Mohit Minerals Ltd vs Shree Rama Newsprint Ltd

[Arising out of order dated 2nd May, 2019 passed by the Adjudicating Authority, National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in CP No. (IB) 520/9/NCLT/AHM/2018]

IN THE MATTER OF:

M/s Mohit Minerals Limited, (Earlier Known as M/s Mohit Minerals Pvt. Ltd.) 19-20, 1st Floor, TDI Mall, Fun Cinema, Moti Nagar, New Delhi- 110 015 .. Appellant

Vs.

M/s Shree Rama Newsprint Limited, Village- Barbodhanta, OLPAD, District- Surat, Gujarat - 395 005. .. Respondent

Present:

For Appellant: Mr. Mritunjay Kr. Tiwary and Mr. Sumit Kumar, Advocates

For Respondent: Mr. Arpan Behal, Advocate

JUDGMENT

(26th November, 2019)

KANTHI NARAHARI, MEMBER(TECHNICAL)

The Appellant M/s Mohit Minerals Limited filed the present

appeal aggrieved by the order dated 2nd May, 2019 passed by the

Adjudicating Authority (National Company Law Tribunal)

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 1 of 13 Ahmedabad Bench, Ahmedabad in C.P. No. (IB)

520/9/NCLT/AHM/2018.

2. The Appellant filed the application before the Adjudicating

Authority under Section 9 of Insolvency and Bankruptcy Code, 2016

(In short 'IBC') read with Rule-6 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 to trigger

Insolvency Resolution Process against the Respondent M/s Shree

Rama Newsprint Limited. The Adjudicating Authority dismissed the

application filed by the Appellant. The said order is impugned in this

appeal by the Appellant. The Adjudicating Authority rejected the

application on the ground of existence of dispute prior to issuance

of Demand Notice dated 01.02.2018.

3. The Appellant had taken various grounds in this appeal to

show that the dispute which was raised by the Respondent is not a

bonafide dispute and it is a mere sham dispute raised by the

Respondent-Corporate Debtor to escape liability of the operational

debt. The Respondent has denied, the stand taken by the Appellant

and submitted that the existence of dispute prior to the issuance of

Demand Notice is a bonafide dispute and raised much prior to the

issuance of Demand Notice.

4. Heard learned Counsel appearing on behalf of the respective

parties, perused the pleadings and the documents filed in their

support. Before proceeding to decide the issue regarding whether

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 2 of 13 there is existence of dispute prior to the issuance of Demand Notice

or not:

5. The Facts of the case are: -

The Respondent-Corporate Debtor placed a Purchase Order

bearing no. 4400000023 dated 09.08.2016 (page No. 59 of Paper

Book) for supply of 3000 MT of (non-coking) coal of Indonesian origin

at the rate of Rs. 4350/per MT on the Appellant/Operational

Creditor. The said Purchase Order contains the terms and

conditions which reads as follows:

Clause (8)

'Risk Purchase- In case you fail to supply the coal as

per dispatch schedule given above, SRNL shall have

the right to buy the coal from the coal market at your

risk & cost and the amount of difference in the rate will

be debited in your account"

6. While matter stood thus, the Appellant issued a Demand

Notice dated 01.12.2018, demanding an amount of Rs. 43,18,668/-

stated to be defaulted by the Corporate Debtor basing upon certain

invoices. The Respondent vide reply dated 13.02.2018 to the said

Demand Notice stated that they have raised Debit Note dated

31.12.2016 for Rs. 49.50 lakhs against non-supply of 3500 MT coal

as the same had to be procured by them from other parties at a

differential price @ Rs. 1650/per MT.

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 3 of 13

7. It is not in dispute that the Respondent- Corporate Debtor

raised the Debit Note dated 31.12.2016(at page 66 of the paper book)

for Rs. 49,50,000/- on the Appellant. Further the Respondent

issued the Debit Note for the same amount dated 06.01.2017 (at

page -67) addressed to the Appellant stating that "Dear Sir, We have

debited your account with Rs. 49,50,000/- (Rupees Forty Nine

Lakhs Fifty Thousand only) as per the details given below". In the

particulars of the said Debit Note it is mentioned that "The following

amount credited to you're A/c coal materials our P.O. No.

4400000000023 dt. 9.8.2016 for 3000 MT coal @ Rs. 1650."

8. The Respondents vide e-mail dated 23.09.2017 at 12.58 P.M.

addressed to the Appellant stated that "there is no outstanding

balance as per our books. Plz find attached Debit note copy." The

Appellant on very same day i.e. 23.09.2017 at 3:14 P.M. replied to

the said e-mail stating that debit note is not acceptable. The relevant

portion is extracted hereunder:

"Dear Sir without prejudice, the attached Debit Note is not

acceptable and you cannot raise such Debit Notes

arbitrarily without mutual consent advised earlier in our e-

mail dated 09.09.2017, We had provided you two

reasonable option which was fair for both parties however

your e-mail is not acceptable hence we are not left with no

option but to proceed legally to recover the dues."

[ Emphasis supplied]

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 4 of 13

9. It is an admitted fact that the Appellant failed to supply coal

as per the P.O. dated 9.8.2016. It is not in dispute and in view of the

requirement, the Respondent had placed Purchase Order on one

Trona Minerals India Pvt. Ltd. vide Purchase Order no. 4400000028

dated 19.09.2016 for supply of 3000 MT of Coal. The stand of the

Respondent is that the Appellant had failed to supply coal as ordered

on 09.08.2016 and in view of necessity, they had placed and

purchased coal from Trona Minerals India Pvt. Ltd. and raised a

Debit Note on the Appellant in accordance with clause-8 of the

Terms and Conditions as specifically mentioned along with the

Purchase Order dated 9.8.2016, which is part of the said Purchase

Order.

10. The Appellant filed the application before the Adjudicating

Authority claiming an amount of Rs. 49,53,335/- from the

Respondent. In paragraph-4 of the application, the Appellant clearly

stated that the Respondent- Corporate Debtor, on 09.08.2016,

placed an order on Appellant for purchase of 3000 MT of non-coking

coal of Indonesian origin at the rate of Rs. 4350 per MT. However,

the Operational Creditor (Appellant herein) was not in a position to

supply coal because of shortage of coal in the market and the said

Purchase Order was cancelled by the Corporate Debtor (Respondent

herein). Thus the Appellant clearly admitted that they could not

supply the material as per the Purchase Order and the Respondent

had issued a Debit Note on the Appellant debiting an amount of Rs.

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 5 of 13 49,50,000/- and the same has been communicated to the Appellant

by e-mail dated 23.09.2017 at 12:58 P.M. and the Appellant had

received the said e-mail and replied to the said e-mail on the very

same day i.e., on 23.09.2017 at 3.14 P.M. Thus it is a case of pre-

existence of dispute prior to the issuance of Demand Notice dated

01.02.2018.

11. We are of the view that the learned Adjudicating Authority

rightly rejected the application with a reasoned order and no

interference is called for.

12. Learned Counsel for the Appellant filed Written Submission

and relied upon the judgment of the Hon'ble Supreme Court in the

matter of "Mobilox Innovations Private Limited vs. Kirusa

Software Private Limited" to show that the Adjudicating

Authority/NCLT can only reject the application under Section 9 of

IBC if the Corporate Debtor raises a substantial or bonafide dispute

as to the existence of the debt. Learned Counsel for the Appellant

contended that the dispute raised by the Respondent-Corporate

Debtor is not a bonafide dispute as held by the Hon'ble Supreme

Court. Further learned Counsel relied upon the judgment of this

Tribunal in the matter of "Sudhir Sales and Services Ltd. Vs. D-

art Furniture systems Pvt. Ltd." - Company Appeal (AT)

(Insolvency) No. 327 of 2018 (Manu/NL/0248/2018). This Tribunal

at paragraph-26 held:

...

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 6 of 13

"26. In "Mobilox Innovations Pvt. Ltd.(Supra)", the

Hon'ble Supreme Court held that a dispute truly exists

in fact and is not spurious, hypothetical or illusory.

Here there is no such dispute was pre-existing apart

from that a hypothetical or illusory dispute which has

been raised by the 'Corporate Debtor' while replying to

the demand notice served under Section 8(1) by the

'Operational Creditor'."

...

13. Now we deal with the judgements relied upon by the learned

Counsel for the Appellant. The Judgements are not at all applicable

to the facts of present case. Firstly, the judgment of this Tribunal

which was relied upon by the learned Counsel for the Appellant from

the facts it is evident that the Corporate Debtor therein had raised

certain disputes in reply to the Demand Notice. Therefore, this

Tribunal had taken a view that the dispute which was taken/raised

by the Corporate Debtor therein is not prior to the issuance of

Demand Notice. Therefore, the said judgment of this Tribunal is not

applicable to the facts of the present case.

14. Judgment of the Hon'ble Supreme Court in the matter of

"Mobilox Innovations Pvt. Limited. Vs. Kirusa Software Private

Limited." reported in (2018) 1 SCC 353 is a landmark judgment

particularly with respect to Sections 8 & 9 of the IBC. Pargraph-51

of the judgment is extracted hereunder:

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 7 of 13

51. 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. 620 of 2019 Page 8 of 13

As held supra in the present case the dispute between the

parties truly exists prior to issue of Demand Notice and we are of

the view that it is a bonafide dispute and not by hypothetical or

spurious.

15. Learned Counsel for the Respondent filed Written Submission

taking the stand that in the Purchase Order dated 09.08.2016 at

clause-8 it has been clearly mentioned that in case if the Appellant

failed to supply the coal as per schedule, the Respondent has the

right to buy coal from the Coal Market at the risk of the Appellant.

The amount of difference in the rate will be debited from the account

of the Appellant. Further, they have also relied upon the judgment

of the Hon'ble Supreme Court in the matter of Mobilox Innovations

Private Limited vs. Kirusa Software Private Limited - (2018) 1

SCC 353.

Relevant Provisions of Law in IBC

Relevant portions of the Sections need to be reproduced: -

16. "Insolvency resolution by operational creditor.

Sec. 8.(1) An Operational Creditor may, on occurrence of a

default, deliver a Demand Notice of unpaid Operational Debt

and 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.

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 9 of 13 (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 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

of such dispute;

(b) the payment of unpaid operational debt -

(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."

...

"Application for initiation of corporate insolvency

resolution process by operational creditor.

Sec. 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

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 10 of 13 Authority for initiating a corporate insolvency resolution

process". ....

Sub-Section 5 of Section 9 of IBC reads as under:

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 of

the Operational Creditor and the Corporate Debtor if,-

ii) Reject the application and communicate such decision to

the Operation Creditor and the Corporate Debtor, if-

(a), (b), (c) ..

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

Creditor or there is a record of dispute in the information

Utility.

[Provided the Adjudicating Authority shall, before

rejecting an application under sub-section (c) of clause (ii)

give a notice to the applicant to rectify the defect in his

application within seven days of the date of receipt from

the Adjudicating Authority.]"

17. From the aforesaid provisions of law, it is clear that the

Adjudicating Authority has to satisfy whether there is pre-existence

of dispute prior to the receipt of Demand Notice or there is a record

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 11 of 13 of dispute in the Information utility and in such case, the

Adjudicating Authority shall reject the application.

18. The Hon'ble Supreme Court upholding the above provisions of

law clearly stated at paragraph-51 supra that the Adjudicating

Authority must reject the application under Section 9(5)(2)(d) if

notice of dispute has been received by the Appellant/Operational

Creditor or there is a record of dispute in the Information Utility. It

is also held that such notice must bring to the notice of the

Appellant-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.

19. The dispute has been defined in Section 5(6) of IBC which

reads as follows:

"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;"

20. In view of the above provisions of law and the facts, we are of

the view that there is an existence of dispute prior to the receipt of

Demand Notice. The Adjudicating Authority rightly rejected the

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 12 of 13 application and no interference is called for. Accordingly, the appeal

is dismissed. No order as to cost.

[Justice A.I.S. Cheema] Member (Judicial)

(Kanthi Narahari) Member(Technical)

(V P Singh) Member(Technical)

Akc

Company Appeal(AT)(Insolvency) No. 620 of 2019 Page 13 of 13