Mosco International Commodities ... vs Sbec Sugar Limited

IN THE MATTER OF: Mosco International Commodities Private Limited Through its Director Mr. Kishankumar Prabhu Rabari Registered office at: Ganesh Bhavan Plot No 48, Sector-8, Gandhidham Kachchh, Gujarat - 370201 ...Appellant

Versus

SBEC Sugar Limited Registered Office at: Village Loyan Malakpur, Baraut, Distt. - Baghpat, Uttar Pradesh- 250611 ...Respondent

Present: For Appellant : Mr. Aditya Madaan, Mr. Prabhav Pachory and Mr. Ajit Kumar, Advocates

For Respondent : Mr. Gaurav Mitra, Mr. N.S. Ahlliwalia, Mr. Salilseth and Mr. Adhish Sharma, Advocates

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)] This Appeal is filed under Section 61 of the Insolvency and Bankruptcy

Code, 2016 ("Code") by Mosco International Commodities Private Limited

('OC/ Operational Creditor') against the Impugned Order dated 02.02.2024

passed by the AA wherein Section 9 petition preferred by the OC against SBEC

Sugar Limited ('CD/ Corporate Debtor') was dismissed for not meeting the

threshold limit as prescribed under Section 4 of the Code. Company Appeal (AT)(Insolvency) No. 860 of 2024 1 of 28 Appellant's Case

2. On 14.12.2020, the OC sent a 'Letter of Interest' to the CD for procuring

55,000 quintals Molasses for the season 2019 - 20 & 2020 - 21 from the

sugar mill of the CD. The said procurement was to take place in two tranches

i.e., 27,500 quintals for the season 2019 - 20 @ Rs./- 450 per quintal + GST

and 27,500 quintals for the season 2020 - 21 @ Rs./- 555 per quintal + GST.

3. Thereafter on 15.12.2020, CD issued a sale order confirming the

procurement and requested the OC to issue the purchase order (Page 32 of

the Appeal). Thereafter, the Appellant issued a Purchase Order No. 4500015

to the CD whereby the CD was asked to supply the said quantity of molasses.

It is to be noted here that in terms of the purchase order, an ad-hoc advance

payment of Rs. 2,02,63,750 was made to the CD.

4. On 06.03.2021, the sale order was unilaterally cancelled by the CD and

till then only 18,771.35 quintal molasses were supplied to the OC. As the

balance quantity was not supplied, the CD was to refund an amount of

Rs.1,08,02,731/- to the OC. (Page 34 of the Appeal). But after several

reminders, the CD failed to pay the advance amount back to the OC. Around

19 reminders were sent by the OC to the CD demanding the refund of amount

in default, however, the CD didn't respond or acknowledged any of the said

correspondences. Consequently, on 31.05.2022 the OC was constrained to

send a demand notice u/s 8 of the IBC to the CD (Page 36 of the Appeal). The

CD sent a reply to the said demand notice issued by the OC on 11.06.2022

(Page 36 of the Appeal). Thereafter, the OC sent a response to the reply to the

demand notice (Pages 41 - 42 of the Appeal. However, the CD failed to repay Company Appeal (AT)(Insolvency) No. 860 of 2024 2 of 28 the unpaid operational debt. Therefore, an application u/s 9 of the IBC was

filed by the OC before the Hon'ble NCLT Allahabad which was dismissed vide

an order dated 02.02.2024.

5. Pursuant to the issuance of Demand Notice, the CD apart from sending

a reply dated 11.06.2022 to Demand Notice also transferred an amount of

Rs.13,13, 886/- (alleging it to be payment for the entire operational debt i.e.,

Rs. 1,08,02,731/-) on the pretext that there was a "spontaneous combustion"

at the plant of the Corporate Debtor on 22.07.2021 due to which certain

quantities of molasses were damaged which included the balance quantity of

molasses that was allegedly earmarked for the OC. In the said reply, the CD

also alleged that the said damaged molasses has been auctioned, an approval

letter has been issued by CD to the alleged buyer on 14.02.2022 and the

salvage value of the balance quantity of Molasses of the OC was

Rs.13,13,886/-. It is submitted that the aforesaid narrative was never even

mentioned to the OC until the issuance of Demand Notice despite the said

notice being preceded by 19 reminders communications (which was sent on

31.05.2022, i.e., after 10 months of the happening of spontaneous

combustion).

6. The amount in default in the present Appeal is Rs.1,08,02,731/- along

with interest at the rate of 24% per annum (unpaid operational debt), the said

amount became due and payable by the CD to the OC on 14.06.2021 i.e.,

after the OC requested the CD to refund the aforesaid amount. However, the

said amount was not refunded with the sole intention to usurp the balance

amount.

Company Appeal (AT)(Insolvency) No. 860 of 2024 3 of 28

7. Despite 19 e-mail reminders, the CD neither responded nor raised any

dispute qua the amount. Any dispute raised by the CD after issuance of

demand notice is spurious, hypothetical and illusory. Reliance is placed on

Soham Polymers Pvt. Ltd. v. Flocksur India Pvt. Ltd, Order dated

14.02.2022, Co. Appeal(AT) (Ins.) No. 924 of 2021, which was also on the

very similar facts.

8. It is a settled position that a pre-existing dispute can only be considered

to be proven, if it exists prior to the issuance of the demand notice and that

the CD has denied the liability. In the present case, there is no proof of pre-

existing dispute and in-fact the CD has admitted its liability. A perusal of the

pleadings clearly demonstrates the malicious conduct of the CD and how it

has attempted to mislead this Appellate Tribunal and avoided making

payments of the amount in default by conveniently manufacturing a fictitious,

false and non - existent narrative. The same can be corroborated from the

following:

o The fact pertaining to alleged spontaneous combustion on 22.07.2021 in the plant of CD was never communicated by the CD to the OC, until issuance of demand notice, i.e., 31.05.2022, irrespective of the fact that the OC was continuously following up with the CD for the refund of the unpaid operational debt. It is submitted that there is absolutely no rationale as to why the CD would conceal the same, if the molasses that were damaged included the molasses allegedly earmarked to OC.

o The CD never informed OC regarding the alleged auction process that took place with respect to sale of salvage molasses, irrespective of the fact that the as per the false narrative of the CD, the molasses that were being auctioned included the

Company Appeal (AT)(Insolvency) No. 860 of 2024 4 of 28 balance quantity of molasses that were allegedly damaged during the spontaneous combustion.

o Even after the issuance of the approval letter by the CD to the alleged buyer of damaged molasses on 14.02.2022, the CD didn't communicate to the OC about the salvage value of the balance quantity of molasses which allegedly came out to be Rs.13,13,886.

o The approval letter was issued by the CD to the alleged buyer on 14.02.2022, however, the CD didn't inform the OC about any such sale, irrespective of the fact that on 23.03.2022, a reminder for refund was sent by the OC to CD.

o The transfer of Rs.13,13,886 pursuant to issuance of the demand notice clearly demonstrates that the aforesaid transfer has been made by the CD with a clear intent to wriggly out of the ambit of the minimum threshold amount of default for the purpose of filing an application u/s 9 of the IBC.

9. Appellant prays that the present Appeal be admitted and CIRP be

commenced with respect to the CD:

a) The alleged 'spontaneous combustion' has nothing to do with the balance quantity of molasses because vide a letter dated 06.03.2021, the CD has already cancelled the sale order.

b) There exists no dispute between the OC and the CD prior to the issuance of demand notice dated 31.05.2022 or even as on date.

c) The CD has not disputed its liability to refund the advance paid by the OC.

d) It is a settled position of law that if dues are admitted as against the OC, the CD must pay the same. If it doesn't, the CIRP must be commenced.

Company Appeal (AT)(Insolvency) No. 860 of 2024 5 of 28

e) The transfer of an amount of Rs.13,13,886 subsequent to the issuance of demand notice has been done with malice and only to wriggle out from the clutches of IBC. The said transfer made by the CD is a clear acknowledgement of unpaid operational debt.

f) The amount of default is more than INR 1,00,00,000.

g) The material on record proves the 'existence of debt' and 'default' on the part of the CD.

h) Section 9(3)(c) of the IBC is complied by the OC.

i) The application filed in Form 5 by the OC is complete in all

respects and in compliance of the requisites of the IBC and the Rules and Regulations thereunder.

j) The OC is ready and willing to propose the name of an Insolvency Professional to be appointed as Interim Resolution Professional.

Respondent's case

10. The statutory notice under Section 8 of the Insolvency and Bankruptcy

Code, 2016 was issued by the Appellant on 31.05.2022 and the present

petition was filed on 20.08.2022, which is the initiation date of the present

alleged insolvency proceedings. The claim of the Operational Creditor on the

initiation date is less than the threshold limit of Rs. 1 Crore as defined under

Section 4(1) of IBC, which is necessary for maintaining a petition under

Section 9 of the Code. This fact has been admitted by the Operational Creditor

in its petition.

11. Under Section 9 of IBC, an Operational Creditor is entitled to file an

application for initiation of Corporate Insolvency Resolution Process (CIRP)

Company Appeal (AT)(Insolvency) No. 860 of 2024 6 of 28 provided the quantum of default / debt is Rs. 1 Crore or above, as is mandated

under Section 4 (1) of IBC as well as there is no pre-existing dispute between

an Operational Creditor and the Corporate Debtor. However, in the present

case, the alleged Operational Debt is less than Rs. 1 Crore and moreover,

there is pre-existing dispute between the parties due to which the petition

filed by the Appellant was rightly dismissed by the NCLT.

12. The Section 5 (11) of IBC clarifies that the 'initiation date' for initiating

CIRP is the date when a petition is filed by a Financial Creditor or Operational

Creditor or Corporate Applicant under Sections 7, 9 and 10. The threshold

limit of Rs. 1 Crore as mandated under Section 4 (1) of IBC for maintaining a

petition before the NCLT shall be considered from the initiation date and not

the date when Notice under Section 8 of IBC was sent.

13. The mandatory threshold limit of Rs. 1 Crore as defined under Section

4(1) of IBC necessary for maintaining a petition before the NCLT under

Sections 7, 9 and 11 of IBC is to be ascertained on the date of filing of the said

petition i.e. the 'initiation date' as is defined under Section 5 (11) of IBC and

not on the date of sending of the Demand Notice under Section 8 of IBC.

14. The aforesaid contention of the Respondent is further fortified from the

law laid down by the Hon'ble Supreme Court of India vide its Judgment in the

matter of Ramesh Kymal v. Siemens Gamesa Renewable Power Private

Limited, REED 2021 3 SCC 224.

15. A joint reading of Section 4 (1), Section 5 (11) and Section 9 of IBC

makes it clear that an Operational Creditor is entitled to institute an Company Appeal (AT)(Insolvency) No. 860 of 2024 7 of 28 application under Section 9 of IBC provided the quantum of default / debt is

Rs. 1 Crore or above on the date of initiation of CIRP and there is no pre-

existing dispute between the parties. However, in the present case, admittedly

the quantum of debt on the date of initiation of CIRP is less than Rs. 1 Crore

coupled with the fact there is pre-existing dispute between the parties and

accordingly the petition filed under Section 9 was rightly rejected by the NCLT.

16. The Part II of the IBC (which deals with Insolvency Resolution and

Liquidation for Corporate Person) will only come into operation if the

Operational Creditor (Appellant herein) meets the minimum threshold of Rs.1

Crore, meaning thereby, there is no right to initiate CIRP after 24.03.2020

when minimum default is admittedly less than Rs. 1 Crore and therefore the

petition filed by the Appellant herein was rightly rejected vide Impugned Order

dated 02.02.2024.

17. Admittedly, in the present case, the Operational Debt, as is claimed by

the Appellant is Rs. 94,88,845/- (since an amount of Rs. 13,13,886/- has

already been paid out of the total amount Rs. 1,08,02,731/- claimed before

the institution of the present petition), which is less than the mandatory

minimum threshold of Rupees One Crore which is necessary to maintain a

petition under IBC. Pertinently, the ledger filed by the Appellant along with

the present appeal also indicates that the amount sought to be recovered from

the Respondent is less than the minimum threshold of Rupees One Crore.

18. This Hon'ble Tribunal has consistently held that a petition under

Section 9 of the Insolvency and Bankruptcy Code is not maintainable where

Company Appeal (AT)(Insolvency) No. 860 of 2024 8 of 28 the alleged operational debt falls below the statutory threshold of Rs. 1 crore

on the date of filing of such petition. The Respondent places reliance on the

following case laws in support of its contention:

o Kavindra Kumar & Ors. vs. M/s Design Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 1272 of 2023) (Para - 17, 19).

o Devika Resources Pvt. Ltd. vs. MAA Mansha Devi Alloys Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 938 of 2024) (Para - 14

- 17, 20, 21).

o Metal's & Metal Electric Pvt. Ltd. vs. Goms Electricals Pvt. Ltd. Company Appeal (AT) (CH) (INS) No. 243 of 2021) (Para - 20 - 22, 24, 25).

o Hyline Mediconz Private Limited vs. Anandaloke Medical Centre Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 1036 of 2022) (Para - 1, 2, 8, 10 - 14, 24 - 26)

19. The undisputed fact is that the Appellant had issued demand notice

under Section 8 of IBC on 31.05.2022 and application under Section 9 of IBC

was filed on 20.08.2022. When the notice under Section 8 was issued, the

total outstanding debt was Rs. 1,08,02,731, however, after the said notice was

issued the Respondent made payment of Rs. 13,13,886/- claiming this

amount to be salvage value of stock of molasses (which was not lifted within

the time period agreed between the parties).

20. The purchase order was cancelled when the Appellant herein failed to

lift the molasses by pre-agreed date of 07.02.2021 and thereafter, Molasses

Controller and Excise Commissioner stopped supply of molasses to the

Appellant.

21. The incident of fire has also been shown to have occurred attaching the

necessary documents by the Respondent.

Company Appeal (AT)(Insolvency) No. 860 of 2024 9 of 28

22. The Appellant herein has not denied that they have received payment

of Rs. 13,13,886/- from the Respondent and the same is also mentioned in

Part IV of the application under Section 9 of IBC. It is Appellant's case that

the entire advance of Rs. 1,08,02,731/- should have been refunded as the

molasses against the said amount was not supplied. However, as per the

Respondent, it is only liable to refund only the amount pertaining to salvage

value of molasses considering the quantity of molasses got destroyed in a fire.

23. Before filing application under Section 9 of IBC, the outstanding

operational debt has undisputedly gone below Rs. 1 Crore i.e. Rs. 94,88,845/-

(Rs. 1,08,02,731 - Rs. 13,13,886/-).

24. The Hon'ble NCLAT in case of Metal's & Metal Electric Pvt. Ltd. vs.

Goms Electricals Pvt. Ltd. (Company Appeal (AT) (CH) (INS) No.243 of

2021), has held that, a mere running of the eye of the ingredients of Section

9 of the Code makes it lucidly clear that the date of initiation of CIRP shall be

on the date on which an application is made. In the matter of Jumbo Paper

Products vs. Hansraj Agrofresh Pvt. Ltd. (Company Appeal (AT) (Ins)

No.813 of 2021) dated 25.08.2021 also, it has been decided that the

threshold limit of Rs.1 Crore will be applicable for application filed u/s 7 or 9

on or after 24.03.3020 even if default is of a date earlier than 24.03.2020.

With the above stated decision of this Hon'ble Tribunal, it is quite evident that

the threshold limit would be applicable on the date of filing of application, and

not on the date on which the default has occurred.

Company Appeal (AT)(Insolvency) No. 860 of 2024 10 of 28

25. The Appellant has also included interest @ 24% p.a. in the operational

debt mentioned in Part IV of the application under Section 9 of IBC. The NCLT

observes that there is no express agreement between the Appellant and the

Respondent for computing interest due to any delay in refund of the advance

amount to be paid by the Respondent. Further the Appellant could not

produce any documentary evidence justifying charging of the interest. The

NCLT relied upon judgment of this Hon'ble Tribunal in the case of Prashant

Agarwal Vs. Vikas Parasrampuria (Company Appeal (AT) (Ins) No.690 of

2022) holding that both, the principal debt and interest on delayed payment

will be considered to assess maintainability in case the interest was stipulated

in invoice. In the present case, there is no agreement between the Appellant

and the Respondent for payment of interest on delay of refunding of advance

amount if any paid as well as there is no such condition in the Purchase

Order, therefore the Appellant is not justified in claiming interest @ 24% p.a.

till the date of payment in the total amount of debt as mentioned in Part IV of

the application under Section 9 of IBC. Accordingly, interest amount @ 24%

p.a. shall not be included in the total amount of debt for computing the

threshold limit as provided in Section 4 of IBC for the purpose of admitting

application under Section 9 of IBC.

26. The Appellant has not disclosed and has rather deliberately concealed

material and critical facts which will demonstrate the existence of pre-existing

dispute between the Parties. The Respondent had permitted the Appellant to

lift molasses pursuant to permissions granted by the Molasses Controller &

Excise Commissioner for the period 23.01.2021 to 07.02.2021. However,

Company Appeal (AT)(Insolvency) No. 860 of 2024 11 of 28 during this period, the Appellant lifted only part of the allotted quantity and

was subsequently found to have violated export conditions for which

permission was granted. Consequently, the Commissioner revoked the lifting

whereby vide communication dated 10.02.2021 the Respondent was directed

to cease the supply of molasses to the Appellant and thereafter vide order

28.02.2021 the permission to lift molasses was revoked thereby compelling

the Respondent to issue a cancellation letter on 06.03.2021.

27. In spite of cancellation of permission to lift molasses, the Respondent

continued to hold the molasses on the Appellant's repeated requests while the

Appellant attempted but failed to obtain necessary permission to lift molasses

again. No claim or demand for refund was made by the Appellant until

14.06.2021, reinforcing the Respondent's stand that the Appellant had

requested retention of the material.

28. On 22.07.2021, a spontaneous combustion incident at the

Respondent's plant destroyed the stored molasses, including the quantity

earmarked for the Appellant. The Respondent duly reported the incident to

authorities, filed an insurance claim (which has been rejected and qua which

litigation is pending in Consumer Court). The Appellant remitted an amount

of Rs. 13,13,886/- to the Appellant towards salvage value determined through

an independent e-auction.

29. Imperatively since the molasses is a controlled commodity and is sold

strictly under statutory supervision, the Respondent acted fully in accordance

with regulatory directions and even refunded the proportionate salvage value

Company Appeal (AT)(Insolvency) No. 860 of 2024 12 of 28 on account of loss occurred due to an unforeseen accident. Therefore, the

petition filed by the Appellant under Section 9 of IBC and the present appeal

is totally untenable.

30. It is evident from the foregoing facts that a clear and bona fide pre-

existing dispute existed between the Appellant and the Respondent well before

the issuance of the demand notice and the filing of the petition under Section

9 of IBC. In view of such pre-existing dispute, the invocation of the insolvency

process is impermissible and the petition under Section 9 is not maintainable

in law and was rightfully rejected by the NCLT.

31. It has been time and again clarified by various Courts / Tribunals

including the Hon'ble Supreme Court of India {in the matter of Mobilox

Innovations Private Limited vs. Kirusa Software Private Limited (2018 1

SCC 353)} that whenever there is an existence of real dispute, the provisions

of IBC cannot be invoked.

32. The NCLT vide Impugned Order dated 02.02.2024 rightly dismissed the

claim of the Appellant since the Appellant herein was not justified in claiming

interest at the rate of 24% per annum since there is no agreement between

the Appellant and the Respondent for payment of interest on delay of

refunding of advance money, if any.

33. The Interest amount claimed by the Appellant in the Section 9 petition

filed before the NCLT, Allahabad does not fall under the term "operational

debt" as defined under IBC and the same has also been clarified time and

Company Appeal (AT)(Insolvency) No. 860 of 2024 13 of 28 again by various Courts / Tribunals. In this regard, reliance be placed on the

following case laws:

o Prashant Agrawal vs Vikash Parasrampuria & Anr. Company Appeal (AT) (Ins) No. 690 of 2022.

o M/s Wanbury Ltd. Vs. M/s Panacea Biotech Ltd. (2017 SCC OnLine NCLT 475).

o CBRE South Asia Pvt. Ltd. vs United Concepts and Solutions Pvt. Ltd.

34. The Insolvency and Bankruptcy Code is a complete code in itself,

containing detailed procedural and substantive requirements that govern the

initiation and conduct of insolvency proceedings. The statutory framework of

the IBC leaves no room for discretionary or expansive interpretation where

the language is clear and unambiguous. The Hon'ble Supreme Court as well

as this Hon'ble Tribunal have repeatedly emphasised that the IBC cannot be

invoked mechanically or in deviation from the statutory scheme. The

threshold limit prescribed under the code, timelines, issuance of notices,

proof of debt, existence of dispute, and other statutory safeguards under

Sections 8 and 9 of t IBC are not mere formalities but essential jurisdictional

requirements. Furthermore, where the legislature has clearly prescribed

conditions such as the minimum amount of default, the requirement of an

undisputed operational debt, strict timelines, and the duty to ensure that no

pre-existing dispute exists, the same must be interpreted and applied exactly

as provided. Needless to add that deviation from the statutory scheme not

only defeats the legislative intent but also renders the proceedings non-

maintainable.

Company Appeal (AT)(Insolvency) No. 860 of 2024 14 of 28

35. There are series of judgements wherein the Hon'ble Apex Court as well

as various other Courts / Tribunals has deprecated and discouraged the

practice of proceedings under IBC being misused as a substitute to recovery

mechanism in accordance with law. The object of the IBC is not recovery of

money but resolution of insolvency and maximization of assets of a Corporate

Debtor. The Appellant is deliberately misusing the proceedings under IBC as

a recovery proceedings, with the clear intent of circumventing the payment of

court fees that would have been obligatory had a recovery suit been filed

before a Civil Court. This frivolous and malicious strategy adopted by the

Appellant demonstrates a calculated attempt to evade financial obligations as

well as simultaneously opting for a shortcut approach to exert undue pressure

and coerce the Respondent by choosing to approach the NCLT for recovery of

an alleged debt (which is neither due nor payable) over the appropriate Civil

Court.

36. The Respondent as on date is a going concern and is able to pay off its

liabilities arising out of usual course of business as well as paying the salaries

of 1130 number of employees / staff / labour (contractual or otherwise) and

dues of the famers supplying sugarcane to the Respondent. As on date,

approximately 40,000 number of farmers are dependent on the Respondent

as they are supplying sugarcane to the Respondent since last 2-3 decades.

The turnover of the Respondent (sugar mill) in the last 3 financial years has

been in excess of Rs. 1500 Crores. Needless to add that the Respondent is the

only sugar mill in the said area (i.e. Malakpur, Baraut, Uttar Pradesh) and in

the event any order is passed admitting the present frivolous and malicious

Company Appeal (AT)(Insolvency) No. 860 of 2024 15 of 28 proceedings, not only severe prejudice will be caused to the Respondent but

also to employees / staff / labour (contractual or otherwise) and farmers

(including their families) i.e. more than 2,00,000 number of people who are

dependent on the Respondent for their livelihood.

37. In this regard, reliance be placed on the judgment of this Hon'ble

Tribunal in the case of Anshul Vashishtha vs. Jayhind Steel Traders

(Company Appeal (AT) (Insolvency No. 656 of 2020).

Appraisal

38. This Appeal is filed u/s 61 of the Code 2016 by Mosco International

Commodities Private Limited ('OC/ Operational Creditor') against the

impugned order dated 02.02.2024 passed by the AA wherein section 9 petition

preferred by the OC against SBEC Sugar Limited ('CD/ Corporate Debtor')

was dismissed for not meeting the threshold limit as prescribed u/s 4 of the

IBC.

39. We have heard the counsels of both sides and perused the material

placed on record. The primary issue before us is whether petition under

section filed before the adjudicating authority meets the threshold as

prescribed under Section 4 of the IBC or not.

40. Perusal of the materials placed on record show that the operational debt

on the date of filing of the petition before the NCLT by the Petitioner (Appellant

herein) admittedly was Rs. 94,88,845/- which is below the mandatory

threshold limit of Rs. 1 Crore as provided under the provisions of IBC and

Company Appeal (AT)(Insolvency) No. 860 of 2024 16 of 28 therefore the petition filed by the Petitioner (Appellant herein) is not

maintainable.

41. Admittedly the statutory notice under Section 8 of the Insolvency and

Bankruptcy Code, 2016 was issued by the Appellant herein on 31.05.2022.

However, the petition under Section 9 IBC was filed on 20.08.2022 which is

the 'initiation date' of the proposed insolvency proceedings.

42. At this stage we need to note the case of the Appellant which claims

that on 14.12.2020, the OC sent a 'Letter of Interest' to the CD for procuring

55,000 quintals Molasses for the season 2019 - 20 & 2020 - 21 from the

sugar mill of the CD and the said procurement was to take place in two

tranches i.e., 27,500 quintals for the season 2019 - 20 and 27,500 quintals

for the season 2020 - 21. Thereafter on 15.12.2020, CD issued a sale order

confirming the procurement and requested the OC to issue the purchase

order. An ad-hoc advance payment of Rs. 2,02,63,750 was made to the CD.

But, on 06.03.2021, the sale order was unilaterally cancelled by the CD and

till then only 18,771.35 quintal molasses were supplied to the OC. As the

balance quantity was not supplied, the CD was to refund an amount of

Rs.1,08,02,731 to the OC. But after several reminders, the CD failed to pay

the advance amount back to the OC. Consequently, on 31.05.2022 the OC

was constrained to send a demand notice u/s 8 of the IBC to the CD. Pursuant

to the issuance of Demand Notice, the CD apart from sending a reply dated

11.06.2022 to Demand Notice also transferred an amount of Rs. 13,13, 886/-

(alleging it to be payment for the entire operational debt i.e., Rs.1,08,02,731/)

on the pretext that there was a "spontaneous combustion" at the plant of the Company Appeal (AT)(Insolvency) No. 860 of 2024 17 of 28 Corporate Debtor on 22.07.2021 due to which certain quantities of molasses

were damaged which included the balance quantity of molasses that was

allegedly earmarked for the OC. ln the said reply, the CD also alleged that

the said damaged molasses has been auctioned, an approval letter has been

issued by CD to the alleged buyer on 14.02.2022 and the salvage value of the

balance quantity of Molasses of the OC was Rs. 13,13,886. It is claimed by

the Appellant that the aforesaid narrative was never even mentioned of to the

OC until the issuance of Demand Notice despite the said notice being

preceded by 19 reminders communications.

43. Rebutting the claims of the Appellant, the Respondent has provided

detailed background and claims that there is a pre-existing dispute between

the CD and the OC and claims that no application for the initiation of

corporate insolvency resolution process shall be filed in the event of existence

of pre-existing dispute between the parties. It brings to our notice that the

Appellant herein was permitted to lift the molasses pursuant to a no objection

certificate which was issued to the Appellant by Molasses Controller & Excise

Commissioner on 14th January 2021 for supply of said molasses to the

Operational Creditor. As per the permission granted, the start date of lifting

the molasses was 23rd January 2021 and the end date of lifting of Molasses

was 11th February 2021. To its surprise the Respondent received an order

dated 10th February 2021 from the office of the Molasses Controller & Excise

Commissioner, whereby, Respondent was directed to immediately cease the

sale of balance quantity of molasses to the Operational Creditor since they

had violated the export terms by illegally exporting the products to Hamburg,

Company Appeal (AT)(Insolvency) No. 860 of 2024 18 of 28 Germany instead of Singapore, the country for which the permission was

sought from by the Appellant. It is claimed that not only the Appellant had

played fraud upon the Statutory Authorities but it also played fraud upon the

Respondent by making false representation regarding export of the Molasses.

And in furtherance to the above, a formal order dated 28th February 2021 was

also received by the Respondent from the office of the Molasses Controller &

Excise Commissioner whereby, it was categorically stated the permission for

lifting the balance quantity of 36228.65 Molasses by the Operational Creditor

was immediately revoked due to export being done by the Appellant to a wrong

country in violation of the permission given. In view of the above, on receipt

of the aforementioned order dated 28th February 2021 from the Molasses

Controller & Excise Commissioner as well as the failure of the Appellant to lift

the balance quantity of 36228.65 quintals of molasses within the validity

period (which is between 23rd January 2021 and 11th February 2021), the

Corporate Debtor was constrained to issue a cancellation letter dated 6th

March 2021 to the Appellant. In terms of the purchase order, the entire

material was to be lifted between the period of 23.01.2021 to 07.02.2021.

Despite the material (i.e. Molasses) being available for lifting, the Appellant

only lifted part of the material during the said time period not for any fault of

the Respondent and the said fact has not been disputed by the Appellant. The

Respondent was in no position to permit the Appellant to continue to lift the

molasses earmarked for the Appellant due to misdeeds of the Appellant.

Respondent also brings to our notice that out that Molasses are by-product

of sugar, sale of which is regulated through a statutory regime and permission

for sale of Molasses (by a sugar mill) is granted by the Molasses Controller Company Appeal (AT)(Insolvency) No. 860 of 2024 19 of 28 and Excise Commissioner only. The Respondent was holding on to the

Molasses which was earmarked for the Appellant despite sending the

cancellation letter dated 6th March 2021 to the Appellant (since Appellant

violated the terms of the license issued by the Excise Commissioner who

regulates the sale and purchase of Molasses) only upon the requests made by

the Appellant. The Appellant despite assuring the Respondent that it is

making all possible attempt to again procure necessary permission from the

Molasses Controller & Excise Commissioner to restart lifting the balance

quantity of Molasses, the Appellant was unable to get any such direction from

the concerned authority. It is also brought to our notice that the Appellant

herein did not address any letter / email to the Respondent seeking refund of

any amount much less the amount being sought to recover by way of the

petition filed under Section 9 of IBC before the NCLT from 6th March 2021

(when cancellation letter was sent by the Respondent) till 14th June 2021

when the Appellant first time addressed a letter to Respondent, interalia,

seeking to recover Rs. 1,08,02,709/-. Only after 14th June, 2021 the Appellant

started sending frivolous and malicious reminders seeking recovery of certain

amount which was neither due nor payable.

44. It is also brought to our notice that while the Respondent herein was

holding onto the molasses as per requests of the Appellant, there was an

instance of spontaneous combustion followed by fire at the plant of the

Respondent on the intervening night of 22nd July 2021 and a total quantity of

76130.35 quintal of molasses (which included the 36228.65 quintal of

molasses earmarked for Operational Creditor) was damaged due to

Company Appeal (AT)(Insolvency) No. 860 of 2024 20 of 28 combustion. The information of the said accident was duly provided by the

Respondent to the Excise Officer (Uttar Pradesh) linked to the plant of the

Respondent on the very next morning on the incident i.e. 23rd July 2021. It

was also brought to our notice that the Respondent herein had even informed

their Insurance Company about the said incident and· subsequently filed

their insurance claim, however, the claim of the Respondent stood rejected by

the concerned Insurance Company. It was also brought to our notice that the

Insurance claim of the Respondent was duly submitted to the New India

Assurance Co. Ltd., however, the same was rejected by the Insurance

Company. Thereafter, a Consumer Complaint was filed by the Respondent

(being Complaint No. CC/11/2024) before the Ld. District Consumer Dispute

Redressal Commission, Baghpat, however, the Ld. District Consumer Dispute

Redressal Commission, Baghpat instead of adjudicating the Complaint on

merits, erroneously and without any application of mind rejected the

legitimate and lawful Complaint filed by the Respondent vide Order dated

19.03.2024, interalia, observing that the Ld. District Consumer Dispute

Redressal Commission, Baghpat does not have the necessary jurisdiction to

adjudicate the claim of the Respondent. The said order dated 19.03.2024 was

subsequently challenged by the Respondent before the Ld. State Consumer

Redressal Commission, Lucknow, Uttar Pradesh who vide its Judgement

dated 30.04.2024 allowed the Appeal filed by the Respondent herein and

directed the Ld. District Consumer Dispute Redressal Commission, Baghpat

to adjudicate the Complaint of the Respondent on merits. Thereafter an

amount of Rs. 13,13,886/- was paid to the Appellant after sale of burnt

molasses was carried out by the Insurance Company through an e-auction Company Appeal (AT)(Insolvency) No. 860 of 2024 21 of 28 process (by an independent agency) under the supervision of Excise

Commissioner (since Molasses is a controlled product and sale/purchase of

same is done only through Excise Commissioner).

45. The Respondent also shares a brief working of the said amount paid by

the Respondent as follows:

PARTICULARS AMOUNT (IN RS.)

Total Balance with the Respondent 1,08,02, 709.00 (after adjusting the molasses already lifted against the total amount received)

Less: Balance amount for molasses 57,88,867.50 not lifted for Season 2019- 20 (12864.15 quintal @Rs. 450)

Less: Balance amount for molasses 50,13,841.50 not lifted for Season 2020- 21 (9033.95 quintal @Rs. 555)

TOTAL QUANTITY NOT LIFTED: 21898.10 QUINTAL [12864.15 + 9033.95]

SALVAGE VALUE @ Rs. 60 for 13,13,886.00 Balance Quantity: 21898.10 quintal

46. It was also brought to our notice by the Respondent that the amount at

which salvage was sold was finalized by way of an e-auction process, which

was conducted through an independent body and the same was in no manner

influenced by the Respondent herein. We also note that since molasses is

classified as a controlled product, the sale and purchase of Molasses is

conducted under the stringent supervision of the Molasses Controller and

Excise Commissioner due to which the buyers for such products are not

readily available and transactions cannot occur at any given time or day and

Company Appeal (AT)(Insolvency) No. 860 of 2024 22 of 28 the controlled nature of molasses necessitates a regulated process,

underscoring the Respondent's adherence to the requisite procedures and

standards in such transactions.

47. We also note that, since the material (molasses), allocated for supply to

the Appellant herein got destroyed in a spontaneous combustion accident at

the plant of the Respondent and the fact that the Respondent has already

refunded to the Appellant, the proportionate salvage value of the molasses

destroyed, which amount has been accepted by the Appellant without demur

or protest, therefore, filing of the petition under Section 9 IBC before the NCLT

as well as the present Appeal to us appears to be a clever afterthought to

extract more money from the Respondent.

48. The facts and circumstances of the case clearly indicate existence of

pre-existing dispute. Section 9 read with Section 8 of the Code clearly bring

out that that if there is an existence of dispute, the Section 9 application for

CIRP will be rejected by the Adjudicating Authority. We note that the Hon'ble

Supreme Court of India in the matter of Mobilox Innovations Private

Limited vs. Kirusa Software Private Limited, 2018 (1) SCC 353 has held

that that whenever there is an existence of real dispute, the provisions of the

IBC Code 2016 cannot be invoked. We find that there exists bonafide dispute

between the parties i.e. the Appellant and the Respondent in the facts and

circumstances of the case. Therefore, the petition filed by the Appellant loses

its sanctity in the eyes of law and was rightly dismissed by the Impugned

Order.

Company Appeal (AT)(Insolvency) No. 860 of 2024 23 of 28

49. The appeal can be dismissed on the grounds of pre-existing dispute

itself, as noted herein earlier by us. However, there is another dimension

which has been brought before us which is being delved into herein after.

50. The Appellant raises a concern that whether the Corporate

Debtor/Respondent (SBEC Sugar Limited) by unilaterally transferring some

amounts to the Appellant/OC can intentionally reduce the operational debt

below the threshold limit after the receipt of the demand notice, but before

the filing of the application under Section 9 of the IBC. Herein the amount of

default mentioned in the demand notice was Rs. 1,08,02,731/-. However,

upon the receipt of the demand notice, the Respondent/Corporate Debtor

unilaterally transferred an amount of Rs. 10,00,000/- and Rs. 3,13,886/-. It

is claimed by the Appellant that this is a deliberate attempt of the Respondent

with malafide intent to bring down the default amount of Rs. 1,08,02,731/-

below the prescribed threshold of Rs.1 crore and evade the proceedings under

the Code. Appellant contends that despite acknowledging the aforementioned

fraudulent attempt, the AA rejected the Section 9 petition filed by the

Operational Creditor (OC) on the grounds of threshold. Appellant contends

that the broader issue raised is whether a corporate debtor, by attempting to

circumvent the provisions of the IBC through allegedly fraudulent means of

unilaterally reducing the operational debt below the threshold, can be allowed

to take advantage of its own wrongdoing and plead the bar of the threshold

requirement.

51. Rebutting the contentions of the Appellant, the Respondent brings to

our notice that admittedly the statutory notice under Section 8 of the Code Company Appeal (AT)(Insolvency) No. 860 of 2024 24 of 28 was issued by the Appellant herein on 31.05.2022. However, the petition

under Section 9 IBC was filed on 20.08.2022 which is the 'initiation date' of

the proposed insolvency proceedings. The claim of the Appellant on the

'initiation date' is Rs. 94,88,845/- (Rupees Ninety Four Lakhs Eighty Eight

Thousand Eight Hundred Forty Five Only) which is less than the threshold

limit of Rs. 1 Crore as defined under Section 4 (1) IBC which is necessary for

maintaining a petition under Section 9 of the Code. This fact has been

admitted by the Appellant in its petition and has been duly recorded in the

Impugned Judgement. We note that under Section 9 of the Code, the

Operational Creditor is entitled to file an application for initiation of Corporate

Insolvency Resolution Process (CIRP) provided the quantum of default / debt

is Rs. 1 Crore or above as is mandated under Section 4 (1) of IBC as also,

there is no pre-existing dispute between the Operational Creditor and the

Corporate Debtor.

52. We also note that the Section 5 (11) of IBC clarifies that the 'initiation

date' for initiating Corporate Insolvency Resolution Process is the date when

a petition is filed by a Financial Creditor or Operational Creditor or Corporate

Applicant under Section 7, 9 and 10.

53. Furthermore, we note that the mandatory threshold limit of Rs. 1 Crore

as defined under Section 4(1) of IBC necessary for maintaining a petition

before the NCLT under Section 7, 9 and 11 of IBC is to be ascertained on the

date of filing of the said petition i.e. the 'initiation date' as is defined under

Section 5 (11) of IBC and not on the date of sending of the Demand Notice

under Section 8 of IBC. We note that the date of sending the Demand Notice Company Appeal (AT)(Insolvency) No. 860 of 2024 25 of 28 under Section 8 IBC is of no relevance as far as ascertaining the threshold

limit is concerned, since the scheme of Code clearly establishes that the

threshold limit for instituting a petition under Section 9 of IBC on the date of

filing of such petition shall be Rs. 1 Crore or above and not the date of sending

the Demand Notice under Section 8 of IBC. Furthermore, it is a fact that it is

Part II of the IBC (which deals with Insolvency Resolution and Liquidation for

Corporate Person) which will only come into operation if the Operational

Creditor (Appellant herein) meets the minimum threshold of Rs. 1 Crore after

24.03.2020, meaning thereby, there is no right to initiate Corporate

Insolvency Resolution Process after 24.03.2020 when minimum default is

admittedly less than Rs. 1 Crore and therefore the petition filed by the

Appellant herein was rightly rejected vide Impugned Order.

54. Thus, it is clear from the combined reading of Section 4 (1), Section 5

(11) and Section 9 of IBC that in the event, the Operational Creditor does not

meet the minimum threshold of Rs. 1 Crore, as is mandated under Section 4

of the Code on the initiation date as defined under Section 5 (11) of the Code

- a petition under Section 9 of IBC cannot be maintained before the NCLT.

That doesn't mean that the Operational Creditor is left remedy less and it is

open for Operational Creditor to approach appropriate fora and can agitate its

alleged right of recovery under appropriate law.

55. NCLT, Allahabad rejected the claim of the Appellant, interalia, on the

following grounds amongst other:

(a) The claim of the Appellant on the initiation date is less than the threshold limit of Rs. 1 Crore as defined under Company Appeal (AT)(Insolvency) No. 860 of 2024 26 of 28 Section 4 (1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as 'IBC') which is necessary for maintaining a petition under Section 9 of the Code.

(b) The date of filing of the petition before the NCLT under Section 9 of IBC needs to be considered for ascertaining the mandatory threshold limit of Rs. 1 Crore as defined under Section 4 (1) of IBC and not the date of sending the demand notice under Section 8 of IBC.

(c) That date of filing of a petition under Section 7, 9 and 10 of IBC before the NCLT is the 'initiation date' as is defined under Section 5 (11) of IBC and not the date when Notice under Section 8 of IBC was sent by the Appellant. Further, the threshold limit of Rs. 1 Crore for maintaining a petition before the NCLT shall be considered from the initiation date i.e. when petition is filed under Section 7, 9 and 10 of IBC and not the date when Notice under Section 8 of IBC was sent.

(d) The operational debt on the date of filing of the petition before the NCLT by the Appellant herein admittedly was Rs. 94,88,845/- which is below the mandatory threshold limit of Rs. 1 Crore as provided under the provisions of IBC and therefore the petition filed by the Appellant is not maintainable.

(e) The Appellant is not justified in claiming interest at the rate of 24% per annum till the date of payment of the total amount of the debt as mentioned in Part IV of the Section 9 petition filed on account of the fact that there is no agreement between the Appellant and the Respondent for payment of interest on delay of refunding of advance money, if any.

Company Appeal (AT)(Insolvency) No. 860 of 2024 27 of 28

(f) NCLT has also recorded in the impugned judgement that it is an undisputed fact (not opposed / rebutted in the rejoinder to the Section 9 petition as well as rejoinder to the Notice sent under Section 8) that the Appellant has failed to lift the molasses within the agreed time period i.e. by 07.02.2021.

56. In the facts and circumstances of the case we find that the alleged

Operational Debt is not above Rs. 1 Crore and additionally there is a pre-

existing dispute between the parties as noted by us herein earlier- due to

which the petition filed by the Appellant is not maintainable and therefore we

don't find any infirmity in the order of the Adjudicating Authority in its

rejection.

Orders

57. Accordingly, the Appeal is dismissed. All IAs are also disposed of.

Parties to bear their own cost.

[Justice N Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) New Delhi.

February 25, 2026.

Pawan

Company Appeal (AT)(Insolvency) No. 860 of 2024 28 of 28