M/S Oriental Coal Corporation vs M/S Decore Exxoils Pvt Ltd

National Company Law Appellate Tribunal Principal Bench, New Delhi COMPANY APPEAL (AT) (INSOLVENCY) No. 1015 of 2020 (Arising out of Order dated 20th March, 2020 passed by National Company Law Tribunal, Indore Bench, Ahmedabad, Court-1, in C.P. (IB) No.- 202/9/NCLT/AHM/2018).

IN THE MATTER OF:

M/s. Oriental Coal Corporation A Proprietary Firm of: Mr. Animesh R. Agarwal Having its Registered office at: 65, East High Court Road Ramdaspeth, Nagpur - 440010 Maharashtra ...Appellant

Versus

M/s. Decore Exxoils Pvt. Ltd. Having its Registered office at: Office Block 1A, 5th Floor, DB City, Corporate Park Area Hills, Opp. M.P. Nagar, Zone-1, Bhopal - 462016 Madhya Pradesh. ...Respondent

Appellant: Mr. Bharat Gupta and Ms. Gunjan Arora, Advocates. Respondent: Mr. Shivek Trehan and Mr. Pranay Mohan Govil, Advocates.

JUDGEMENT

[Per; Shreesha Merla, Member (T)]

1. This Appeal is filed under Section 61 of the Insolvency and

Bankruptcy Code, 2016, (hereinafter referred to as the 'Code') challenging

the Impugned Order dated 20.03.2020 passed by the Learned Adjudicating

Authority (National Company Law Tribunal, Indore Bench, Ahmedabad) in

CP (IB) No. 202/9/NCLT/AHM/2018, by which Order, the Insolvency

Application preferred by the Appellant under Section 9 of the Code was -2-

dismissed on the ground of 'Pre-Existing Dispute' and also on the ground

that it was barred by 'Limitation'.

2. Submissions on behalf of the Learned Counsel for the Appellant:

 It is submitted that steam coal was last supplied by the Appellant to

the Respondent Company on 14.11.2013 to Mandideep Plant and on

18.11.2014 to the Nagpur Plant; that the alleged Debit Note is dated

01.04.2017 and 24.03.2017 for the respective Plants which is more

than two years after the last supplies and therefore by no stretch of

imagination should it be construed that after such a long period of

time, the Respondent had rejected the goods.

 The said goods were never returned by the Respondent to the

Appellant which further confirm that there was never any rejection of

goods and that the entire consignment was used and retained by the

Respondent.

 There is no communication of any rejection of goods to the supplier.

Had there been any dispute regarding the quality of goods, the

Respondent would not have made the payment of Rs. 15 Lakhs/- on

24.11.2014. Further, the Respondent's ledger evidences that amounts

were 'due and payable' to the Appellant and the same was adjusted in

the year 2017.

 The fact that the amounts in the ledger of the Respondent stood

outstanding and payable to the Appellant till 01.04.2017, establishes

that the alleged Test Analysis Report is false and fabricated. Further,

the said Report was not in existence in the year 2014 and the same

was never communicated to the Appellant.

Company Appeal (AT) (Insolvency) No. 1015 of 2020 -3-

 The email dated 05.08.2015 issued by one Mr. Diwarker Rege, on

behalf of the Respondent, from his email ID acknowledges that there is

some payment outstanding in favour of the Appellant. The amounts

mentioned therein are the same amounts which are mentioned in the

ledger i.e. Rs.6,31,152/- for Mandideep Plant and Rs.3,32,612/- for

the Nagpur Plant.

 The Learned Counsel vehemently denied that there was any dispute

regarding the quality or quantity of the supply of steam coal and that

there was any Test Report stating that the quality was substandard.

Learned Counsel placed reliance on the Judgement of the Hon'ble

Supreme Court in 'Mobilox Innovations Pvt. Ltd.' Vs. 'Kirusa

Software Pvt. Ltd.' (2018) 1 SCC 353, in 'Rajiv Kumar Aggarwal'

Vs. 'Panipat Texo Fabs Pvt. Ltd.', 2018 SCC OnLine NCLAT 656

and in 'Anoop Sushil Dubey' Vs. 'National Agriculture Co-

operative Marketing Federation of India Ltd.', 2020 SCC OnLine

NCLAT 674 in support of his contentions.

3. Submissions on behalf of the Learned Counsel for the

Respondent:

 Learned Counsel submitted that the Debit Note dated 24.03.2017, the

copies of Goods Received Note and copy of Laboratory Test Report of

goods clearly demonstrate that the goods supplied were of inferior

quality and hence the Adjudicating Authority was right in observing

that there was a 'Pre-Existing Dispute' prior to the issuance of the

Demand Notice under Section 8 of the Code.

Company Appeal (AT) (Insolvency) No. 1015 of 2020 -4-

 That the last payment received from the Respondent was dated

25.11.2014 and the Application under Section 9 was filed on

09.05.2018 and as three years has lapsed, the Adjudicating Authority

has rightly observed that the Application was barred by Limitation.

 Regarding the email dated 05.08.2015 sent by Mr. Diwarker Rege, the

Learned Counsel submitted that the Director of the Respondent

Company has filed an Affidavit that the email was sent without

authority and hence cannot form an Admission or Acknowledgement

of any sort.

 As per the statements of accounts provided by the Appellant, the total

outstanding as on 31.03.2014 is Rs.16,31,152/- out of which a sum of

Rs.10 Lakh/- was paid by the Respondent and a sum of Rs.6,31,152/-

remained payable. Thereafter in the month of November 2014, out of

the steam coal provided by the Appellant, 69.52 MT of steam coal was

found to be inferior. Thereafter the payment of Rs.15 Lakhs/- was

made on 24.01.2014, though the outstanding of Nagpur Plant was

only Rs.1,36,985/- hence the Respondent paid in excess an amount of

Rs.13,63,015/-. Thereafter, the Appellant supplied 234.82 MT of

steam coal for Rs.16,95,627/- levying an outstanding sum of

Rs.3,32,612/-. Further as the Respondent rejected steam coal worth

Rs.5,05,282/-, there was a credit of Rs.1,72,670/- which had to be

adjusted by the Appellant. For the Mandideep Plant, the Appellant

supplied goods for Rs.6,31,152/-, for which the Respondent generated

a Debit Note for Rs.4,58,482/- levying an outstanding sum of

Rs.1,72,670/-, which is the same sum which had to be adjusted for

Company Appeal (AT) (Insolvency) No. 1015 of 2020 -5-

the excess payment made by the Respondent for the Nagpur Plant,

therefore no amount was payable by the Respondent to the Appellant.

 The Learned Counsel relied on the Judgements of the Hon'ble

Supreme Court in 'M/s. Capital Partners' Vs. 'Reliance Defence

and Engineering Ltd.' [2017 SCC OnLine NCLT 2485], in

'Kalpataru Properties Private Limited' Vs. 'Innovative Ideals &

Services (India) Private Limited' [2019 SCC OnLine NCLT 1604],

and in 'Laina Power Engineering' Vs. 'Sokeo Power Private

Limited' [2018 SCC OnLine NCLAT 414], in support of his

contention.

Assessment:

4. The first issue which arises for consideration is whether this

Application filed under Section 9 of the Code is barred by Limitation. The

ledger entries on record and also the statement of accounts evidence that

steam coal was last supplied by the Appellant on 18.11.2014 and an amount

of Rs.15 Lakhs/- was paid via RTGS on 24.11.2014 by the Respondent to

the Appellant and Debit Notes were raised in the year 2017. This Application

under Section 9 was filed on 09.05.2018. The details of invoices with their

respective dates are reproduced as hereunder:-

Sr. Invoice No. Amount (Rs.) Invoice Date 1 69(Invoice-1) 15,66,482/- 15.12.2013 2 47(Invoice-2) 6,79,993/- 19.12.2014

5. It is the main case of the Appellant that the Adjudicating Authority

has erred in not taking into consideration the email dated 05.08.2015 sent

by one Mr. Diwarker Rege from his official email ID with a copy to the

Company Appeal (AT) (Insolvency) No. 1015 of 2020 -6-

Director. The material on record shows that the said Director has filed an

Affidavit before the Adjudicating Authority on 03.10.2019 enclosing the

Letter of Appointment of Mr. Diwarker Rege and stating that he was

appointed only on 01.08.2015 which is four days prior to the said email. The

Director also deposed in the said Affidavit that the said Mr. Rege was under

probation and the subject email was not sent under his instructions.

Curiously, after the email dated 05.08.2015, the Appellant has remained

silent. There is no communication on record with respect to any payments

'due and payable', between the period 2015 and 2018.

6. The Hon'ble Supreme Court in 'Babulal Vardharji Gurjar' Vs. 'Veer

Gurjar Aluminium Industries Pvt. Ltd. & Anr.', 2020 SCC OnLine SC

647, has addressed to the Applicability of Section 8 of the Limitation Act

and observed that there should be a proper foundation to be laid regarding

acknowledgement of debt.

7. In the instant case, in para 4 of the Section 9 Application, which deals

with 'particulars of Operational Debt' in column 1(c) the date on which the

debt fell due is mentioned as follows:-

(c) The date from which  Invoice (I)/December 15th, 2013 such debt fell due. (Mandideep)  Invoice (II)/December 19th, 2014 (Nagpur)

8. The date on which the default occurred has been clearly specified in

column 2(a) as December 19th, 2014. The only suggestion with respect to

any acknowledgement is in para V in residuary point no. 8 in which the

particulars of 'Financial Debt' with documents and evidence on record is

required to be mentioned. In this column the disputed email dated

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05.08.2015 is mentioned. Limitation is a mixed question of law and facts

and we are of the considered view that no case has been made for extension

of period of Limitation as the actual date of default is mentioned in the

Section 9 Application as 19.12.2014. The last goods were supplied on

18.11.2014, admittedly the last payment was made on 25.11.2014 and the

Application under Section 9 was filed on 09.05.2018. The record does not

show any communication between 2015 and 2018. For all these reasons, we

hold that the Application is barred by Limitation.

9. Now we address ourselves to the main issue as to whether there is any

'Pre-Existing Dispute' existing between the parties prior to the issuance of

the Notice mandated under Section 8 of the Code, based on the touchstone

of the ratio of the Hon'ble Supreme Court in 'Mobilox Innovations Pvt.

Ltd.' (Supra), where in the Hon'ble Apex Court has observed as follows:-

"40. 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."

Company Appeal (AT) (Insolvency) No. 1015 of 2020 -8-

10. The definition of the word 'dispute', is in fact, illustrative, the

'Corporate Debtor' is not left with the only option of showing the 'existence of

dispute' by way of a pending Suit or Arbitration but can exercise its right to

show that goods and/or services supplied were substandard and deficient in

quality.

11. Section 5(6) of the Code defines 'dispute' as follows:-

"5. Definitions.--In this Part, unless the context otherwise requires,--

................................

(6) "dispute" includes a suit or arbitration proceedings relating to--

(a) the existence of the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;"

12. In the instant case, in their Reply/objections to the Application the

Respondent/'Corporate Debtor' has raised the issue of inferior quality of

steam coal supplied, that Debit Notes were issued and that production was

suspended due to the inferior quality of goods supplied by the Appellant

herein, consequently resulting in production losses. It is the main

contention of the Learned Counsel appearing for the Appellant that these

Debit Notes were belatedly raised by the 'Operational Creditor'. The fact

remains that there was a running account between both the Companies and

the Appellant was supplying steam coal to both the Plants that is Mandideep

Plant and Nagpur Plant to the Respondent Company and amounts were

adjusted in the ledgers for supply of steam coal.

13. The Hon'ble Supreme Court in para 45 of 'Mobilox Innovations Pvt.

Ltd.' (Supra) has observed as follows:-

"45. Going by the aforesaid test of "existence of a dispute", it is clear that without going into the merits

Company Appeal (AT) (Insolvency) No. 1015 of 2020 -9-

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."

14. A perusal of the Debit Note dated 24.03.2017 read together with the

Goods Received Notes and the Laboratory Test Report of the goods supplied

show that there is a 'Pre-Existing Dispute', prior to the issuance of the

Notice under Section 8. The defence raised by the 'Corporate Debtor' is not a

sham defence and not a feeble or unsupported assertion. The record shows

that there is documentary evidence filed in support of the defence. To

reiterate, in their Reply all the facts with respect to substandard quality of

material, the issuance of Debit Notes raised for the same, has been stated.

We are of the considered view that the ratio laid down by the Hon'ble

Supreme Court in 'Mobilox Innovations Pvt. Ltd.' (Supra) is squarely

applicable to the facts of this case, and 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 26th October, 2021

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Company Appeal (AT) (Insolvency) No. 1015 of 2020