Oyster Steel And Iron Pvt. Ltd vs Laxmi Foils Private Limited

Oyster Steel and Iron Pvt. Ltd. 102, First Floor, Roots Tower, Laxmi Nagar, New Delhi -110092 ...Appellant

Vs.

Laxmi Foils Pvt. Ltd. 8638, East Park Road, Karol Bagh, New Delhi - 110055 ...Respondent

Present: For Appellant : Mr. Vinay Navare, Sr. Advocate, Mr. Bhaskar Vali, Mr. Rajat Jain, Advocates.

For Respondents : Mr. Krishnendu Datta, Sr. Advocate and Mr.Ashish Verma, Advcoates

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appeal has been filed by the Appellant under Section 61 of the

'Insolvency and Bankruptcy Code 2016' (the Code) against the impugned

order dated 30.09.2019 passed by the 'National Company Law Tribunal,

Company Appeal (AT)(Ins) No.1209 of 2019 Page 1 of 25 Principal Bench, New Delhi (the Adjudicating Authority) in C.P. No. IB-

1377(ND)/2019.

The Appellant has sought the followings reliefs:

• To set aside the impugned order dated 30.09.2019, passed by the

Adjudicating Authority in C.P No. (IB) - 1377 (ND)/2019 as

challenged in the present appeal and admit the application filed by

the appellant under Section 9 of the Code etc.

2. The Adjudicating Authority, while passing the impugned order dated

30.09.2019 has observed the followings:

"12.After hearing submissions of both the

parties, this Bench is of the view, that the Debit

Notes (Dated 31.03.2015 and 31.05.2015)

annexed by the Respondent are pertaining to

the period, prior to the issuance of the Demand

Notice (dated 19.11.2018).

13.Therefore, evidently, there exists a pre-

existing dispute. That the contention of the

Petitioner that the documents placed on record

by the Respondent are forged, raises a civil

dispute, which requires further investigation as

such disputes cannot be resolved by this

Company Appeal (AT)(Ins) No.1209 of 2019 Page 2 of 25 Tribunal in summary proceedings, as they will

require adducing of further evidence and cross-

examination of the parties.

14.Further, the Hon'ble Supreme Court of India

in Mobilox Innovations Pvt. Ltd Vs. Kirusa

Software Pvt. Ltd. has observed that:

"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

Company Appeal (AT)(Ins) No.1209 of 2019 Page 3 of 25 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."

15. In view of the above, the Petition is rejected."

3. The submission made by the Appellant/ pleadings and Written

Submission available on record are summarized in following manner:

a) It is the case of the Appellant that the Corporate

Debtor(CD)/Respondent was a buyer of aluminum products from

the Operational Creditor (OC)/Appellant. The CD has purchased of

goods from the Appellant from 2012. The Appellant/OC used to

maintain a running account of these supplies and the CD would

make lump sum, on account, payments against the dues

Company Appeal (AT)(Ins) No.1209 of 2019 Page 4 of 25 outstanding in the said running account. The period of payment

allowed to the Respondent was 120 days from the date of transaction

and as per the agreed terms interest of 18% p.a. on the delayed

payment. The lump sum payment would get adjusted against the

earliest pending bills first and the remaining amount would be

adjusted against the next earliest pending bill.

b) It is submitted by ld Sr. Counsel for the Appellant that the Appellant

has placed the order on Bharat Aluminum Company Limited

(BALCO) and goods were delivered to the Respondent /CD directly

by BALCO. It is the case of the Appellant that last 11 invoices, dated

18.04.2015 to 08.05.2015 remain unpaid and the amount of the 11

invoices is Rs. 3,85,90,422/- out of which the unpaid amount is Rs.

3,15,39,380/-.

c) Ld. Sr. Counsel for the Appellant has stated that demand notice

dated 19.11.2018 was issued under Section 8 of the Code and the

reply was sent by the Respondent on 30.11.2018 purportedly raising

a dispute. The Appellant is also stated that the Respondent

alongwith reply has produced three fabricated and manufactured

Debit Notes dated 31.03.2015, 31.05.2015 and 12.04.2016 and the

same are appearing at Annexure A-7 of the Appeal paper book. A

Company Appeal (AT)(Ins) No.1209 of 2019 Page 5 of 25 photocopy of the C-Forms was also produced by a sister concern of

the Appellant Company. (Annexure A-8 of the Appeal paper book).

d) In the written submission, the claim of Rs. 6,23,80,831/- inclusive

of interest has been made which is as per the page 13 of the Appeal

paper book.

e) Learned Sr. Counsel for the Appellant has also stated that there is

no dispute regarding the quality of goods with all these outstanding,

the relationship between the parties ended in May 2015. The

Appellant itself raised that the CD/Respondent has raised the issue

of Debit Notes on account of rate difference or short supply. The

CD/Respondent has produced similar fraudulent, forced, fabricated

and unilaterally manufactured debit notes on the sister concern of

the Appellant company which were never sent, never received and

never emailed. These debit notes are all fraudulent, forced,

fabricated etc as per the Appellant. The Ld Sr. counsel are also try

to explain his case by mentioning the variance between the Debit

Notes and Actual supply made. As per the Appellant the supply of

Debit notes is afterthought and the same cannot be used as a set

off. The Appellant has also cited the Hon'ble Supreme Court

Judgment in Mobilox Innovations Pvt. Ltd Vs. Kirusa Software Pvt. Ltd in

Civil Appeal No. 9405 of 2017. The ld Sr. Counsel for the Appellant

Company Appeal (AT)(Ins) No.1209 of 2019 Page 6 of 25 cited the Judgment of Hon'ble Supreme Court in National Insurance

Company Ltd. Vs. Boghara Polyfab Pvt. Ltd (2009) 1 SCC 267 held

in para 27:

"While discharge of contract by performance

refers to fulfillment of the contract by

performance of all the obligations in terms of

the original contract, discharge by `accord and

satisfaction' refers to the contract being

discharged by reason of performance of certain

substituted obligations. The agreement by

which the original obligation is discharged is

the accord, and the discharge of the

substituted obligation is the satisfaction. A

contract can be discharged by the same

process which created it, that is by mutual

agreement. A contract may be discharged by

the parties to the original contract either by

entering into a new contract in substitution of

the original contract; or by acceptance of

performance of modified obligations in lieu of

the obligations stipulated in the contract."

Company Appeal (AT)(Ins) No.1209 of 2019 Page 7 of 25

f) The Ld. Sr. Counsel for the Appellant has alleged that the

Adjudicating Authority has completely overlooked the email dated

07.05.2015 appearing at page no. 192 Annexure A-12 vide which

the Appellant has already sent its ledger to the Respondents thereby

seeking confirmation of accounts. These ledgers attached with the

said email pertains to the Appellant and its various sister concern

transaction with the Respondent.

g) The Ld. Sr. Counsel for the Appellant has also submitted that the

Respondent placed on record four debit notes allegedly issued to the

Appellant as its sister concerns on account of short supply, as

detailed in the chart below. The Respondent's claim as put forth

through these four debit notes is that the Appellant alongwith its

sister concerns, collectively, was obligated to supply a total of 2350

MT of Aluminum Ingot. The debit notes raised against the sister

concerns formed part of the record before the Adjudicating

Authority.

Company Appeal (AT)(Ins) No.1209 of 2019 Page 8 of 25

h) It was also submitted even though written submission received in

this Tribunal vide Diary No. 31527 dated 31.05.2022 that the

Respondent placed on record a chart showing the calculation of

quantity goods supplied to it by the Appellant and its sister concerns

in the Financial Year 2014-15 and 2015-16, alongwith its reply to

the Section 9 of the Petition. As per this chart the total supplies of

the Respondent made by the Appellant and its sister concerns in the

Financial Year 2014-15 are 13.99.225 MT and for the year 2015-16

total supplies are 353.784 MT. Curiously, the debit notes on account

Company Appeal (AT)(Ins) No.1209 of 2019 Page 9 of 25 of short supply have only been raised for the year 2015-16, and none

for 2014-15 despite similar or higher comparative shortages.

i) In view of the above, the Ld. Sr. counsel for the Appellant is seeking

to set aside the impugned order dated 30.09.2019, passed by the

Adjudicating Authority in C.P No. (IB) - 1377 (ND)/2019 as

challenged in the present appeal and admit the application filed by

the appellant under Section 9 of the Code.

4. The submission made by the Respondent is stated herein below in a

summarized manner:

a. The Ld Sr. Counsel for the Respondent has submitted that there is a

list of all litigation initiated by the Directors of the Appellant group of

Company against the Respondent herein and for convenience, the same

are reproduced below:

Duke Sponge & Iron V Laxmi Pending before the NCLAT

Foils court 2, wherein the order

has been reserved

Oyster Steel & Iron V Laxmi Dismissed by the NCLT,

Foils New Delhi Bench -II

(impugned order)

Duke sponge & Iron Vs. Dismissed by NCLT,

Laxmi Foils Principal bench

Company Appeal (AT)(Ins) No.1209 of 2019 Page 10 of 25 Prominent Metals Limited Presently pending before

Vs. laxmi Foils the Ld. ADJ Tiz Hazari

Courts, New Delhi

Olympus Metals Limited Vs. Presently pending before

Laxmi Foils the Hon'ble Delhi High

Court

b. The entire amount on account of the invoices were discharged

by the collective operation of the followings: - Debit Notes bearing

date 31.03.2015 and 31.05.2015 for an amount aggregating to

INR 1,63,53,050/- on account of a rate difference and debit

noted dated 12.04.2016 for an amount aggregating to INR

1,55,92,380/- on account of short supply. It is the case of the

Appellant that these debit notes dated 31.03.2015, 31.05.2015

and 12.04.2016 were never issued to the Appellant and that the

Appellant received them for the first time on 03.12.2018 in

response to the section 8 notice. However, the said case is

patently false on a bare perusal of the facts/record of the present

case. At the first instance, the said debit notes dated

31.03.2015, 31.05.2015 and 12.04.2016 bear a sign and stamp

of the Appellant. The sign and stamp clearly evidence receipt of

the debit notes by the Appellant. Therefore, the Appellant at this

stage cannot take the plea that they received the debit note for

Company Appeal (AT)(Ins) No.1209 of 2019 Page 11 of 25 the first time on 03.12.2018. Without prejudice to the

aforestated, it is submitted that the Appellant's contention that

the debit notes are forged and fabricated are required to be

proved in Trial in accordance with the rules of evidence and

cannot be accepted ex facie. The said very contention that the

said debit notes are forged and have not been issued by the

Respondent, in the light of the same having been duly stamped

and signed by the Appellant as per the Respondent, constitute a

dispute between the parties which requires adjudication. In light

of the existence of the said very dispute the petition was filed by

the appellant has been rightly rejected by the Adjudicating

Authority.

c. The Ld. Sr. Counsel has also stated that the Adjudicating Authority in

exercise of its jurisdiction under section 9 of the Insolvency and

Bankruptcy Code, 2016 is not obligated to undertake a detailed fact-

finding mission in order to assess whether or not a certain document,

stamp or seal is forged. In fact, it is pertinent to note that question with

respect to forgery are within the domain of the civil court and cannot be

the subject matter of the summary jurisdiction exercised by the

Adjudicating Authority. This Appellate Tribunal in Global Infonet

Company Appeal (AT)(Ins) No.1209 of 2019 Page 12 of 25 Distribution Vs. Tespa Infotech Company Appeal (AT) (Ins) No. 185 of 2019

held as follows:

"Learned Counsel for the Appellant submits that the

records which were submitted by the Respondent

before the Adjudicating Authority were fictitious.

Therefore, such document could not have been relied

upon to come to a conclusion that there is no debt

payable. However, such dispute could not have been

decided by the Adjudicating Authority nor can be

decided by this Appellate Tribunal as to whether the

documents were fictitious or is of earlier period which

could be decided only by the forum of competent

jurisdiction."

In light of the aforementioned precedent the scope the enquiry required

to be carried out by the Adjudicating Authority under Section 9 of the Code

is very clear. The Adjudicating Authority is not obligated to appreciate

evidence and determine whether or not a document is forged or genuine. If

the liability under the invoices of April - May 2015 was not extinguished

by the debit notes, then the question is why the Appellant didn't take any

steps in order to pursue their claim with the Respondents. The Appellant

from May 2015 till December 2018 did not issue a single communication

Company Appeal (AT)(Ins) No.1209 of 2019 Page 13 of 25 to the Respondent seeking payment of the amount claimed in the present

appeal.

d. The Adjudicating Authority rightly made note of this relevant fact and held

that there was no effective pursuance of the alleged outstanding amount.

It is submitted that the lack of effective pursuance gives rise to the

inference that the debit notes were accepted by the Appellant, because no

prudent business man would ever practically abandon a claim for such a

huge amount for a period of three years. In fact, there was continuing

correspondence between the parties as late as September, and December,

2015 and in this vital correspondence there was not even a whisper of any

amount due and outstanding. On 03.09.2015. An email was issued by the

Director of the Appellant Company containing the statement of accounts

of a company by the name of Laxmi Metals Works (sister concern of the

Respondent) . The 'Respondent on 03.09.2015 herein replied to the said

email requesting for the accounts of all other companies with which the

Respondent was doing business. This would naturally include the

accounts for the transactions between the Appellant and the Respondent.

The director of the Appellant however never sent the accounts for the

transactions between the Appellant and the Respondent, on the pretext

that they were under income tax assessment. It is submitted that despite

having an opportunity to share account confirmation, and categorically

Company Appeal (AT)(Ins) No.1209 of 2019 Page 14 of 25 refute the debit notes, the Appellant did not even make a reference to any

outstanding amount between the Parties. It is pertinent to note that at no

point after did the Appellant ever share the accounts between the parties.

The logical inference of this is that the debit notes stood accepted by the

Appellant. On 26.12.2015, the Appellant once again issue an email to the

Respondent, this time requesting for C Forms. However, in this email there

isn't even a bare averment of any outstanding liability. If the case of the

Appellant is true and correct, at this point the entire outstanding amount

was due for around 12 months. And if any email was being sent, a solitary

mention of this outstanding amount would be well within prudent

business practice. The failure to even mention the outstanding

amount gives rise to the inference that debit notes were indeed

delivered and accepted by the Respondent.

e. It is also submitted by the Ld Sr. Counsel for the Respondent that the sole

reason the Appellant never made any demand for the outstanding amount

prior to the issuance of the Section 8 of the 'Code' demand notice in

December 2018, despite being in constant communication by way of email.

Was that after the debit note dated 12.04.2016 came into existence there

was no debt in existence.

Company Appeal (AT)(Ins) No.1209 of 2019 Page 15 of 25

5. We have carefully gone through the pleadings of the parties and extant

provisions of the Code including their written submissions and we are having

the following observations:

a. What we observed that a purchase order dated 03.06.2014, as depicted

below, were placed by the CD/Respondent on the Operational Creditor

wherein it is very much clear that the prices are not firmed up and the

same is supported by emails appearing at page no. 40 to 47 of the

reply given by the Respondent and for ease of convenience, the same

are extracted below:

Company Appeal (AT)(Ins) No.1209 of 2019 Page 16 of 25 Company Appeal (AT)(Ins) No.1209 of 2019 Page 17 of 25 Company Appeal (AT)(Ins) No.1209 of 2019 Page 18 of 25 Company Appeal (AT)(Ins) No.1209 of 2019 Page 19 of 25 b. It is also very much clear that the parties are not in a harmonious

relationship and rather the Appellant -Director has initiated multiple

litigations which also involves, the some of the transactions captured

in this case. The Debit Notes so sent by the CD/Respondent to the

Appellant/OC bears an acknowledgement. This Tribunal is not in a

position to examine whether it is forged or not forged. It can only be

done by the Trial Court/ Civil Court.

c. It also apparently looks astonishing how a firm will keep mum from

2016 to 2018 when such huge amounts are due from the CD and

thereafter initiated the petition under the Code for expeditious release

of payment under the fear of the Code where the management changes

Company Appeal (AT)(Ins) No.1209 of 2019 Page 20 of 25 from the existing management of the CD to the Resolution Professional

of the CD.

d. It also seems that the Appellant through its three companies where the

Appellant is Director, have business dealing with the firm. All these are

also mingled up. There is a Memorandum of Understanding(MoU)

Financial Year 2018-19 between the Respondent and BALCO also

appearing at page 67 of the Reply where price computation is a derived

price from the various pricing options perhaps this is prevailing

business practices in this field.

e. The claim of the Respondent is that the Appellant has never delivered

the contracted quantity and they are supporting it by way of emails

dated 16.07.2015 appearing at page 73 of the Reply. What is not in

dispute that the Operational Creditor/Appellant is supplied of raw

material and the CD /Respondent is a manufacturer and supplier of

qualitative range of aluminum Hot rolled plats etc.

f. It is also apparent while going through both the Appeal and the reply

by the Respondent that the industry practice for adjustment of rates

and quantity/quality adjustment in release of payments is generally

done through Debits Notes or Discounts.

g. It is also not in dispute that since May, 2015, there has been no

purchase of any material from the Operational Creditor.

Company Appeal (AT)(Ins) No.1209 of 2019 Page 21 of 25 h. There is some dispute with respect to supply of Form-C. Even the

Operational Creditor claims for not getting Form-C resulted into

additional tax and penalty is not backed by challan.

i. It is also not in dispute that the Demand notice has been replied by

CD through its counsel's letter dated 30.11.2018 wherein multiple

issues have been raised by the Respondent/CD where the

CD/Respondent is not only disputing the dues even the issue of Form-

C, the issue of business practice, the business relationship keeping

silence for dues from 2016 onwards and issue on demand notice for

chasing of payment which is not legally due and payable.

j. All this reflects that the parties are in multiple litigation and hence the

Operational creditor in order to bring pressure on the CD has adopted

the provisions of the Code to get disputed payment realized from the

CD. The provisions of the Code cannot be used for chasing of payment

and moreover where there is a business dispute. The Hon'ble Supreme

Court has already settled the matter that the provision of the Code is

not intended to be a substitute to be a recovery forum.

The Hon'ble Supreme Court in Civil Appeal No.9597 of 2018,

"Transmission Corporation of Andhra Pradesh limited Vs. Equipment

Conductors and Cables Limited" vide para 15 has already held that

"IBC is not intended to be a substitute to a recovery forum and also laid

Company Appeal (AT)(Ins) No.1209 of 2019 Page 22 of 25 down that whenever there is existence of real dispute, the IBC

provisions cannot be invoked. The Code cannot be used whenever there

is existence of real dispute and also whenever the intention is to use

the Code as a means for chasing of payment or building pressure for

releasing the payments."

The Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd Vs. Kirusa

Software Pvt. Ltd in Civil Appeal No. 9405 of 2017 has held at para 40 that

"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

Company Appeal (AT)(Ins) No.1209 of 2019 Page 23 of 25 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."

k. It is apparently very much clear that the there is a dispute between the

parties in relation to either issue of Form-C or in the issue of dues

payable. The Code is very much clear and settled that Section 9 of the

Code can be invoked only if there is no notice of dispute has been

received by the Operational Creditor as per Section 9(5)(d) of the Code.

For brevity and clarity, the same is depicted below:

"The Adjudicating Authority shall, within fourteen days

of the receipt of the application under sub-section (2), by

an order--

(1) admit the application and communicate such decision

to the operational creditor and the corporate debtor if,--

(a) the application made under sub-section (2) is

complete;

(b) there is no [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate

debtor has been delivered by the operational creditor;

Company Appeal (AT)(Ins) No.1209 of 2019 Page 24 of 25

(d) no notice of dispute has been received by the

operational creditor or there is no record of dispute in the

information utility; and

(e) there is no disciplinary proceeding pending against

any resolution professional proposed under sub-section

(4), if any."

l. In view of the aforesaid facts and circumstances of the case and the

law laid down on the subject, we are constrained to uphold the view

of the Adjudicating Authority. Accordingly, the Appeal deserves to be

dismissed and is dismissed.

Pending application, if any, stands disposed of.

Interim order, if any, stands vacated. No order as to costs.

[Justice Rakesh Kumar] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

04th August, 2022

New Delhi

Raushan.K

Company Appeal (AT)(Ins) No.1209 of 2019 Page 25 of 25