M R Logistics India Pvt Ltd vs Aga Publications Ltd

[Arising out of order dated 26th June, 2020 passed by the Adjudicating Authority, National Company Law Tribunal, Hyderabad Bench, Hyderabad, in CP (IB) No. 636/9/HDB/2019]

IN THE MATTER OF:

M/s. M + R Logistics (India) Private Limited (Formerly PL Shipping & Logistics Private Limited) Having Registered Office at: 56/57, 3rd Floor, Rajaji Salai, Chennai- 600 001 Tamil Nadu Operational Creditor/ ... Appellant

Vs.

M/s AGA Publications Limited Having Registered Office at: 396, Vaartha, Lower Tank, Bund Road, Hyderabad- 500 080 Corporate Debtor/ .. Respondent

Present:

For Appellant: Mr. E. Omprakash, Sr. Advocate with Mr. M. Anbalagan and Ms. Rithikha , Advocates

For Respondents: Mr. P. Nagesh, Advocate

JUDGMENT

( 1st February, 2021)

KANTHI NARAHARI, MEMBER (TECHNICAL)

The present appeal filed by the Appellant aggrieved by the order

dated 26th June, 2020 passed by National Company Law Tribunal,

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 1 of 15 Hyderabad Bench, Hyderabad ("Adjudicating Authority"), in CP (IB)

No. 636/9/HDB/2019 rejecting the Application filed by the Appellant.

Brief Facts:

2. The Appellant filed the application under Section 9 of Insolvency

and Bankruptcy Code, 2016 (in short 'IBC') in the capacity as

Operational Creditor. The Appellant is engaged in the business of

Freight Forwarding and Custom Clearance and the Respondent is a

News Print Limited.

3. On 01.01.2010, the Respondent-Company issued a contractual

order to the Appellant. The Appellant was handling consignment of the

Respondent from 01.01.2010 to 29.05.2010 containing 14 documents

in a span of six months and they have raised 14 invoices for payment

of their charges in terms of the contractual order. The Invoices raised

are between 12.05.2010 to 29.05.2010. The last payment was received

by the Appellant from the Respondent was on 06.07.2010 for a sum of

Rs. 1,89,000/-.

4. Failing to pay the amount by the Respondent, the Appellant

issued a statutory notice dated 09.12.2010 under Section 434 of the

Companies Act, 1956 for winding up of Respondent-Company on the

ground of inability to pay the dues. After issuance of Notice, the

Appellant filed Company Petition being C.P. No. 34 of 2011 before the

Hon'ble High Court of Andhra Pradesh for winding up of the

Respondent- Company.

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 2 of 15

5. The Respondent filed its Counter Affidavit before the Hon'ble

High Court and raised some issues on two documents. During the

pendency of the aforesaid Company Petition before the Hon'ble High

Court, the Appellant preferred Civil Suit being OS No. 778 of 2013

before the Court of the Chief Judge, City Civil Court, Hyderabad for

recovery of the same amount. The Respondent filed the Written

Statement on 20.06.2014 with the same stand as stated in the Counter

Affidavit filed in the Company Petition before the Hon'ble High Court

of Andhra Prasad.

6. While so, after introduction of IBC, 2016, the Appellant filed an

I.A. No. 5/2018 in C.P. No. 34/2011 before the Hon'ble High Court of

Andhra Pradesh to transfer the Company Petition to the National

Company Law Tribunal (in short NCLT), Hyderabad on 14.06.2018.

The Hon'ble High Court of Andhra Pradesh allowed the Application and

ordered to transmit the case filed to NCLT Hyderabad on 18.07.2018.

7. The Company Petition was taken on file by the Adjudicating

Authority on 05.09.2019. The Respondent filed Counter Affidavit

before the Adjudicating Authority and pleaded that there was dispute

even before the initiation of the proceeding and hence the Appellant

cannot invoke the provision of IBC, 2016. The Adjudicating Authority

accepted the contention of the Respondent and passed the following

order:

...

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 3 of 15

"13. Since there exists a real dispute between the

Applicant and the Respondent in respect of claims

made vide invoices raised in the month of May,

2010, we are not inclined to admit this application.

14. In view of the above observations, CP(IB) No.

636/9/HDB/2019 is hereby rejected. No order as

to costs"

...

8. The Respondent filed their Counter Affidavit before this

Tribunal and submitted by admitting the fact that Respondent

engaged the Appellant as forwarding Agent on 01.01.2010 to handle

their voluminous SIC (Sea Import Consignment) capital consignment

with necessary authority applicable to handle the same. It is further

submitted that the dispute arises between the parties when the

Appellant Company did not provide proper service and due to

insufficient and delayed service, existence of dispute arose between the

parties. The gross claim of the Appellant was Rs. 30,51,583.28. The

Respondent on 06.07.2010 has remitted an amount of Rs. 1,89,000/-

to the Appellant and disputed the balance payment on the ground of

deficiency of service due to which the Respondent had to face huge

financial loss.

9. It is also submitted that the Appellant vide e-mail dated

08.07.2010 has agreed that there is a deficiency in service rendered by

them and they undertook to absorb loss incurred by the Respondent

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 4 of 15 to the extent of Rs. 1,10,799/-. Thereafter, vide email dated

16.07.2010, the Appellant accepted to bear Rs. 2.06 lakhs towards

delay in clearance of two documents. It is further submitted that the

Appellant filed a Civil Suit being OS No. 778 of 2013 before the Hon'ble

City Civil Court, Hyderabad claiming an amount of Rs. 46,24,500/-

against the invoices. It is submitted that the Respondent filed its

Written Statement to the Civil Suit wherein the Respondent raised a

counter claim of Rs. 41 lakhs due to delay and deficiency in services

caused by the Appellant. The counter claim was raised as Respondent

had to appoint another agent in place of the Appellant because of the

delay and deficiency in services caused by the Appellant. The reasons

best known to the Appellant, the Appellant did not pursue the Civil

Suit and it was dismissed for default on 03.08.2018 by the City Civil

Court, at Hyderabad.

Findings:

10. Heard learned Counsel appearing for the respective parties.

Perused the pleadings, the documents and the citations filed relied

upon by the parties in their support.

11. From the perusal of the impugned order at paragraph-4, the

contents of the Respondent have been noted whereby the Respondent

has taken a stand on following three issues and sought for dismissal

of the Application filed by the Applicant/Appellant.

a) Existence of dispute prior to notice

b) Barred by Limitation

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 5 of 15

12. With regard to the 2nd part i.e., barred by limitation, the

Adjudicating Authority has taken a correct stand that the proceeding

has been transferred from the Hon'ble High Court, Andhra Pradesh in

I.A. No. 5/2018 in C.P. No. 34/2011 and the Hon'ble High Court, by

order dated 18.07.2018, transferred the matter to NCLT, Hyderabad

Bench. In pursuance of the said order, the Appellant approached

NCLT, Hyderabad. Therefore, there is no question of barred by

limitation. Accordingly, the Adjudicating Authority rejected the stand

of the Respondent herein. Further, the main issue i.e., existence of

dispute prior to the notice was considered by the Adjudicating

Authority and in our view, the Adjudicating Authority, by relying of the

judgment of the Hon'ble Supreme Court was of the view that there is

existence of dispute prior to the filing of the proceeding before the

Adjudicating Authority, rightly rejected the Application filed by the

Appellant.

13. We have perused the documents filed by the Appellant at Page-

59, Annexure-P, the Appellant on 09.12.2010 issued a statutory Notice

under Section 434 of the Companies Act, 1956 to the Respondent

herein demanding an amount of Rs. 30,62,583/- on the basis of

Invoices as mentioned in the Demand Notice. It is admitted in the

Demand Notice signed by the Appellant that they have received a

cheque for Rs. 1,89,000/- from the Respondent leaving a huge balance

of Rs. 30,62,583/-.

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 6 of 15

14. In paragraph-8 of the Demand Notice, the Appellant admitted

that they have addressed an e-mail dated 08.07.2010 stating that they

are willing to bear the cost for an amount of Rs. 1,10,779/-. From the

perusal of the Demand Notice under Section 434 of the Companies Act,

1956, the Appellant had admitted that they are willing to bear some

costs. After the issuance of the above Demand Notice, the Appellant

filed the Company Petition before the Hon'ble High Court of Andhra

Pradesh seeking winding up of the Respondent-Company for the

reasons that the Respondent failed and neglected to pay the

outstanding amount of Rs. 30,62,583/- with interest of 18% per

annum for the services rendered by it to the Respondent as on filing of

the petition. The Respondent had filed Counter Affidavit to the above

Company Petition on 26.09.2011.

15. It is seen that the Respondent had raised the dispute before the

Hon'ble High Court of Andhra Pradesh in the Counter Affidavit dated

26.09.2011 filed as Annexure-R at page 81 along with the Appellant's

Appeal Paper Book., it is stated that the Appellant failed to maintain

the time schedule to clear the cargo out of which the Respondent

suffered the business loss on account of delay. As a matter fact, the

Petitioner-Company (Appellant) admitted the delay and even agreed to

bear a sum of Rs. 1,10,779/-and Rs. 2,60,000/- vide their e-mails

dated 08.07.2010 and 16.07.2010. Further, it is stated as such, the

services rendered by the Appellant to the Respondent under the

contract required to examine the relevant bills, its acknowledgement,

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 7 of 15 number, delay occurred, damaged caused on account of such delay,

verification and reconciliation of accounts after taking into account

debit and credit notes, if any exchanged between the parties and the

Respondent is ready and willing to settle and pay the amounts found.

16. Further Counter Affidavit dated 26.09.2011, the Respondent

had stated that there are certain disputes existed between the parties

to settle their respective accounts in relation to contract entered by

and between the Petition (Appellant) and Respondent and such dispute

will have to be resolved after taking into consideration of reconciliation

of accounts. The Appellant also filed Civil Suit before the Hon'ble City

Civil Court for recovery of the dues amounting to Rs. 30,62,583/-

towards principle and Rs. 15,61,917/- towards interest aggregating to

Rs. 46,25,500/- in the above suit. Respondent filed their Written

Statement before the City Civil Court.

17. At paragraph-e, page 113 of Volume-1, it is stated that the

Plaintiff (Appellant) failed to carry out the jobs entrusted to them as

some of the consignments cleared with abnormal delay out of which

the Defendant (Respondent) forced to incur demurrages and handling

charges in the Port of entry and paid to the custom authorities and

some of the consignments have not been cleared though documents

furnished, the goods arrived to the Port as per schedule and on

account of withholding documents and consignment or news print by

the Plaintiff (Appellant), the Defendant (Respondent) being a News

Paper industry was forced to buy the news print in the open market by

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 8 of 15 incurring substantial money and further spent money once again and

obtained the loan documents from the Bank appointed the Clearing

Agent afresh and thereby incurred substantial loss towards

demurrages and handling charges. Apart from these costs and

business loss etc. totalling to Rs. 41 lakhs, it is also stated that the

Respondent was forced to terminate the Appellant and appointing

another Agent. Whereas the Appellant without rendering proper

account and without reconciliation both the accounts maintained by

the parties, the Appellant agreed to forgo a sum of Rs. 1,10,799/- as

well as Rs. 2,60,000/- towards delay in clearing the consignment

which amount is a paltry sum when compared to claim of Rs. 45 lakhs

against the Appellant.

18. After transferring the matter from the Hon'ble High Court of

Andhra Pradesh to the NCLT, Hyderabad by order of the Hon'ble High

Court, the Appellant issued Demand Notice under Section 8 of IBC

dated 21.02.2019 (Annexure - W, page 120 of Vol. II) to the Respondent

claiming a sum of Rs. 30,62,583.00 with an interest @ 18% per annum

since 06.07.2010. The Respondent filed Counter to the Application

before the Adjudicating Authority, raising the same plea as raised

before the Hon'ble High Court of Andhra Pradesh and the Hon'ble City

Civil Court at Hyderabad stating that there exists a dispute prior to

the initiation of the proceeding before the Adjudicating Authority and

submitted that as per the provisions of IBC, if there exists a dispute

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 9 of 15 prior to the initiation of the proceeding or prior to the issuance of

Demand Notice, the Application is not maintainable.

19. Now, we intend to refer to the crucial e-mails addressed by the

Appellant to the Respondent dated 08.07.2010 and 16.07.2010 (pages

13 & 14 of the Reply filed by the Respondent before this Tribunal).

Page-13, Annexure-A1 is the email dated 08.07.2010 addressed to the

Respondent whereby it is stated:

"Dear Sir,

Thanks at the outset for extending the personal

appointment today.

Further to our discussions, have discussed this

our senior management and agree to absorb the

detention charges that accrued due to our delay

on these shipments."

...

Page -14 of the Reply, the Appellant addressed an e-mail dated

16.07.2010 to the Respondent stated as under:

"Dear Mr. Gaurav,

Further to our discussion we, PL Shipping

accepted to bear Rs. 2.6 lakhs towards delay in

clearance of the 2 documents."

It is apparent from the e-mails of the Appellant that they have

acknowledged that there was some delay on their part and wanted to

forgo a sum of Rs. 1,10,799/- and Rs. 2,60,000/- lakhs.

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 10 of 15

It is to be noted that these e-mails of the Appellant are after the

receipt of Final Payment from the Respondent. The Respondent had

categorically stated before the Hon'ble High Court, Andhra Pradesh and

the Hon'ble City Civil Court, at Hyderabad that there was delay and

dispute with regard to the accounts and invoices raised by the Appellant.

They have clearly stated that the accounts need to be reconciled. Further,

the Respondent had categorically stated that they have suffered loss for

the abnormal delay and thereby they were constrained to engage another

Agent to clear the goods consignment and spent money towards

demurrage and neglecting charges and loss of business. It is explicit that

the Respondent had raised the dispute prior to the filing of the petition

and prior to the issuance of Demand Notice. Therefore, in view of the

provisions of IBC, where there is existence of dispute, the Application is

not maintainable and liable to be rejected. Further, Hon'ble Supreme

Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd.

-- (2018) 1 SCC 353) has categorically held:

"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

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 11 of 15 in Rule 5 of the Insolvency and 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. ....."

"51. ..... Therefore, all that the adjudicating authority

is to see at this stage is whether there is a plausible

contention which requires further investigation and that

the "dispute" is not a patently feeble legal argument or an

assertion of fact unsupported by evidence." ....

[Emphasis supplied]

LEGAL POSITION:

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 12 of 15

20. Section 9 of IBC deals with the Application for initiation of

Corporate Insolvency Resolution Process (in short CIRP) by

Operational Creditor. Sub-section 3(d) read as under:

...

"(3)(d) a copy of any record with information

utility confirming that there is no payment of an

unpaid operational debt by the corporate debtor, if

available; and"

...

As per the decision of the Hon'ble Apex Court, the Corporate

Debtor (Respondent in this case) must bring to the notice of

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. In the present

case, the Respondent very well brought to the notice of the Appellant

with regard to the existence of dispute much prior to filing Section 9

Application. Therefore, the Judgment of Hon'ble Apex Court squarely

applicable to the facts of present Case.

..

21. From the facts and records it is emphatically clear that there

exists a dispute between the parties which are prior to issuance of

Demand Notice. Neither the Adjudicating Authority nor this Appellate

Tribunal, in summary jurisdiction, can go into those issues which

otherwise require a regular trial.

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 13 of 15

22. From the above provision of law, it is clear that the moment there

is an existence of dispute, the Corporate Debtor gets out of clutches of

the rigour of the Court. Further, the adequacy of dispute is only to be

seen where the dispute raised by the Corporate Debtor specify as a

dispute as defined under Section 5(6) of IBC. Further, the Hon'ble

Supreme Court clearly held:

"What is important is that the existence of dispute

and/or the suit or arbitration proceedings must be

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

the Demand Notice or Invoices as the case may

be."

CONCLUSION:

23. Hence by relying judgment of the Hon'ble Supreme Court and in

view of provisions of IBC i.e., 9(5)(ii)(d) of IBC that there is a record of

dispute existing between the parties prior to issuance of Demand

Notice and prior to filing of Section 9 Application. Hence, the same

cannot be either entertained by the Adjudicating Authority or this

Tribunal in a Summary Proceeding as held by the Hon'ble Supreme

Court in the matter of Mobilex Innovations Pvt. Ltd. Vs. Kirusa

Software Pvt. Ltd. -- (2018) 1 SCC 353) supra.

24. In view of the aforesaid reasons, we are not inclined to interfere

with the order passed by the Adjudicating Authority. The appeal is

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 14 of 15 devoid of the merits and liable to be dismissed. Accordingly, the same

is dismissed. No order as to costs.

[Justice Venugopal M.] Member (Judicial)

(Kanthi Narahari) Member(Technical)

Pronounced by one Member of the Bench in terms of Rule 92(1) of the NCLAT Rules, 2016.

(Kanthi Narahari) Member(Technical)

New Delhi

Akc

Company Appeal (AT)(Insolvency) No. 667 of 2020 Page 15 of 15