Northbrook Jute Company Ltd vs Madhya Pradesh State Civil Supplies ...

(Arising out of the Impugned Order dated 03.11.2022 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Indore Bench in TP No. 144 of 2019 [Company Petition (IB) No. 101 of 2018]

IN THE MATTER OF: M/s Northbrook Jute Company Limited CIN No. U17119WB1908PLC001801 Through its authorised representative Mr. Aditya Agarwal 1, GT Road, Champdani Baidyabati Hooghly, Kolkata West Bungle - 712222 ...Appellant

Versus

M/s Madhya Pradesh State Civil Supplies Corporation Limited CIN No. U15411MP1974SGC001268 Having its registered office at: Block - 1, 3rd Floor, Paryavas Bhavan Mother Teresa Marg, Bhopal Madhya Pradesh - 462011 ...Respondent

Present: For Appellant : Mr. Ramesh Kumar Mishra, Advocate

For Respondent : None

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)] This is an appeal filed by the Operational Creditor (hereinafter referred

to as "OC") under Section 61 of the Insolvency & Bankruptcy Code, 2016

(hereinafter referred to as "IBC") filed by the M/s Northbrook Jute Company

Limited (hereinafter referred to as "NJCL") against the impugned order dated

Company Appeal (AT) (Insolvency) No. 94 of 2023 1 of 8 03.11.2022 passed by the National Company Law Tribunal, Indore Bench

(hereinafter referred to as "Adjudicating Authority") in TP No. 144 of 2019

[Company Petition (IB) No. 101 of 2018] filed under Section 9 of the IBC,

wherein the Adjudicating Authority had rejected the petition.

Brief facts relevant for the case

2. M/s Northbrook Jute Company Limited, the Appellant in this case is a

manufacturer of SBT Gunny Bags. They entered into an agreement dated

12.03.2012 with the CD namely M/s Madhya Pradesh State Civil Supplies

Corporation Limited and supplied 20,010 bales of SBT Gunny Bags

amounting to Rs.37,84,27,404/-. The CD paid Rs.36,10,11,651/- till

20.11.2013 and failed to pay the balance amount of Rs.1,74,15,753/-. It is

claimed by the Operational Creditor that Respondent admitted /

acknowledged its liability of Rs.1,13,85,026/- vide communication dated

07.04.2016.

3. The Appellant issued a demand notice under Section 8 of the IBC r/w

Rule 5 of the Insolvency and Bankruptcy Regulations, 2016. The demand

notice was not replied by the CD, disputing the debt in respect of the said

unpaid Operational Debt. Thereafter, Appellant filed a petition under Section

9 of IBC. But the Adjudicating Authority rejected this claim on 03.11.2022,

which is being impugned in this Appeal.

Grounds of Relief

4. The Adjudicating Authority rejected the claim on the ground that there

is a dispute projected before it and required thorough inquiry before a proper

forum and it could not have undertaken that exercise in its limited

jurisdiction in hearing of application under Section 9 of IBC. The Adjudicating

Company Appeal (AT) (Insolvency) No. 94 of 2023 2 of 8 Authority also failed to consider the letter dated 07.04.2016, which is an

acknowledgment of the debt. Based on this letter of acknowledgment, the

limitation period also gets extended. For further remaining balance payments,

Appellant made representations, which were not considered or replied by the

CD, hence the matter was taken up in Hon'ble High Court of Jabalpur vide

Writ Petition No. 12892 of 2015, which was disposed of with the direction to

the CD to consider and decide the representation of the Appellant herein

expeditiously and in accordance with law. In compliance of the order of

Hon'ble High Court of Jabalpur, the CD issued a letter dated 07.04.2016

addressing to the Appellant and accepted its liability of Rs.1,13,85,026/-

towards the present Appellant. It is claimed by the Appellant that there is

existence of debt and default, in view of the acknowledgement vide letter dated

07.04.2016 and therefore the petition under Section 9 of IBC should be

admitted. It claims that the letter dated 07.04.2016 cannot be considered as

a pre-existing dispute pertaining to the admitted outstanding and since this

communication is issued admitting its liability within a period of limitation it

extends the period of limitation. Therefore, the application under Section 9 of

IBC should have been admitted

Analysis and Order

5. We have heard the Learned Counsel for the Appellant and also perused

the records.

6. The CD is functioning under the department of Food and Civil Supplies

in the State of Madhya Pradesh and works in tandem with Food Corporation

of India for the purpose of civil supplies and food supplies within the State of

Madhya Pradesh. In the Financial Year 2012-13, the Food Corporation of

Company Appeal (AT) (Insolvency) No. 94 of 2023 3 of 8 India, with a view to supply and distribute food grains within the State of

Madhya Pradesh, entered into an agreement with the CD for purchase of SBT

Jute Bags from private players. The contract was a back to back contract,

dependent wholly on the contract between the Food Corporation of India and

the CD. The supply was to be carried out in a time bound manner within a

span of one month from the date of issuance of the work order. Further, the

supply of the jute bags was to be as per the quality prescribed, failing which

the amount of penalty was to be recovered from the suppliers AS PER

TENDER CONDITIONS.

7. In the year 2012, as required the supply was made by the OC. However,

Food Corporation of India was not satisfied with the quality of the jute bags

supplied and accordingly deducted some amounts from the payments made

to the CD. Thereafter, the CD in turn proportionately deducted such amount

from the payments made to the OC. Therefore, from a total payable amount

of Rs.37,84,27,404/-, payment was made of Rs.36,10,11,651/-, deducting an

amount of Rs.37,89,660/- towards penalty for delay Rs.3,84,000/- for non-

supplied quantity of jute bags, Rs.57,573/- for torn jute bags and

Rs.1,31,84,520/- for deduction made by the Food Corporation of India

towards poor quality material supplied.

8. Later on, vide communication dated 12.10.2015, the Food Corporation

of India directed the CD to not to reduce the amount of payments to be made

to the Directorate General of Supplies and Disposals, Kolkata and to instead

recover an additional amount of Rs.41,20,663/- from the private suppliers.

Accordingly, proposed proportionate deduction of Rs.17,99,494/- was sought

to be made against the OC.

Company Appeal (AT) (Insolvency) No. 94 of 2023 4 of 8

9. Being aggrieved by the order of the CD the OC approached the Hon'ble

High Court of Madhya Pradesh by way of Writ Petition No. 12892 of 2015. On

17.02.2016, Hon'ble High Court noted that:

"..Counsel for the respondents raised preliminary objection. According to him since there is express arbitration clause in the agreement executed between the parties, the petitioners should take recourse to the said remedy in respect of subject matter of this writ petition.

Counsel for the petitioners, in our view, justly contends that so long as the respondents do not reply to the several representations/demands submitted by the petitioners such as Annexure-P/5 and P/6, it is not possible to suggest that the dispute had arisen. The dispute will arise only if the respondents were to reject the demands or claims of the petitioners or adopt any counter claim against the petitioners.

Realizing this position, counsel for the respondents submits that the respondents will first give reply to the demands/claims submitted by the petitioners in the form of Annexure-P/5 and P/6.

That be done expeditiously preferably within two weeks from today. Thereafter petitioner will be free to take recourse to such remedy, as may be permissible in law. All questions are left open.

Petition disposed of accordingly...."

10. Accordingly, the Respondent issued a letter dated 07.04.2016, in which

CD stated that for the reasons of delay, quality cut and cut and torn jute bags

the amount for the same has been deducted as per the terms and conditions

of the tender. Therefore, the abovementioned amount is able to be returned.

11. During the hearing by us many opportunities were given to the

Respondent. The matter was heard on various dates. On 1.02.23, 3.02.23,

20.03.20, 24.04.23, 10.07.23, 19.07.23, 11.09.23, 30.10.23, 21.11.23 and

Company Appeal (AT) (Insolvency) No. 94 of 2023 5 of 8 then finally 30.01.24 when in the absence of the Respondent the Appellant

was heard in full and order was reserved and appellant was permitted to file

notes of submissions. We have not received any notes of submissions neither

did the Respondent attend any of the hearings.

Main issue before us

12. The main issue before us is whether the reply issued by the Corporate

Debtor in pursuance to the Hon'ble High Court's order is acknowledgement

of debt and default and whether this communication extends the limitation

for the Operational Creditor and finally whether there is a pre-existing dispute

between the Operational Creditor and the Corporate Debtor.

13. The above questions get addressed in next few paragraphs.

14. As per the demand notice the date of default is claimed to be

13.07.2012 and then again on 07.04.2016. Appellant claims that total

amount of debt is Rs. 11388056/- plus interest at applicable rate. It is

difficult to accept the argument of the Appellant that the response of

07.04.2016 can be treated as an acknowledgement of default and debt. In

fact, the communication dated 17.04.2016 issued by the CD is a reply in

pursuance to the orders of the Hon'ble High Court, Jabalpur. The Appellant

has tried to equate the reply of the Respondent to the acceptance of debt and

accordingly issued the demand notice. It is rather, a reply of the CD informing

the OC that the amount deducted was on account of poor quality of goods

supplied by the OC. The CD had raised an issue with the OC regarding the

quality of goods provided by the OC prior to the issuance of the demand

notice. The supply of gunny bags was made in the year 2012-13 and a

response to the representation, which was made by the CD on 07.04.2016,

Company Appeal (AT) (Insolvency) No. 94 of 2023 6 of 8 cannot be presumed by acceptance of debt and default. This reply of the

Corporate Debtor was not at all any acknowledgment of debt. Rather with

that reply the Corporate Debtor has simply informed the Operational Creditor

that the amount deducted was on account of poor quality of goods supplied

by the Operational Creditor. As such the Limitation period cannot get

extended on the strength of such a reply.

15. If the date of default cannot be 07.04.2016 as concluded in the previous

paragraph, in that case the date of default will be that of 2012. In that case,

then the claim is barred by limitation. Therefore, the claim can be rightly

rejected on the grounds of limitation.

16. Apart from the claim getting rejected on the grounds of limitation, there

are additional grounds which establish that there is a pre-existing dispute

with respect to the quality of the supplied gunny bags. There is sufficient

material on record, particularly evident from both the proceedings in the High

Court as well as communication dated 07.04.2016, that there is a pre-existing

dispute. In view of this ground also, Section 9 Application under IBC could

not have been admitted and the Adjudicating Authority had accordingly

rejected the claims by the OC.

Orders

17. The Adjudicating authority / NCLT, Indore Bench in the impugned

order has rightly come to the conclusion the claim is barred by limitation and

even if this Tribunal presumes the date of default to be 07.04.2016, which

cannot be by any stretch of imagination on the basis the facts of the case,

this is hit by a 'pre-existing dispute' on the 'outstanding dues' claimed by the

'Operational Creditor'.

Company Appeal (AT) (Insolvency) No. 94 of 2023 7 of 8

18. This Appellate Tribunal, therefore, cannot find any error in the

impugned order of the Adjudicating Authority / Tribunal. Accordingly, the

Appeal is dismissed. No order as to costs.

19. The connected pending Interlocutory Applications, if any, are closed.

[Justice M. Venugopal] Member (Judicial)

[Mr. Arun Baroka] Member (Technical) 15th February, 2024 pks

Company Appeal (AT) (Insolvency) No. 94 of 2023 8 of 8