Mr. Jagdish Prasad Sharma vs M/S Silverline Graphics Private ...

[Arising out of the Order dated September 11, 2024, passed by the 'Adjudicating Authority' (National Company Law Tribunal, Delhi Bench) in CP(IB) No.598/ND/2023]

IN THE MATTER OF: Jagdish Prasad Sharma Suspended Management of M/s India Offset Printers Private Limited Having its address at: House No.643, Near Huda Market Sector 37, Amarnagar, Faridabad Haryana - 121003 ...Appellant

Versus

1. M/s Silverline Graphics Private Limited Having its address at: A-140, DDA Shed, Okla Industries Area, Phase - II, New Delhi - 110020 ...Respondent No.1

2. Vikram Sharma IRP of M/s India Offset Printers Private Limited Having its address at: 4A/54, Old Rajinder Nagar, New Delhi - 110060 ...Respondent No.2

Present: For Appellant : Mr. Atul Sharma, Advocate

For Respondent : Mr. Rachit Mittal, Mr. Parish Mishra, Mr. Kanishk Raj, Mr. Adarsh Srivastava and Mr. Abhishek Sinha, Advocates for RP

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

This is an appeal filed by the Appellant Mr. Jagdish Prasad Sharma,

Suspended Management of M/s India Offset Printers Private Limited filed

under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), wherein the Order dated 11.09.2024 passed by the National Company Law Tribunal,

Delhi Bench in CP(IB) No.598/ND/2023 against M/s India Offset Printers

Private Limited / Corporate Debtor ("CD") is being challenged. The impugned

order admits a petition under Section 9 of IBC 2016, filed by the

Respondent/Operational Creditor ("OC") namely M/s Silverline Graphics

Private Limited.

Submissions of the Appellant / Jagdish Prasad Sharma

2. It is contended by the Appellant that majority of the invoices relied by

the Operational Creditor / Respondent No.1 are for the year 2016-2019. As

per these invoices, they were due on the same day. Therefore, limitation

period in relation to the said invoices has lapsed. The Adjudicating Authority

has relied on Section 19 of the Limitation Act, 1963 and has held that since

part payments have been made, a fresh period of limitation starts. Since the

Appellant has not acknowledged the debt fresh limitation cannot be stated to

run against the alleged debt under Section 19 of the Limitation Act, 1963. It

is unclear that the said payments have been made towards the alleged debt

as claimed by the Operational Creditor. The promoters of the Operational

Creditor and the Corporate Debtor were not restricted to a single isolated

transaction - which is supply of goods and its payment - but there were

several disputes and commercial transactions between the Operational

Creditor, Corporate Debtor and the promoters of both the Operational

Creditor and Corporate Debtor.

3. Section 9 petition has been admitted only on the basis of invoices, even

though the said invoices were never accepted by the Corporate Debtor and Company Appeal (AT) (Insolvency) No. 2067 of 2024 2 of 17 there was no seal/sign or acknowledgment of the Corporate Debtor Company

on the said invoices. There is no evidence to show that goods were actually

delivered to the Corporate Debtor as there are no e-way bills, lorry receipts

etc. placed on record by the Operational Creditor. Therefore, there is no

conclusive proof to show that the goods as claimed by the Operational

Creditor were ever delivered to the Corporate Debtor.

4. Also there are several pre-existing disputes between the Operational

Creditor, Promoters of the Operational Creditor, Corporate Debtor and the

Promoters of the Corporate Debtor. The promoters of the Operational Creditor

continue to illegally occupy the land of the Promoters of the Corporate Debtor.

A suit is pending in relation to the same before the Hon'ble High Court of

Delhi. Adjudicating Authority did not look into this dispute on the grounds

that the said dispute is between two individuals.

5. It is also contended that the relations of the Appellant/ Corporate

Debtor, the promoters of the Corporate Debtor, the Operational Creditor and

the Promoters of the Operational Creditor were long standing. They had

entered into multiple commercial transactions. They often used to set off the

dues with each other together for these multiple transactions. The alleged

debt and default could not have been adjudicated by the Adjudicating

Authority only on the point of supply of goods since there are multiple pre-

existing disputes.

Company Appeal (AT) (Insolvency) No. 2067 of 2024 3 of 17

6. The Adjudicating Authority has not looked into the grounds of the

defective demand notice issued by the Operational Creditor making the

proceedings itself void ab-initio and also the threshold of Section 9 demand

notice not being met.

Submissions of the M/s Silverline Graphics Private Limited / Respondent No 1 /Operational Creditor:

7. The Operational Creditor is engaged in the trading business of Graphic

Consumables, Offset, Flexo, UV Inks, Chemicals, printing material &

machinery. It also has a manufacturing unit wherein it undertakes job work

for normal & holographic UV transfer coatings for packaging & commercial

print. Pursuant to the discussions between the parties, the Operational

Creditor supplied printing and other allied material to the Corporate Debtor.

Neither the quality nor quantum of material supplied was disputed. Even the

reply to the demand notice raises no dispute.

8. The Appellant and the Corporate Debtor had a running account cannot

be in dispute. The amount of Rs. 2,41,15,076/- is owed to the OC which is

clear and not disputed. The nature of a 'running account' has been considered

by the Hon'ble NCLAT to mean that there must be "...'Debits' and 'Credits'

entries going on simultaneously or on a regular basis and the balances are

struck with some periodicity..." The ledger statement filed reflects part

payments by the Operational Creditor to the Corporate Debtor in the 'Credit'

column. Further, the Corporate Debtor has in its Reply demonstrated that

the account maintained by the parties was a running account. The chart filed

by the Corporate Debtor itself reflects continuous payments to the Company Appeal (AT) (Insolvency) No. 2067 of 2024 4 of 17 Operational Creditor, the last part-payment having been made on

02.03.2022. The chart also reflects the part-payments having been made

against specific invoices. There can therefore be no doubt that the account

maintained between the parties was indeed a 'Running Account'. The Hon'ble

NCLAT has held that where statements showing regular credit entries are

produced, the limitation would commence from the date of last payment.

9. Further, the Hon'ble Supreme Court has held that invoices "...at least

preceding three years from the date of filing of Section 9 application..." must

be considered for the purposes of limitation. The Corporate Debtor has in its

chart admitted that a payment was made by it to the Operational Creditor

against an invoice dated 29.10.2021; thus, even from this perspective, the

application is within limitation.

10. The invoices pursuant to which the debts are due from the Corporate

Debtor to the Operational Creditor itself provide to interest @ 24%. It is a

settled position of law that the 'debt' includes interest, where the invoice

provides for interest.

11. Certain debts have been incurred by the Corporate Debtor during the

Section 10A period. The told debt which fell due during the 10A period is only

INR 2,21,062/-, whereas the total debt due is INR 2,41,15,076/-. Therefore,

even excluding the 10A period, the debt due exceeds the threshold limit.

Additionally, when default was committed prior to section 10A IBC,

application shall not be barred.

Company Appeal (AT) (Insolvency) No. 2067 of 2024 5 of 17

12. The assertion of a pre-existing dispute is incorrect. The legal notice

relied on by the Corporate Debtor is neither addressed to the Operational

Creditor nor relates to the subject matter of the invoices which are the basis

of the Application. The issue in the legal notice is w.r.t. to some rent

agreement - to which Operational Creditor is not a party. Further, the record

of default refers to the pendency of a suit to which the Operational Creditor

is not a party. There cannot be said to be any 'pre-existing dispute' in the

present case. For the purpose of Section 9 IBC, a 'pre-existing dispute' has to

be between the Operational Creditor and Corporate Debtor, not between their

promoters/directors/shareholders. The promoters/directors/shareholders of

the Operational Creditor and Corporate Debtor are not the Operational

Creditor or Corporate Debtor before this Hon'ble Tribunal. This distinction

has to be maintained. Therefore, any dispute between the promoters/

directors/shareholders of the Operational Creditor or Corporate Debtor is

outside the scope of Section 9 IBC, when Operational Creditor and Corporate

Debtor are separate corporate legal entities different from its

promoters/directors/shareholders. A pre-existing dispute has to relate to the

debt which is the subject matter of the application. The purported dispute

does not relate to the subject matter of the present proceedings. Therefore,

there is no merit in the CD's submissions.

13. In the facts and circumstances, it is prayed that there is no merit in the

CD's submissions and the appeal may be dismissed.

Company Appeal (AT) (Insolvency) No. 2067 of 2024 6 of 17 Appraisal

14. This appeal by Mr. Jagdish Prasad Sharma (suspended Management)

arises from the order of the Adjudicating Authority admitting the Section 9

application filed by M/s Silverline Graphics Private Limited / Respondent

No.1 / Operational Creditor (OC) against M/s India Offset Printers Private

Limited / Corporate Debtor (CD). The Corporate Debtor has challenged the

said order, primarily on grounds of pre-existing disputes, non-existence of

debt and limitation.

15. Heard the counsels and perused material on record.

16. Basis the material on record and submissions, following issues emerge:

o whether there is a pre-existing dispute.

o whether the transactions are being under running account

o whether the demand is barred by Limitation Act, 1963.

17. All the issues are inter-twined and being dealt together.

18. The Appellant contends that there is a pre-existing dispute between the

parties. The pre-existing dispute relates to the rental arrangement and

dispute in settlement of the rent between the Appellant and the Respondent

- which is not directly between the CD and the OC but through their

Promoters. It is contended by the Corporate Debtor that Promotors of the

Respondent are the tenants of the Promoters of the Corporate Debtors and

goods supplied by them were being adjusted against the rent which they were

liable to pay to the Promoter of Corporate Debtor. When the Promoter of the

Company Appeal (AT) (Insolvency) No. 2067 of 2024 7 of 17 Respondent stopped paying the rent multiple litigants spurred between the

parties and present petition was one of those litigations. The Respondent per

contra claims that under Section 9 of the IBC a pre-existing dispute has to

be between Respondent No.1 and the Corporate Debtor and not between their

Promoters / Directors/ Shareholders. Any dispute between the Promoters /

Directors / Shareholders of the Respondent No.1 or Corporate Debtor is

outside the scope of Section 9 of the IBC as both Respondent No.1 and

Corporate Debtor are separate corporate legal entities different from their

Promoters / Directors / Shareholders. Furthermore, the pre-existing dispute

has to relate to the debt which is the subject matter of the application. The

purported dispute does not relate to the subject matter of the present

proceeding.

19. The issue of pre-existing disputes has been analysed by the

Adjudicating Authority at para 9 in the Impugned Order:

"......

While analyzing the present facts in the light of said definition under Section 5(21), it is observed that the Operational Creditor is engaged in the trading business of Graphic Consumables, Offset, Flexo, UV Inks, Chemicals, printing material & machinery and also possess manufacturing unit wherein it undertakes job work for normal & holographic UV transfer coatings for packaging & commercial print. The Corporate Debtor approached the Operational Creditor for the purchase of printing and other allied materials. The Operational Creditor supplied material/goods to the Corporate Debtor vide various VAT/GST taxed invoices from the period of February, 2016 to November, 2021. It is observed that the Corporate Debtor has neither disputed the receipt of goods nor the receipt of invoices rather acknowledged the same by counter-signing the said invoices. Further, the Corporate Debtor has made several part-payments to the Operational Creditor from 2017 to 2022 in regard to the invoices

Company Appeal (AT) (Insolvency) No. 2067 of 2024 8 of 17 so raised. The last part-payment was made on 02.03.2022, which reflects the 'acknowledgement of debt' on the part of the Corporate Debtor. Furthermore, on the consideration of the transactional invoices, as annexed by the Operational Creditor, and placed before us, we are of the view that there had been a transaction between the Operational Creditor and the Corporate Debtor and that the Operational Creditor has supplied goods to the Corporate Debtor and therefore, is claiming the payment in respect of the invoices so raised. Hence, this Adjudicating Authority is inclined towards believing that the debt claimed by the petitioner for provision of pharmaceutical products comes under the purview of 'Operational Debt' within the meaning of Section 5(21) of the Code."

20. The above finding of the Adjudicating Authority rejecting the existence

of pre-existing dispute has not looked into the real nature of transactions

between the two entities. For finding the existence or otherwise of a pre-

existing dispute in this case, we now first look into the real nature of

transactions basis the materials on record. It is contended by the Corporate

Debtor that the payment made to the extent of Rs.4.75 lakhs has not been

accounted for. On this, the Adjudicating Authority has concluded as follows:

"Further the Corporate Debtor contends that the Operational Creditor had failed to adjust the payment of Rs.4.75 lacs paid by the promoter of the Operational Creditor as rent amount, however, it is observed that such payment of Rs.4.75 lacs was made in individual capacity and not in respect of payment of the operational debt."

21. With respect to above transaction the Corporate Debtor had enclosed

the transcript in the WhatsApp placed at page 1305 of the Appeal Paper Book

with explanation given at para 27 page 1304 of the Appeal Paper Book:

Company Appeal (AT) (Insolvency) No. 2067 of 2024 9 of 17 "27. It is submitted that Promoters of petitioners themselves 1st paid rent of Rs. 4.75 Lakh to Corporate Debtor, and in order to embezzle/launder this amount, arm twisted Promoters of corporate debtor to adjust this amount in Petitioner companies' account.

Beside above telephonic conversation wherein money is asked to be returned, screenshots attached leave no iota is (of) doubt that Lalit Mohan Bhagat (NESL name), Promoter of petitioner, made payment to erstwhile director of Corporate Debtor Mithlesh Sharma and present director of Corporate Debtor Jagdish Prasad Sharma, and asked them to return same in account of petitioner company and this amount of Rs. 4.75 lakh if adjusted from principal claimed of Rs. 103.38 lakhs brings down the principal amount to less than the threshold of Rs. 1 crore. Below is screenshot along with transcript attached as Annexure - R8 at Page No. 76."

Company Appeal (AT) (Insolvency) No. 2067 of 2024 10 of 17

22. Just a bare perusal of the transcripts discloses the real nature of

transactions. Firstly, it points out to the dispute which is not just between

the Promoters but is very much inter-mingled with the two corporate entities.

Company Appeal (AT) (Insolvency) No. 2067 of 2024 11 of 17 Also, when we deduct Rs.4.75 lakhs from the principal amount of Rs.103.38

lakhs, the threshold limit will not be met, as it brings down the outstanding

below Rs. 1 crore and the petition itself will not be maintainable. In the

backdrop of the chat transcript as noted earlier, we find that this is a

manufactured Section 9 petition.

23. It is to be noted that this dispute is also reflected in the information

utility which is at page 67-68 of the Appeal Paper Book. Default is recorded

in the information utility i.e. NeSL by promoter of OC i.e. Lalit Mohan Bhagat

and not the OC. Also the Corporate Debtor had disputed the default on

11.10.2023, as is reflected in the status of the Information Utility (NeSL).

Company Appeal (AT) (Insolvency) No. 2067 of 2024 12 of 17

24. The prevailing dispute between the parties is also noted from the

proceedings of Hon'ble Delhi High Court in CS (Comm.) No.825 of 2022, which

was filed by the Petitioner/Appellant. From the material or record in the

Appeal Paper Book, it is contended by the Corporate Debtor that the

Operational Creditor and the Promoters of Operational Creditors are

occupying the property of the Corporate Debtor and promoters of Corporate

Debtor as a tenant and the goods supplied by the Operational Creditors were

being adjusted against the rent. And they were liable to pay rent to Promoter

of the Corporate Debtor. When they stopped paying rent, multiple litigations

were filed between the parties and the present petition is one of those

litigations.

25. Thus, in the conspectus of the case, issue of the pre-existing dispute

cannot be put to a strait jacket as there is a complex nature of transactions

when the Demand Notice was issued. We thus find that there is a pre-existing

dispute between the Promoters inter-mingled with the two legal entities and

is not a patently feeble argument or an assertion of fact unsupported by

evidence, rather it is an actual dispute requiring adjudication. The Hon'ble

Supreme Court in the matter of Mobilox Innovations Private Limited Vs.

Kirusa Software Private Limited in Civil Appeal No. 9405 of 2017 has

mandated that such an application needs to be dismissed under Section

9(5)(ii)(d). The relevant para is at 40 as under:

"....

40. 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 Company Appeal (AT) (Insolvency) No. 2067 of 2024 13 of 17 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."

26. Under these conditions we find that there is a pre-existing dispute

between the parties and Section 9 petition is not maintainable. There is

sufficient material on record to suggest that there is a pre-existing dispute

and Section 9 petition is not maintainable, even then the other additional

grounds raised by the Appellant - with respect to limitation and the account

being running account or not - are being delved in subsequent paragraphs to

unearth the real nature of transactions between the two parties.

27. The issue of running account has been dealt in by the Adjudicating

Authority in para 12 which is reproduced as follows:

"....

12. Additionally, the Corporate Debtor had also contended that the invoices are raised from the year 2016 till 2021, and the due date mentioned on the invoice is same as the date of the invoice and the present petition has been filed on 21.09.2023, therefore, some of the invoices have become time barred. In this regard, it is observed that the Operational Creditor had maintained a running account with regard to the payments received by the Corporate Debtor. The term "same date" as the due date merely signifies that the debt has become due from that date and the fact that the due date mentioned on the invoice is the "same date" as of the date of the invoice does not rule out the possibility of the maintenance of the running account between the parties. Further, considering the pattern of the

Company Appeal (AT) (Insolvency) No. 2067 of 2024 14 of 17 payments made by the Corporate Debtor, the nature of transaction appears to be that of running account only. Further, as per the records, it is observed that the Corporate Debtor had continuously made part-payments to the Operational Creditor in relation to the invoices raised by the Operational Creditor. The part-payments were made from 2017 and the last part-payment was made on 02.03.2022 and by virtue of Section 19 of the Limitation Act, 1963, a fresh period of limitation shall be computed from each date of payment. The latest part-payment being made on 02.03.2022 extended the limitation for further 3 years, hence, the claim of the Operational Creditor in respect of the invoices raised, is not time- barred. Additionally, the bank account statement of the Operational Creditor clearly discloses all the part-payments received by the Operational Creditor from the Corporate Debtor. Such bank account statements also discloses that the remaining amount out of the claim of the Operational Creditor has not yet been received in the account of the Operational Creditor from the Corporate Debtor. Furthermore, there is no proof attached by the Corporate Debtor which shows that there had been complete payment of 'Operational Debt' to the Operational Creditor."

28. On the issue of limitation even the Adjudicating Authority has

concluded that "The latest part-payment being made on 02.03.2022 extended

the limitation for further 3 years, hence, the claim of the Operational Creditor in

respect of the invoices raised, is not time-barred." This conclusion of

Adjudicating Authority doesn't provide any benefit to the Appellant and the

maintainability of the petition cannot be questioned on the grounds of

limitation.

29. Adjudicating Authority has concluded that:

"The term "same date" as the due date merely signifies that the debt has become due from that date and the fact that the due date mentioned on the invoice is the "same date" as of the date of the invoice does not rule out the possibility of the maintenance of the running account between the parties. Further, considering the pattern of the payments made by the Corporate Debtor, the nature of transaction appears to be that of running account only.".

Company Appeal (AT) (Insolvency) No. 2067 of 2024 15 of 17

30. If conclusions have to be drawn on the basis of the nature and pattern

of the payments - then we need to go deep into the payments made by both

parties through Corporate Debtor, Promoters of Corporate Debtor,

Operational Creditor, Promoters of Operational Creditor - which have been

having multiple business transactions, some of which relate to the supply of

goods - and some of which is related to the payment of rent for the premises

occupied by the Operational Creditor. Some transactions also relate to

payment through RTGS and without any purpose and some have been

returned in cash. This indicates complex nature of transactions between

Operational Creditor, Promoters of Operational Creditor, Corporate Debtor

and Promoters of Corporate Debtor. If the nature of transactions has to be

gone into, as indicated by the Adjudicating Authority, then we cannot

conclude it to be a running account for the supply of goods and its payments

alone. It has many more transactions not only between the Corporate Debtor

and the Operational Creditor but also between the Promoters. The argument

of the Operational Creditor that both are separate legal entities, and the

transactions other than these legal entities is not tenable in such a situation.

The veil of Corporate Debtor has to be pierced in such a situation. Therefore,

the Order of the Adjudicating Authority, which is more on the basis of

presumptions, doesn't stand the scrutiny basis materials on record.

31. Basis above analysis we find that there are multiple transactions which

were happening in the purported running account - some of which relate to

the supply of goods and their payment from two legal corporate entities, but

Company Appeal (AT) (Insolvency) No. 2067 of 2024 16 of 17 others not directly related to the supply of goods and services. The dispute is

apparent from the material on record with respect to the arrangement for use

of the premises on rent. There are disputes, which are between the

Operational Creditor and its Promoters and Corporate Debtor and its

Promoters. The transactions between the Corporate Debtor and the

Operational Creditor cannot be seen in isolation and we need to go beyond

the corporate veil. The disputes between all of them cannot be brushed aside.

Therefore, we conclude that there is a pre-existing dispute between the

Corporate Debtor and the Operational Creditor.

Order:

32. The Appeal is allowed. Accordingly, the Section 9 proceedings against

the Corporate Debtor are set aside. No orders as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) New Delhi.

January 22, 2025.

pawan

Company Appeal (AT) (Insolvency) No. 2067 of 2024 17 of 17