M/S. Bhash Software Labs Pvt. Ltd vs M/S. Mobme Wireless Solutions Ltd

M/s. Bhash Software Labs Pvt. Ltd. .Appellant

Vs.

M/s. Mobme Wireless Solutions Ltd. Respondent

Present: For Appellant:- Shri Shishira Amarnath and Shri Shoumendu Mukherji, Advocates

For Respondent:- Shri Sharmender Mukherji, Shri Haripriya Padmanabhan and Ms. Pooja Dhar, Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Respondent-M/s. Mobme Wireless Solutions Ltd-"Operational

Creditor" preferred an application under section 9 of Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as "I & B Code") for

initiation of Corporate Insolvency Resolution Process against Appellant-

M/s. Bhash Software Labs Pvt. Ltd.-"Corporate Debtor". The Adjudicating

Authority, (National Company Law Tribunal), Chennai Bench, Chennai, by

impugned order dated 1St June, 2017 admitted the application, initiated

Insolvency Resolution Process and passed prohibitory orders in terms of I

& B Code.

2. The Appellant has challenged the impugned order mainly on

following grounds: -

(i) The impugned order has been passed in violation of Rules of

natural justice without notice to the appellant.

(ii) No notice under section 8 of I & B Code or under Rule 5(3) of

the I & B (Application to Adjudicating Authority) Rules, 2016 has

been served on the appellant.

(iii) There is an existence of dispute and therefore application

under section 9 was not maintainable.

3. On notice Respondent- "Operational Creditor" has appeared. Ld.

Counsel for the Respondent submitted that the appellant changed its

address but had not informed the same to the "Operational Creditor". It

was further contended that the e-mail notice was served on appellant on

7th March, 2017. A copy of notice under Section 8 of the I & B Code, 2016

for unpaid debts was attached. However, Ld. Counsel for the Respondent

accepts that the Adjudicating Authority had not issued any notice to the

Appellant before admission of the application under section 9 of the I & B

Code.

4. From impugned order dated 51 d, June, 2017, it is clear that the notice

sent by Respondent was not served on the appellant and was returned

with the endorsement "left without information". Though, the same was

noticed by the Adjudicating Authority, instead of directing the respondents

to issue fresh notice on correct and present address, the Adjudicating

Authority observed "However, the petition was sent to proper address".

5. From the record, we find that the Registered Office of the "Corporate

Debtor" is at #267-A, Kilipauck Garden Road, Chennai-600 010. However,

the notice was sent to the Appellant on - different address at 'Dharmaraja

Koil Street, Kilpauk Garden, Chennai-600 010'.

6. It is not in dispute that the address of the appellant was changed

and recorded in the register with the Registrar of Companies. It was not

the duty of the appellant to inform the "Operational Creditor" the change

of the address for the purpose of filing a case/ application under section 9

of the I & B Code. If the notice under section 8 issued by respondent-

"Operational Creditor" was returned due to incorrect address, it was the

duty of the "Operational Creditor" to provide the correct and present

address of the 'Corporate Debtor" before preferring any application under

section 9 of the I & B Code.

7. In any case, it is accepted that no notice was issued by the

Adjudicating Authority before admission of the application.

8. In "MIs. Innoventive Industries Ltd. v. ICICI Bank & Anr -

Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017", this Appellate

Tribunal held:

"53. In view of the discussion above, we are of the view and

hold that the Adjudicating Authority is bound to issue a limited

notice to the corporate debtor before admitting a case for

ascertainment of existence of default based on material

submitted by the financial creditor and tofind out whether the

application is complete and or there is any other defect required to be removed. Adherence to Principles of natural

justice would not mean that in every situation the adjudicating

authority is required to afford reasonable opportunity of

hearing to the Corporate debtor before passing its order."

9. In view of the such decision, we hold that the impugned order dated

1St June, 2017 cannot be upheld having passed in violation of Rules of

natural justice.

10. There is an existing dispute with regard to the debt amount as is

apparent from the record.

11. The respondent-"Operational Creditor" issued a notice dated 25th

August, 2016 under section 433(e) of the Companies Act, 1956 to the

Appellant-"Corporate Debtor" for payment of debt amount. Notice was

issued through Mr. Robi Isaac, Ninan and Mathem, Advocates. Pursuant

to the said notice, the "Corporate Debtor" sent reply through Advocate Mr.

Vishwanath Venkatesh on 23rd September, 2016, raising the dispute about

the service rendered by respondent-"Operational Creditor" and pointed out

the poor quality of the service. The relevant portion of the reply dated 23rd

September,20 16 on behalf of the appellant reads as follows:

"2. In pursuance of the Service, Our Client was in need of

persons with the infrastructure and technical proficiency

to send such bulk SMSes to the public ("Service"). Your

Client is one such entity that does so as its primary

occupation and approached Our Client with an offer its

expertise to Our Client. Thereafter, Our Client entered into 5

a Service Level Agreed dated 3 January 2015

("Agreement") to engage Your Client for the above. Asper

the Agreement, Our Client would provide the content of the

SMSes and the phone numbers to which such SMS would

be sent and response to any subsequent interest that the

SMS may evoke and Your Client would perform the

Service. As per Annexure HI of the Agreement, Our Client

was to pay Your Client INR. 085/-plus taxes per SMS sent

by Your Client in pursuance of the Agreement.

3. The Agreement was performed by both parties to

satisfaction up till November 2015. In November 2015,

Your Client requested Our Client to opt for a higher

category of the Service offered by Your Client, promising

Our Client that this would provide Our Client with access

to better network resources that would enable Our Client

to send more SMSes at superior speeds compared to the

category of Service currently by Our Client ("New

Service"). If Our Client was to avail the New Services, the

rate for each SMS would be higher than that stipulated in

the Agreement. Your Client assured Our Client that the

New Service would be optimal for Our Client's

requirements and would greatly benefit Our Client's

business. Agreeable to the above, Our Client opted for the

higher category of services offered by Your Client.

4. However, despite availing the New Service, there was

no change in the speed or quality from that of the Service

itself. Our Client brought this to Your Client's attention on

numerous occasions and requested that they address the

same considering that Your Client had commenced

invoicing Our Client as per the rates for the New Service.

Despite further, it was brought to Your Client's notice that

the New Service's failure to live up to Your Client's

promises are "Priority Level Problems" as provided for in

Annexure IV of the Agreement.

5. The above situation persisted for a few months upon

availing the New Service. Thereafter, in February 2016,

rather than address the problems highlighted above, Your

Client abruptly terminated the Agreement, leaving Our

Client in the lurch and scrambling for alternatives to

continue the Service. Your Client made a demand for

payment of the outstanding invoices for the period

commencing November 2015 and ending February 2016

for a total amount of INR. 75,76,380/- ("Invoice

Amount"). Our Client once again brought to Your Client's

attention the poor quality of the New Service was a breach

of the terms of the Agreement. However, Our Client, agreed

to commence payments towards the undisputed part of the

Invoice Amount while the parties renegotiated the invoices

to factor in the failures of the New Service. Accordingly, 7

Our Client paid INR. 29,00,000/- till date towards the

Invoice Amount.

xxx xxx xxx

8. Further, we bring to your attention that, the. above

circumstances is a bona fide dispute between the parties

over the terms of the Agreement. There is no question of

invoking Sec.433(e) of the Companies Act, 1956 against a

solvent entity such as Our Client, and the same would be

frivolous, extortionist and a misuse ofjudicial process. Our

Client shall not be cowed into submission by threats of

malicious prosecution made to preclude Your Client's

obligations under the Agreement and the dispute

resolution mechanism provided therein.

9. Therefore, if Your Client elects to pursue such a legally

unsound course of action, it would be at Your Client's risk,

cost and embarrassment. Further, in such an event, Our

Client shall be constrained to initiate legal action against

Your Client, both civil and criminal, against Your Client to

protect itself against any adverse consequences to Our

Client's reputation and business due to Your Client's

malicious petition."

12. In "Kirusa Software Private Ltd. v. Mobilox Innovations Private

Ltd.- Company Appeal (AT) (Insol.) No. 6 of 2017" this Appellate

Tribunal by judgment dated 24th May, 2017 while interpreting the meaning

of "dispute" and "existence of dispute, if any", observed: 8

"31. The dispute under I&B Code, 2016 must relate to

specified nature in clause (a), (b) or (c) i.e. existence of

amount of debt or quality of goods or service or breach of

representation or warranty. However, it is capable of being

discerned not only from in a suit or arbitration from any

document related to it. For example, the 'operational

creditor' has issued notice under Code of Civil Procedure

Code, 1908 prior to initiation of the suit against the

operational creditor which is disputed by 'corporate debtor.

Similarly notice under Section 59 of the Sales and Goods Act

if issued by one of the party, a labourer/employee who may

claim to be operation creditor for the purpose of Section 9 of

I&B Code, 2016 may have raised the dispute with the State

Government concerning the subject matter i.e. existence of

amount of debt and pending consideration before the

competent Government. Similarly, a dispute may be

pending in a Labour Court about existence of amount of

debt. A party can move before a High Court under writ

jurisdictions against Government, corporate debtor (public

sector undertaking). There may be cases where one of the

party has moved before the High Court under Section 433

of the Companies Act, 1956 for initiation of liquidation

proceedings against the corporate debtor and dispute is

pending. Similarly, with regard to quality of foods, if the

'corporate debtor' has raised a dispute, and brought to the 9

notice of the 'operational creditor' to take appropriate step,

prior to receipt of notice under sub-section (1) of Section 8 of

the 'I& B Code one can say that a dispute is pending about

the debt. Mere raising a disputefor the sake of dispute,

unrelated or related to clause (a) or (b) or (c) of Sub-section

(6) of Section 5, if not raised prior to application and not

pending before any competent court of law or authority

cannot be relied upon to hold that there is a 'dispute' raised

by the corporate debtor. The scope of existence of 'dispute',

if any, which includes pending suits and arbitration

proceedings cannot be limited and confined to suit and

arbitration proceedings only. It includes any other dispute

raised prior to Section 8 in this in relation to clause (a) or (b)

or (c) of sub-section (6) of Section 5. It must be raised in a

court of law or authority and proposed to be moved before

the court of law or authority and not any got up or malafide

dispute just to stall the insolvency resolution process."

13. The case of appellant is covered by decision in "Kirusa Software

Private Ltd. v. Mobilox Innovations Private Ltd." There being

"existence of dispute", we hold that the petition under section 9 preferred

by respondent- "Operational Creditor" was not maintainable.

14. For the reasons aforesaid, we set aside the impugned order dated 1st

June, 2017 passed by the Ld. Adjudicating Authority, Chennai Bench in

Company Petition No. 506(IB)/CB/2017.

10

15. In effect, order (s), if any, passed by Ld. Adjudicating Authority

appointing any 'Interim Resolution Professional' or declaring moratorium,

freezing of account, if any, 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 all such orders and

actions are declared illegal and are set aside. The application preferred

by Respondent under Section 9 of the I&B Code, 2016 is dismissed.

Learned Adjudicating Authority will now close the proceeding. The

appellant company is released from all the rigour of law and is allowed to

function independently through its Board of Directors from immediate

effect.

16. Learned Adjudicating Authority will fix the fee of 'Interim

Resolution Professional ', if appointed, and the Respondents will pay the

fees of the Interim Resolution Professional, for the period he has

functioned. The appeal is allowed with aforesaid observation and

direction. However, in the facts and circumstances of the case, there

shall be no order as to cost.

(Mr. BalvinderSingh) (Justice S.J. Mukhopadhaya) Member (Technical) Chairperson

NEW DELHI 29th August, 2017

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