Kanti Commercials Pvt. Ltd vs Belthangady Taluk Rubber Growers ...

IN THE MATTER OF: Kanti Commercials Pvt. Ltd. ...Appellant Vs. Belthangady Taluk Rubber Growers Marketing & Processing Co-operative Society Limited & Ors. ...Respondents

Present: For Appellant: - Mr. Rajshekhar Rao, Mr. Amit A. Pai and Mr. Ashok Kumar Jain, Advocates. For Respondents:- Mr. Prashanth B. K and Ms. Sangeetha. M.S. Advocates for 1st Respondent. Mr. Vaibhav Srivastava and Mr. Nand Kumar Sagar, Advocates. Mr. Krishnamurthy, Mr. Apratim Animesh Thakur, Advocates for IRP.

ORDER

08.03.2018- This appeal has been preferred by 'M/s. Kanti

Commercials Private Limited', Shareholder of 'Falcon Tyres Limited'

('Corporate Debtor') against order dated 30th August, 2017 passed by

the Adjudicating Authority (National Company Law Tribunal),

Bengaluru Bench in CP (IB) No. 01/BB/2017, whereby and whereunder

the application preferred by the Respondents- 'Belthangady Taluk

Rubber Growers Marketing & Processing Co-operative Society Ltd &

Ors'. ('Operational Creditor') under section 9 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code') has been

Company Appeal (AT) (Insolvency) No. 221 of 2017 2

admitted, order of 'Moratorium' has been passed and 'Interim Resolution

Professional' has been appointed with certain directions.

2. As the appeal can be disposed of on short point, it is not necessary

to discuss the detailed facts, except the relevant one.

3. The 'Operational Creditor' supplied goods to the 'Corporate

Debtor' and certain amount, having not paid initially, issued notice

under section 434(1) (a) of the Companies Act, 1956; in spite of the

same, the amount was not paid. The 'Operational Creditor' filed the suit

bearing OS No. 83 of 2017 before the Addl. Senior Civil Judge and CJM,

Mysuru on 20th January, 2017. However, it appears that subsequently

the 'Operational Creditor' issued a demand notice under sub-section (1)

of Section 8 of the 'I&B Code' on 24th January, 2017 demanding

repayment of the alleged outstanding of Rs. 1,18,34,618.66/-, which

was not paid. The 'Operational Creditor' thereafter filed an application

under Section 9 of the 'I&B Code' on 23rd February, 2017, wherein the

impugned order was passed. The main ground taken by the Appellant

is that the suit was pending as on the date of admission and prior to

issuance of notice under sub-section (1) of Section 8 of the 'I&B Code'.

4. According to 'Operational Creditor' after admission of the

application under section 9 of the 'I&B Code' suit was withdrawn by the

'Operational Creditor'.

Company Appeal (AT) (Insolvency) No. 221 of 2017 3

5. Mr. Vaibhav Srivastava, learned counsel appearing on behalf of

the workmen, submits that workmen have also not been paid the wages

since January, 2014. Hence, it is a fit case for initiation of 'Corporate

Insolvency Resolution Process'.

6. Mr. Krishnamurthy, learned counsel appears on behalf of the

'Insolvency Resolution Professional'.

7. In the present case, it is not necessary to decide whether there is

an 'existence of dispute' between the parties or not, as we find that the

suit between the parties was pending since prior to issuance of demand

notice under sub-section (1) of Section 8 of the 'I&B Code'.

8. The Hon'ble Supreme Court in "Mobilox Innovations Private Ltd

v. Kirusa Software Private Ltd, (2018) 1 SCC 353", having noticed

the provisions of Sections 8 and 9 of the 'I&B Code', observed and held

as follows: -

"33. The scheme under Sections 8 and 9 of the Code,

appears to be that an operational creditor, as defined,

may, on the occurrence of a default (i.e, on non-payment

of a debt, any part whereof has become due and payable

and has not been repaid), deliver a demand notice of such

unpaid operational debt or deliver the copy of an invoice

demanding payment of such amount to the corporate

debtor in the form set out in Rule 5 of the Insolvency and

Company Appeal (AT) (Insolvency) No. 221 of 2017 4

Bankruptcy (Application to Adjudicating Authority) Rules,

2016 read with Form 3 or 4, as the case may be (Section

8(1)). Within a period of 10 days of the receipt of such

demand notice or copy of invoice, the corporate debtor

must bring to the notice of the operational creditor the

existence of a dispute and/or the record of the pendency

of a suit or arbitration proceeding filed before the receipt

of such notice or invoice in relation to such dispute

(Section 8(2)(a)). What is important is that the existence of

the dispute and/or the suit or arbitration proceeding must

be pre-existing - i.e it must exist before the receipt of the

demand notice or invoice, as the case may be. In case the

unpaid operational debt has been repaid, the corporate

debtor shall within a period of the self-same 10 days

send an attested copy of the record of the electronic

transfer of the unpaid amount from the bank account of

the corporate debtor or send an attested copy of the

record that the operational creditor has encashed a

cheque or otherwise received payment from the corporate

debtor (Section 8(2)(b)). It is only if, after the expiry of the

period of the said 10 days, the operational creditor does

not either receive payment from the corporate debtor or

notice of dispute, that the operational creditor may trigger

the insolvency process by filing an application before the

Company Appeal (AT) (Insolvency) No. 221 of 2017 5

adjudicating authority under Sections 9(1) and 9(2). This

application is to be filed under Rule 6 of the Insolvency

and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016 in Form 5, accompanied with documents and

records that are required under the said form. Under Rule

6(2), the applicant is to dispatch by registered post or

speed post, a copy of the application to the registered

office of the corporate debtor. Under Section 9(3), along

with the application, the statutory requirement is to

furnish a copy of the invoice or demand notice, an

affidavit to the effect that there is no notice given by the

corporate debtor relating to a dispute of the unpaid

operational debt and a copy of the certificate from the

financial institution maintaining accounts of the

operational creditor confirming that there is no payment

of an unpaid operational debt by the corporate debtor.

Apart from this information, the other information

required under Form 5 is also to be given. Once this is

done, the adjudicating authority may either admit the

application or reject it. If the application made under sub-

section (2) is incomplete, the adjudicating authority,

under the proviso to sub-section 5, may give a notice to

the applicant to rectify defects within 7 days of the receipt

of the notice from the adjudicating authority to make the

Company Appeal (AT) (Insolvency) No. 221 of 2017 6

application complete. Once this is done, and the

adjudicating authority finds that either there is no

repayment of the unpaid operational debt after the

invoice (Section 9(5)(i)(b)) or the invoice or notice of

payment to the corporate debtor has been delivered by

the operational creditor (Section 9(5)(i)(c)), or that no notice

of dispute has been received by the operational creditor

from the corporate debtor or that there is no record of such

dispute in the information utility (Section 9(5)(i)(d)), or that

there is no disciplinary proceeding pending against any

resolution professional proposed by the operational

creditor (Section 9(5)(i)(e)), it shall admit the application

within 14 days of the receipt of the application, after

which the corporate insolvency resolution process gets

triggered. On the other hand, the adjudicating authority

shall, within 14 days of the receipt of an application by

the operational creditor, reject such application if the

application is incomplete and has not been completed

within the period of 7 days granted by the proviso

(Section 9(5)(ii)(a)). It may also reject the application

where there has been repayment of the operational debt

(Section 9(5)(ii)(b)), or the creditor has not delivered the

invoice or notice for payment to the corporate debtor

(Section 9(5)(ii)(c)). It may also reject the application if the

Company Appeal (AT) (Insolvency) No. 221 of 2017 7

notice of dispute has been received by the operational

creditor or there is a record of dispute in the information

utility (Section 9(5)(ii)(d)). Section 9(5)(ii)(d) refers to the

notice of an existing dispute that has so been received, as

it must be read with Section 8(2)(a). Also, if any

disciplinary proceeding is pending against any proposed

resolution professional, the application may be rejected

(Section 9(5)(ii)(e)).

34. Therefore, 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

Company Appeal (AT) (Insolvency) No. 221 of 2017 8

receipt of the demand notice of 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."

9. As, admittedly the suit between the parties was pending before

the date on which demand notice was issued under sub-section (1) of

Section 8 of the 'I&B Code' and was also pending when the application

under Section 9 of the 'I&B Code' was admitted, we hold that the

application under section 9 of the 'I&B Code' was not maintainable. For

the reasons aforesaid, we set aside the order dated 30th August, 2017

passed by Adjudicating Authority, Bengaluru Bench in CP (IB) No.

01/BB/17 and allow the appeal.

10. However, suit having already been withdrawn, it is open to any of

the 'Financial Creditors' or 'Operational Creditors', including the 1st

Company Appeal (AT) (Insolvency) No. 221 of 2017 9

Respondent and the workmen to move fresh application under sections

7 or 9 of the 'I&B Code', if not preferred.

11. It is informed that some other applications under Section 9 of the

'I&B Code' have been filed against the Appellant-'Corporate Debtor' and

are pending before the Adjudicating Authority. The Adjudicating

Authority may consider the same independently uninfluenced by the

impugned order dated 30th August, 2017 and order passed by this

Appellate Tribunal.

12. In effect, order (s) passed by Adjudicating Authority appointing

'Interim Resolution Professional', declaring moratorium, freezing of

account and all other order (s) passed by Adjudicating Authority pursuant

to impugned order and action, if any, taken by the 'Interim Resolution

Professional', including the advertisement, if any, published in the

newspaper calling for applications and all such orders and actions are

declared illegal and are set aside. Learned Adjudicating Authority will

close the proceeding. The 'Corporate Debtor' company is released from

all the rigour of law and is allowed to function independently through its

Board of Directors from immediate effect, if no other proceeding under

'I&B Code' is initiated.

13. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional', if appointed, and the 'Corporate Debtor' will pay the fees for

the period he has functioned. The appeal stands disposed of with

Company Appeal (AT) (Insolvency) No. 221 of 2017 10

aforesaid observation and liberty. However, in the facts and

circumstances of the case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) Ar/g

Company Appeal (AT) (Insolvency) No. 221 of 2017