M/S Ifgl Refractories Ltd vs M/S Agrawal Structure Mills (P) Ltd

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 12 of 2020 (Arising out of Order dated 19th November, 2019 passed by National Company Law Tribunal, Cuttack Bench, Cuttack in TP No. 100/CTB/2019 arising out of C.P. (IB) No.- 2438/ MB/2018).

IN THE MATTER OF:

M/s. IFGL Refractories Ltd. At: 3, Netaji Subhash Road Kolkata - 700001 West Bengal. ...Appellant

Versus

M/s. Agrawal Structure Mills (P) Ltd. At: Govind Kunj, Behind Krishna Talkies, Bhimsen Marg, Samta Colony, Raipur - 492001. ...Respondent

For Appellant: Mr. Ranu Purohit, Advocate.

For Respondent: Mr. Pradipta Verma, Advocate.

JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. Aggrieved by the Order dated 19.11.2019 passed by the Learned

Adjudicating Authority, (National Company Law Tribunal, Cuttack Bench,

Cuttack) in TP No. 100/CTB/2019 arising out of C.P. (IB) No.- 2348/

MB/2018, 'M/s. IFGL Refractories Ltd.' (hereinafter referred to as the

'Financial Creditor'), preferred this Appeal under Section 61 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'The

Code'). By the Impugned Order, the Learned Adjudicating Authority has

rejected the Application, preferred by the 'Operational Creditor', under

Section 9 of the Code.

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2. Succinctly put, the facts in brief are that the Appellant Company

engaged in manufacturing, trading and selling of Refractories items used in

Steel Plants. It is averred that pursuant to the Purchase Orders placed by

the Respondent Company, the Appellant had supplied Laddle Refractories,

to the Respondent from time to time and raised 7 invoices with respect to

supply of goods for the period between November 2016 and January 2017. It

is stated that the sum total of the amounts 'due and payable' excluding

interest is Rs.3,05,809/-.

3. Learned Counsel for the Appellant submitted that a Demand Notice

dated 16.05.2018 was issued to the Respondent Company under Section 8

of the Code, for which the Respondent disputed for the first time vide Reply

dated 13.06.2018, stating that the goods supplied by the Appellant

Company under the 7 invoices, were of poor/bad quality. It is submitted

that the goods were supplied by the Appellant Company at a concessional

rate of Central Sales Tax on the condition that the Respondent will provide

the Statutory Declaration Form 'C' and thereafter the Respondent issued the

said Statutory Declaration Form on 27.07.2017, without raising any issue of

the quality of the goods supplied. It is further submitted that the dispute

was raised by the Respondent Company for the first time on 13.06.2018

after the expiry stipulated period of 10 days as envisaged under the Code. As

regarding the Debit Notes it is submitted by the Learned Counsel for the

Appellant that subsequently fabricated Debit Notes with signature and

phone number were filed with the show cause Reply. This clearly points out

the discrepancy in the Debit Notes submitted by them before the

Adjudicating Authority. It is also argued by the Appellant Counsel that the

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Ledger Accounts for the period 01.04.2016 to 31.03.2017 maintained by the

Respondent Company in the name of the Appellant Company are incorrect.

The Learned Counsel placed reliance on the ratio of the Hon'ble Supreme

Court in 'Mobilox Innovations Private Limited' Vs. 'Kirusa Software Private

Limited', (2018) 1 SCC 353, and also in the case of 'Alluwalia Contract (India)

Limited' Vs. 'Raheja Developers Ltd.' decided on 23.07.2019 wherein it was

held as follows:

"18. From the aforesaid decision, it is clear that the existence of dispute must be pre-existing i.e., it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the 'operational debt' is exceeding Rs.1 Lakh and the application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any 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', the application under section 9 cannot be rejected and is required to be admitted."

4. It is further contended by the Learned Counsel that the Respondent

had acknowledged the amount to be paid and sought to enter into a

Settlement Agreement. He drew our attention to the Order of the

Adjudicating Authority dated 16.10.2019, wherein the Adjudicating

Authority has recorded that the matter would be posted to 21.10.2019 for

reporting settlement, failing which the matter would be taken up for

arguments.

5. The main point which falls for consideration in this Appeal is whether

there is any 'Pre-Existing Dispute' between the parties prior to the issuance

of the Demand Notice under Section 8 of the Code, as envisaged by the

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Hon'ble Supreme Court in 'Mobilox Innovations Private Limited' Vs. 'Kirusa

Software Private Limited' (2018) 1 SCC 353.

6. It is the case of the Respondent Company that the following invoices

were raised by the Appellant Company:

Sl. No. Invoice No. Date Amount I. MR/62506/02 16.11.2016 30,983 II. MR/60382/12 27.12.2016 19,623 III. MR/63034/02 27.12.2016 75,509 IV. MR/63035/02 27.12.2016 30,983 V. MR/60428/02 17.01.2017 39,245 VI. MR/63293/02 17.01.2017 78,483 VII. MR/63294/02 17.01.2017 30,983

7. The Learned Counsel for the Respondent Company submitted that

seven different Debit Notes were issued to the Appellant Company on

account of defective goods, the details of which are as follows:

Sl. No. Debit Note No. Date Amount I. ASML/DEBITNOTE/_74_/2016/17 16.11.2016 30,983 II. ASML/DEBITNOTE/_82_/2016/17 27.12.2016 75,509 III. ASML/DEBITNOTE/_83_/2016/17 27.12.2016 30,983 IV. ASML/DEBITNOTE/_84_/2016/17 27.12.2016 19,623 V. ASML/DEBITNOTE/_85_/2016/17 17.01.2017 78,483 VI. ASML/DEBITNOTE/_86_/2016/17 17.01.2017 30,983 VII. ASML/DEBITNOTE/_87_/2016/17 17.01.2017 34,200

8. It is seen from the record that these Debit Notes correspond to the

invoices raised by the Appellant. It is the case of the Respondent that the

Appellant has not disputed the issuance and receipt of Form 'C' in respect of

the said consignment but has denied the receipt of the Debit Notes which

have been signed and acknowledged by the same person for and on behalf of

the Appellant herein.

9. A perusal of the Ledger Account for the period 01.04.2016 to

31.03.2017 shows that these Debit Notes were issued by the Respondent

Company to the Appellant Company contemporaneously. This Bench has

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perused the Debit Notes dated 23.01.2017, 31.12.2015 and 26.11.2015,

wherein it is clearly specified that the debit note is being raised on account

of 'bad and rejected material' dispatched by the Appellant Company. The

Hon'ble Supreme Court in 'Mobilox Innovations Private Limited' Vs. 'Kirusa

Software Private Limited', (2018) 1 SCC 353, has observed as follows:

"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 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."

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56. Going by the aforesaid test of "existence of a dispute", it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability."

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10. Merely because there were settlement talks between the parties it

cannot be construed that the debt is 'due and payable' as envisaged under

the Code, specifically keeping in view the ratio of the Hon'ble Supreme Court

in 'Mobilox Innovations Private Limited' (Supra). In their Reply to the Section

8 Notice, the Respondent Company has clearly raised a dispute and the

material on record evidences that the Debit Notes were raised on account of

rejection of poor quality material and therefore we are of the considered view

that 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. This Tribunal is satisfied that the 'dispute'

truly exists in fact and is not spurious, hypothetical or illusory and hence

we find no substantial grounds to interfere with the well-reasoned Order of

the Adjudicating Authority.

11. Hence, this Appeal fails and is dismissed accordingly. No order as to

costs.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical) NEW DELHI 28th July, 2022 Himanshu

Company Appeal (AT) (Insolvency) No. 12 of 2020