Mayor Sports Pvt. Ltd vs Emphasis Innovations Pvt. Ltd

[Arising out of Order dated 07th April, 2021 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench) in Company Petition (IB) No. 2854(ND)/2019]

IN THE MATTER OF: Mayor Sports Private Limited Through its Director Mr. Nitin Mayor Registered address at: 384/2, First Floor, Balraj & Sons Building 100 ft. Road, Ghitorni, New Delhi - 110030 ...Appellant

Versus

Emphasis Innovations Private Limited (Earlier known as Emphasis Marketing Pvt. Ltd.) Through its Directors Registered address at: Shop No. 2, P-63, West Patel Nagar Near Khanna Market, Delhi - 110008 ...Respondent

Present:

For Appellant : Mr. Deepak Biswas and Mr. Harshit Gupta, Advocates.

For Respondent : Mr. Animesh Rastogi, Mr. Santosh and Ms. Neha Rastogi, Advocates

KANTHI NARAHARI, MEMBER (TECHNICAL)

Preamble:

The Present Appeal is filed against the Order dated 07th April, 2021

passed by the Adjudicating Authority (National Company Law Tribunal, New

Delhi Bench) in Company Petition (IB) No. 2854(ND)/2019, whereby the

Adjudicating Authority has dismissed the Application filed by the Appellant

Company Appeal (AT) (Ins.) No. 844 of 2021 1 of 9 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B

Code').

Brief Facts:

Appellant's Submissions:

2. The Learned Counsel appearing for the Appellant submitted that the

Appellant is aggrieved by the impugned order dated 07.04.2021 for the reason

that the Learned Adjudicating Authority without appreciating the facts that

there is a prima-facie admission by the Respondent its liability to pay to the

Appellant. The said admission was made by the Respondent vide its e-mail

dated 20.01.2017 to the Appellant much before issuance of the demand

notice. It is submitted that the Respondent had deliberately tried to take

moonshine defence of pre-existing dispute with ulterior motive and malafide

intention in order to evade its liability against the Appellant.

3. It is submitted that the Respondent in their reply stated that the

Appellant had invoked arbitration proceedings, however, the Appellant never

invoked arbitration proceedings and the Respondent created false and bogus

stories in order to avoid its liability. Further, the Respondent also raised

allegation that the Appellant filed a police complaint, however, no FIR has

been registered till date, therefore, the stand taken by the Respondent

regarding the above averments are completely misconception.

4. The Learned Counsel further submitted that from the facts, it is clear

that there is no pre-existing dispute amongst the Appellant and the

Respondent and there is no notice for invocation of arbitration was sent by

the Appellant nor the arbitration proceedings were ever invoked by the

Company Appeal (AT) (Ins.) No. 844 of 2021 2 of 9 Appellant in terms of Section 21 of the Arbitration and Conciliation Act, 1996.

The Learned Adjudicating Authority failed to notice the fact that there is a

prima-facie admission by the Respondent its liability towards the Appellant

whereby the Respondent assured to pay the dues. The reply letters of the

Respondent dated 23.03.2017, 21.06.2017 and 31.08.2017 issued to the

demand notice of the Appellant were all sham false and bogus and the same

were sent as an afterthought by the Respondent in order to avoid its liability.

5. In view of the reasons as stated above the Learned Counsel prayed this

Bench to allow the appeal by setting aside the impugned order.

Respondent's Submissions:

6. The Learned Counsel appearing for the Respondent submitted that

there is pre-existing dispute between the Appellant and the Respondent since

the year 2016, which was demonstrated by letters dated 18.04.2017,

30.05.2017 and 08.08.2017 sent by the Appellant to the Respondent. The

Respondent replied to the above letters of the Appellant vide dated 21.06.2017

and 31.08.2017. Further, the Respondent also sent legal notice dated

23.03.2017 to the Appellant for criminal breach of trust, cheating,

misrepresentation, fraud and causing wrongful loss. The Respondent has not

consented the request of the Appellant for referring the dispute to arbitration

for the reason that the Respondent has made the regular payment to the

Appellant.

7. It is submitted that the Appellant deliberately concealed the legal

notices sent by them dated 18.04.2017, 30.05.2017 and 08.08.2017 in the

affidavit filed before the Learned Adjudicating Authority which proves the pre-

Company Appeal (AT) (Ins.) No. 844 of 2021 3 of 9 existing dispute between the parties. The Appellant relied upon forged and

fabricated bills for the purpose of filing the claim.

8. In view of the reasons as stated above the Learned Counsel prayed this

Bench to dismiss the Appeal.

Analysis / Appraisal:

9. Heard the Learned Counsel appeared for the respective parties perused

the pleadings, documents filed in their support. The fact remains that the

Appellant filed an application before the Adjudicating Authority under Section

9 of the I&B Code, 2016 initiation of CIRP against the Respondent / Corporate

Debtor for the reason that the Corporate Debtor failed to pay the Operational

Debt owed to it. The Appellant prior to filing of the Application before the

Adjudicating Authority issued demand notice in Form-3 wherein the

Appellant claimed a total amount of Rs.32,76,848/- including the interest.

The basis for the claim is an agreement dated 01.07.2015 entered between

the Appellant and the Respondent for supply of footwear under the brand

name of SLAZENGER. The Appellant raised invoices on the Corporate Debtor

for supply of goods.

10. The Adjudicating Authority having considered the application on merit

observed a para 30 of the order as under:

"30. On the basis of aforesaid discussions, we are of the considered view that the documents filed by the Petitioner along with its application and documents filed by the corporate debtor along with its reply establishes that there is a pre-existing dispute between the parties prior to the issuance of demand notice and that is the reason for which the applicant proposed

Company Appeal (AT) (Ins.) No. 844 of 2021 4 of 9 the name of the arbitrator and expressed its intention to refer the matter to the arbitration. Merely the reply to the demand notice was not sent within ten days from the date of delivery of the demand notice, in view of the aforesaid decision of the Hon'ble NCLAT, we are of the considered view that the same is not liable to be rejected, if there are sufficient documents to show that prior to the issuance of the demand notice corporate debtor had raised dispute."

11. The Appellant issued a demand notice dated 08.08.2019 to the

Respondent claiming an amount of Rs.32,76,648/- due from the date i.e.

27.11.2016 and relied upon the supply agreement dated 01.07.2015. The

Respondent replied to the above demand notice by its Reply dated 03.09.2019

wherein it is stated that the Respondent earlier issued legal notice dated

23.03.2017 to the Appellant and they are bound by the stand taken therein.

It is also stated in the reply notice that the Respondent filed a criminal

complaint against the Appellant dated 15.07.2017. Further, in the reply it is

a specific case of the Respondent that there is pre-existing dispute between

the parties since the year 2016, therefore, the demand notice is not

maintainable since the IBC proceedings cannot be maintainable. It is also

stated in the reply, that the amount claimed by the Appellant is disputed since

the beginning.

12. The Respondent vehemently contended that there is a pre-existing

dispute between the parties and the Application filed by the Appellant is not

maintainable and Learned Adjudicating Authority rightly dismissed the

application on the ground of pre-existing dispute.

Company Appeal (AT) (Ins.) No. 844 of 2021 5 of 9

13. To buttress their arguments the Respondents issued legal notice dated

23.03.2017 to the Directors of the Appellant Company stating that the

Appellant Company committed fraud and cheated the Respondent. It is stated

that the parties have entered into an agreement on 01.07.2015 for supply of

footwear products under the brand name SLAZENGER to the Respondent. It

is stated that the Appellant represented the Respondent that they are engaged

in the business of manufacturing and distributing of equipment, apparel and

shoes under the brand name SLAZENGER and is authorised licensee of the

said brand. However, the Respondent come to know that the Appellant is not

authorised dealer or manufacturer of the brand SLAZENGER.

14. It is evident that the Respondent lodged a criminal complaint with

Station Head Officer, PS Jonapuri Village, Fatehpur Beri, Delhi (Page 98,

Volume-1) against the Appellant and its Directors for committing criminal

breach of trust, cheating, criminal conspiracy, misrepresentation fraud and

causing wrongful loss. In the copy of the complaint, the Respondent at para

9 stated that the license of the Appellant for supply of footwear products has

been terminated on 19.01.2015 itself, however, knowing fully well the

appellant entered into an agreement on 01.07.2015 much later to termination

of licence agreement with the Respondent for supply of footwear products of

SLAZENGER brand. To ascertain the veracity with regard to termination of

agreement as alleged by the Respondent, with SLAZENGER, it is seen from

page 106 of volume-1, that the licence agreement to Mayor (Appellant) was

lawfully terminated on 19.01.2015 and the Appellant is currently subject to a

legal action being pursued by SLAZENGER in the Delhi Courts and no

Company Appeal (AT) (Ins.) No. 844 of 2021 6 of 9 authorization or consent from SLAZENGER to deal in SLAZENGER branded

products by the Appellant. There is no denial with regard to termination of

licence by the SLAZENGER way back on 19.01.2015 and the Appellant having

full knowledge of the same entered the agreement with the Respondent on

01.07.2015 for supply of footwear of SLAZENGER brand to the Respondent in

our view is a pre-existing dispute between the Appellant and the Respondent.

15. The Appellant vide its reply dated 18.04.2017 to the legal notice of the

Respondents dated 23.03.2017 admitted the fact that there are some disputes

between the group company under which the appellant obtained licence for

supply of SLAZENGER. Thus, it is an admitted fact that the Appellant does

not hold the licence and entered the agreement subsequent to termination of

licence / agreement dated 19.01.2015.

16. Further, there are several correspondences namely the Appellant vide

its letter dated 08.08.2017 suggested appointment of arbitrator, however the

respondent vide its reply dated 31.08.2017 categorically stated that the void

agreement is not enforceable, therefore, the appointment of arbitrator is

uncalled for and the respondent is not consented for any requests referring

any dispute to arbitrator.

17. The Hon'ble Supreme Court in the matter of Mobilox Innovations Pvt.

Ltd. vs. Kirusa Software Pvt. Ltd. reported in (2018) 1 SCC 353 para 33

held as under:

"33. 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 nonpayment of a debt, any part

Company Appeal (AT) (Ins.) No. 844 of 2021 7 of 9 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 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."

18. Further, the Hon'ble Supreme Court in the matter of Innoventive

Industries Ltd. Vs. ICICI Bank & Anr. reported in (2018) 1 SCC 407 at

para 29 held as under:

"29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there

Company Appeal (AT) (Ins.) No. 844 of 2021 8 of 9 is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

Conclusion:

19. In view of the decisions of the Hon'ble Supreme Court, this Bench comes

to a resultant conclusion that there is pre-existence of disputes between the

parties prior to issuance of demand notice dated 08.08.2019 with regard to

the very claim of the Appellant and the Adjudicating Authority or this Tribunal

cannot go into the disputed issues in a summary jurisdiction. Viewed in that

perspective, the order passed by the Adjudicating Authority in rejecting the

application filed by the Appellant need no interference.

20. In fine, the Company Appeal sans merit, accordingly, the same is

dismissed. However, no order as to costs. Applications, if any, pending stand

closed.

[Justice Anant Bijay Singh] Member (Judicial)

[Kanthi Narahari] Member (Technical) 20th October, 2022

pks

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