Maan Aluminium Ltd vs Nitya Electrocontrols Pvt Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal(AT) (Ins) No. 837 of 2020 [Arising out of order dated 20.02.2020 passed by the Adjudicating Authority (National Company Law Tribunal,), New Delhi Bench-VI in CP(IB) No.456(ND)/2019] IN THE MATTER OF: Maan Aluminium Ltd. 4/5, First Floor, Asaf Ali Road New Delhi - 110002 ...Appellant

Versus Nitya Electrocontrols Pvt. Ltd. C-295, 1st Floor, KH No.281, New Ashok Nagar, East Delhi, New Delhi - 110096 ...Respondent Present: For Appellant: Mr. Samaksh Goyal, Mr. Nubee Naved, Advocates. For Respondent: Mr. Vikas Mehta, Sr. Advocate with Mr. Lalitendra Gulani, Mr. Pallav Palit, Ms. Shreya Bhojnagarwala, Advocates for Respondent.

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The present appeal has been filed by the 'Appellant'-'Maan Aluminium

Limited/Operational Creditor' under Section 61 of the 'Insolvency and

Bankruptcy Code, 2016' (in short 'Code') against the impugned order dated

20.02.2020 passed by the 'Adjudicating Authority' (National Company Law

Tribunal), New Delhi Bench-VI in CP(IB) 456(ND)/2019.

1 Company Appeal (AT)(Ins) No.837 of 2020

2. The Adjudicating Authority while passing the 'Impugned Order' dated

20.02.2020 in CP(IB) No.456(ND)/2019 had, inter alia, observed the

following:-

"5.We have perused the documents filed by the parties and

heard their arguments. The Applicant has annexed two

invoices - Invoice No.55 dated 12.04.2017 for Rs. 4,81,043/-

and invoice No. 103 dated 13.04.2017 for Rs. 14,84,775/- for

claiming that the Respondent owes Applicant Rs.19,65,818/-.

The Respondent is mainly relying on two debit notes issued

by the Respondent to the Applicant sent with a letter dated

19.07.2017 which states that the debit notes have been

issued because the goods are of inferior quality and cannot be

used by the Respondent. The delivery of this letter is

established by courier receipts filed by the Respondent

bearing the stamp of the Applicant. A perusal of the debit notes

show that the note no.NECPL/17-18/020 dated 13.07.2017

for Rs. 14,84,775/- has been issued in relation to the invoice

no.103 dated 13.04.2017 and the debit note no. NECPL/17-

18/025 dated 17.07.2017 for Rs.2,42,469/- has been issued

in relation to invoice no.055 dated 21.04.2017. It is clearly

established that a debit note has been issued and delivered to

the applicant by the Respondent with respect to invoice no.103

dated 13.04.2017 at least. The debit note NECPL/17-18/025

2 Company Appeal (AT)(Ins) No.837 of 2020 is not taken into consideration as the details in the debit note

do not match the details in the invoice. Thus, the Respondent

has successfully shown that there is pre-existing dispute

between the parties regarding the quality of goods supplied.

6. The Applicant has contended that the Respondent has

admitted its debt by issuing cheques for payment of the same

and thus, cannot claim that the debt is disputed. Although it's

true that the Respondent issued cheques for payment of the

debt and in normal course this can be taken as an

acknowledgment of debt, here it has to be noted that the

cheques were not honoured due to the reason that the

Respondent stopped the payment of the same and not due to

insufficiency of funds. This furthers the contention of the

Respondent that there is a pre-existing dispute due to which

the Respondent is not required to pay the Applicant's claims.

Since the Respondent has successfully established the

existence of a dispute between the parties the Tribunal deems

it fit to dismiss the present application, without cost."

3. The Appellant/ Operational Creditor (OC) is a public limited company

involved in the supply of 'Aluminium Bus Bars' since the year 1989. The

Appellant converts aluminium ingot into 'Aluminium Bus Bars'. The case of

the Appellant is that the pursuant to the 'Purchase Order' (PO) No.NEC/1803

dated 14.02.2017 placed by the Respondent/Corporate Debtor (CD)

3 Company Appeal (AT)(Ins) No.837 of 2020 supplied Aluminium Bus Bar to the Respondent against this supply the

Appellant raised and delivered two invoices upon the Respondent/CD one

dated 12.04.2017 for Rs.4,81,043/- and the second dated 13.04.2017 for

Rs.14,84,775/- total Rs.19,65,818. The CD in accordance with the payment

terms of 45 days Post-dated cheque (PDC) provided two cheques to the

Appellant to discharges the payment obligations on 24.05.2017, Cheque

dated 17.06.2017 and 19.06.2017 totally to Rs.19,65,818 after the goods has

been in its possession. The said two cheques were dishonoured 20.06.2017

and 22.06.2017.

4. The Respondent placed another PO upon the Appellant vide PO no.NEC/176

dated 29.04.2017 for the same quality of goods that the Appellant has

supplied under the February PO. In the meantime, since the Appellant had

put on hold the Respondent's April, PO on account of Respondent's previous

outstanding view. The Respondent for reasoned based known to its cancelled

the April PO.

5. The Respondent has stated that the Appellant has supplied rods, bus bars,

etc., which are the 'raw material' of 'aluminium metals' to the CD since 2015.

The said raw material supplied by the Appellant was used by the CD in the

manufacture of electrical control panels which the CD is suppling to its

clients/customers under various contracts. For purchase of goods the CD

used to issue PO almost on a monthly basis to the Appellant. As per the terms

of the PO the Appellant were dispatch the goods immediately to the CD and

upon receipt of goods and invoice from OC, the CD used to issue post-dated

4 Company Appeal (AT)(Ins) No.837 of 2020 cheque of 45 days to the OC. The period of 45 days was meant for CD to check

for any quality and other defects in relation to the 'raw material' supply. In

case of any defects the CD was called and they used to replace the defective

goods which the OC immediately did as a routine. Being in a 'manufacturing

industry', the defects in relation to such 'raw material' cannot be ascertained

by a mere physical inspection of goods on receipt but quality defects are

mainly revealed when the 'raw material' is actually put to use in the

manufacturing. It has also stated that between them, there was a running

account for payment and mostly it was not specific to any particular invoice

issued by the OC in relation to the routine PO. Accordingly, even against the

supply of February, 2017 PO and invoice so received they provided two PDC

to the OC. What the CD has stated that the PDC is a form of security so as to

ensure that the CD has enough time to access the quality of goods supplied

by the OC and in case of deviation for standard specifications, the CD could

direct the Appellant for arranging replacement. The PDC is acting as safety

net enabling the CD to stop payment if OC does not replace the goods rather

for adverse circumstances.

6. The Respondent has also stated that the PO contained a 'liquidated clause'

which is 1% per week from the delivered date of PO and cancellation order on

the sole discretion of the CD was available to the CD if the terms and

conditions is not complied. Subsequently in April, 2017 the CD has issued

another PO dated 29.04.2017 for goods worth Rs.7,57,728/- where the goods

were placed on urgent and priority basis. The CD has also informed the OC

5 Company Appeal (AT)(Ins) No.837 of 2020 vide email dated 07.07.2017 to take back the sub-standard defective goods

from their factory and recoup all loses costs to the CD due to the contractual

breaches on the part of the OC:

6

Company Appeal (AT)(Ins) No.837 of 2020 7 Company Appeal (AT)(Ins) No.837 of 2020

7. The record also reveals multiple emails between the parties to settle the

quality of goods/release payments/disputes resulting from cancellation of

April, 2017 PO by the OC resulting in manufacturing disruption of the CD

and claims and counter claims between them.

8. We have carefully perused the pleadings of both the parties. What we are

observing that CD has raised two debit notes dated 13.07.2017 for

Rs.14,84,775/- and Rs. 2,42,469.91 being material rejected by CD. Apart

from this , even the 'ledger account' of CD reflects that they have

transactions from the OC much before 2016 and there is a receipt of material

and release of payment appearing at page no.146 - 149 of the Appeal Paper

Book. Hence, it cannot be said that the transaction erupted only in the year

2017 between the parties seems there is a long term relationship between the

parties but because of delayed supplied material against February 2017 PO,

thereafter, hold on supply against PO of April 2017 enunciated difference and

dispute between the parties which includes sub-standard supply of material

by the OC to the CD and delayed supply resulting into disruption of

production to the CD due to the default of OC. In any case, these are business

dispute including the disputes with respect of dishonoured of cheques which

are regulated as per provisions of ' The Negotiable Instruments Act, 1881'. All

these disputes are of 'civil nature' and needs to handle under the 'relevant

commercial laws'.

9. As far as provisions of Section 9 of the Code is concerned, the same is depicted

below for brevity and clarity as well as for ready reference:

8

Company Appeal (AT)(Ins) No.837 of 2020 Section 9: Application for initiation of corporate insolvency

resolution process by operational creditor.

9. (1) After the expiry of the period of ten days from the

date of delivery of the notice or invoice demanding

payment under sub-section (1) of section 8, if the

operational creditor does not receive payment from the

corporate debtor or notice of the dispute under sub-section

(2) of section 8, the operational creditor may file an

application before the Adjudicating Authority for initiating

a corporate insolvency resolution process.

(2) The application under sub-section (1) shall be filed in

such form and manner and accompanied with such fee as

may be prescribed.

(3) The operational creditor shall, along with the

application furnish--

(a) a copy of the invoice demanding payment or demand

notice delivered by the operational creditor to the corporate

debtor;

(b) an affidavit to the effect that there is no notice given by

the corporate debtor relating to a dispute of the unpaid

operational debt;

(c) a copy of the certificate from the financial institutions

maintaining accounts of the operational creditor confirming

9 Company Appeal (AT)(Ins) No.837 of 2020 that there is no payment of an unpaid operational debt 1

[by the corporate debtor, if available;] 2 [(d) a copy of any

record with information utility confirming that there is no

payment of an unpaid operational debt by the corporate

debtor, if available; and

(e) any other proof confirming that there is no payment of

any unpaid operational debt by the corporate debtor or

such other information, as may be prescribed.]

(4) An operational creditor initiating a corporate insolvency

resolution process under this section, may propose a

resolution professional to act as an interim resolution

professional.

(5) The Adjudicating Authority shall, within fourteen days

of the receipt of the application under sub-section (2), by

an order-- (i) admit the application and communicate such

decision to the operational creditor and the corporate

debtor if,-- (a) the application made under sub-section (2)

is complete; (b) there is no 3 [payment] of the unpaid

operational debt; (c) the invoice or notice for payment to the

corporate debtor has been delivered by the operational

creditor;

10 Company Appeal (AT)(Ins) No.837 of 2020

(d) no notice of dispute has been received by the

operational creditor or there is no record of dispute in the

information utility; and

(e) there is no disciplinary proceeding pending4 against

any resolution professional proposed under subsection (4),

if any. (ii) reject the application and communicate such

decision to the operational creditor and the corporate

debtor, if-- (a) the application made under sub-section (2)

is incomplete; (b) there has been 3 [payment] of the unpaid

operational debt; (c) the creditor has not delivered the

invoice or notice for payment to the corporate debtor;

(d) notice of dispute has been received by the operational

creditor or there is a record of dispute in the information

utility; or

(e) any disciplinary proceeding is pending4 against any

proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting

an application under sub-clause (a) of clause (ii) give a

notice to the applicant to rectify the defect in his application

within seven days of the date of receipt of such notice from

the adjudicating Authority.

11 Company Appeal (AT)(Ins) No.837 of 2020 (6) The corporate insolvency resolution process shall

commence from the date of admission of the application

under sub-section (5) of this section.

It clearly reflects that Section 9 can be initiated only if, there is a

debt legally liable to be paid to the OC, there must be default by the CD

and the invoices/dues are undisputed.

10. We further reiterate that Section 9 of the Code can be enforced only the

'Debt' is due and payable in law. There is a default by the CD and there is

no notice of dispute.

11. As stated supra, here all the three elements for admission of

application is absent. The Hon'ble Supreme Court has held in

'Mobilox Innovations Private Limited' V/s. 'Kirusa Software Private

Limited in Civil Appeal No. 9405 of 2017'

"24. The scheme under Sections 8 and 9 of the Code, appears to be that an

operational creditor, as defined, may, on the occurrence of a default (i.e., on

non-payment of a debt, any part whereof has become due and payable and

has not been repaid), deliver a demand notice of such unpaid operational

debt or deliver the copy of an invoice demanding payment of such amount to

the corporate debtor in the form set out in Rule 5 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with

Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of

the receipt of such demand notice or copy of invoice, the corporate debtor

must bring to the notice of the operational creditor the existence of a dispute

and/or the record of the pendency of a suit or arbitration proceeding filed

12 Company Appeal (AT)(Ins) No.837 of 2020 before the receipt of such notice or invoice in relation to such dispute (Section

8(2)(a)). What is important is that the existence of the dispute and/or the 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. ........"

25. Therefore, the adjudicating authority, when examining an application

under Section 9 of the Act will have to determine:

(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 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) of the Act, and admit or reject the application, as the case may

be, depending upon the factors mentioned in Section 9(5) of the Act."

12. This case also seems to be falling under the category of chasing of

payments alongwith existence of disputes between the parties.

Reference is invited to the Hon'ble Supreme Court in Civil Appeal No.

9597 of 2018, "Transmission Corporation of Andhra Pradesh Limited

vs. Equipment Conductors and Cables Limited" vide Para 15 has

already held that IBC is not intended to be a substitute to a recovery

13 Company Appeal (AT)(Ins) No.837 of 2020 forum and also laid down that whenever there is existence of real

dispute, the IBC provisions cannot be invoked.

13. In view of the above stated position of fact and law, we are unable to

disagree with the Adjudicating Authority. We uphold the view of the

Adjudicating Authority. Hence, the Appeal deserves to be dismissed and

is dismissed. No order as to costs.

Interim order, if any, passed by this Tribunal stands vacated.

Pending application, if any, stands disposed of.

[Justice Jarat Kumar Jain] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

30th November, 2021

New Delhi

Raushan.K

14 Company Appeal (AT)(Ins) No.837 of 2020