Mando Automotive India Pvt Ltd vs Chennai Clamptech Designer Pvt Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL CHENNAI BENCH CHENNAI COMPANY APPEAL (AT)(CH)(INSOLVENCY) NO.04/2022 (Arising out of order dated 29th September, 2021 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Division Bench II, Chennai in IBA/134/2020) In the matter of: M/s Mando Automotive India Pvt Ltd Represented By its Authorised Signatory Mr GS Premnath S1A & S5, Vengadu Village, Pillaipakkam Post, Sriperumbudur, Kanchipuram Distt, Tamil Nadu 602105 Appellant

Vs

M/s Chennai Clamptech Designer Pvt Ltd, 163, Kundrathur Main Road, Rapid Nagar, Gerugambakkam, Chennai 600122 Respondent

Present

For Appellant : Mr. G. Rajkumar, Advocate

For Respondent : Mr. G. Guruprasth, Advocate

JUDGMENT

VIRTUAL MODE

JUSTICE M. VENUGOPAL, MEMBER(J)

INTRODUCTION:

The 'Appellant/"Operational Creditor' has filed the instant Company

Appeal No. (AT)(CH)(INS) No. 04/2022, being aggrieved with the order dated

29.09.2021 in IBA/13/4/2020 passed by the 'Adjudicating Authority'

(National Company Law Tribunal, Division Bench No. II, Chennai).

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 1 of 14

2. The 'Adjudicating Authority' (National Company Law Tribunal,

Division Bench No. II, Chennai) while passing the impugned order dated

29.09.2021 in IBA/13/4/2020 (filed by the Appellant/Applicant/'Operational

Creditor' under Section 9 of the I & B Code, 2016 read with Rule 6 of the

Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules,

2016 wherein at paragraphs 14 to 19 had observed the following:

"14. Upon perusal of the typed set of documents filed along with the

Application, it is seen that the Operational Creditor has only listed out the

details of 1110 Nos of invoices along with the Application, however has

failed to enclose the copy of those invoices per se and in the absence of

those invoices which sets out the date, the seal of the Operational

Creditor and other details, Application which are filed by the Operational

Creditor are required to be treated as incomplete. It is also required to be

noted that the Applicant even though in his Application has averred in

Part - IV of the Application that as per the Books of Accounts that a sum

of Rs.14,41,728/- is balance outstanding, however has miserably failed

to place on record the copy of the said Ledger Account in the typed set

filed alongwith the Application. All these documents are least required

for the Adjudicating Authority to properly adjudicate the Application on

hand and the present application filed by the Operational Creditor is

bereft of all these details and hence on the said count itself, the present

application is required to be dismissed.

15.Further, the nature of transaction which transpired between the

parties would show that at first the Operational Creditors will supply the

materials to the Corporate Debtor and the Corporate Debtor would

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 2 of 14 convert the said materials into finished products and in turn supply the

same to the Operational Creditor. Thus, in the present case, it is seen

that both the Operational Creditor and the Corporate Debtor have been

supplying materials mutually exclusive with one and another and in the

said circumstances, the Applicant alone cannot be treated as an

'Operational Creditor' in respect of the Corporate Debtor.

16.At this juncture, it is relevant to refer to the recitals as found in the

Master Contract entered into between the parties on 11.11.2013 which

is as follows:

"WHEREAS MAIL (Operational Creditor) is engaged in the

business of manufacturing and selling Automotive components

such as Brakes, suspension and Steering Systems (hereinafter

refer to as 'MAIL Products'); and

WHEREAS Supplier (Corporate Debtor) is engaged in the business

of manufacturing and selling auto parts or accessories and

incidental materials and general materials required to production

of such parts or accessories (hereinafter called as "Ordered Items")

WHEREAS MAIL wishes to purchase from Supplier and Supplier

wishes to manufacture and sell for MAIL " Ordered Items" (as

herein defined) fro , all in accordance with the terms and conditions

of this Agreement.

(emphasis supplied)

17. As per the said recitals, it is required to be noted that it is the

Operational Creditor who has decided to purchase from the

Corporate Debtor and the Corporate Debtor wishes to manufacture

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 3 of 14 and sell for the Operational Creditor the 'Ordered Items". At this

stage, it is necessary for this Tribunal to decide on the issue as to

whether the Applicant herein qualifies to be an Operational

Creditor in relation to the Corporate Debtor. In order to better

address the issues, the following definitions under IBC 2016 is

required to be taking into consideration:

Section 3(6) "claim" means

a) A right to payment, whether or not such right is reduced to judgement, fixed, disputed, undisputed, legal, equitable, secured, or unsecured.

b) Right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgement, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

Section 3(11) "debt" means a liability to obligation in respect of a Claim which is due from any person and includes a financial debt and operational debt;

Section 3(12) 'default' means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not (Paid) by the debtor or the corporate debtor, as the case may be;

Section 5(20) 'operational creditor' means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;

Section 5(21) 'operational debt' means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

18. It is required to be noted that for a 'debt' to qualify as an 'Operational Debt', it has to undergo the following percolation process;

a) The amount in default should fall within the definition of 'claim' as defined under Section 3(6) of IBC, 2016.

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 4 of 14

b) Such a 'Claim' should be capable of being treated as a 'debt' as defined under Section 3(110 of IBC, 2016.

c) And such 'debt' should fall within the confines of 'Operational Debt' as defined under Section 5(21) of IBC, 2016.

d) And the said 'Operational Debt' must be owed by the Corporate Debtor to the Creditor, who can then be considered as an Operational Creditor under Section 5(20) of IBC, 2016

19. Thus, for a person to qualify as an Operational Creditor he must have supplied the goods or rendered services to the Corporate Debtor, which is not the proposition in the present case and on the other it is the Corporate Debtor who has supplied the service to the Operational Creditor of which it is claimed to be deficient. Thus, it is quite clear that only a supplier of goods or provider of services who has provided such goods or services can claim to be an 'Operational Creditor' and not in the reverse (i.e.) a person who availed the services or received the goods from the Corporate Debtor and in relation to the said transaction a 'Claim' had arisen. and consequently dismissed the Application without costs.

APPELLANT'S CONTENTIONS:

3. The Learned Counsel for the Appellant submits that the Appellant is

an 'Operational Creditor' of the Respondent/'Corporate Debtor' and it claimed

a sum of Rs. 14,41,728/- till date of filing as outstanding amount and in fact,

the 'Appellant' is a supplier of Wheel Cylinder, Body casting to the

Respondent/'Corporate Debtor' as input to get assembled. Furthermore, the

Respondent/'Corporate Debtor' used to supply End Plugs and Adaptors to the

Appellant after assembling Appellant's supplied materials.

4. The Learned Counsel for the Appellant contends that the Appellant &

Respondent had entered into a Master Contract dated 11.03.2013 between

them under which the 'Appellant' will decide whether supplies are provided to

the 'Corporate Debtor' with payment or without payment which are called

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 5 of 14 'Paid Company Supplies' and 'Free Company Supplies'. In regard to the Paid

Company Supplies, the Respondent/'Corporate Debtor' has to make payment.

5. It is represented on behalf of the Appellant that in the normal course of

'Business' the Appellant and Respondent used to set off their respective

receivable against their respective supplies and pay the balance to each other.

Further in year 2015 and 2016, due to Respondent's financial crisis, it

requested the Appellant' an extended and flexible terms towards payment for

their purchases from the 'Appellant', As such the Appellant used to pay on

time for their purchases from 'Corporate Debtor' but allowed extended time to

the 'Corporate Debtor' for the purchased made by the 'Corporate Debtor' from

the 'Operational Creditor'.

6. The Learned Counsel for the Appellant points out that as the quality of

materials supplied by the Respondent/Corporate Debtor' was of inferior

quality, as also there was a huge delay in delivery had caused huge business

and goodwill loss to the Appellant's customers and hence the 'Appellant'

discontinues purchases from the Respondent from 2017.

7. It is the version of the 'Appellant' that there was an unpaid amount of

Rs. 14,41,728/-, standing as outstanding from the Respondent towards the

paid supplies made by the Appellant for the period between 01.05.2017 to

10.12.2017.

8. The Learned Counsel for the Appellant takes a stand that during the

period between 01.05.2017 to 10.12.2017, the 'Appellant' supplied materials

to the Respondent/Corporate Debtor amounting to Rs. 2,69,95,970 but

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 6 of 14 received only Rs. 2,55,54,242/- and the balance of Rs. 14,41,728/- remains

unpaid by the Responded till date despite several requests. In this period the

'Appellant' had raised about 1100 Invoices.

9. The Learned Counsel for the Appellant points out that the 'Adjudicating

Authority' should not have come to a conclusion that non-filing of Invoices

would make the Application filed by the 'Appellant' as an incomplete one.

10. On behalf of the Appellant, a plea is advanced that the 'Adjudicating

Authority' should have considered that just because the 'Appellant' had

received goods from Respondent, shall not disqualify it, to be an 'Operational

Creditor'.

11. The Learned Counsel for the Appellant brings to the notice of this

'Tribunal' that the 'Appellant' had caused 'Demand Notice' in form 3 dated

23.05.2019 to the registered Office of the Respondent and his Director. The

said 'Demand Notice' sent to the registered Office of the Respondent was

returned unserved and the 'Demand Notice' sent to the Managing Director

was served on 25.05.2019.

12. According to the 'Appellant', the Respondent had issued a reply dated

08.06.2019, after the statutory, mandatory period of 10 days received on

12.06.2019 and the Respondent had not disputed or refuted the subject debt

in a said reply.

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 7 of 14

13. The Learned Counsel for the Appellant submits that the 'Adjudicating

Authority' should have considered that the Respondent had not denied their

liability in the reply issued by it.

14. The other argument advanced on the side of the Appellant is that the

'Adjudicating Authority' should have considered that the Appellant had made

'paid supplies' to the Respondent under the terms of the Master Contract

dated 11.11.2013 for which the 'Corporate Debtor' has to make payment and

in regard to the said 'paid supplies', the Appellant qualifies as an 'Operational

Creditor'.

15. While summing up, the Learned Counsel for the Appellant submits that

the 'Adjudicating Authority' came to the wrong conclusion that given the

nature of business of the 'Appellant' it cannot be treated as an 'Operational

Creditor' and hence prays for setting aside the impugned order passed by the

'Adjudicating Authority' and to allow the 'Appeal', in the interest of justice.

EVALUATION:

16. Before the 'Adjudicating Authority', the Appellant'/Operational Creditor

in its application dated 20.12.2019 to initiate CIRP [under Rule 6 of the

Insolvency & Bankruptcy (Application to 'Adjusting Authority, Rules 2016)]

under part IV 'Particulars of 'Operational Debt' had mentioned that the total

amount of debt was Rs. 14,41,728/- and the said amount was an unpaid

amount, standing as 'outstanding' from 'Corporate Debtor' towards

Operational Creditor's supplies to the Corporate Debtor' for the period from

01.05.2017 to 10.12.2017.

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 8 of 14

17. The Appellant/Operation Creditor had proceed to mention in its

Application that the 'Debt' fell due on 11.12.2017 and that the 'Demand

Notice' in form -3 dated 23.05,2019 sent to the registered Office of the

'Corporate Debtor' and Director was returned unserved and the 'Demand

Notice' to the Managing Director Mr. Janartnan Mohanakrishnan was served

on 25.03.2019. In fact, the 'Corporate Debtor' in its reply dated 08.06.2019

(after the mandatory period of 10 days received on 12.06.2019) had not

disputed or refuted the subject 'Debt'. The said payment of Rs. 14,42,728/-

was due from 11.12.2019, as no payments were made thereafter.

18. The Respondent/Corporate Debtor through its Managing Director

before the 'Adjudicating Authority' had filed a counter to IBA No. 134 of 2020,

interalia, stating that till date no payment was made to the 'Operational

Creditor' by the 'Corporate Debtor'. Further, the understanding between the

Appellant/'Operational Creditor and the Respondent/Corporate Debtor is

that the the Appellant/Operation Creditor would supply the materials and

'Corporate Debtor' would convert the same into product and supply the same

to the 'Operational Creditor'. However, no payment would be made to the

'Operation Creditor' and the 'Operational Creditor' would deduct the cost the

materials supplied and pay the balance to the 'Corporate Debtor'.

19. The clear cut stand of the Respondent/Corporate Debtor is that the

Corporate Debtor and the 'Operational Creditor' had entered into an

'Understanding Agreement' and by the said 'Agreement' the 'Operational

Creditor' is to inform the 'Corporate Debtor' before six months as regards the

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 9 of 14 stopping of business. But the 'Operational Creditor' had stopped the business

with 'Corporate Debtor' in December, 2017 and no information was given to

the 'Corporate Debtor' by the 'Operational Creditor'. In short, the act of

'Stopping of business' was taken in an unilateral manner which would not

bind the 'Corporate Debtor'

20. Moreover, the 'Corporate Debtor' was of the opinion that it need not pay

any amount as no payment was made by the 'Corporate Debtor' to the

Operational Creditor' till date. Indeed, the 'Operation Creditor' never raised

the issue of pending payment with the 'Corporate Debtor' till the issuance of

'Demand Notice' on 23.05.2019. The 'Operational Creditor' filed an Affidavit

stating that there is no dispute which cannot be considered as there is no

dispute. The 'Operational Creditor' had violated the provisions of the

'Understanding Agreement' and as such had no right to invoke the provisions

of the I & B Code against the 'Corporate Debtor'. However, the 'Operational

Creditor' is to pay the 'compensation' as prayed for in the Reply to the

'Demand Notice'.

21. The Appellant (in Form 3) had issued a Demand Notice seeking

payment in respect of unpaid operational debt due from the Respondents/

M/s Chennai Clamptech Designer Pvt Ltd dated 23.05.2019 claiming a sum

of Rs.14,41,728/- in respect of the 'Debt' and the break-up figure is value of

supply Rs.2,69,95,970/- and the amount received Rs.2,55,54,242/- and the

balance to be paid is Rs.14,41,728/-. The Date of Default is 11.12.2017.

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 10 of 14

22. As a matter of fact the Appellant in Form 3 (Form of Demand Notice) at

Sr. No.6 and 7 had mentioned the following

6. PROVISION OF LAW CONTRACT OR 1.Section 3(1) of IBC, OTHER DOCUMENT UNDER WHICH 2016(Debt) DEBT HAS BECOME DUE 2.Sec.4(21) of IBC, 2016 (Operational Debt in respect of provision of goods).

3.Various Invoices (appx.

1110 Nos) from 01st May, 2017 to 10th December, 2017.

4.Account Statement in the books of M/s Mando Automotive India Pvt Ltd. 7 LIST OF DOCUMENTS ATTACHED 1.Account Statement in the TO THE APPLICATION IN ORDER TO books of M/s Mando PROVE THE EXISTENCE OF Automotive India Pvt Ltd from

OPERATIONAL DEBT AND THE 01.05.2017 to 31.12.2017 AMOUNT IN DEFAULT. 2.Legal Notice dated 3.10.2018

3.Email dated 21.10.2018 for proof of deliver of Legal Notice dated 3.10.2018 vide email.

23. For the Notice dated 23.05.2019 of the Appellant, the

Respondent/Corporate Debtor had issued a Reply (through its Managing

Director on 08.06.2019) inter alia mentioning that " .......our company has

invested huge sums in the land and building and due to gradual slowdown of

your take off and business volume we had incurred huge losses to meet out

Fixed Expenses planned based on your business volume which was against

your assurance. Our company incurred losses due to your assurance only and

we are entitled to make a counter claim of Rs.1.5 crores towards our

investments and loss of employment. Therefore, you are requested to withdraw

the petition filed under Insolvency and Bankruptcy Code, 2016 and pay an

amount of Rs.1.5 crores towards losses due to your assurance."

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 11 of 14

24. Be it noted that Bankruptcy Notice sets the entire process in motion

leading to Bankruptcy. In an application under Section 9 of the Code, the

Adjudicating Authority is to analysis whether a Notice of Dispute was received

by an 'Operational Creditor' or whether there is a record of 'dispute' in the

Information Utility.

25. An 'Adjudicating Authority' is to ascertain whether the Dispute raises a

'plausible contention' which requires 'more examination in the form of an

investigation' and it not a 'Dispute which is a patently weak legal argument

or an assertion of fact. The 'Adjudicating Authority' need not go into the

'Dispute' on a threadbare basis or in its merits.

26. Section 5(21) defines 'operational debt' meaning 'a claim in respect of

the provisions of goods or services including employment or a debt in respect

of the payment of dues arising under any law for the time being in force and

payable to the Central Government, any State Government or any local

authority'.

27. Section 3(6) defines claim meaning

c) A right to payment, whether or not such right is reduced to judgement, fixed, disputed, undisputed, legal, equitable, secured, or unsecured.

d) Right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgement, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

28. Before the 'Adjudicating Authority', the Appellant/Operational Creditor

alongwith the application had only mentioned the details of 1110 Nos of

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 12 of 14 invoices but had not enclosed the copies of the said invoices and as such the

application was treated as an incomplete one by the 'Adjudicating Authority'.

Even the copy of the ledger account was not placed on record before the

'Adjudicating Authority'.

29. One cannot remain oblivion to the prime fact that in the case on hand,

the Appellant/Operational Creditor and Respondent/Corporate Debtor were

supplying materials mutually and under such circumstances the

Appellant/Applicant singly to be considered as an 'Operational Creditor' qua

the 'Corporate Debtor'.

30. In fact, it cannot be brushed aside that the Appellant had received the

services/goods from the Respondent/Corporate Debtor and in that context,

the claim arose between the parties.

31. A 'Debt' may not be due if it is not payable in law or in fact. The

application must be complete with a view to enable an 'Adjudicating Authority'

to admit the same.

32. To put it succinctly, while scrutinising an application under Section 9

of the Code, an Adjudicating Authority is to determine (a) whether there is an

'operational debt' as per Section 4 of the Code (b) whether the

material/documentary evidence submitted with the application indicates that

the aforesaid 'debt' is due and payable and the same was not paid. (c) whether

there is existence to a dispute between the parties or the record of the

pendency of a suit or arbitration proceeding filed prior to the receipt of the

Demand Notice of the unpaid 'operational debt' pertaining to a dispute as per

Hon'ble Supreme Court decision in Mobilox Innovations Pvt Ltd V. Kirusa

Software Pvt Ltd reported in AIR 2017 SC 4532.

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 13 of 14

33. If anyone of the above said conditions is lagging behind, then the

application is to be rejected in the eye of law. It is to be remembered that an

adjudicating authority is to follow the particular mandate of Section 9 (5) of

the Code, and admit or reject the application based on the ingredients

enumerated in Section 5 of the Code as per Hone'ble Supreme Court decision

in K. Kishan V Vijay Nirman Co Pvt Ltd reported in (2018) 146 CLA 1 (SC)

34. In view of the upshot, this Tribunal considering the facts and

circumstances of the present case and also on going through the impugned

order passed by the Adjudicating Authority in IBA/134/2020 dated 29.9.2021

comes to a consequent conclusion that the application project by the

Applicant/Operational Creditor before the Adjudicating Authority is devoid of

necessary qualitative and quantitative details, coupled with the candid facts

that the Appellant is not an 'operational creditor' pertaining to the

Respondent/Corporate Debtor and viewed in that perspective, the conclusion

arrived at by the 'Adjudicating Authority' (National Company Law Tribunal,

Division Bench II, Chennai) in dismissing the application in IBA/134/2020 is

free from legal infirmities. Resultantly, the Appeal fails.

DISPOSITION:

In fine, the Comp. App.(AT)(CH)(Ins) 4/2022 is dismissed. No costs.

(Justice M. Venugopal) Member (Judicial)

(Mr. Kanthi Narahari) Member (Technical) 17th February, 2022 Bm/manu

Company Appeal(AT)(CH)(Insolvency) No. 4 of 2022 Page 14 of 14