Prakash Kalash vs Apeejay Surrendra Park Hotels Ltd. & Anr

Prakash Kalash Shareholder & Member of suspended Board of Directors M/s Gurusukh Vintrade Service Pvt Ltd R/o Gurusukh Villa Opposite Shagun Farm VIP Road, Raipur, Chattisgarh - 492006 Mobile: 9993333332 Appellant Email: prakashkalash@yahoo.in

Versus

1. M/s Apeejay Surrendra Park Hotels Ltd 17, Park Street Kolkata, West Bengal Kolkata - 700016 Respondent No.1

2. Ms Teena Saraswat Pandey Resolution Professional of M/s Gurusukh Vintrade Service Private Limited IBBI/IPA-P00652/2017-2018/11126 387 F 114 Scheme Part-1 Behind Diksha Boys Hostel Sant Nagar, Indore Madhya Pradesh - 452010 Respondent No.2

Present:

For Appellant : Mr Krishna Mohan K Menon, Advocate

For Respondent : Mr Vijay Kandel, Advocate for R1. Mr Divyanshu Srivastava, Advocate for R2.

Company Appeal (AT) (Insolvency) No. 1462 of 2019 1 of 18

[Per; V.P. Singh, Member (T)]

1. This Appeal emanates from the order dated 14th November 2019

passed by the Adjudicating Authority/National Company Law Tribunal,

Cuttack in CP (IB) No. 62/CTB/2019, whereby the Adjudicating Authority

has admitted the Application filed under Section 9 of the Insolvency &

Bankruptcy Code, 2016 (in short "I&B Code"). The parties are represented

by their original status in the Company Petition for the sake of convenience.

2. The brief facts of the case are as follows:

The Appellant, i.e. Gurusukh Vintrade Service Pvt. Ltd represented by

Mr Prakash Kalash (Authorised Representative) filed the present Appeal

against the Respondent No.1, Apeejay Surrendra Park Hotels Ltd., and

Respondent No. 2 Umesh Chandra Sahoo, under Section 61(1) of the I&B

Code. The Appellant is a company incorporated under the Companies Act,

1956 having its registered office at Maharshi Valmiki, Ward No.28,

Telibandha, Raipur, and Chhattisgarh.

3. The Appellant has opened Hotel at Great Eastern VIP Road Chowk,

Avanti Vihar, Raipur, Chhattisgarh. The Respondent No.1 had approached

to the Appellant for providing technical services and pre-operation advice for

launching Hotel and further for the operation and management services

after the launch of the Hotel. The Appellant entered into the „Management

and Technical Service Agreement‟ from now on will be referred to as „MTSA‟

with Respondent No. 1. As per the Agreement, the Respondent No.1 was

responsible for the training of the staff. However, they failed to provide Company Appeal (AT) (Insolvency) No. 1462 of 2019 2 of 18 proper training to the hotel staff. They were posting wrong revenue on barter

ledger to hide their under performance since the Hotel started its

commercial operations. As per terms of the Agreement, no payment was

supposed to be made to any person without prior information of the

Appellant. But the Respondent No.1/Operational Creditor in violation the

terms of MTSA issued post-dated cheques of Rs. Seventy-three lakhs to itself

even without informing the Appellant about the same.

4. The Appellant/Corporate Debtor further contends that as per the

Agreement, all the money received as revenue from the operations of the

Hotel was supposed to be deposited in the bank account of the Hotel, which

was to be operated by the authorized representative appointed by

Respondent No.1/Operational Creditor. Further, all the operating expenses,

including taxes, were to be discharged by Respondent No.1. However,

Respondent No.1 has miserably failed to deposit statutory dues and

applicable taxes, such as TDS, EPF, ESI, GST, VAT, Service Tax and Luxury

Tax since the beginning of the Hotel.

5. The Appellant, through an internal enquiry, found that a non-

recoverable revenue of Rupees Seventy Lakh has been shown as revenue

earned in financial records of the Hotel by the Respondent No.1. The

Appellant contends that Respondent No.1 was responsible for the operation

of the Hotel; however, there was no visit by the Respondent No.1 to the Hotel

of the Appellant since August 2018. Thus effectively Respondent No.1 has

not provided any service to the Appellant since August 2018.

Company Appeal (AT) (Insolvency) No. 1462 of 2019 3 of 18

6. Consequent upon the default made by the Respondent No.1 about the

provision of services; the Appellant disputed the amount payable to the

Respondent and stopped making payment to Respondent No.1/ Operational

Creditor.

7. Respondent No. 1 had initiated the proceedings under Section 9 of the

I&B Code for alleged unpaid dues arising out of the services performed

under the „MTSA‟ between the Appellant and the Respondent. As per the

operational creditor/Respondent No.1‟s claim in the Section 9 Application a

total of Rs.1,45,99,236/- [Principal- Rs.1,25,63,786/- and Interest

Rs.20,35,450/- calculated @ 24% p.a.] was due from the Corporate Debtor

for services performed by the Operational Creditor for a period from 01st

January 2018 to 20th May 2019.

8. It is contented by the Appellant that there were various email

communication and telephonic conversations held between the Appellant

and the Respondent No.1, even after filing of the Application by the

Respondent No.1 before the Adjudicating Authority. However, the

Respondent No.1/Operational Creditor never communicated to the

Appellant about the filing of the petition U/S 9 of the Code.

9. It is submitted on behalf of the Appellant that there was a plausible

pre-existing dispute between the parties, which was not brought to the

notice of the Adjudicating Authority. Since the Appellant was not aware of

the proceedings, they could not appear before the Adjudicating Authority,

Company Appeal (AT) (Insolvency) No. 1462 of 2019 4 of 18 and an ex-parte impugned order has been passed. The corporate insolvency

proceeding started against the Appellant /corporate Debtor.

10. The Respondent in his reply submitted that the Company Appeal filed

by the Appellant is devoid of any merit and as such liable to be dismissed.

11. It is submitted that the Appeal is liable to be dismissed on the ground

that the same is filed beyond 30 days from the date of passing of the

impugned order which is beyond the statutory period as prescribed under

Section 61(2) of the I&B Code.

12. The Respondent No.1 further submits that the Appellant had the

sufficient knowledge of initiation of proceedings under Section 9 of the I&B

Code against him by admitting the receiving of Demand notice sent to him,

and further when the Respondent No.1 sent a copy of Application, in Form-

5, filed under Section 9 of the I&B Code. The service on the corporate office

of the Appellant has been proved by the Affidavit of Service, containing

tracking report of successful delivery of the same.

13. The Respondent No.1/Operational Creditor further submits that the

Adjudicating Authority based on the affidavit of service and other

documents, filed with the petition regarding service of notice, passed an

order to proceed ex-parte against the Appellant, as there was no

representation from the Corporate Debtor despite substituted service of

notice through the publication of notice in newspapers.

Company Appeal (AT) (Insolvency) No. 1462 of 2019 5 of 18

14. Respondent No.1 contends that from a bare perusal of the contents of

Appeal and the material placed on record, it is sufficiently established that,

till date, the Appellant has not disputed even a single invoice or the

amounts therein amongst the total invoices raised by Respondent

No.1/operational creditor.

15. Further, Respondent no.1 denies that at the time of entering into the

contract, the Appellant was assured by Respondent No. 1, that there would

be 40% of sales contribution from their side.

16. The Respondent No.1 submits that it was pointed out by the

Respondent to the Appellant that due to Appellants failure to provide the

working capital as agreed under the Agreement, salaries of the employees

could not be paid on time and resultantly a lot of competent people resigned

from the organization.

17. Further, Respondent No.1/Operational Creditor denies of posting

wrong revenue on barter ledger since the Hotel started its commercial

operations to inflate the income, to increase their fee share, and to hide its

under performance and violation of the conditions of the Agreement.

Regarding the allegation of issuance of post-dated cheques of Rs. Seventy-

three Lakhs to itself without informing the Appellant, it is contended that

the Appellant is hiding the fact from this Tribunal. Respondent No.1 argued

that the Appellant was informed of the post-dated cheques and further

shared cheque sheet showing details of the cheques issued by the

Respondent No.1.

Company Appeal (AT) (Insolvency) No. 1462 of 2019 6 of 18

18. The Respondent No.1/Operational Creditor submitted and denied that

as per the Agreement, all the operating expenses, including taxes, were to be

discharged by the Respondent No.1. It has never been agreed between the

parties that the Respondent No.1 shall discharge the liabilities of payment of

taxes. It is pleaded that even the word "tax" find no mentioned in the said

Agreement.

19. Heard the arguments of the Learned Counsel for the parties and

perused the record.

20. The Respondent contends that the Appeal is liable to be dismissed on

the ground that the same is filed beyond 30 days from the date of passing of

the impugned order, which is beyond the statutory period as prescribed

under section 61(2) of the I&B Code. The impugned order dated 14th

November 2019 and Appeal is filed on 05.12.2019, which within 30 days

from the date of order. Thus Appeal is filed within the statutory period of

Limitation as prescribed under Section 61(2) of the Code.

21. The Learned Counsel for the Appellant submits that the impugned

order is liable to be set aside on the sole premise of the failure of compliance

with the service procedure prescribed under Rule 5 of the Insolvency and

Bankruptcy (Application to Adjudication Authority) Rules, 2016. It is

submitted that the prescribed mode of service as per Rule 6(2) is a

registered post or speed post. The publication of notice is not a prescribed

mode of service and hence impugned order is liable to be set aside on this

ground. It is further submitted that registered notice issued against the

Company Appeal (AT) (Insolvency) No. 1462 of 2019 7 of 18 Corporate Debtor was returned with the postal remarks „want of sufficient

address‟. In such a situation Respondent No.1 was not stopped from serving

the Corporate Debtor via email.

22. Learned Counsel for the Operational Creditors submits that as per

Clause (a)(b) of sub-rule (2) of Rule 5 of the Insolvency and Bankruptcy

(Application to Adjudication Authority) Rules, 2016, the demand notice or

the copy of an invoice demanding payment, may be delivered to the

Corporate Debtor at the registered office by hand, registered post or speed

post with acknowledgement due or by electronic mail service to a Whole

Time Director of the Corporate Debtor. It is submitted that a demand notice

dated 21st May 2019 was sent to the Appellants registered office as well as

the Corporate Office. However, the demand notice dated 21st May 2019 was

returned with endorsement "insufficient address". Further, a copy of the

demand notice was also sent to the corporate address of the Appellant, and

the same has been successfully delivered. Lastly, in compliance with clause

(b) of sub-rule (2) of Rule 5 of the above Rules copy of the demand notice

dated 21st May 2019 was also sent to the Appellant vide email dated 22nd

May 2019. The Operational Creditor has annexed the xerox copy of an email

dated 22nd May 2019 which shows that demand notice was sent to

Corporate Debtor through an email dated 22nd May 2019 at 2:49 pm. In the

circumstances, it is clear that the Appellant was having sufficient knowledge

of the demand notice issued under Section 8 of the I&B Code.

23. The Learned Counsel for the Appellant has filed the copy of the order

sheets of the Adjudicating Authority dated 09th July 2019 and dated 01st

Company Appeal (AT) (Insolvency) No. 1462 of 2019 8 of 18 August 2019. It appears that on 09th July 2019 after filing of the petition

under Section 9 of the Code, the Adjudicating Authority passed an order for

issuance of notice against the Corporate Debtor. After that on 01st August

2019 the Adjudicating Authority passed an order;

"Ld. Counsel for the Operational Creditor appear. Corporate

Debtor could not be served with notice for reason of insufficient

address. Operational Creditor to publish notice an newspaper

one English and one vernacular, having wide circulation in the

area where the Registered Office of the Corporate Debtor

situated and file affidavit-in-reply, service of notice. Matter to

appear for further consideration on 20.08.2019."

(verbatim copy)

24. Thus, it is clear that the Court notice issued against the Corporate

Debtor could not be served on account of insufficient address; after that, the

Adjudicating Authority passed an order of publication of notice in the

newspaper. Based on the publication of notice in the newspaper, service was

held sufficient, and the Court passed an order to proceed the case ex-parte

against the Corporate Debtor. Thus, it is clear that before the publication of

notice in the newspaper, no effort was not made for serving the notice

through email.

25. The Hon‟ble Supreme Court in case of Neerja Realtors (P) Ltd. Vs.

Janglu2018 (2) SCC 649 has held that „for ordering substituted service the

Court is required to be satisfied that there is reason to be read that Defendant

is keeping out of the way for the purpose of avoiding service or for any other

Company Appeal (AT) (Insolvency) No. 1462 of 2019 9 of 18 reason, the summons cannot be served in an ordinary way. Thus, while

making that Order, Court must apply its mind to requirements under Order 5

Rule 20 of CPC and indicate in its order and due consideration of provisions

contained in Order 5 of Rule 20.‟

26. In the present case, the notice issued against the Corporate Debtor

returned unserved because of „insufficient address‟. After that, without

exploring the possibility of service by other modes like email, the

Adjudicating Authority passed the order for substituted service by

publication of notice in the newspaper. In such circumstances, passing of

an order for an ex-parte hearing against the Corporate Debtor, based on

substituted service, cannot be held proper in the light of the law laid down

by Hon‟ble Supreme Court in the Neerja Realtors (P) Ltd (supra).

27. The Learned Counsel for the Appellant/Corporate Debtor further

contends that the Adjudicating Authority has failed to consider that alleged

amount for which claim is filed under Section 9 of the I&B Code was already

in dispute, on account of under-performance and non-performance of

services by the Operational Creditor/Respondent, from a time much before

the filing of the Application under Section 9 of the I&B Code. In this respect,

our attention is drawn towards the following email communications dated

14th July 2018, 17th October 2018, 17th January 2019 and 14th March 2019,

i.e. much before the issuance of the demand notice under Section 8 of the

I&B Code. Photocopy of the alleged email communications is as under:

Company Appeal (AT) (Insolvency) No. 1462 of 2019 10 of 18 Company Appeal (AT) (Insolvency) No. 1462 of 2019 11 of 18 Company Appeal (AT) (Insolvency) No. 1462 of 2019 12 of 18 Company Appeal (AT) (Insolvency) No. 1462 of 2019 13 of 18

28. Admittedly, in this case, the demand notice, dated 22nd March 2019,

in Form-3, was issued against the Corporate Debtor by registered post,

which could not be served on account of insufficient address. After that, the

demand notice dated 21st May 2019 in Form-3 was again sent through

Company Appeal (AT) (Insolvency) No. 1462 of 2019 14 of 18 speed post. On perusal of the email dated 14th July 2018, it appears that the

Corporate Debtor objected to „the posting of wrong revenue on barter

ledgers‟. It also appears from a perusal of email correspondence dated 17th

October 2018 that the Corporate Debtor objected to releasing post-dated

cheque of Rs.73 lakhs without keeping it informed to the Corporate Debtor.

It is also stated in the email that management fees will be paid after the

barter reconciliation issue is resolved. By perusal of email communication

dated 17th January 2019, it appears that dispute was raised regarding the

quality of services. On perusal of email dated 14th March 2019, it appears

that the Corporate Debtor raised the issue regarding service rendered by the

Operational Creditor. It also shows that the Corporate Debtor informed the

operational Creditor of taking over the complete management in its own

hands because of being dissatisfied with the services rendered by the

Operational Creditor. All these correspondences are before issuance of

demand notice.

29. Looking to such material above, it is quite clear that there was a pre-

existing dispute regarding the operation of management and services

provided by the Respondent No.1 before the issuance of the demand notice

dated 21.05.2019 under Section 8 of the I&B Code.

30. The definition of the word dispute provided under the Code was well

elaborated and explained by Hon‟ble Supreme, in the case of 2018(1)SCC

353 Mobilox Innovation Pvt Ltd vs. Kirusa Software Pvt Ltd, in the following

words:

Company Appeal (AT) (Insolvency) No. 1462 of 2019 15 of 18 Para 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 S.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 9 Company Appeal (AT)(Insolvency) No.542/2020 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."

The intent of Legislature is very vital for interpreting any law, which can be well deduced from the words of Section 8(2)(a) of I&B Code „existence of a dispute if any‟. It can be easily inferred that dispute shall not be limited to instances specified in the definition as provided under Section 5(6), as it has far arms, apart from pending Suit or Arbitration as provided Under Section 5(6) of IBC. The IBC is not a substitute for a recovery forum. Section 9 of the IBC makes it very clear for the Adjudicating Authority to admit the application "if no notice of dispute is received by the Operational Creditor and there is no record of the dispute in the information utility." Whereas, on the other hand, Section 9 also states that the Adjudicating Authority shall reject

Company Appeal (AT) (Insolvency) No. 1462 of 2019 16 of 18 the Application so filed "if the Operational Creditor has received a notice of a dispute from the Corporate Debtor.

Thus, it is clear that once an operational creditor has filed an application which is otherwise complete the Adjudicating Authority must reject the Application if notice of dispute has been received by the operational Creditor or there is a record of dispute in the information utility, the Adjudicating Authority is to see whether there is a plausible contention which requires further investigation and 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."

(emphasis in bold supplied)

31. In the present case, it is crystal clear that there was a pre-existing

dispute, even though the Adjudicating Authority admitted the Application

for initiation of Corporate Insolvency Resolution Process by the impugned

order.

32. Thus the Appeal is allowed, and the impugned order dated 14th

November 2019 passed by the Adjudicating Authority/National Company

Law Tribunal in CP (IB) No.62/CTB/2019 is set aside. In effect, the order

passed by the Adjudicating Authority appointing Interim Resolution

Professional, declaring moratorium and all other order(s) passed by the

Adjudicating Authority pursuant to impugned order and actions taken by

„the Resolution Professional „is declared illegal and are set aside. The

application preferred by the respondent No.1 under Section 9 of the I&B

Code is dismissed. The Adjudicating Authority will now close the proceeding.

Company Appeal (AT) (Insolvency) No. 1462 of 2019 17 of 18

33. The Adjudicating Authority will fix the fee of Interim Resolution

Professional „for the period he has functioned. The Appeal is allowed with

the observation above and direction; there shall be no order as to cost.

[Justice Jarat Kumar Jain] Member (Judicial)

[Balvinder Singh] Member (Technical)

[V. P. Singh] Member (Technical) NEW DELHI 23rd SEPTEMBER, 2020

pks

Company Appeal (AT) (Insolvency) No. 1462 of 2019 18 of 18