive language.

20. The Respondent claims that it did not receive the statutory demand

notice dated February 21, 2021, to be under Section 8 of the Code. 1Rule 5 of

the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016, that itself lays down the procedure, form, and manner in which a

demand notice shall be served by an Operational Creditor to a Corporate

1

5. Demand notice by operational creditor. - (1) An operational creditor shall deliver to the corporate debtor, the following documents, namely.-

(a) a demand notice in Form 3; or

(b) a copy of an invoice attached with a notice in Form 4. (2) The demand notice or the copy of the invoice demanding payment referred to in sub- section (2) of section 8 of the Code, may be delivered to the corporate debtor,

(a) at the registered office by hand, registered post or speed post with acknowledgement due; or

(b) by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor.

(3) A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility, if any.

Company Appeal (AT) (Insolvency) No. 2063 of 2024 9 of 26 Debtor. The aforesaid rule mandates the Operational Creditor to deliver the

demand notice either at the registered office of the Corporate Debtor by hand,

registered post or speed post with acknowledgement, or by an e-mail to a

whole-time director, designated partner or key managerial person. The

Appellant, in complete non-compliance of the above provision, particularly

has failed to comply with the Rule 5 while delivering the demand notice

inasmuch as, the demand notice has neither been sent by registered post, nor

by an e-mail. The demand notice that was sent by the Appellant through

Fedex (a mode of service which does not fall under the recognised modes of

service), the acknowledgement receipt of which reflects the names of S. Sruti

Pureza and P. Patade as recipients, who are neither employees, nor in any

way associated with the affairs of Respondent. It was submitted by the

Appellant, in the pleadings before the Ld. Hon'ble NCLT and the present

Appeal, has annexed the status update from FedEx for substantiating the

delivery of the demand notice dated February 21, 2020. The Appellant now,

for the first time, has filed an undated, handwritten copy of the FedEx receipt,

depicting the addresses of the parties, as an afterthought. Such service, even

if affected does not amount to a valid service of the demand notice as per

mandate of law and hence, the Ld. NCLT was right in dismissing the

Application seeking initiation of CIRP against the Respondent. It is a settle

principle of law that, whenever any statute prescribes an act to be done in a

specific manner, it has to be mandatorily done in that manner. The

Respondent places reliance on the judgement passed by the Hon'ble Supreme

Company Appeal (AT) (Insolvency) No. 2063 of 2024 10 of 26 Court in Sharif-Ud-Din v. Abdul Gani Lone (1980) 1 SCC 403. (Para 18-

19).

21. The Respondent also contends that the alleged operational debt falls

below the minimum statutory threshold of ₹1 crore. The insolvency

proceedings under Part II of the Code were only applicable on a minimum

default amount of ₹ 1 Lakh, which was subsequently enhanced by

amendment to ₹ 1 Crore, with effect from March 04, 2020 vide the Notification

No. S.O. 1205(E). The Company Petition under judicial scrutiny in Appeal has

been admittedly filed in respect of the advance payment made by the

Appellant to the Respondent for the delivery of goods. The payment received

by the Respondent from the Appellant only amounts to ₹ 97,19,589/-, which

fails to meet the minimum threshold of ₹ 1 Crore. It is argued, that the

Appellant, in an attempt to increase the purported operational debt to over ₹1

Crore has deliberately attempted to add the disputed amount of US

$ 16,766/- to the operational debt, which is admittedly towards the damages

during transportation of goods. Even this amount has not been substantiated

by any shred of evidence, even after clarification sought by the Respondent

vide email dated June 06, 2019. [Annexure R-3 @Pg 55 of the reply]. The

consignment in question was admittedly on CFR basis (Cost and Freight) and

not on CIF basis (Cost, Insurance and Freight) and therefore the marine

insurance for shipping goods was to be borne by the Appellant. Thus, the

damages during transportation/shipment of the goods under the CFR based

consignment is not the liability of Respondent, and any claim for such damage

Company Appeal (AT) (Insolvency) No. 2063 of 2024 11 of 26 is not covered under the definition of Operational Debt under Code. The total

amount received by the Respondent from the Appellant on the so called date

of default i.e., May 1, 2019 and August 01, 2019 is ₹ 97,19,589/-, which is

below the Pecuniary Limit of the Ld. NCLT. The Appellant, deliberately, has

taken the conversion rate as prevalent on February 11, 2020 to bring the

claim amount within the jurisdiction of the Ld. NCLT. The Appellant's attempt

had been to raise the operational debt to over ₹ 1 Crore, is an afterthought

and hence the Ld. NCLT was right in dismissing the Petition under Section 9

of the Code filed by the Appellant herein.

22. The Respondent also contends, that the applying a belated exchange

rate is to inflate the operational debt. The Appellant in the Petition filed before

the Ld. NCLT has claimed defaults on March 05, 2019, August 01, 2019, and

May 01, 2019, and has made payments to the Respondent on March 26, 2019

and June 24, 2019. However, the Appellant has deliberately applied the

exchange rate of February 11, 2020, which aimed to inflate the amount of the

alleged operational debt, in order to reach the minimum threshold of ₹ 1 Crore

for sustaining application for initiation of CIRP. The exchange rate for USD,

as on the date of payment i.e., June 24, 2019 was 69.6, whereas the exchange

rate applied to the operational debt in the demand notice was 71.29. This

difference in the later exchange rate was used by the Appellant for attempting

to inflate the alleged operational debt amount to over ₹ 1 Crore, which was

rightly rejected by the Ld. NCLT.

Company Appeal (AT) (Insolvency) No. 2063 of 2024 12 of 26

23. The Appellant has sought to rely upon the judgement passed by the

Hon'ble Supreme Court in DLF Limited v. Konkar Generators and Motors

Limited, (2025) 1 SCC 343 (Para 19), to submit that the correct date for

considering the exchange rate is the date of demand notice i.e., February 21,

2020. However, it is pertinent to mention here that the Hon'ble Supreme

Court in the aforesaid judgement has provided for six different dates that are

considered as proper for fixing the exchange rates, which are set out

hereunder:

"i. the date when the amount became due and payable; ii. the date of commencement of the action;

iii. the date of the decree;

iv. the date when the court orders execution to issue; v. the date when the decretal amount is paid or realised; and vi. in cases where a decree is passed by the court in terms of an arbitral award in foreign currency, the date of award."

24. It is also pertinent to mention that aforesaid dates were considered by

the court in a case that was arising out of arbitral proceedings, which is

altogether procedurally different in nature and the purpose of the insolvency

and bankruptcy proceedings under the Code. Therefore, considering the

legislative object of the proceedings under the Code, which is not meant for

recovery of debt, the aforesaid judgment cannot be applied to the present case

with non-application of judicious mind. Thus, the Ld. NCLT was right in

dismissing the Petition under Section 9 of the Code filed by the Appellant

herein.

Company Appeal (AT) (Insolvency) No. 2063 of 2024 13 of 26

25. The Respondent further contends, that the Insolvency and Bankruptcy

Code is not a recovery mechanism. The alleged debt, of which the Appellant

has sought the payment vide the alleged demand notice is an operational debt

and not a financial debt. The Code is intended for corporate entities facing

financial distress seeking its revival through restructuring, and is not meant

for debt recovery. The procedure under the Code is significantly different from

a civil recovery suit. The Respondent places reliance on the judgement passed

in Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17 (Para 12),

wherein the Hon'ble Supreme Court observed that the IBC is not akin to a

recovery legislation for creditors, but is a legislation beneficial for the

Corporate Debtor.

26. The Ld. NCLT has rightly dismissed the Petition while relying upon the

judgment passed in M/s SS Engineers v. Hindustan Petroleum

Corporation Ltd. (HPCL) [Company Appeal (AT) (Ins) No. 138 of 2017]

(Para 18), wherein it was cleared that IBC is not a tool for recovering disputed

debts and intention behind IBC law is to resolve insolvency, not to penalize

solvent companies.

27. Although the Appellant has claimed the date of default to be on March

05, 2019, August 01, 2019, and May 01, 2019, but it has neither raised this

issue to the Respondent before the issuance of the alleged demand notice

dated February 21, 2020 nor has terminated the contract/agreement entered

between the parties. The Respondent has been carrying on its business as a

going concern since 1987, with yearly turnover of more than 26 Crore. It is a

Company Appeal (AT) (Insolvency) No. 2063 of 2024 14 of 26 registered MSME and a profit-making company with an employee base of 300,

and is paying salaries to the tune of ₹ 3 Crores. The Ld. NCLT has rightly

observed that the Respondent is a solvent company and a company, which is

solvent and has the ability to pay its debt and should not be dragged into

CIRP.

28. With respect to the claim towards damage of goods during

transportation/ shipping, there exists several disputes between the Appellant

and the Respondent. The said disputes existed between the parties much

prior to the alleged issuance of the demand notice under Section 8 of the Code.

Therefore, the Petition under Section 9 of the Code has been rightfully

dismissed by the Ld. NCLT.

29. Thus the present Appeal is nothing but a gross abuse of the process of

law, filed with the intent to exert undue pressure on a solvent and profit-

making MSME unit. The Petition under Section 9 of the Insolvency and

Bankruptcy Code was rightly dismissed by the Ld. NCLT on sound legal and

factual grounds, including the existence of pre-existing disputes, lack of valid

service of demand notice as per Rule 5, failure to meet the statutory threshold

of ₹ 1 crore, and wrongful application of a belated exchange rate to inflate the

alleged operational debt.

30. It is evident that the Appellant has misused the IBC framework, which

is not a recovery mechanism, to resolve what is essentially a disputed

commercial transaction. The Respondent, being a going concern with a

Company Appeal (AT) (Insolvency) No. 2063 of 2024 15 of 26 consistent track record, solvent financials, and substantial employment base,

cannot be subjected to CIRP in such circumstances. In the facts and

circumstances as set out hereinabove, the Respondent most respectfully

prays that the instant Appeal may be dismissed with exemplary costs, as the

same is devoid of merit, predicated upon a patently disputed claim, and

constitutes a misuse of the remedy available under the Insolvency and

Bankruptcy Code, 2016.

31. The alleged delivery of the Demand Notice affected by the Appellant was

done via private courier partner and the tracking report bear the name of S.

Sruti Pureza and P. Patade, i.e. upon the individuals who are neither known

to nor employed by the Respondent's. The Appellant also failed to provide or

place on record, any proof of service via registered post or postal

acknowledgement.

Analysis and Findings

32. We have heard the learned counsel for the parties and have perused the

material placed on record. The issue before us is whether the dismissal of the

application under Section 9 of the Insolvency and Bankruptcy Code, 2016,

was justified on the grounds of alleged pre-existing dispute, inconsistency in

the claim, non-compliance with the procedural requirements, and failure to

meet the statutory threshold.

33. The Adjudicating Authority, while dismissing the application, recorded

the following findings:

"Disputes arose over missing quantities, non-deliveries, and damages"

Company Appeal (AT) (Insolvency) No. 2063 of 2024 16 of 26 "The disagreements between the operational creditor and the corporate debtor were already happening before the demand notice was issued. These disputes included missing quantities, non-deliveries, and who was responsible for damages, establishing pre-existing disputes between the parties."

"...Dates of default mentioned by operational creditor are inconsistent with their payment dates..."

"Outstanding summary mentions damages for a sum of USD 16,766 without any supporting documents for the alleged claim by way of damages due to any reason of breach of terms and conditions of PO by the corporate debtor. The operational creditor has not filed any documents regarding the breach committed by the corporate debtor, due to which the alleged damages occurred. Insurance was not received even after mentioning the same in the email exchange that took place between the parties before the issuance of the demand notice by the operational creditor."

"The present petition is not maintainable as the claim amount is below the threshold limit of ₹1 crore and the claim amounts are the damages which the operational creditor has failed to justify. Therefore the petition is liable to be dismissed."

"The petition is dismissed due to the presence of pre-existing disputes, inconsistencies in the claims, lack of necessary documentation, and failure to meet the procedural requirements under the IBC."

Issue of Demand Notice

34. The Respondent has contended that the application is not maintainable

because the Demand Notice was not served in accordance with Rule 5 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016. According to the Respondent, the Demand Notice was sent through

FedEx, which is not one of the recognised modes of service. It is also

Company Appeal (AT) (Insolvency) No. 2063 of 2024 17 of 26 contended that the persons who acknowledged the delivery were neither

employees nor representatives of the Respondent.

35. We are unable to accept this objection. The material on record shows

proof of dispatch, proof of delivery and a tracking number. The Demand Notice

was issued to the registered office address of the Respondent and was

delivered on 27.02.2020. The Respondent has not disputed the correctness of

its registered office address.

36. The fact that the Appellant, being a company based in Japan, used a

private courier service cannot by itself defeat the proceedings when effective

delivery of the Demand Notice is established. The object of Section 8 and Rule

5 is to ensure that the Corporate Debtor is put to notice of the claim and is

given an opportunity to make payment or raise a genuine dispute. The object

of notice under law is to make aware of the proposed actions likely to be taken;

here, the said purpose was served, as the Respondent did get knowledge of

the notice because of the admitted service of notice effected upon them. Since

the procedures are only enabling law, which does not affect the substantive

proceedings on merits, the mode of service taken in the instant case has

served its object. The procedures are handmaid of justice, and has to be

rationally construed in the context of its object.

37. The Appellant has also relied upon the judgment of this Hon'ble

Appellate Tribunal in G. Shivramkrishna Vs. Isgec Covema Ltd. & Anr.,

2020 SCC OnLine NCLAT 909, particularly paragraphs 10, 14 and 16, where

Company Appeal (AT) (Insolvency) No. 2063 of 2024 18 of 26 service through courier and courier receipts were considered. The Appellant

has further relied upon Piya Puri Vs Mr. Debashish Nanda RP of Venta

Realtech Pvt. Ltd. 2022 SCC OnLine NCLAT 4006, at para 15 thereof,

which states: "......while it is important to maintain the sanctity and credibility

of CIRP proceedings, it is equally important to ensure that hyper technicality is

not allowed to occupy centre-stage and besiege the proceedings as it would end

up frustrating and defeating the very object and purpose of IBC. ......"

38. The above judgments support the Appellant. Hyper-technical objections

cannot be permitted to defeat a proceeding when from the circumstantial

evidence it is inferred that the Corporate Debtor has, in substance, received

the Demand Notice and had knowledge of the claim. We therefore hold that

the Demand Notice was duly served and met the purpose of law of service of

notice and the objection based on the mode of service is not sustainable.

Moreover, such hyper-technical grounds cannot be the grounds to decide on

the admission of a Section 9 petition, the petition should be seen with respect

to its merit regarding the operational debt and default and whether any pre-

existing dispute exists or not.

Issue of Threshold, Damages and Pre-existing Dispute

39. The next issue is whether the operational debt satisfies the statutory

threshold of ₹1 crore and whether the alleged dispute regarding USD 16,766

constitutes a genuine pre-existing dispute. The Respondent contends that the

amount received by it was only ₹ 97,19,589/- and that the amount relating

to damages cannot be included in the operational debt.

Company Appeal (AT) (Insolvency) No. 2063 of 2024 19 of 26

40. It is not necessary for us to decide the claim for USD 16,766 as a

crystallised operational debt for the purpose of determining the threshold. The

Adjudicating Authority did not examine the outstanding amount in this

manner. We will delve into this issue that even after excluding the disputed

amount, is it still the case that the operational debt exceeds ₹1 crore?

41. The relevant exchange rate also requires consideration because the

payments were made in Japanese Yen and US Dollars. The Appellant relies

upon the judgment of the Hon'ble Supreme Court in Forasol versus ONGC,

1984 (SUPP) (SC) 263, delivered on 25th October 1983. The relevant extract

at para 70 is as follows:

"In such a suit the plaintiff, who has not received the amount due to him in a foreign currency and therefore desires to seek the assistance of the court to recover that amount, has two courses open to him. He can either claim the amount due to him in Indian currency or in the foreign currency in which it was payable. If he chooses the first alternative he can only sue for that amount as converted into Indian rupees and his prayer in the plaint can only be for a sum in Indian currency. For this purpose, the plaintiff would have to convert the foreign currency amount due to him into Indian rupees. He can do so either at the rate of exchange prevailing on the date when the amount became payable for he was entitled to receive the amount on that date or, at his option, at the rate of exchange prevailing on the date of the filing of the suit because that is the date on which he is seeking the assistance of the court for recovering the amount due to him"

42. The Respondent has relied upon DLF Limited and Another v. Koncar

Generators and Motors Limited (2025) 3 SCC 343 and placed reliance on

para 19. The relevant extract is:

Company Appeal (AT) (Insolvency) No. 2063 of 2024 20 of 26 "19. For the remaining amount that still requires conversion to Indian rupee, for which no exchange rate was provided in the contract or the arbitral award, the court in Forasol case considered six possible dates as the proper date for fixing the rate of exchange: i. The date when the amount became due and payable; ii. The date of the commencement of the action; iii. The date of the decree; iv. The date when the court orders execution to issue; v. The date when the decretal amount is paid or realized; and vi. In cases where a decree is passed by the court in terms of an arbitral award in foreign currency, the date of the award"

43. The above judgment in DLF Limited (supra) arose in the context of an

arbitral award and the Arbitration Act. The present proceedings arise under

the Insolvency and Bankruptcy Code. The principle in Forasol even though in

the context of Arbitration proceeding, however, provides guidance regarding

the appropriate date for conversion where the amount is claimed in foreign

currency. In the facts of the present case, the exchange rate on the date of the

Demand Notice is relevant for determining the amount claimed in Indian

currency.

44. On the exchange rate applicable on the date of the Demand Notice, the

amount claimed by the Appellant exceeds ₹1 crore even after excluding the

amount of USD 16,766 relating to the alleged damages. The appellant has

claimed the outstanding dues as follows:

Company Appeal (AT) (Insolvency) No. 2063 of 2024 21 of 26 Even if the damages claim of about USD 16,766 is excluded, still the threshold

of ₹1 crore as required in a Section 9 petition is met as the total amount due

as on 11.2.2022 (for which the calculations have been given by the appellant)

and also on the date of the demand application, which is 20.2.20222 exceeds

₹ 1 crore. The statutory threshold is therefore satisfied, even after deducting

disputed amount.

Admissions by the Respondent

45. There is a significant admission by the Respondent which cannot be

overlooked. The Respondent admitted that it had received the advance

amounts and had agreed to return them. In its email dated 12.07.2019, the

Respondent stated:

"We will repay you the advance that you have remitted to us for NBB and HBr. I will ask the accounts for the complete advances we are holding from you and within the next week only we will give you timelines for the repayment of your advance payment. We will repay you the advance that

2 Exchange rate on 20th February 2020:

Japanese Yen (JPY) and the Indian Rupee (INR) was approx. 1 JPY = 0.6395 INR US Dollar (USD) and the Indian Rupee (INR) was approx. 1 USD = 72.11 INR

Company Appeal (AT) (Insolvency) No. 2063 of 2024 22 of 26 you have remitted to us for NBB and HBr. I will ask the accounts for the complete advances we are holding from you and within the next week only we will give you timelines for the repayment of your advance payment."

46. There is also no denial of receipt of USD 84,060 and Japanese Yen

62,40,000. The material on record shows that the Respondent did not supply

the contracted goods against these advances and did not return the advance

amounts.

47. We are conscious that there was correspondence between the parties

regarding damage to one consignment and the amount of USD 16,766 has

been claimed as damages by the Appellant. The Respondent has relied upon

the Cost and freight (CFR) terms and has contended that the Appellant was

responsible for insurance. Material placed on record indicates that the

appellant was trying to negotiate lesser rates for future supplies to take care

of the damages.

48. Such correspondence regarding the disputed damages does not, in the

facts of the present case, constitute a genuine pre-existing dispute in relation

to the principal amount of the advances which the Respondent admittedly

agreed to repay. The dispute regarding damages is separate from the admitted

liability to return the advance received for goods which were never supplied.

49. The Respondent raised the alleged pre-existing dispute in its reply to

the Section 9 application. The Respondent had earlier stated in writing that it

would repay the advance and had undertaken to provide a repayment

Company Appeal (AT) (Insolvency) No. 2063 of 2024 23 of 26 schedule. No repayment schedule was provided and no payment was made.

In these circumstances, the alleged dispute regarding damages cannot be

treated as a genuine pre-existing dispute sufficient to defeat the Section 9

application.

50. The Supreme Court has repeatedly held that the existence of a dispute

must be genuine and not a mere assertion raised without substance to avoid

the consequences of insolvency proceedings. In the present case, the material

placed on record does not disclose a genuine dispute regarding the admitted

advance amounts. The dispute relied upon by the Respondent is, therefore,

in substance, a moonshine or spurious dispute and appears to be an

afterthought.

Whether the Section 9 Application is Maintainable

51. The Respondent has also relied upon M/s. S.S. Engineers vs.

Hindustan Petroleum Corporation Limited (HPCL) [Company Appeal (AT)

(Ins.) No. 138 of 2017] and submitted that the IBC is not a tool for recovery

of disputed debts and that the object of the Code is resolution of insolvency.

That principle is not in dispute. However, the present case is not one where

the operational debt is genuinely disputed. The Respondent received

substantial advance amounts, failed to supply the contracted goods, agreed

to repay the advances, and thereafter failed to make payment.

52. The fact that the Respondent claims to be a solvent and profit-making

company also cannot, by itself, be a ground to reject a Section 9 application

when the statutory requirements are otherwise satisfied. The question under

Company Appeal (AT) (Insolvency) No. 2063 of 2024 24 of 26 Section 9 is whether an operational debt exceeding the prescribed threshold

is due and whether a default has occurred, subject to the existence of a

genuine pre-existing dispute.

Conclusions

53. On a consideration of the entire material, we are satisfied that the

Appellant has established the existence of an operational debt and default.

The Demand Notice was duly served. The operational debt exceeds the

statutory threshold even after excluding the disputed amount of USD 16,766.

The Respondent has not established a genuine pre-existing dispute in respect

of the admitted advance amounts. The requirements for initiation of

proceedings under Section 9 of the Code are therefore satisfied.

Order

54. For the reasons stated above, the appeal is allowed. The impugned order

dated 06.09.2024 passed by the National Company Law Tribunal, Mumbai

Bench-V in C.P. (IB) No. 693/MB/2021 is set aside.

55. The Adjudicating Authority is directed to pass the necessary order for

initiation of the Corporate Insolvency Resolution Process against the

Respondent under Section 9 of the Insolvency and Bankruptcy Code, 2016,

within fifteen days from the date on which a copy of this order is placed before

it.

56. The Respondent shall, however, remain at liberty to deposit/pay the

amount due to the Appellant within the aforesaid period and before the order

under Section 9 is issued. In the event the entire amount payable is

Company Appeal (AT) (Insolvency) No. 2063 of 2024 25 of 26 deposited/paid before issuance of the order initiating insolvency proceedings,

the Adjudicating Authority shall take the same into consideration and the

order under Section 9 need not be issued.

57. The appeal is accordingly disposed of in the above terms. There shall be

no order as to costs.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) New Delhi.

September 17, 2026.

pawan

Company Appeal (AT) (Insolvency) No. 2063 of 2024 26 of 26