M/S Equipment Plant vs M/S Udit Infraworld Pvt Ltd

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 1110 of 2019 (Arising out of Order dated 14th August, 2019 passed by National Company Law Tribunal, Ahmedabad Bench, in C.P. No. (IB)- 477/9/NCLT/AHM/2018).

IN THE MATTER OF:

M/s. Equipment Planet C-127, Naraiana Industrial Area, Phase-I New Delhi - 110028 ...Appellant

Versus

M/s. Udit Infraworld Private Limited White House, Arjun Nagar, Rewa 486001, Madhya Pradesh ...Respondent

Appellant: Mr. Gautam Singh, Advocate. Respondent: Mr. Pratik Tripathi, PCS.

JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. Aggrieved by the Order dated 14.08.2019, passed by the Learned

Adjudicating Authority (National Company Law Tribunal, Ahmedabad

Bench) in C.P. No. (IB)- 477/9/NCLT/AHM/2018, M/s. Equipment

Planet/'the Operational Creditor' preferred this Appeal. By the Impugned

Order, the Adjudicating Authority has dismissed the Application filed by the

'Operational Creditor' under Section 9 of the Insolvency and Bankruptcy

Code, 2016 (in short the 'Code') observing as follows:

"12. In view of the aforesaid discussions the operational creditor is not entitled to raise any invoices for the period beyond 08.03.2018 as the corporate debtor had already issued termination notice in advance i.e. on 22.02.2018 in accordance -2-

with the terms and conditions stipulated in the work order dated 17.03.2017. Further, during the course of argument, it has been brought to the notice of this bench that Invoice No. 133 dated 05.02.2018 annexed with the objections of the respondent said to be issued by the operational creditor, marked as Annexure R-3, placed at page No. 26 shows total amount after tax as Rs.6,37,654.00, whereas, invoice of even number (i.e. invoice No. 133) placed at page No. 16 as Exhibit "D" of application reflects total amount after tax as Rs. 5,90,000.00. Further, description of the invoice No. 133 dated 05.02.2018 annexed by the applicant and the invoice No. 133 sent to Corporate Debtor are not the same.

13. Furthermore, it is found that in exhibit "A" at page No. 7 to the application, in case of bill No. 133 dated 05.02.2018 and the due date is shown as 06.02.2018 i.e. the very next day. Similarly, in case of bill No. 157 dated 05.03.2018, due date is shown as 06.03.2018 i.e. the very next day. In case of both the invoices, interest is charged on the basis of aforesaid calculation, whereas, for the remaining 3 bills, interest is charged considering 30 days' credit. For ready reference, the table produced by applicant, placed at page No. 7 to the application marked Exhibit "A" is reproduced here below:-

Invoice Invoice Invoice Amount Amount Interest as Total No. No. Date due Rs. due Rs. on of date 30.06.2018 days 133 5.2.18 6.2.18 5,90,000 2,91,501 20,700.55 3,12,201.30 144 157 5.3.18 6.3.18 5,90,000 5,90,000 33,751.23 6,23,751.23 116 178 31.3.18 1.4.18 5,90,000 5,90,000 26,186.30 6,16,186.30 90 22 30.4.18 1.5.18 5,90,000 5,90,000 17,457.53 6,07,457.53 60 39 31.5.18 1.6.18 5,90,000 5,90,000 8,437.81 5,98,437.81 29 Total 29,50,000 26,51,501 1,06,533.42 27,58,034.17

14. On perusal of the records it is found that operational creditor has wilfully or knowingly concealed the fact that the corporate debtor had already notified operational creditor about the termination of work way back on 22.02.2018, whereas, the demand notice was issued on

02.07.2018.

15. From the above discussions it is found that the documents attached to the application are misleading. Mere allegation of non-payment of alleged disputed debt is no proof of insolvency. Since the very objective of the Code is re-organisation and insolvency resolution of corporate persons, no objective will be Company Appeal (AT) (Insolvency) No. 1110 of 2019 -3-

served by subjecting a solvent company to insolvency resolution process. Further, recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. When creditors recover their dues - one after another or simultaneously from the available assets of the firm, nothing may be left in due course. Thus, while recovery bleeds the corporate debtor to death, resolution endeavours to keep the corporate debtor alive. In fact, the I&B code prohibits and discourages recovery in several ways. In the matter of "Arcelor Mittal India (P) Ltd. Vs. Satish Kumar Gupta and Ors." the Hon'ble Supreme Court observed that "corporate debtor" consist of several employees and workmen whose daily bread is dependent on the outcome of the CIRP. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible."

2. Submissions of the Learned Counsel appearing on behalf of the

Appellant:

 It is submitted by the Learned Counsel for the Appellant that the

Appellant is engaged in business of providing Commercial and

Industrial Machines on a rental basis. On 17.03.2017, the 'Corporate

Debtor' issued a Work Order to the Appellant, the rent for which was

finalised on monthly basis. On 19.01.2018, the 'Corporate Debtor'

sent an email asking the Appellant to provide Bill Nos. 33 and 72, in

reply to which, the Appellant sent a copy of the ledger showing the

amount 'due and payable' by the 'Corporate Debtor'. Email dated

24.01.2018 was also sent by the Appellant requesting the 'Corporate

Debtor' to release the balance payment. On 22.02.2018, the 'Corporate

Debtor' issued an email seeking to demobilize the machines and

requested to return the machines as per the Work Order. On

26.02.2018 and on 08.03.2018, the Appellant vide emails requested

Company Appeal (AT) (Insolvency) No. 1110 of 2019 -4-

the 'Corporate Debtor' to provide copy of the Accounts Statement and

attached the invoice for the month of February, 2018.

 From 09.03.2018, the Appellant vide emails dated 20.03.2018,

23.04.2018, 29.04.2018, 01.05.2018, 21.05.2018 & 22.05.2018

requested the 'Corporate Debtor' to release the amounts and clear the

dues, but there was no response.

 On 02.07.2018, a Demand Notice was sent by the Appellant but there

was no response and subsequently on 10.09.2018, a Petition was filed

under Section 9 of the Code.

 It is strenuously contended that the Demand Notice under Form 4 was

duly served on the 'Corporate Debtor' on 09.07.2018, but no dispute

was raised. The Counsel places reliance on the decision of the Hon'ble

Supreme Court in 'Macquarie Bank Limited' Vs. 'Shilpi Cable

Technologies Ltd.' that „notice sent on behalf of an „Operational

Creditor‟ by a lawyer would be valid and proper‟.

 Since the Appellant is a partnership firm, the partner has an authority

to initiate proceedings unless specifically barred. The Partnership

Deed has also been produced before the 'Adjudicating Authority'.

 The 'Corporate Debtor' has never disputed the date of demobilization

of the machinery i.e., end of February 2018, which is admittedly

pending. The 'Corporate Debtor' only states that Invoice No. 133 dated

05.02.2018 was for an amount of Rs.6,37,654/-, whereas the invoice

produced by the Appellant is of Rs.5,90,000/-, which is lesser than

the invoice which was served upon the Respondent. It is submitted

that the Appellant had issued the correct bill but at the instance of the

Company Appeal (AT) (Insolvency) No. 1110 of 2019 -5-

Respondent, the Appellant reduced the amount and issued the new

bill. Therefore, the contention of the Respondent that the bill is forged

and fabricated is completely denied. It is further submitted that the

Adjudicating Authority failed to consider that the invoice was never

denied by the Respondent. As the amount admitted by the Respondent

is more than Rs.1 Lakh, the threshold for initiating CIRP has been

met. It is also submitted that had the Adjudicating Authority given an

opportunity to file the Rejoinder, the Appellant could have reiterated

these issues in the Rejoinder before the Adjudicating Authority itself.

3. Submissions of the Learned Counsel appearing on behalf of the

Respondent:

 Learned Counsel for the Respondent contended that the 'Corporate

Debtor' had clearly instructed the Appellant, vide email dated

22.02.2018, to stop the service from the end of February, 2018 and

demobilize the machinery.

 Four Invoice Nos. 157, 178, 22 and 39 amounting of Rs.5,90,000/-

each were never served on the 'Corporate Debtor'. It is also submitted

that there was no service supplied by the Appellant for the aforesaid

invoices.

 The interest calculated @18% per annum has never been agreed to

between the two parties. There is no evidence furnished by the

Respondent that they had supplied the services subsequent to

February 2018. Invoice No. 133 dated 05.02.2018 is a forged and

fabricated one and the amount shown in the invoices is Rs.5,90,000/-,

Company Appeal (AT) (Insolvency) No. 1110 of 2019 -6-

whereas the email dated 09.03.2018 figures an amount of

Rs.6,37,654/-.

 The Ledger Books are also fabricated as the amount of Rs.24,75,000/-

paid by the Respondent was deleted by the Appellant. The Learned

Counsel drew our attention to pages 102 and 106 of the Appeal Paper

Book in support of his case.

 Learned Counsel for the Respondent submitted that on the contrary

there is balance of Rs.15,93,499/- lying with the Appellant after

deducting Rs.24,75,000/-, the entries of amount (the amount deleted

from the ledger) from the outstanding amount of invoice i.e.,

Rs.26,51,501/- and calculating the actual works and services

rendered up to February 2018 which is Rs.17,70,000/-.

Assessment:

4. The brief point which falls for consideration in this Appeal is whether

there is any 'Pre-Existing Dispute' between the parties and if there is any

amount 'due and payable'.

5. The facts of the present case need to be examined in the light of the

law laid down by the Hon'ble Supreme Court in 'Mobilox Innovations

Private Limited' Vs. 'Kirusa Software Private Limited' (2018) 1 SCC

353. It is relevant to refer to para 51 of the Judgement which is detailed as

hereunder:

"51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "'existence" of a dispute or the fact that a suit or arbitration proceeding relating to a Company Appeal (AT) (Insolvency) No. 1110 of 2019 -7-

dispute is pending between the parties. 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. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."

6. Section 8 of the Code reads as hereunder:

8. Insolvency resolution by operational creditor.--(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor--

(a) existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;

(b) the [payment] of unpaid operational debt--

(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Explanation.--For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding [payment] of the operational debt in respect of which the default has occurred.

Company Appeal (AT) (Insolvency) No. 1110 of 2019 -8-

7. In the present case, the 'Corporate Debtor' has produced the copy of

the email dated 22.02.2018 for discontinuing the services of the

Appellant/'Operational Creditor' herein. This email is not denied by the

Appellant herein:

Company Appeal (AT) (Insolvency) No. 1110 of 2019 -9-

8. It is also the case of the 'Corporate Debtor' that services with respect

to Invoice Nos. 157, 178, 22 and 39 of Rs.5,90,000/- each totalling to

Rs. 23,60,000/-, was never rendered to the 'Corporate Debtor' and these

invoices were also never served on them. As regards the discrepancies

between Rs.6,37,654/- shown in Invoice No. 133 dated 05.02.2018 and the

same Invoice No. 133 appended to the Application showing Rs.5,90,000/- it

is the case of the Respondent that it is on account of the reduction in the

amount as prayed for by the 'Corporate Debtor'. Even if we take this

submission by the Appellant into consideration, the fact remains that the

services were terminated on 22.02.2018 and the Demand Notice is

subsequent on 02.07.2018. We also observe that there are some

discrepancies in the Ledger Entries submitted to the 'Corporate Debtor' vis-

à-vis the entries filed with the Appeal Paper Book. Be that as it may, the

email dated 22.02.2018 is not disputed by the 'Operational Creditor'.

9. The Hon'ble Apex Court in 'K. Kishan' Vs. 'Vijay Nirman Co. (P) Ltd.'

(2018) 17 SCC 662, has observed as follows:

"19. After referring to Section 8, the judgment in Mobilox Innovations case went on to hold that what is important is that the existence of the dispute and/or a 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.

20. The adjudicating authority, therefore, when examining an application under Section 9 of the Code, will have to determine the following: (Mobilox Innovations case, SCC p. 394, para 34)

"34. ... (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

Company Appeal (AT) (Insolvency) No. 1110 of 2019 -10-

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 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), and admit or reject the application, as the case may be depending upon the factors mentioned in Section 9(5).

21. In para 38, this Court cautioned: (Mobilor Innovations case, SCC

"38.... We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties."

Finally, the law was summed up as follows: (SCC p. 403, para 51)

"51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(ii)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which Company Appeal (AT) (Insolvency) No. 1110 of 2019 -11-

requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."

22. Following this judgment, it becomes clear that operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardise an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations, being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of rupees two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. We repeat that the object of the Code, at least insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a real dispute between the parties as to the debt owed does not exist..................................................................

27. We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an arbitral award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 has taken place."

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10. When there is no denial with respect to the email dated 22.02.2018

(reproduced in para 7) there are no substantial reasons given for raising the

bills for the subsequent period when there is no documentary evidence on

record that the services were rendered with respect to the Work Order

subsequent to 22.02.2018. Therefore, we are of the view that the dispute

raised by the 'Corporate Debtor' is not a spurious or legally feeble argument

but is substantiated by sufficient evidence. We are satisfied by the material

on record that there is a 'Pre-Existing Dispute' „prior to the issuance of the

Demand Notice‟ and hence we are of the considered view that the ratio of

'Mobilox Innovations Private Limited' (Supra) is squarely applicable to

the facts of this case. As we hold that there exists a dispute between the

parties, we do not wish to go into the other issues raised regarding the

Partnership Deed.

11. For all the aforenoted reasons, this Appeal fails and is accordingly

dismissed. No Order as to costs.

12. The Registry is directed to upload the Judgement on the website of

this Tribunal and send the copy of this Judgement to the Learned

Adjudicating Authority (National Company Law Tribunal, Ahmedabad

Bench) forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

NEW DELHI 17th January, 2022 ha

Company Appeal (AT) (Insolvency) No. 1110 of 2019