Raghuvanshi Refractories vs Desai Impex Pvt Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Ins) No. 275 of 2021

IN THE MATTER OF: Raghuvanshi Refractories Plot No.330, GIDC Industrial Estate, Dist.Porbandar ...Appellant

Vs.

M/s. Desai Impex Pvt.Ltd. 4th Floor, Sigma Cee Jay Legacy, Nr. Panjrapod Cross Road, Ahmedabad-380013 ...Respondent

Present: For Appellant : Mr. Gaurav Mehta, Advocate For Respondent: Ms. Shagufa Salim, Mr. Devashish Trivedi and Mr. Siddhartha Nagpal And Mr. Jatin Chaudhary, Advocates

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The appeal has been filed by the Appellant- 'Raghuvanshi Refractories' Operational

creditor, under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short 'Code')

against the impugned order dated 25.01.2021 passed by the 'Adjudicating Authority'

(National Company Law Tribunal), Ahmedabad Bench in CP (IB)

363/9/NCLT/AHM/2019.

2. The case of the Appellant is that they have supplied material to the Corporate Debtor

(CD)/Respondent vide Invoice no. RR-038/70-18 dated 02.02.2018 for an amount of

Company Appeal (AT) (Ins) No. 275 of 2021 Page 1 of 9 Rs.13,30,146/- against which the CD has paid an amount of Rs.2 lakhs on 23.08.2018,

balance Rs. 11,30,146/- has not yet been paid to the Appellant/Operational Creditor (OC)

till date. The Appellant is claiming a principal amount of Rs. 11,30,146/- alongwith interest

@18% from 03.04.2018 till realization. The Appellant has issued a Demand Notice on

18.03.2019 demanding release of payment. The Respondent Company/CD has replied the

same on 26.03.2019. In the reply of the CD dated 26.03.2019 (appearing at page no.61 of

the Appeal Paper Book) reflects that the demand notice has not been filed in proper format

as required under IBBI (Application to Adjudicating Authority) Rules 2016, the prescribed

form is Form No.3 or Form No.4 apart from that they have raised the issue of dispute,

particular, the quality of products / materials as well as finalization of rates. The

Respondent/CD have also stated in the reply that the quality vis a vis purity and density of

such products of the materials was very low, quality was sub - standard and required test

certificates were not attached. Hence, they have not released their payments. Time and

again they are reiterating that materials are sub-standard and price finalization is to be done

at the earliest based on quality and other issues but it has not been done. The Appellant has

also submitted the GST Tax invoice, acknowledgment receipt and transport agency challan

to supplement his case. The Appellant has cited the judgment of this Tribunal in CA (AT)

(Ins) No. 12/2018 in Crompton Greaves Consumers Electricals Limited Vs. K.P.R.

Industries (India) Limited to supplement that even demand notice can be issued by counsels

/ advocates as also not being in proper format and hence, CIRP is to be initiated against

them and the order issued by the Adjudicating Authority is to be set aside.

3. While the Respondent/ CD has stated that the demand notice has not in the prescribed

format i.e Form 3 and Form 4 as well as no delivery challan or any other documents for

Company Appeal (AT) (Ins) No. 275 of 2021 Page 2 of 9 proof of claims were attached with the notice. They have also raised that they have already

amply made clear in the reply to the demand notice that the debt is disputed. The dispute

relates to poor quality of supply and non -fixation of price. The Appellant has not attached

the bank statement to prove that they have not received the money. If such claims are

permitted by the Appellate Authority, it will create an unending problem for the business

community to work in a commercial environment. In the case of Crompton Greaves

Consumers Electricals Limited as stated (supra), the OC has tried to serve three demand

notice and the last one was as per the format prescribed. They have distinguished the facts

of both the cases. The CD has also stated that they have not placed any purchase order

mentioning the price, price was supposed to be discussed between both the parties

depending upon the ingredients and quality of the product. Hence, they are asking for

dismissal of the Appeal as being devoid of merits. The Respondent has also relied upon the

following judgments to supplement their claims:

• Neeraj Jain Vs. Cloudwalker Streaming Technologies Pvt. Ltd., in

Company Appeal (AT) (Ins) No. 1354 of 2019 dated 24.02.2020

• Baru Ram Vs. Prasanni and Ors., AIR1959 SC93

• Vidushi Wires Pvt. Ltd. Vs. Union of India, 2003 (156) E.L.T. 168

(Bom)

• Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd.,

AIR2017 SC 4532

4. We have gone through the submissions made by the parties and the documents available

on record and cited judgements , have following observations:

Company Appeal (AT) (Ins) No. 275 of 2021 Page 3 of 9 a. The invoice dated 02.02.2018 (appearing at page 52 of the Appeal paper book)

reflecting the amount of Rs.13,30,146/- reflects P.O-TEL TALK date 25.01.2018.

b. The delivery challan of Krishna Transport, nowhere reflects receipt of material.

However, one receiver signature is available at page 53 of the Appeal paper book which

reflects certain quantities.

c. The demand notice is not in the requisite format as required in Form-3/Form-4.

d. The issue of dispute has been raised in the reply to the demand notice as required under

Section 8 of the Code. For brevity and clarity Section 8 & 9 of the Code are reproduced

below and also Rule 5 IBBI (Application to Adjudicating Authority) Rules 2016.

"Section 8: Insolvency resolution by operational creditor.

(1) An operational creditor may, on the occurrence of a default,

deliver a demand notice of unpaid operational debt or copy of an

invoice demanding payment of the amount involved in the default

to the corporate debtor in such form and manner as may be

prescribed.

(2) The corporate debtor shall, within a period of ten days of the

receipt of the demand notice or copy of the invoice mentioned in

sub-section (1) bring to the notice of the operational creditor--

(a) existence of a dispute, [if any, or] record of the pendency of

the suit or arbitration proceedings filed before the receipt of such

notice or invoice in relation to such dispute;

(b) the [payment] of unpaid operational debt--

Company Appeal (AT) (Ins) No. 275 of 2021 Page 4 of 9

(i) by sending an attested copy of the record of electronic transfer

of the unpaid amount from the bank account of the corporate

debtor; or

(ii) by sending an attested copy of record that the operational

creditor has encashed a cheque issued by the corporate debtor.

Explanation.--For the purposes of this section, a "demand

notice" means a notice served by an operational creditor to the

corporate debtor demanding [payment] of the operational debt

in respect of which the default has occurred.

Section 9 - Application for initiation of corporate insolvency

resolution process by operational creditor.

(1) After the expiry of the period of ten days from the date of

delivery of the notice or invoice demanding payment under

subsection (1) of section 8, if the operational creditor does not

receive payment from the corporate debtor or notice of the

dispute under sub-section (2) of section 8, the operational

creditor may file an application before the Adjudicating

Authority for initiating a corporate insolvency resolution

process.

(2) The application under sub-section (1) shall be filed in such

form and manner and accompanied with such fee as may be

prescribed.

Company Appeal (AT) (Ins) No. 275 of 2021 Page 5 of 9 (3) The operational creditor shall, along with the application

furnish--

(a) a copy of the invoice demanding payment or demand notice

delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the

corporate debtor relating to a dispute of the unpaid operational

debt;

(c) a copy of the certificate from the financial institutions

maintaining accounts of the operational creditor confirming that

there is no payment of an unpaid operational debt [by the

corporate debtor, if available;]

(d) a copy of any record with information utility confirming that

there is no payment of an unpaid operational debt by the

corporate debtor, if available; and

(e) any other proof confirming that there is no payment of any

unpaid operational debt by the corporate debtor or such other

information, as may be prescribed.]

(4) An operational creditor initiating a corporate insolvency

resolution process under this section, may propose a resolution

professional to act as an interim resolution professional. (5) The

Adjudicating Authority shall, within fourteen days of the receipt

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

Company Appeal (AT) (Ins) No. 275 of 2021 Page 6 of 9

(i) 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;

(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.

(ii) reject the application and communicate such decision to the

operational creditor and the corporate debtor, if--

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

(b) there has been [payment] of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for

payment to the corporate debtor;

(d) notice of dispute has been received by the operational

creditor or there is a record of dispute in the information utility;

or

(e) any disciplinary proceeding is pending against any proposed

resolution professional:

Company Appeal (AT) (Ins) No. 275 of 2021 Page 7 of 9 Provided that Adjudicating Authority, shall before rejecting an

application under sub-clause (a) of clause (ii) give a notice to the

applicant to rectify the defect in his application within seven days

of the date of receipt of such notice from the adjudicating

Authority.

(6) The corporate insolvency resolution process shall commence

from the date of admission of the application under sub-section

(5) of this section."

Rule 5 IBBI (Application to Adjudicating Authority) Rules

2016.

Rule 5 - Demand notice by operational creditor.--(1) An

operational creditor shall deliver to the corporate debtor, the

following documents, namely.-

(a) a demand notice in Form 3; or

(b) a copy of an invoice attached with a notice in Form 4.

(2) The demand notice or the copy of the invoice demanding

payment referred to in sub- section (2) of section 8 of the Code,

may be delivered to the corporate debtor,

(a) at the registered office by hand, registered post or speed post

with acknowledgement due; or

(b) by electronic mail service to a whole time director or

designated partner or key managerial personnel, if any, of the

corporate debtor.

Company Appeal (AT) (Ins) No. 275 of 2021 Page 8 of 9 (3) A copy of demand notice or invoice demanding payment

served under this rule by an operational creditor shall also be

filed with an information utility, if any."

e. All these reflects that the Operational Creditor has not issued demand notice in the

requisite format and also there is no price fixed for the goods even if it is assumed to

have supplied goods. Apart from this there are quality issues which has been responded

in the reply to the demand notice.

f. In view of the above facts and circumstances of the case, we do not find any infirmity

in the impugned order dated 25.01.2021 and accordingly, we uphold the order of the

Adjudicating Authority. The Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] (Chairperson)

(Dr. Ashok Kumar Mishra) Member(Technical)

20th January, 2022 New Delhi

Raushan.K

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