M/S Biswa Janani Services Bhubaneswar vs Shree Nakoda Ispat Limited

1. M/s. Biswa Janani Serivces, Bhubaneshwar, Through its Managing Partner, Biswamitra Mahakud, aged about 27 years, son of Sanatan Mahakud, resident of Nambira, P.O./P.S. - Bamebari, District - Keonjhar, Odisha, R/o: At- Plot No. 884/5666 & 885, ...Appellant P.O. Rasulgarh, Bhubaneshwar, District - Khurda, Odisha

Versus 1. M/s. Shree Nokoda Ispat Limited, Registered office at- Near Railway Crossing, Mowa Raipur, Chhattisgarh ...Respondent

For Appellant: Mr. Darpan Wadhwa, Sr. Advocate with Mr. Shreyan Das, Mr. Avijit Patnaik, Mr. Bidesh Ranjan Behera, Mr. Amer Vaid, Advocates For Respondent: Mr. Ratan K. Singh, Sr. Advocate with Mr. Rajeev Gurung, Advocate

JUDGEMENT

Ashok Bhushan, J:

1. This Appeal by an Operational Creditor has been filed against the

Order dated 02nd August, 2022 passed by the National Company Law

Tribunal, Cuttack Bench, Cuttack (hereinafter referred to as "The

Adjudicating Authority"). By which Order, the Application filed under Section -2-

9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as

"The Code") by the Appellant has been rejected on the ground of pre-existing

dispute between the parties.

2. Brief facts for deciding this Appeal are:-

 The Appellant is a Partnership Firm engaged in executing contractual

work. The Respondent issued Purchase Orders for supply of Crushed

Iron Ore. The Appellant in pursuance of the Purchase Orders, supplied

Crushed Iron Ore. Appellant claiming outstanding dues payable by the

Respondent issued a Demand Notice under Section 8 of the Code on

01st September, 2021.

 The Demand Notice dated 01st September, 2021 was replied by issuing

Notice of Dispute by the Corporate Debtor dated 14th September, 2021.

 Application under Section 9 of the Code was filed by the Appellant

claiming outstanding amount of Rs. 5,41,88,211/-. In the Section 9

Application, Reply was filed by the Corporate Debtor disputing the

claim of the payment. The Respondent's plea was that it placed 12

Purchase Orders upon the Operational Creditor for supply of Iron Ore.

Out of said 12 Purchase Orders, Operational Creditor supplied raw

materials only against 8 Purchase Orders and even raw materials

supplied against 8 Purchase Orders were found to be inferior quality.

Corporate Debtor, from time to time, during 31st December, 2019 to

31st March, 2020 issued 8 Debit Notes adjusting the due amount

mentioned in the invoices and in so far as remaining 4 Purchase

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Orders are concerned, Operational Creditor had failed and neglected to

supply raw materials despite having received the advance amount of

Rs. 1,21,00,000/-

 The emails dated 1st June, 2020, 01st September, 2020 and 15th

February, 2021 relied by Operational Creditor alleging that Corporate

Debtor had accepted the liability, were neither issued by the Corporate

Debtor nor can be read as in any manner as acknowledgement of debt

as the aforesaid emails were sent through the Official Email Id

unauthorizedly by one Ms. Mahi Batra who was no more in

employment of the Corporate Debtor after May, 2020. There were

materials evidencing pre-existing dispute. Debit Notes, last being sent

on 31st March, 2020 and emails / letters dated 22nd April, 2021, 07th

May, 2021 and 12th June, 2021 all prior to issuance of demand notice

clearly proved pre-existing dispute between the parties.

 The Adjudicating Authority after hearing the parties passed the Order

dated 2nd August, 2022 rejecting Section 9 Application. The

Adjudicating Authority came to the conclusion that the email sent by

Ms. Mahi Batra allegedly acknowledging the liability were sent by Ms.

Mahi Batra after she quit the employment. Hence for deciding the

binding nature of alleged acknowledgement further investigation is

necessary. The Appellant being aggrieved by the said Order, has come

up in this Appeal.

3. Learned Counsel for the Appellant challenging the Order impugned

contends that only 8 Purchase Orders were issued to the Appellant for which

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the necessary supply was made by the Operational Creditor and the Section

9 Application was filed claiming the debt pertaining to outstanding dues. It is

submitted that in view of the three emails sent by the Ms. Mahi Batra

acknowledging the debt, the Respondent cannot be heard in saying that

there is any pre-existing dispute. The pre-existing dispute based on the

alleged eight debit notes is spurious and illusory. All the supply of Iron Ore

against each Purchase Orders were loaded to the wagon and dispatched after

issuance of Form K and L. It was open for the Respondent not to accept the

raw material if there were any issues in relation to the chemical. All the

Adjudicating Authority was to see as to whether there is any plausible

contention which requires further investigation and is not patently feeble the

argument or assertion of fact is unsupported by evidence.

4. We have considered the submissions of Learned Counsel for the

parties and have perused the record.

5. In the facts of the present case, Notice of Demand was issued by the

Operational Creditor and by Demand Notice dated 01st September, 2021 the

Appellant demanded outstanding amount out of eight purchase orders with

interest as Rs. 5,41,88,211/-. It is relevant to notice that Demand Notice

under Section 8 was replied vide Letter dated 14th September, 2021 by the

Corporate Debtor stoutly refuting the claim of the Appellant. It is also

relevant to notice the allegations in Paragraph 7 and 8 of the Reply-Notice to

Demand Notice which are to the following effect:

"7. However, since the supplied materials were not as per the agreed qualities/standard, my client has

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issued debit notes. Needless to mention here that the calculation of the debit notes were based upon the NABL approved laboratory analysis reports, necessary IGST was charged and deposited in government treasury by my client. As your client was fully agreed and satisfied with the NABL sampling and analysis reports; hence they continued the supply of the materials/Iron ore rake by rake as per the purchase orders without raising any dispute.

8. It is submitted that my client has issued purchase orders for supply of 12 rakes to your client. Against the said purchase orders your client has so far supplied only 8 rakes of materials/Iron Ore to my client. The invoiced amount for all the 08 invoices valued to Rs 17,39,72,159/- (Rs Seventeen Crores Thirty Nine Lakhs Seventy two Thousand one Hundred and fifty nine only). The Analysis reports shall be the basis of payment, as per the terms of contract confirmation note/purchase orders, therefore time to time, my client has issued 08 debit notes amount to Rs. 5,81,68,451/- (Rs. Five Crores Eighty One Lakhs Sixty Eight Thousand Four Hundred and Fifty One only) for the quality difference amount, which was calculated as per the analysis reports received from the NABL Certified Laboratory. Hence, against the said invoices, my client had made full and final payment of Rs. 11,58,03,708/- (Rs. Eleven Crores Fifty Eight Lakhs Three Thousand Seven Hundred and Eight only) to your client and therefore nothing is due and payable against supply of 08 rakes of materials/Iron Ore by my client."

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6. Further in paragraph 10, it has been pleaded that amount of Rs.

1,21,00,000/- was advanced against the Purchase Orders to be supplied.

With regard to the emails sent by Ms. Mahi Batra alleging acknowledgment

on behalf of the Corporate Debtor which was denied, it was stated that Ms.

Mahi Batra was working as a Manager from December, 2018 to May, 2020

and emails sent thereafter by Ms. Mahi Batra were immoral and illegal. It

was further pleaded that since the materials supplied against the eight

purchase orders were not as per agreed quality and standard, debit notes

were issued based upon the NABL approved laboratory analysis reports. In

the Reply to Section 9 Application, the details of the pre-existing dispute

were again reiterated. It is sufficient to notice the averments made in

paragraph 3 of the Reply of the Corporate Debtor which is to the following

effect:

"3. At the outset, it is humbly submitted that the present petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) by the Operational Creditor is, per se, not maintainable for the reasons, including that there are pre-existing disputes between the parties in relation to the subject transaction relating to supply of raw material / iron ore by the operational creditor to Corporate Debtor.

The Corporate Debtor had placed total 12 purchase orders upon operational creditor for supply of iron ore. Out of said 12 purchase orders, the operational creditor had, however, from time to time supplied raw material/iron ore only against 8 purchase orders. Even the raw material supplied against said 8

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purchase orders were found to be of inferior quality on examination/testing conducted by a Government approved Analyst. The Corporate Debtor accordingly from time to fime during 31.12.2019 to 31.03.2020) issued 8 separate debit notes whereby it from time to time adjusted the amount from the amount mentioned in the invoices issued by operational creditor against said 8 purchase orders towards supply of inferior quality of raw material. Said debit notes were duly received by the authorized representative of operational creditor [Annexure 11(Colly)].

So far as remaining 4 purchase orders are concerned, the operational creditor had failed and neglected to supply raw material/iron ore despite having received the advance payment of Rs. 1,21,00,000/-. The operational creditor has neither supplied the material against said 4 purchase orders nor refunded the said amount despite repeated reminders dated 22.04.2021, 07.05.2021 & 12.06.2021 (Annexures- 12, 13 & 14) sent by Corporate Debtor to Operational Creditor in that behalf. In said letters, the Corporate Debtor had also raised claim for loss of profit on account of non-supply of raw material with respect to said remaining 4 purchase orders.

Receipt of said advance payment is evident from the bank account statement (Pg. 104 of petition) filed by the operational creditor with the present petition. Said 4 purchase orders were also duly accepted by Operational Creditor vide e-mail dated 17.12.2020 (Annexure -8).

Despite the above pre-existing dispute between the parties, the operational creditor calculatedly and

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malafidely issued demand notice dated 01.09.2021 to the corporate debtor alleging that there is default in payment on part of corporate debtor. The Corporate Debtor vide notice of dispute dated 14.09.2021 denied the allegation of operational creditor and brought the said pre-existing dispute to the notice of operational creditor. Subsequently, notice of invocation of arbitration dated 23.11.2021 (Annexure

- 23) under Section 21 of the Arbitration and Conciliation Act, 1996, followed by Corrigendum Notice dated 01.12.2021 (Annexure - 25) had been issued by Corporate Debtor to Operational Creditor for appointment of arbitrator to adjudicate all the disputes and differences between the parties in relation to the subject transaction of supply of iron ore.

However, the above said material fact and the documents related thereto regarding pre-existing disputes between parties have been willfully and knowingly concealed by the Operational Creditor while filing the instant petition.

The present petition is, therefore, liable to be dismissed/rejected by this Hon'ble Tribunal under the provisions of the IBC including under Section 9(5)(ii) (d) of the IBC, 2016 and operational creditor is liable to be proceeded against as per the provisions of Section 76 of IBC."

7. The Reply has specifically referred the email sent by the Corporate

Debtor dated 22.04.2021 and other emails prior to receipt of the Demand

Notice where as Demand was made to supply the material against the

subsequent four purchase orders for which advance of Rs. 1,21,00,000/-

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was issued. The reply has categorically explained the alleged emails sent by

Ms. Mahi Batra acknowledging the debt and I.A. was also filed by the

Corporate Debtor under Section 65 and 76 of the Code asking to initiate

proceeding under Section 76 of the Code against the Operational Creditor.

8. The Adjudicating Authority in the Impugned Order has in detail

noticed the invoice amount as well as debit notes and net payable amount in

paragraph 8 the amount of Rs. 11,58,03,708/- was paid hence nothing was

due. In the Reply Notice as well as Reply details of all debit notes and debit

note amount has been mentioned. There were sufficient materials on record

to indicate that no amount was due which was clearly mentioned, as per

Corporate Debtor the amount which was payable as against the 8 Purchase

Orders were already paid and against each invoices debit notes were issued

and Debit Note Amount was deducted and payments were made thereafter.

9. For further four purchase orders, advance was also made of Rs.

1,21,00,000/- for which, no supply was ever made. The Adjudicating

Authority further considering the relevant materials, has come to the

conclusion that there was pre-existing dispute between the parties hence the

Application under Section 9 of the Code was liable to be rejected and was

rejected.

10. We have carefully gone through the relevant materials brought on

record. The Notice of Dispute issued by the Corporate Debtor after receiving

the Demand Notice, which notice of dispute contains relevant facts

indicating that there is pre-existing dispute. The Adjudicating Authority has

rightly rejected the Application filed under Section 9 of the Code as per the

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provisions of the Code. We thus are satisfied that no illegality has been

committed by the Adjudicating Authority in rejecting the Section 9

Application. There is no merit in the Appeal, the Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical)

NEW DELHI 11th November, 2022

Basant

Company Appeal (AT) (Insolvency) No. 1315 of 2022