Mahavir Singhal vs M/S Anr International Private Limited & ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal(AT) (Ins)No. 898 of 2021

IN THE MATTER OF: Mahavir Singhal OLD Address: G -241, Basement, Sec-63 Noida, Gautam Budh Nagar, Uttar Pradesh, New Address: C-7/8, Mianwali Nagar, Paschim Vihar New Delhi - 110087 ...Appellant

Vs.

1.M/s. ANR International Pvt.Ltd (though its Director Mr. Annop Kumar Chhawchharia) 167, 1st Floor, Block No.2, Functional Industrial Estate, Patparganj, New Delhi - 110 092 ...Respondent No.1

2. Mr. Annop Kumar Chhawchharia Director of M/s. ANR International Pvt. Ltd 167, 1st Floor, Block No.2, Functional Industrial Estate, Patparganj, New Delhi - 110 092 ...Respondent No.2

3.Mr. Utsav Chhawchharia Director of M/s. ANR International Pvt. Ltd 167, 1st Floor, Block No.2, Functional Industrial Estate, Patparganj, New Delhi - 110 092 ...Respondent No.3

4. Ms. Rita Chhawchharia Director of M/s. ANR International Pvt. Ltd 167, 1st Floor, Block No.2, Functional Industrial Estate, Patparganj, New Delhi - 110 092 ...Respondent No.4

Present: For Appellant : Mr. Abhishek Kedia and Shobhit Narda, Advocates. For Respondents : Mr. Abhishek Anand, Mr. Ishwar Mohapatra, Advocates for R-1 to R-4

Company Appeal (AT) (Ins) No. 898 of 2021 Page 1 of 14

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The present appeal has been filed by the Appellant- 'Mahavir Singhal -

Proprietor of M/s. Standard Impex', under Section 61 of the 'Insolvency and

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

18.06.2020 as corrected on 23.06.2020 passed by the 'Adjudicating

Authority' (National Company Law Tribunal), New Delhi Bench -V in

CP(IB) No. 1622/ND/2019. The clerical correction on 23.06.2020 has been

made by the Adjudicating Authority only in respect of Sl No. in CP(IB).

2. While passing the impugned order dated 18.06.2020 in CP(IB) No.

1622/ND/2019 at paragraphs 24 to 26, the Adjudicating Authority had

observed the followings:

"24. Mere plain reading of the above provision shows that

the "dispute" includes a suit or arbitration proceedings

relating to the existence of the amount of debt, or the quality

of goods or service or the breach of a representation or

warranty. Here in the case in hand, the Corporate Debtor

has raised a dispute regarding the quality of goods, which is

one of the dispute u/s 5(6) of the IBC and in support of that

they have placed reliance upon two letters which are

Company Appeal (AT) (Ins) No. 898 of 2021 Page 2 of 14 enclosed at page Nos. 19& 21of the reply, in which it is

specifically mentioned that Corporate Debtor has raised a

question relating to quality of goods supplied by the

Operational Creditor on 09.10.2015 and also sent a

reminder on 16.10.2015 in which it is alleged that the

Operational Creditor is not responding to their quality

complaint. As we have already stated in the aforementioned

para that although the Corporate Debtor has enclosed the

documents in its reply to show that they have raised a dispute

prior to issuance of Demand Notice and despite several

opportunities given to the Operational Creditor to file the

rejoinder but no rejoinder has been filed by the Operational

Creditor, therefore, there is no other document filed on

behalf of the Operational Creditor to show that the dispute

raised by the CD in the year 2015 was resolved. Hence, we

are of the considered view that the contention of the

Corporate Debtor that they raised the dispute regarding the

quality of goods is correct and liable to the accepted. As we

have already stated that the last date of invoice is 05.10.2015

and soon thereafter, the dispute relating to quality was

raised by the Corporate Debtor.

Company Appeal (AT) (Ins) No. 898 of 2021 Page 3 of 14

25. Under such circumstances, we have no option but to hold

that the Corporate Debtor had raised a dispute regarding

the quality of goods and Operational Creditor had failed to

convince us that the same dispute was resolved, therefore,

we are of the view that the Operational Creditor has falsely

sworn an affidavit under section 9(3)(b) that no notice was

given by the Corporate Debtor relating to the payment of the

unpaid operational debt, therefore, in view of the Section

9(5)(ii)(d), if the notice of dispute has been raised by the

Corporate Debtor or there is record of dispute in the

information utility, in that case the Adjudicating Authority

has no option but to reject the application of the Operational

Creditor.

26.Accordingly, it is therefore, ORDERED that the present

application is not maintainable and same is dismissed."

3. The Appellant is the 'Proprietor' of 'M/s. Standard Impex', a 'sole

proprietorship firm', engaged in the business of trading various goods such as

Resin, Plastic, and Granules etc. The Appellant is the 'Operational Creditor'

(OC). The Respondent No.1 is the Private Limited Company engaged in the

business of 'trading and distribution' of Plastics and Chemicals, it is the

Company Appeal (AT) (Ins) No. 898 of 2021 Page 4 of 14 Corporate Debtor (CD). The OC used to supply various goods to CD based

on negotiationed price, quality and quantity of goods used to be supplied to

the CD by OC. They were having a running account.. As it looks from the

ledger (appearing page 99 & 100 of the Appeal Paper Book -Annexure A3)

goods were supplied between July 2015 to October, 2015 while payment has

been received from September, 2015 to June, 2017. The unpaid invoices relate

to 'Financial Year 2015-16'.

4. The OC has sent the 'Demand Notice' on 27.02.2019 (appearing at page 107-

109 of the Appeal Paper Book) while the reply to the demand notice has been

issued by the CD to OC on 08.03.2019 (page 110-112 of the Appeal paper

book). The demand notice is asking for payment of outstanding debt

amounting to Rs.59,83,712/-. The CD has raised the issue of dispute in the

reply to the demand notice. It is the case of the OC that an amount of

Rs.59,83,712/- is still outstanding as on 31.03.2019. The OC/Appellant has

also stated that a sum of Rs.1,49,83,718/- was outstanding in favour of the

Appellant as on 31.03.2017 from CD &CD confirmed the same and even CD

after October, 2015 has made part payment of Rs.3,46,75,000/- towards its

outstanding liabilities. All this constitutes a further admission of the

Appellant's Operational Debt. The so-called dispute as per the Appellant

raised by CD is a manufactured dispute of two communications dated

09.10.2015 & 16.10.2015 raising an alleged dispute regarding the quality of Company Appeal (AT) (Ins) No. 898 of 2021 Page 5 of 14 goods supplied by the Appellant/OC. It was also alleged by the OC that an

inspection of the damage goods called by the so-called deficiency in the

goods, was yet to be carried out and there is no averment about seeking

replacement of goods from the Appellant. This reflects made up documents

as per the Appellant. The OC/Appellant has provided the CD's 'Ledger

Accounts' in its 'Book of Accounts' (at page 199 & 200 of the Appeal Paper

Book) reflecting as on 19.06.2017 of a due amount of Rs.59,83,712.50.

5. While the Respondents have submitted that the Code is not intended to be a

'recovery forum' and this is a settled law. They have also stated that it is

further a settled law that whenever there is an existence of dispute the

provisions of the Code cannot be invoked in case of 'Operational Debt'. The

Respondents have also stated that they have continuously informed the

Appellant about the poor quality of goods delivered by them which is evident

from mixing of 'Calcium' 'Carbonates' and 'Granules' in the supplies and

issued letter dated 09.10.2015 followed by another letter dated 16.10.2015 for

making a joint inspection at the customer place to make an assessment of

damage caused by the poor quality of goods supplied by the OC/Appellant.

The Respondents have also raised its market reputation getting down because

of the poor quality of goods supplied by the Appellant/OC. They have also

raised that the invoices (appearing at page 41 and page 68 of the Appeal paper

book) are invoices which are issued under 'Rule 11' of the 'Central Excise Company Appeal (AT) (Ins) No. 898 of 2021 Page 6 of 14 Rule 2002' to remove goods from factory or warehouse and are not invoiced

which are issued to the CD by the OC/Appellant. As per the 'Ledger Account'

(at page 100 appeal paper book) of the OC in the books of the CD is of

05.10.2015 while he has filed the petition before Adjudicating Authority on

28.06.2019. Hence, as per the Respondent No.1 this falls within the domain

of the Limitation Act and to be outrightly rejected as the Application has been

filed after three years of the last supply. The Appellant has failed to inspect

the goods in spite of two letters dated 09.10.2015 and 16.10.2015 issued by

the CD to OC. The Appellant has not yet lifted the material nor has inspected

the material so far. Once we raised a dispute then naturally it cannot be

covered under the Code. The CD has also stated that the courier receipt of

October, 2015 letters are genuine and not fabricated and also written off the

amount as the same were disputed and not payable to OC. They have also

cited the Hon'ble Supreme Court Judgment of Mobilox Innovations Pvt. Ltd.

Vs. Kirusa Software Pvt. Ltd in Civil Appeal No.9405 of 2017. It was also

stated by the CD that they have stoped placing orders on the OC.

6. We have heard Ld. counsels for both the parties and have analyzed the

information provided by them and the relevant provisions of the Code and are

having the following observations:

a. As far as question of Limitation is concerned, it is very much clear that

though the last invoice was raised on 05.10.2015 but the last payment Company Appeal (AT) (Ins) No. 898 of 2021 Page 7 of 14 having been made on 19.06.2017 and there is a running account admittedly

towards its outstanding to the Appellant. It would extend the period of

limitations as per provision of the Limitation Act. As the Appeal has been

filed on 24.06.2019 which is within three years from the last transactions

of June 2017.

b. The case of initiation of CIRP is governed by provisions of Section 8 & 9

of the Code which are reproduced below for clarity:

Section 8: Insolvency resolution by operational creditor.

(1) An operational creditor may, on the occurrence of a default,

deliver a demand notice of unpaid operational debt or 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--

Company Appeal (AT) (Ins) No. 898 of 2021 Page 8 of 14

(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.

Section 9 - Application for initiation of corporate insolvency

resolution process by operational creditor.

(1) After the expiry of the period of ten days from the date of

delivery of the notice or invoice demanding payment under

subsection (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.

Company Appeal (AT) (Ins) No. 898 of 2021 Page 9 of 14 (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

that there is no payment of an unpaid operational debt [by the

corporate debtor, if available;]

(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.]

Company Appeal (AT) (Ins) No. 898 of 2021 Page 10 of 14 (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 [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor

has been delivered by the operational creditor;

(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 pending against any

resolution professional proposed under sub-section (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 [payment] of the unpaid operational debt;

Company Appeal (AT) (Ins) No. 898 of 2021 Page 11 of 14

(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 pending 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.

(6) The corporate insolvency resolution process shall

commence from the date of admission of the application under

sub-section (5) of this section."

c. The above provisions of the Code clearly provides for the requirements of

following three criteria's before admission of a petition under Section 9

of the Code for initiation of CIRP by OC (i) the 'Debt' must be due and

payable in law (ii)there must be occurrence of default & (iii) the 'Debt'

must be undisputed.

Company Appeal (AT) (Ins) No. 898 of 2021 Page 12 of 14 d. What we are observing in the present case that the OC has issued a demand

notice of unpaid operational debt to the CD in the requisite format but the

CD/Respondent No.1 has raised a dispute which apparently could not be

answered by the OC as the OC has neither done the inspection so far nor

has taken back the goods so supplied. The OC has factually failed to

communicate that there is no existence of dispute.

e. The Hon'ble Supreme Court has already amplified the role of the

Adjudicating Authority on the question of consideration of dispute in

Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd, AIR 2017 SC

4532 at para 40:

"All 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.... 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."

f. Further the proceeding under the Code is not for chasing payments, the

Hon'ble Supreme Court in Civil Appeal No.9597 of 2018, "Transmission Company Appeal (AT) (Ins) No. 898 of 2021 Page 13 of 14 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 forum and also laid down that whenever there

is existence of real dispute, the IBC provisions cannot be invoked.

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

with the Adjudicating Authority and uphold the view of the Adjudicating

Authority. No order as to costs.

\

[Justice Ashok Bhushan] Chairperson

(Dr. Ashok Kumar Mishra) Member(Technical)

19th January, 2022 New Delhi

Raushan.K

Company Appeal (AT) (Ins) No. 898 of 2021 Page 14 of 14