Rajendra Bhai Panchal vs Jay Manak Steels Pvt Ltd & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 592 of 2020 [Arising out of Order dated 03.06.2020 passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in C.P. (IB) 227/NCLT/AHM/2018].

IN THE MATTER OF: Rajendra Bhai Panchal Ex-Director and Shareholder R/o - 7, Ashok Vatika Society, Gorwa, Vadodara, Gujarat - 390016. ...Appellant

Versus

M/s Jay Manak Steels Through its Sole Proprietor Having its Office at: Near Zenith School, Godi Road, Pratap Nagar Vadodara - 390004. .......Respondent No. 1

Shri Shalabh Kumar Daga Insolvency Resolution Professional M/s Yogi Infrastructures Private Limited 405, Atlantis Enclave, Opposite Maruti Row House, Gurukul, Ahmedabad - 380052. ........Respondent No. 2

Present:

For Appellant: Ms. Pallavi Pratap, Mr. Swarnendu Chatterjee, Advocates

For Respondent: Mr. Mukund P. Unny, Advocate for R-1 Mr. R.S. Lakshman, Advocate for R-2

Venugopal M. J

Introduction The Appellant (Ex-Director & Shareholder of 2nd Respondent / 'Corporate

Debtor' has projected the instant Company Appeal being dissatisfied with the

order dated 03.06.2020 passed by the 'Adjudicating Authority' [National

Company Law Tribunal, Ahmedabad Bench, Ahmedabad in C.P. (IB)

227/9/NCLT/AHM/2018] who had admitted the application filed by the 1st

Respondent / Petitioner / 'Operational Creditor.

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

03.06.2020 at paragraph 18 to 20 had observed the following: -

"18. A careful perusal of the reply

filed by the respondent shows that it has

not denied the procuring of the

material/steel goods (i.e. MS Angle) from

the petitioner and which were properly

delivered to and have been utilised by the

Corporate Debtor. The Corporate Debtor

did not produce any document to show that

it raised some objection in respect of lower

2 Company Appeal (AT) (Insolvency) No. 592 of 2020 quality of goods supplied to it or on price /

rate of material supplied. Contrary to this,

the petitioner made such declaration about

the tax invoices wherein, TDS is stated to

have been deducted on the invoices raised

by the petitioner. It is also a matter of

record that the Corporate Debtor has made

a part payment and amount of Rs.

17,74,977/-. Thus, there is remaining

balance of Rs. 9,42,841/- as on

22.09.2017. The Petitioner, by filing

rebuttal document has refuted the

allegation of the Corporate Debtor in respect

of low quality of goods and defective

material and produced copies of

communication through email / WhatsApp

screenshot for perusal of this Court along

with its rebuttal documents which shows

that there was certain

communication/correspondence entered

between the Petitioner and the Corporate

Debtor for making enquiry about the supply

3 Company Appeal (AT) (Insolvency) No. 592 of 2020 of material to be procured (i.e. M.S. steel

angle) from the petitioner company the

same was duly delivered to the Respondent

/ Corporate Debtor. Thereafter, the

Petitioner demanded for making payment

of the supplied goods. The Respondent

through its representative (Director) Mr.

Rajubhai Panchal merely respondent by

making such comment / remark in

WhatsApp screen "I will call you later".

Thus, on being frequently requested by the

Petitioner, the Corporate Debtor made only

such evasive reply that he would make call

to the Petitioner later and but never

whispered or complained about low quality

of material or defective goods supplied nor

categorically disputed about the rate / price

of the goods supplied but made attempt to

avoid the payment. Thus, it seems to be a

moon shine defense which resulted in

sending of statutory demand notice dated

06.04.2018 to the corporate debtor by the

4 Company Appeal (AT) (Insolvency) No. 592 of 2020 petitioner which was also not replied by the

corporate debtor nor any payment was

made by the corporate debtor to the

petitioner. Hence, the present IB petition.

19. By taking into consideration of

above narrated facts and circumstances of

the present case, we find that the corporate

debtor is having outstanding debt liability

towards payment of materials were

supplied to it and utilized by it for a sum of

Rs. 9,42,841/- such amount is obviously is

more than of one lakh, hence, such attracts

triggering of the Corporate Insolvency

Resolution Process ("CIRP" in short), in

respect of the corporate debtor.

20. That apart, the corporate debtor

did not deny specifically and categorically

about its loan liability for making payment

nor paid the balance payment nor refused

goods supplied, but utilized the same.

Therefore, the corporate debtor is liable to

make payment of the aforesaid amount, 5 Company Appeal (AT) (Insolvency) No. 592 of 2020 wherein, the corporate debtor has failed.

Thus, the default of outstanding dues has

been occurred."

and consequently, admitted the application by appointing Mr. Shalabh Kumar

Daga as an 'Interim Resolution Professional' and issued necessary consequential

directions.

Summation Of Facts

3. According to the Appellant, the 'Corporate Debtor' (M/s. Yogi

Infrastructure Pvt. Ltd.) entered into a works contract dated 20.09.2016 (work

order No. 2487084) with 'Indian Oil Corporation'. The job was to construct a

Compound Wall and GI Chain link fencing around the 'Gujarat Refinery

Township' and the period of work was from 21.05.2017 to 30.06.2017. The total

bill submitted for the work is around INR 1.56 Crore.

4. The First Respondent / 'Operational Creditor' (a Sole Proprietorship

Concern) used to supply MS Angle to the 'Corporate Debtor'. The primary use of

this MS Angle was for executing this Works Contract / Work Order with 'Indian

Oil Corporation' for 'Gujarat Refinery'. The total sum of money outstanding as

per the version of the First Respondent / 'Operational Creditor' was INR

27,17,818 out of which INR 17,74,977 was paid and only INR 9,42,841 being

the balance sum to be paid since 22.09.2017.

6 Company Appeal (AT) (Insolvency) No. 592 of 2020

5. It is the case of the Appellant that the 'Demand Notice' under Form 3 and

4 dated 06.04.2018 was duly served and that the total amount of 'Debt'

mentioned therein was INR 18,63,840. However, in the Application before the

'Adjudicating Authority' the total sum was mentioned as INR 27,17,818 and the

discrepancy in the amount leads to the conclusion that post payment of INR

17,74,977 only a sum of 88,863 was left, which is less than the threshold limit

of INR Rs. one Lakh.

6. The stand of the Appellant is that the amount in default as specified in the

Demand Notice is to be in consonance with the Application filed and the 'invoices'

sent. In the present case, if the total sum is taken to be INR 18,63,840 and the

balance sum paid is taken as INR 17,74,977, then the sum in default cannot be

what is being claimed i.e. INR 9.42 Lakhs and it will be INR 88,863. Therefore,

because of the default in 'Demand Notice' which ought to have been noticed by

the 'Adjudicating Authority', the impugned order is to be set aside.

7. The 'Corporate Debtor' before the 'Adjudicating Authority' in its reply had

mentioned that low quality and defective material was supplied by the First

Respondent / 'Operational Creditor'/Applicant and that for the proper quality

material payment was made by it. Further, in the e.mail dated 14.10.2017

written by the 'Corporate Debtor' to 'Indian Oil Corporation' to release payment

as the 'Corporate Debtor' was in financial difficulty and the commitment given

to other suppliers with respect to payment shall be in default, makes it quite

evident that the payments were remitted despite all difficulty and now, the First 7 Company Appeal (AT) (Insolvency) No. 592 of 2020 Respondent / 'Operational Creditor' inspite of failing to disclose the discrepancy

in the net amount as described in the 'Demand Notice' and the 'application'

before the Learned 'Adjudicating Authority' had falsely projected that the amount

due is INR 9.42 Lakhs.

8. That the messages on 'WHATSAPP' (Electronic Record) were taken to be

conclusive in nature and the reply the 'Corporate Debtor' to the effect that it shall

reply later, was taken against it, by the 'Adjudicating Authority' as an admission

of 'default' which is against the Judgement of the Hon'ble Supreme Court in

'Ambalal Sarabhai Enterprise' V. 'KS Infraspace LLP Ltd. and Ors.' (reported

in 2020 SCC online SC 1). In fact, in the said judgement it was made clear that

the clarity on 'WhatsApp Chats' and the evidentiary value can only be

ascertained in the course of their trial by the Court in the process of examination

and cross-examination and not otherwise. Besides this, the procedure before

the 'Adjudicating Authority' is summary in character and it does not conduct

'Trial'. Also, that these 'WhatsApp Chats' were without placing on record the

certificate under Section 65B of the Indian Evidence Act, 1872 (mandatory for

placing electronic evidence on record).

Appellant's Contentions

9. The Learned Counsel for the Appellant submits that the 'Adjudicating

Authority' had failed to consider the fact that the material defect in the 'Demand

Notice' is fatal to the facts of the present case. Also, that the defense of the

8 Company Appeal (AT) (Insolvency) No. 592 of 2020 defective goods was brushed aside and that the impugned order is without

jurisdiction.

10. The Learned Counsel for the Appellant contends that the impugned order

runs contra to the judgement of this Appellate Tribunal dated 24.02.2020 in

Company Appeal (AT) (Insolvency) No. 1354 of 2019 in the matter of 'Neeraj

Jain' V. 'Cloudwalker Streaming Technologies Private Ltd.' wherein it was

held that the amount in default as specified in the 'Demand Notice' must be in

consonance with the 'Application' filed and the invoices sent but, in this case

there is a serious discrepancy and a fatal error in the total amount of 'Debt'

between the 'Demand Notice' and the application filed under Section 9 of the

'I&B' Code.

11. It is represented on behalf of the Appellant that if the amount due, if taken

to be the sum as mentioned in the 'Demand Notice', then, the sum remains to

be paid to the First Respondent / 'Operational Creditor' is less than Rs. one Lakh

and as such, the 'Insolvency' could not have been triggered.

12. The Learned Counsel for the Appellant comes out with a plea that the

amount specified in the default notice i.e. the statutory notice is the trigger point

and if the amount described therein is faulty and subsequently, the First

Respondent / 'Operational Creditor' seeks to correct the defect and increase the

sum of default, it is a clear case of 'after thought' and the same cannot be

permitted. Also that, the notice on the basis of Section 8 of the 'I&B' Code, from

9 Company Appeal (AT) (Insolvency) No. 592 of 2020 the beginning of proceedings, in the present case are bad in Law and hence, the

amount in question is totally unclear and further that the 'Adjudicating

Authority' had exceeded its jurisdiction to grant leave to correct the amount

which cannot be done after the issuance of notice under Section 8 of the Code.

In short, it is the contention of the Appellant that the 'proceedings' before the

'Adjudicating Authority' were vitiated on the grounds of 'illegality' and

'perversity'.

13. The Learned Counsel for the Appellant takes a plea that in regard to a

document relating to 'quality of goods' (ABSTRACT SHEET RA BILL 4th) (vide

page 49 of the Appeal Paper Book Dy. Nos. 33882 and 20401 dated 25.06.2020)

in respect of the contractor 'M/S Yogi Infrastructure Pvt. Ltd.' the said document,

goes to the heart of the matter in deciding the point of the case, which can be

raised during the final stage of 'Appeal' and this Tribunal is empowered to take

this document on record. Apart from this, the Hon'ble Supreme Court in the

decision 'Shehla Burney V. 'Syed Ali Mossa Raza' (2011) 6 SCC at page 529

allowed a new plea, which was raised for the first time, going to the route of the

matter, for consideration of which no further investigation into facts was

necessary and it was based on the admitted records of the case and the

provisions of the Civil Procedure Code.

14. The Learned Counsel for the Appellant points out that the 'Adjudicating

Authority' had wrongly relied upon the 'WhatsApp Chat' for reaching a logical

conclusion which ought not to have been done as per procedure established for 10 Company Appeal (AT) (Insolvency) No. 592 of 2020 rendering electronic evidence as per judgement of Hon'ble Supreme Court

dated 14.07.2020 in CA Nos. 20825 of 2017 in the matter of 'Arjun

Panditrao Kotkar' V. 'State of Maharashtra and Ors.'

15. The Learned Counsel for the Appellant contends that the Appellant in the

present Appeal has filed IA 2375 of 2020(as an Applicant) seeking permission

from this Tribunal to place on record (i) True copy of the order dated 22.09.2020

passed by this Tribunal in Company Appeal (AT)(Ins.) 592/2020 (ii) True copy of

the order dated 06.01.2020 passed by the National Company Law Tribunal,

Ahmedabad Bench, Ahmedabad in C.P. (IB) 227/NCLT/AHM/2018 (iii) True

copy of the Work Order dated 20.09.2016 and the total bills submitted to 'Indian

Oil Corporation' for the 'Contract' (iv) True copy of the e.mail dated 01.10.2017

and 14.10.2017 (v) True Copy of the e.mail dated 22.08.2020 (vi) True copy of

the e.mail dated 16.07.2020 (vii) True copy of the letter dated 17.04.2017 (viii)

True translated copy of the notice dated 02.04.2019 issued by VUDA regarding

sealing of the premise (ix) True translated copy of the FIR dated 09.08.2020 on

the file of Police Station Jawahar Nagar, Vadodara (x) Proof of service of

additional affidavit and these additional documents came to the knowledge of

the Appellant after passing of the impugned order by the 'Adjudicating Authority'

and that the Appellant was precluded from filing the same before the

'Adjudicating Authority'.

16. Further, the Appellant / Applicant was genuinely unable to file the

aforesaid documents before the 'Adjudicating Authority' to show that there was 11 Company Appeal (AT) (Insolvency) No. 592 of 2020 a 'pre-existing dispute' in regard to the quality of steel materials supplied and

in the interest of justice, the additional documents in question ought to be

received by this Tribunal in the present Appeal. Added further, the documents

in issue goes against the admission of 'Corporate Insolvency Resolution Process'

and the civil death of the 'Corporate Debtor'.

1st Respondent Submissions

17. The default mentioned in the 'Demand Notice' is Rs. 9,42,841/-. The

default mentioned in the application u/s 9 of the Code is also Rs. 9,42,841/-.

In respect of the sales made by the 1st Respondent for a total sum of Rs.

27,17,818/- during the Financial Year, 2016-2017 and Financial Year, 2017-

2018, only a sum of Rs. 17,74,977/- was received from the 'Corporate Debtor'.

Therefore, the amount of Rs. 9,42,841/- fell as default sum.

18. The sales made on 21.03.2017 were for a sum of Rs. 8,53,978/-. But the

payments for the said sales were received in advance on 18.03.2017 itself and

the said amount was Rs. 8,89,350/-. Further, a sum of Rs. 35,372/- was lying

in credit and was carried forward to the financial year viz. 2017-2018. During

the Financial Year, 2017-2018 there were four sales for a sum of Rs. 18,63,840/-

from the side of 1st Respondent to the 'Corporate Debtor' on 02.05.2017,

19.05.2017, 24.07.2017 and 15.09.2017 respectively but only a sum of Rs.

8,85,627/- was paid in total by the 'Corporate Debtor' in the Financial Year

12 Company Appeal (AT) (Insolvency) No. 592 of 2020 2017-2018 and these payments were received on 07.06.2017, 13.06.2017 and

11.09.2017.

19. The default amount is shown as under: -

Financial Sale Sale Sales Payment Payment Year Invoice No. Invoice Invoice Received Received Date Amount Date Amount FY2016-17 18.03.2017 889350 1692 21.03.2017 418522 1687 21.03.2017 435456 FY2016-17 Total 853978 889350 FY2017-18 151 02.05.2017 25361 213 19.05.2017 845638 07.06.2017 400000 07.06.2017 400000 13.06.2017 35627 124 24.07.2017 859796 11.09.2017 50000 469 15.09.2017 133045 FY2017-18 Total 1863840 885627 Grand Total 2717818 1774977 Net balance (Default Amount) 942841

20. The aforesaid table clearly exhibits that the sum in default is Rs.

9,42,841/- and it is the same amount that was specified in the demand notice

as well as in the Application before the 'Adjudicating Authority' filed under

Section 9 of the Code. Besides this, the account was a 'running account' and

that total sales will have to be taken into consideration while accounting for the

13 Company Appeal (AT) (Insolvency) No. 592 of 2020 total payments received. All the six sales invoices were sent along with the

'Demand Notice' and the requirement was complied with.

21. The 'Adjudicating Authority' had only taken a cursory look into the

WhatsApp communication to hold that there was no objection taken in regard to

the quality of goods and that the mere presentation of screenshots of 'WhatsApp

Communication' by the First Respondent could not be faulted with.

22. The 'Corporate Debtor' had neglected the 'Demand Notice' dated

06.04.2018 of the First Respondent / 'Operational Creditor' and in fact, the

Appellant and the 'Corporate Debtor' were called upon to pay the default amount

mentioned in the Form 3 as per Rule 5 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules 2016. Indeed, the 'Corporate

Debtor' had neglected the notice of the First Respondent / 'Operational Creditor'

and also not raised objections to the said notice. Only after numerous instances

of neglect from the 'Corporate Debtor', an application was filed before the

'Adjudicating Authority' by the First Respondent. Also, before the 'Adjudicating

Authority', no objections were taken in regard to the 'quality of products' supplied

by the First Respondent.

23. At the time of admission hearing of the Appeal on 22.07.2020 the Bill

submitted by the 'Corporate Debtor' was mentioned in page 49 of the Appeal

Paper Book wherein purportedly, the client of the 'Corporate Debtor' had made

14 Company Appeal (AT) (Insolvency) No. 592 of 2020 certain remarks and these remarks are not to be brought before this Tribunal to

show that the Appellant had raised objection to the 'Invoices'.

24. The Learned Counsel for the First Respondent refers to the decision of

Hon'ble Supreme Court in the matter of 'Mobilox Innovations Pvt. Ltd.' V.

'Kirusa Software Pvt. Ltd.' (2018) 1 SCC at page 353 wherein it is observed

as follows: -

"33. The scheme under Sections 8

and 9 of the Code, appears to be that an

operational creditor, as defined, may, on

the occurrence of a default (i.e. on non-

payment of a debt, any part whereof has

become due and payable and has not

been repaid), deliver a demand notice of

such unpaid operational debt or deliver

the copy of an invoice demanding

payment of such amount to the corporate

debtor in the form set out in Rule 5 of the

Insolvency and Bankruptcy (Application

to Adjudicating Authority) Rules, 2016

read with Form 3 or 4, as the case may be

[Section 8(1)]. Within a period of 10 days

of the receipt of such demand notice or 15 Company Appeal (AT) (Insolvency) No. 592 of 2020 copy of invoice, the corporate debtor must

bring to the notice of the operational

creditor the existence of a dispute and/or

the record of the pendency of a suit or

arbitration proceeding filed before the

receipt of such notice or invoice in relation

to such dispute [Section 8(2)(a)]. What is

important is that the existence of the

dispute and/or the suit or arbitration

proceeding must be pre-existing i.e. it

must exist before the receipt of the

demand notice or invoice, as the case may

be."

25. The Learned Counsel for the First Respondent adverts to the decision of

Hon'ble Supreme Court in 'Macquarie Bank Ltd.' V. 'Shilpi Cable

Technologies Ltd., reported in (2018) 2 SCC page 674 wherein it is observed

as follows:-

"13. The first thing to be noticed on a

conjoint reading of Sections 8 and 9 of the

Code, as explained in Mobilox Innovations

(P) Ltd. V. Kirusa Software (P) Ltd. [Mobilox

Innovations (P) Ltd. v. Kirusa Software(P) 16 Company Appeal (AT) (Insolvency) No. 592 of 2020 Ltd., (2018 1 SCC 353: (2018) 1 SCC (Civ)

311] decided on 21.09.2017, at paras 33 to

36, is that Section 9(1) contains the

conditions precedent for triggering the Code

in so far as an operational creditor is

concerned. The requisite elements

necessary to trigger the Code are:

(i) Occurrence of a default;

(ii) Delivery of a demand notice of an

unpaid operational debt or invoice demanding

payment of the amount involved; and

(iii) the fact that the operational creditor

has not received payment from the corporate

debtor within a period of 10 days of receipt of

the demand notice or copy of invoice

demanding payment, or received a reply from

the corporate debtor which does not indicate

the existence of a pre-existing dispute or

repayment of the unpaid operational debt."

26. According to the Learned Counsel for the First Respondent none of the

annexures mentioned in IA 2375/2020 in the present Appeal point out that there

was a 'pre-existing dispute' with it. Continuing further, no communication was 17 Company Appeal (AT) (Insolvency) No. 592 of 2020 made with the First Respondent by the Appellant to show that there was a pre-

existing dispute. Except the true copy of the order dated 22.09.2020 passed by

this Tribunal in Company Appeal (AT) (Insolvency) No. 592 of 2020, the true copy

of the order dated 06.01.2020 passed by the 'Adjudicating Authority' National

Company Law Tribunal, Ahmedabad Bench, Ahmedabad in C.P. (IB)

227/NCLT/AHM/2018, true copy of e.mail dated 01.10.2017 and 14.10.2017

and the true translated copy of the notice dated 02.04.2019 issued by VUDA

regarding sealing of premises, other documents were in existence even prior to

the filing of instant Appeal and apart from the true copy of the judicial orders as

aforesaid all other documents are communications(including the true copy of the

work order dated 20.09.2016 and the total bills submitted to the 'Indian Oil

Corporation' for the contract wherein the 'Corporate Debtor'/Appellant was a

party and, therefore, the Appellant / Applicant cannot take a stand that these

documents were not within the knowledge or custody of it.

27. In respect of annexure A3, A4, A6 and A7 additional documents sought to

be projected on behalf of the Appellant in this Appeal, the stand of the First

Respondent is that the Work Order dated 20.09.2016 and the total bills given to

'Indian Oil Corporation' for the contract, the true copy of e.mail dated 01.10.2017

and 14.10.2017 and true copy of e.mail dated 16.07.2017 and the true copy of

the letter dated 17.04.2017 that they do not bind it and also that none of this

documents show that the dispute was raised by the Appellant with the First

Respondent.

18 Company Appeal (AT) (Insolvency) No. 592 of 2020

28. There is no pre-existing dispute in the instant case and it is very vital to

note that no reply was issued to the demand notice of the First Respondent /

'Operational Creditor' and in reality, the 'pre-existing dispute' ought to have been

in existence when the demand notice of the 'Operational Creditor' as per Section

8(1) of the 'I&B' Code was issued by the 'Operational Creditor'. In terms of the

ingredients of Section 8(2) of the 'I&B' Code, the 'Corporate Debtor' is to bring to

the notice of the 'Operational Creditor' about the existence of a dispute and / or

the record of the pendency of a suit or arbitration proceeding filed before the

receipt of such notice or invoice in relation to such dispute within a period of ten

days from the date of receipt of such demand notice or copy of invoice(vide

Section 8(2)(a) of the Code)

29. The First Respondent / 'Operational Creditor' is not a party to the

documents which reflect the communication between the Appellant and their

customer and as such they are not helpful to the Appellant / Applicant. The

Appellant / Applicant has not offered any bonafide reason as to why the

documents were not produced before the 'Adjudicating Authority'. The words

'substantial cause' mentioned in Order 41 Rule 27(b) of the Civil Procedure Code

have not been demonstrated by the Appellant / Applicant through pleadings,

before this Tribunal.

30. The Learned Counsel for the First Respondent refers to the ambit of Order

41 Rule 27(b) of the Civil Procedure Code, explained by the Hon'ble Supreme

19 Company Appeal (AT) (Insolvency) No. 592 of 2020 Court in the decision 'Mahavir Singh' V. 'Naresh Chandra, (2001) 1 SCC at

page 309 wherein it is observed as under: -

"5......The expression "to enable it to

pronounce judgment" has been the

subject of several decisions including

Syed Abdul Khader v. Rami Reddy

[(1979)] 2 SCC 601 : AIR 1979 SC 553]

wherein it was held that when the

appellate court finds itself unable to

pronounce judgment owing to a lacuna

or defect in the evidence as it stands,

it may admit additional evidence. The

ability to pronounce a judgment is to be

understood as the ability to pronounce

a judgment satisfactory to the mind of

the court delivering it. It is only a

lacuna in the evidence that will

empower the court to admit additional

evidence (see : Municipal Corpn. Of

Greater Bombay v. LalaPancham [AIR

1965 SC 1008 : (1965) 1 SCR 542].

But a mere difficulty in coming to a

20 Company Appeal (AT) (Insolvency) No. 592 of 2020 decision is not sufficient for admission

of evidence under this rule. The words

"or for any other substantial cause"

must be read with the work "requires",

which is set out at the commencement

of the provision, so that it is only

where, for any other substantial

cause, the appellate court requires

additional evidence, that this rule

would apply as noticed by the Privy

Council in KessowjiIssur v. G.I.P. Rly.

[ILR (1907) 31 Bom381 : 9 Bom LR 671

: (1906-07) 34 IA 115 (followed in AIR

1931 PC 143)] It is under these

circumstances such a power could be

exercised."

31. The Learned Counsel for the First Respondent seeks in aid of the decision

of the Hon'ble Supreme Court 'Union of India' V. 'Ibrahim Uddin' reported

in (2012) 8 SCC at page 148 wherein it is observed as under: -

"85.6. The court cannot travel beyond

the pleadings as no party can lead the

evidence on an issue/point not raised in the 21 Company Appeal (AT) (Insolvency) No. 592 of 2020 pleadings and in case, such evidence has

been adduced or a finding of fact has been

recorded by the court, it is just to be

ignored. Though it may be a different case

where inspite of specific pleadings, a

particular issue is not framed and the

parties having full knowledge of the issue

in controversy lead the evidence and the

court records a finding on it."

32. The comments made by 'Indian Oil Corporation' do not bind the First

Respondent and the same cannot be put against it. The hand written note

purportedly made by the Appellant's customer is part of an internal

communication between the Appellant and their customer and that the First

Respondent does not have any legal relationship with the 'Indian Oil

Corporation'. Except for the e.mails annexed as A7 in IA No. 2375 of 2020, all

other documents were in possession of the Appellant much earlier to the date on

which the order was reserved by the 'Adjudicating Authority' and hence, it

cannot be said that the Appellant was unable to submit the documents in

question before the Authority. As such, the IA No. 2375/2020 seeking to place

on record the additional documents is unsustainable in law and liable to be

dismissed at the threshold.

22 Company Appeal (AT) (Insolvency) No. 592 of 2020 Gist of 2nd Respondent's Status Report

33. On various occasions, the 'Resolution Professional' addressed numerous

communications to the suspended management of the 'Corporate Debtor'

(including the Appellant) intimating them about the initiation of 'Insolvency

Resolution Process' against the 'Corporate Debtor' and seeking cooperation and

information from the suspended management. As a matter of fact, individual

communications through hard copy, speed post and mail were sent on

10.06.2020, 13.06.2020, 22.06.2020, 26.06.2020 and 06.07.2020 but the

suspended management of the Company as well as the Appellant had failed to

cooperate with the second Respondent. Till date, no information is forthcoming

from the suspended management for the smooth functioning of the 'Insolvency

Resolution Process'.

34. The State Bank of India, IndusInd Bank and Shree Vardhman Sahakari

Bank provided the bank statements of the 'Corporate Debtor' to the second

Respondent. From the four 'Operational Creditors' viz. M/s. Jay Manak Steels

Pvt. Ltd., CA Vipul Shah, Mr. Mayank Shah and Mrs. Komal Vipul Shah in Form

B, the claims were received by the second Respondent between 17.06.2020 and

18.06.2020. After verification of the claims, on 22.06.2020, the second

Respondent had admitted the same etc. On 11.08.2020, the Employees' State

Insurance Corporation sent a claim amounting to INR 2.32 Lakhs and that the

second Respondent was in the process of verification of this claim and in this

23 Company Appeal (AT) (Insolvency) No. 592 of 2020 regard, had sought documents from the 'Corporate Debtor' and ESIC

Departments to substantiate the claim.

35. The 'Adjudicating Authority' on 26.08.2020 had directed the suspended

management of the 'Corporate Debtor' to hand over without fail, all papers,

documents, List of 'Assets' etc. to the 'Resolution Professional' within seven days.

The certified copy of the aforesaid order dated 26.08.2020 was communicated to

the former management of the 'Corporate Debtor' (including the Appellant) on

26.08.2020. Even after the lapse of seven days from the date of receipt of the

said order, the former management had refused to cooperate with the second

Respondent. The former management as well as the Appellant are liable for

prosecution u/s 425 of the Companies Act, 2013. In fact, the erstwhile

management had filed a petition before the 'Adjudicating Authority' seeking

review of the order dated 26.08.2020 and the same is yet to be heard.

36. The second Respondent upon verification of the claim filed by the First

Respondent had admitted a sum of INR 17,10,179/- inclusive of interest as on

the date of initiation of CIRP. The financial statement and the extract of 'Books

of Accounts' of the 'Corporate Debtor' as on 31.03.2019 shows an amount of INR

9,17,434/- as an outstanding one towards the First Respondent.

Evaluation

37. At the outset, it is to be pointed out that in Form 3 (see Clause (a) of sub-

rule (1) of rule 5) Form of Demand Notice/Invoice Demanding Payment Under

24 Company Appeal (AT) (Insolvency) No. 592 of 2020 the Insolvency and Bankruptcy Code, 2016 under the caption 'particulars of

operational debt' in S.No.1 the total amount of 'debt' is mentioned as Rs.

18,63,840/- sales account (GST - 18%) 22.09.2017. In S.No. 2, the amount

claimed to be in default is described as 9,42,841/-(repayment due date

22.09.2017).

38. It comes to be known that an additional affidavit pursuant to an order

dated 28.02.2019 passed by the 'Adjudicating Authority' was filed by the

Proprietor of the First Respondent, before the said Authority whereby and

whereunder it was mentioned that the defect in Part-V of Form 5 submitted by

the Applicant was raised as in point no. 1 to 5 were replied as 'Not Applicable'

and in point no. 8 it was replied as 'Separate Application' and because of the

said defect raised, a rectified Form 5 with the additional affidavit towards

rectification of defect pursuant to notice issued under Section 9(5) by the

'Adjudicating Authority' was submitted and on 14.10.2019, the 'Adjudicating

Authority' had opined that there was no prejudice to the 'Corporate Debtor' in

allowing the amendment by way of an additional affidavit filed by the First

Respondent / 'Operational Creditor' and that the 'Corporate Debtor' may get

further opportunity for filing reply if necessary amendment in the main IB

Petition was permitted and accordingly the proposed amendment was allowed by

granting an opportunity for filing a reply to the amended petition, if any, within

ten days by serving an advance copy to the other side.

25 Company Appeal (AT) (Insolvency) No. 592 of 2020

39. It is to be borne in mind that the additional affidavit dated 23.08.2019 filed

before the 'Adjudicating Authority' in C.P. (IB) 227/NCLT/AHM/2018 was filed

only to cure certain defects relating to part V of the Form V and the amendment

was not of the character of changing the debt amount and that the same was

allowed as per order dated 14.10.2019 and that the amended Form V of the

petition formed part and parcel of the proceedings.

40. It is to be remembered that a mistake in a 'Demand Notice' does not

necessarily mean that it is defective. If a 'Corporate Debtor' wants to question

the validity of the demand it is for it to show that the prejudice was suffered by

it as a result of defect.

41. If there is a mistake in the demand but the creditor is clearly owed the

statutory minimum figure or more, the fact that the debt is mis stated may not

automatically invalidate the demand as per decision 'Cardiff Preserved Coal &

Coke Co.' V. 'Norton 36 LJ Ch 451. Further, the Court will take into account

whether any injustice was caused to the 'Debtor' and even a grossly overstated

statutory demand may not automatically be set aside as per decision Re a Debtor

(No 490 / SD / 1991), (1992) 2 All ER 664 (ChD).

42. In the instant case, though the Appellant has come out with a plea that

the amendment allowed by the 'Adjudicating Authority' was a fatal one because

the 'I&B' proceedings are not like a civil suit and on that count, the action of the

'Adjudicating Authority' is beyond its jurisdiction this Tribunal pertinently points

26 Company Appeal (AT) (Insolvency) No. 592 of 2020 out that the amendment in question was not in the character of varying the debt

amount and very rightly the 'Adjudicating Authority' while allowing the

amendment to the main petition had observed that no prejudice would be caused

to the 'Corporate Debtor' by allowing the amendment in issue and, therefore, the

contra plea taken on behalf of the Appellant is not acceded to by this Tribunal.

43. Be it noted, that in a given petition filed by the 'Operational Creditor' there

is a heavy burden on the 'Corporate Debtor' to show that the dispute is a real

and genuine one. Further, where a petition of the 'Operational Creditor' was

opposed by the 'Corporate Debtor' on the ground that the dispute existed

between the parties regarding the quality of the goods supplied but failed to raise

the dispute within ten days of the receipt of 'Statutory Notice' under Section 8 of

the 'I&B' Code, it is held that the petition is maintainable.

44. If a dispute truly exists in fact and is not a hypothetical or an illusory one,

then, the 'Adjudicating Authority' is to reject the Application. A defence being a

mere bluster can also be rejected by an 'Adjudicating Authority'.

45. Section 8 of 'I&B' Code adopts the test to all classes of Applications that

may initiate Insolvency proceedings against the 'Corporate Debtor'. An

'Operational Creditor' is to show refusal of the 'Debtor' to repay the 'debt' despite

'Statutory Notice' issued under Section 8 of the Code.

46. It cannot be lost sight off that an unpaid 'Demand Notice' is evidence of

Debtor's inability to pay its debts for the purpose of bankruptcy proceedings and

27 Company Appeal (AT) (Insolvency) No. 592 of 2020 it is a just ground for a creditor to justify the filing of the petition. An

'Adjudicating Authority' is not to decide how much due is. Further, an

'Adjudicating Authority' is required to examine before admitting or rejecting an

application u/s 9 of the Code as to whether the 'dispute' raised by the 'Corporate

Debtor' qualify as a 'dispute' as defined under sub-section (6) of Section 5 and

whether notice of 'dispute' given by the 'Corporate Debtor' satisfies the

conditions prescribed in sub-section (2) of Section 8 of the Code. Further, the

existence of an 'undisputed sum' is a condition precedent for initiating 'Corporate

Insolvency Resolution Process'.

47. In the present case, no reply was issued to the 'Demand Notice' dated

06.04.2018 of the First Respondent / 'Operational Creditor' by the 'Corporate

Debtor' and this is clearly an adverse circumstance against the Appellant, in the

considered opinion of this Tribunal.

48. Before this Tribunal, a ground is taken by the Appellant that the defence

of defective goods was ignored by the 'Adjudicating Authority' and that some of

the e.mail communications between the Appellant and 'Indian Oil Corporation'

substantiate that defective / low quality products were delivered by the First

Respondent and that a letter was issued by 'Indian Oil Corporation Ltd.' dated

17.04.2017 which pointed out that non-approved materials were being used at

the sight without approval of engineer-in-charge etc., it is to be pointed out that

the First Respondent was not a party in respect of the communication between

the Appellant and the customer and in fact Annexure A3, A4, A6 and A7 (true 28 Company Appeal (AT) (Insolvency) No. 592 of 2020 copy of the order dated 20.09.2016 etc., true copy of the e.mail dated

01.10.2017, true copy of the e.mail dated 16.07.2020 and the true copy of the

letter dated 17.04.2017) will not bind the First Respondent / 'Operational

Creditor' and that the aforesaid documents do not anywhere indicate that the

dispute was raised by the Appellant with the First Respondent. To put it

precisely, substantial grounds need to be established to show that the debt is

disputed as per decision 'Feldman' V. 'Nissim' (2010 EWHC 1353.

49. At the Appellate stage, to remove certain lacunae in a litigant's record an

additional evidence is not to be permitted. Further, the placing of letters /

communications as additional documents in an Appeal squarely depend upon

whether the same are required to a 'Tribunal' to enable it to deliver a judgement.

If the documents sought to be placed on record are absolutely unnecessary to

decide the controversy between the parties are irrelevant for the issues to be

decided, they cannot be permitted to be received.

50. Also, that the non-realisation of the importance of the documents due to

inadvertence or lack of proper legal advice would not bring the case within the

expression 'other substantial cause' under order 41 Rule 27 of the Civil

Procedure Code, as per decision 'Haryana State Industrial Development

Corporation' V. 'Cork Manufacturing Company' reported in AIR 2008 SC

page 56.

29 Company Appeal (AT) (Insolvency) No. 592 of 2020

51. It is significantly pointed out that the true copy of the order dated

22.09.2020 in Company Appeal (AT) (Insolvency) No. 592 of 2020(A1), true copy

of the order dated 06.01.2020 (A2) passed by the 'Adjudicating Authority',

National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in C.P. (IB)

227/7/NCLT/AHM/2018, true copy of e.mail dated 22.08.2020 and the two

translated copies of the notice dated 02.04.2019 issued by 'VUDA' regarding

sealing of premises (A9) are the documents that are very much available before

the filing of the instant Appeal and this Tribunal permits the Appellant to place

on record in this Appeal before this Tribunal the aforesaid Annexure A1 and A2

judicial orders. In so far as other documents are concerned, their

communications (including the Annexure A3-true copy of the Work Order dated

20.09.2016 etc. A3 wherein the 'Corporate Debtor' / Appellant was a party and

these documents viz. A3, A4, A6 and A7 in IA 2375/2020 do not bind the First

Respondent as it was not a party to the same and in any event, these documents

do not show that the 'dispute' was projected by the Appellant with the First

Respondent / 'Operational Creditor'. In regard to the translated copy of FIR

dated 09.08.2020 (Annexure A9 in IA 2375/2020) the same is allowed to be

placed on record. Viewed in that perspective, this Tribunal allows IA 2375/2020

only in part as indicated Supra.

52. One cannot ignore a prime fact in the instant case that in the invoices

raised by the First Respondent / 'Operational Creditor'/Petitioner that 'TDS' was

30 Company Appeal (AT) (Insolvency) No. 592 of 2020 deducted and that a part payment of Rs. 17,74,977 was made by the 'Corporate

Debtor'. As on 22.07.2019, the outstanding sum was Rs. 9,42,841/-.

51. In so far as the WhatsApp communication / remark / comment reportedly

made by the Appellant through the 'Corporate Debtor' that 'I will call you later',

this was only looked into by the 'Adjudicating Authority' as one of the

unfavorable circumstances against the 'Corporate Debtor' besides taking into

other facts of the case into account and arrived at a conclusion that the

'Corporate Debtor' having an outstanding debt liability towards payment of

materials that were supplied to it and made use of by it for a sum of Rs.

9,42,841/- and in short, there was no objection raised by the Appellant in regard

to the quality of goods in the purported WhatsApp comment / remark.

53. In Law, an 'Adjudicating Authority' is safely and surely to admit the

Application, if the 'debt' is proved and the default took place, the only rider

being, that the Application must be complete as per the ingredients of the Court.

Before the 'Adjudicating Authority' the Application was filed on 06.04.2018. The

outstanding amount was Rs. 9,42,841/- as on 22.09.2017 and hence, the

Application filed was well within limitation. Suffice it for this Tribunal to point

out that the impugned order passed by the 'Adjudicating Authority' in admitting

the application filed by the First Respondent / 'Operational Creditor' does not

suffer from any material irregularity or patent illegality in the eye of Law.

Resultantly, the present Appeal fails.

In fine, the instant Appeal is dismissed. No Costs.

31 Company Appeal (AT) (Insolvency) No. 592 of 2020 IA No.1546/2020 (stay application) is closed. IA No. 1547/2020 seeking

exemption to file certified copy of the impugned order 03.06.2020 is closed with

a direction being issued to the Appellant to furnish the certified copy of the

impugned order within ten days from today.

[Justice Venugopal. M] Member (Judicial)

[Shreesha Merla] Member (Technical)

NEW DELHI

20th October 2020

ss

32 Company Appeal (AT) (Insolvency) No. 592 of 2020