Rajesh Mahajan vs Park Network Pvt Ltd & Ors

(Arising out of Impugned Order dated 27th May, 2020 passed by the Adjudicating Authority/National Company Law Tribunal, Delhi Bench, in Company petition No (IB) No. 1717 (ND) / 2019 )

IN THE MATTER OF:

Rajesh Mahajan Son of Shri Satish Kumar Resident of 299, Second Floor, Bhera Enclave, Paschim Vihar, New Delhi - 1100087 ... Appellant

Versus

1. Park Network Pvt. Ltd., Having its registered office at 406/56, Eros Apartment, Building 56, Nehru Place, New Delhi - 110019.

2. M/s. PP Telecell Marketing Pvt. Ltd., Through Interim Resolution Professional, Mr. Ajay Goyal, Having its registered office at 12/401, Sunder Vihar, Outer Ring Road, Paschim Vihar, New Delhi 110087.

3. Mr. Ajay Goyal, Interim Resolution Professional of M/s. PP Telecell Marketing Pvt. Ltd. Having its office at 49, DDA Site No. 1 Near Rajender Nagar,New Delhi-110060.

... Respondents

Present:

For Appellant: Mr. Praveen Kumar Aggarwal, Advocate For Respondents: Mr. Ajay Goyal and Mr. Tushar Thareja, Advocates

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 1 of 16 JUDGMENT

(Through Virtual Mode) (Dated 14.09.2020)

{Per: Dr. Alok Srivastava, Member(T)}

This appeal emanates from an order dated 27.5.2020 (hereinafter called

Impugned Order) of the National Company Law Tribunal, Delhi, Bench V vide

which Adjudicating Authority has admitted an application under Section 9 of

Insolvency & Bankruptcy Code, 2016 (hereinafter called IBC, 2016) filed by M/s.

Park Network Pvt. Ltd. The appeal has been filed by Rajesh Mahajan, who is a

suspended Director of the Corporate Debtor M/s. PP Telecell Marketing Pvt.

Ltd. M/s. Park Network Pvt. Ltd. is Respondent No.1 in the appeal and M/s. PP

Telecell Marketing Pvt. Ltd., the Corporate Debtor (which is now under CIRP) is

Respondent No.2 through Mr. Ajay Goyal, Interim Resolution Professional.

2. The brief facts of the case are that M/s. PP Telecell Marketing Pvt. Ltd.

having CIN No. U64202DL2002PTC117795 is in the business of trading and

was the authorized distributor of M/s. Syntech (HK) Technology Limited,

manufacturer of mobile phone with the brand Gionee in India. In the year 2012,

M/s. PP Telecell Marketing Pvt. Ltd. entered into a International Distributor

Agreement with Syntech (HK) Technology Ltd. for distribution of Gionee mobile

phones and accessories for three years from 2012. The agreement was

renewed in 2015 after expiry of the first agreement. M/s. Park Network Pvt. Ltd.

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 2 of 16 having CIN No. U74899DL1995PTC65654 was appointed as sub-distributor as

per Sub-Distribution Agreement (here in after called SDA) dated 15.4.2015 on

the terms and conditions contained therein by the Corporate Debtor M/s. PP

Telecell Marketing Pvt. Ltd. for sale of mobile phones and accessories and

related services.

3. Respondent No.1 used to buy mobile handsets and mobile accessories

from the Corporate Debtor M/s. PP Telecell Marketing Pvt. Ltd. as per the SDA,

and various transactions were made between the Corporate Debtor

(Respondent No.2) and Respondent No.1 during the period April, 2015 to

August, 2018. On closure of Indian operations by Syntech (HK) Technology

Ltd., Respondent No.2 company sent an e-mail dated 03.01.2019 to

Respondent No. 1 attaching a claim summary and their intention to settle

Respondent No. 1's accounts by billing of A1 Lite Handsets. The process for

repayment was thus initiated. In the second e-mail dated 07.01.2019 an

amount of Rs.20,02,872/- was shown as due to be paid to Respondent No. 1

This due amount was intimated to the Appellant vide e-mail dated 05.01.2019

by the Corporate Debtor alongwith the statement of Ledger Account.

4. In view of default in payment of the above mentioned amount,

Respondent No.1 issued a demand notice dated 2/5/2019 in Form 4, as is

required under Rule 5 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 read with Section 8 of the IBC Code, 2016.

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 3 of 16 The Respondent No.1 has also claimed an interest @ 8% p.a. from the date of

default .

5. The Corporate Debtor replied to the above mentioned notice vide letter

dated 21.5.2019 mentioning dispute regarding the payment.

6. The Appellant and Respondents were given opportunity to present their

case through replies and rejoinder and advance oral arguments before the

Adjudicating Authority. In short, the Adjudicating Authority's findings are that the

Operational Creditor M/s. Park Network Pvt. Ltd. was appointed as the sub-

distributor by M/s. PP Telecell Marketing Pvt. Ltd. through the SDA dated

15.4.2015, wherein the Operational Creditor was given sub-distribution rights for

sale of products indicated at Annexure 'A' enclosed with the SDA. The price

and payment terms were that 'Sub Distributor shall purchase product from the

Distributor according to the price list applicable and terms of sale in effect for

product made available to the Sub Distributor on the date of bill. Distributor may

adjust the prices of the products from time to time upon reasonable prior written

notice to Sub Distributor'.

7. As Distributor's obligations, the following was included in the SDA:-

"5(G) The Company/Distributor will introduce schemes from time to time

to boost sales of the products.

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 4 of 16 (H) Any liability arising out of non service ability, delayed or

unsatisfactory

serviceability or performance of the products will be borne by the

Distributor."

8. The Operational Creditor was receiving all the benefits in relation to the

products covered in the Sub Distribution Agreement from the Corporate Debtor

M/s. PP Telecell Marketing Pvt. Ltd. These benefits were originally given by

M/s. Syntech (HK) Technology Limited from time to time.

9. Consequent to the closing of Indian operations, M/s. Syntech (HK)

Technology Limited were in the process of making full and final settlement with

its partners. E-mail message dated 5.1.2019 gives details of claims under

various schemes, as received by the Operational Creditor and proposal to

settlement all claims at 50% by way of billing of Gionee Brand mobile handsets.

In brief, this e-mail provides the following break-up of claims approved and

those pending approval:-

1. Total pending claim amount:- Rs.

13,49,770.00

2. Previous pending claim amount in Ledger:- Rs.

6,53,102.00

Total Amount Payable by PP Telecell Marketing Pvt.Ltd. :-Rs.

20,02,872.00

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 5 of 16

10. A settlement offer was made by M/s. Syntech (HK) Technology Limited

through the Corporate Debtor to settle all claims of the Operational Creditor at

Rs.10,28,475/- through billing of 105 Hand Sets (A-1 Model) @ Rs.9800/- per

set. This offer was not accepted or responded to by the Operational Creditor.

As a result of non-acceptance of this offer by the Operational Creditor,

Corporate Debtor rejected all the previously passed claims for Rs,6,53,102/- in

its books and shared updated statement of account vide e-mail dated 12.2.2019

in this regard. The Operational Creditor has claimed before the Appellate

Authority that vide e-mail dated 7.1.2019, the Corporate Debtor has admitted a

debt/liability of Rs.20,02,872/- and also attached the ledger account of the

Appellant maintained by the Corporate Debtor.

11. The arguments of both the parties were heard in appeal. The Learned

Counsel for the Appellant has advanced the argument that the Operational

Creditor was sub distributor with a valid sub-distribution agreement with the

Corporate Debtor, and the alleged payable amount communicated vide e-mail

dated 5.1.2019 is basically not a operational debt. He has placed reliance on

the judgment dated 14.08.2020 of the Hon'ble NCLAT in Sushil Ansal vs.

Ashok Tripathi & Ors, He has also argued that the liability accrues only for

sale and supply of goods/services under the Section 9 of IBC and not for the

purchase of goods, even if the goods/services received were defective. Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 6 of 16

12. The Learned Counsel for Appellant has also pointed out to certain

defects and infirmities in application submitted by Operational Creditor under

Section 9 of IBC 2016 stating that details of transactions, date of default and

invoices to establish operational debt were not stated in the demand notice. The

appellant has placed reliance of the decision of NCLAT in Neeraj Jain (Director

of Flipkart India Pvt. Ltd.) vs. Cloudwalker Streaming Technologies Private

Limited. He has also cited the case of Privy Council in Nazir Ahmed v. King

Emperor {63 1A 372(1936)} and Ramco Systems vz. Spiceject Ltd. (2019

SCC Online 354 NCLAT), where the Hon'ble Tribunal has held,

"...in the absence of specific evidence relating to invoices forwarded by

the Appellant and there being a doubt, we hold that the Adjudicating

Authority has rightly refused to entertain application under Section 9

which requires strict proof of debt and default."

He has argued that the admission of debt must be unequivocal, unconditional

and clear, which is not so in the present case and the claim of operational debt

on account of sales return is not tenable. The appellant has also referred to the

judgment of Apex Court in Mobilox Innovations (P) Ltd. V. Kirusa Software

(P) Ltd. (2018) 1 SCC 353 to claim that the Adjudicating Authority has to reject

the application, if a dispute truly exists in fact and is not spurious, hypothetical or

illusory.

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 7 of 16

13. In his arguments, the Learned Counsel for Operational Creditor

(Respondent No. 1) has stated that the legal ground raised by the Appellant in

the present appeal is whether Respondent 1 is an Operational Creditor or not?

He has alluded to the definition of debt and creditor in Section 3 of IBC, 2016,

which is as follows:-

"(10) 'creditor' means any person to whom a debt is owed and includes

a financial creditor, an operational creditor, a secured creditor, an

unsecured creditor and a decree-holder;

(11) 'debt' means a liability or obligation in respect of a claim which is

due from any person and includes a financial debt and operational

debt.

He has also alluded to Section 5 of the IBC, 2016 which defines operational

creditor and operational debt as follows:-

"(20) 'operational creditor' means a person to whom an operational

debt is owed and includes any person to whom such debt has

been legally assigned or transferred;

(21) 'operational debt' means a claim in respect of the provision of

goods or services including employment or a debt in respect of the

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 8 of 16 (payment) of dues arising under any law for the time being in force

and payable to the Central Government, any State Government or

any local authority."

14. The Learned Counsel for Respondent No. 1 has submitted that the test

which can be applied in the instant case to see whether the debt is operational

or not, will be from the nature of activities performed by the Operational Creditor

on behalf of the Corporate Debtor as per the sub-distribution agreement

between the parties He has mentioned that "provision of goods and services"

includes not only sale of goods and services, but also sale returns. He has also

argued that sub-distribution agreement, which is a bipartite agreement, imposes

sole responsibility on the Corporate Debtor to settle all the claims of

Respondent no. 1. In support of his argument, he has pointed to clause No. 5 of

the sub-distribution agreement, which is extracted below:-

"H. Any liability arising out of non serviceability, delayed or

unsatisfactory or performance of the products will be borne by the

distributor.

J. The Distributor shall not responsible for any claims whatsoever,

whether as per the Company Policy or written commitment by a

level not lower than a Branch Manager, if such claims are not

lodged with the distributor with 15 days of the claim date."

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 9 of 16

15. Explaining the issue of sale return, the Learned Counsel for Respondent

No.1 has stated that Respondent No.1 returned all the non activated handsets

to Respondent No. 2, i.e. Corporate Debtor and the Corporate Debtor, after

applying benefits under schemes and price reduction for the handsets sold to

Respondent 1, credited the final amount to the account of the Respondent 1.

He has claimed that handsets that were not activated were sale returns and the

benefit of various schemes and price drops were related to the selling price of

the handsets and thus the due amount was given to him by Respondent No. 2 in

the form of credit notes which were verifiable through the ledger accounts.

Therefore, the ledger accounts clearly show the amount owned by the

Respondent 2 to respondent 1 was in regard to the services rendered as per the

sub-distribution agreement and benefits etc. and are in the nature of operational

debt.

16. We have perused the appeal memo, replies of the Respondents and

rejoinder thereof as well as written submissions filed on behalf of the Appellant

and Respondent No. 1(operational Creditor). We have also considered oral

arguments put forth by both sides and the case laws cited during the arguments

and in written submissions.

17. It is a fact that sub-distribution agreement was signed between the

Operational Creditor and Corporate Debtor on 15.4.2015 for supply and

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 10 of 16 distribution of mobile phones and other accessories. The clause 5 of the sub-

distribution agreement mentions the obligations towards sub-distributor i.e.

Operational Creditor as follows:-

"G. The company/distributor will introduce schemes from time to time

to boost sales of the products.

And Clause 'J' of the Agreement says

J. The distributor shall not be responsible for any claim whatsoever

whether as per company policy or other written commitment by

levelled not lower then a branch manager, if such claims are not

lodged with the distributor with 15 days of the claim.

In addition, the clause 4 of the sub-distribution agreement states as follows:-

"A. Sub Distributor shall purchase product from the Distributor

according to the price list applicable and terms of sale in effect for

product made available to the Sub Distributor on the date of bill.

Distributor may adjust the prices of the products from time to time

upon reasonable prior written notice to Sub Distributor. Distributor

shall bear the cost of price drop and stocks lying with Sub

Distributor and its trade partners as per a mutually accepted

process.

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 11 of 16 B. Payment and Credit Terms will be as per Company policy as

specified in Annexure C and as amended and intimated to you

from time to time."

18. It is clear from reading of clauses 4 and 5 of the SDA, the sub distributor

purchases products from the distributor according to the price list applicable and

terms of sale. The distributor has to bear the cost of price drop for stocks lying

with sub distributor and its trade partners as per a mutually accepted process

and the payment and credit terms have been specified in Annexure 'C' attached

with sub distributor agreement. Thus, it is clear that the transaction for mobile

handsets and accessories is between the distributor (M/s. PP Telecell Marketing

Pvt. Ltd.) and the Operational Creditor (M/s. Park Network Pvt. Ltd.) and not

with any other entity. No where in this agreement there is a obligation placed of

the mobile handset manufacturing company M/s. Syntech (HK) Technology

Limited. Therefore, M/s. PP Telecell Marketing Pvt. Ltd. is clearly the Corporate

Debtor and M/s. Park Network Pvt. Ltd. Is the Operational Creditor .

19. The next issue is whether the debt in question is an operational debt.

Insofar as this isue is concerned, it would be useful to go through the definition

of operational debt in Section 3(11) and Section 5 (21) of the IBC 2016 -

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 12 of 16

"3(11) 'debt' means a liability or obligation in respect of a claim which is

due from any person and includes a financial debt and operational

debt.

5(21) 'operational debt' means a claim in respect of the provision of

goods or services including employment or a debt in respect of the

payment of dues arising under any law for the time being in force

and payable to the Central Government, any State Government or

any local authority."

20. It is evident from the definitions cited above that 'operational debt' means

claim in respect of provision of goods and services. In the present case, the

goods and services are being provided by the distributor to the sub distributor as

per clauses of the sub-distribution agreement. Insofar as the purchase of

mobile handsets is concerned, clause 6(c) of the SDA mentions that the sub

distributor shall place orders in writing for supply of products. Products bought

against such orders will be delivered by the Distributor or lifted by the Sub

Distributor within 24 hours of billing and will in no case be stored at distributor's

premises beyond this deadline. Therefore, as per clause 4(a) and clause 6(c) of

the Sub Distribution Agreement, the Distributor is the seller of mobile handsets

and accessories and the Sub Distributor is the purchaser of the products from

the Distributor. Clause 4(a) of the Sub Distribution Agreement also makes it

clear that Distributor shall bear the cost of price drop for stocks lying with Sub

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 13 of 16 Distributor and its trade partners. This amount is corroborated by the ledger

account attached with e-mail sent by the Corporate Debtor on 5.1.2019,

according to which the amount due to the Operational Creditor from Corporate

Debtor is Rs.20,02,872/- (Rupees Twenty Lakh Two Thousand Eight Hundred

and Seventy Two only). The Corporate Debtor has mentioned about a

settlement offer made by M/s. Syntech (HK) Technology Limited for settlement

of all claims at Rs.10,28,475/- by way of billing of 105 handsets(A-1 Model) @

Rs. 9,800/- per set. No document has been presented by the Corporate Debtor

regarding the acceptance of this offer by the Operational Creditor. Hence, the

debt of Rs.20,02,872/- which stands in the name of Corporate Debtor towards

the Operational Creditor is inferred to be an Operational Debt. However, it is

not for us to decide on the quantum of operational debt. Our concern is to see

whether this debt is more than the threshold amount specified for admission of

application under Section 9 of IBC, 2016.

21. The next issue is whether there was a dispute between the Corporate

Debtor and Operational Creditor regarding the Operational Debt, which was

raised by the Corporate Debtor after receipt of demand notice. Section 8(1) of

the IBC 2016 requires the Operational Creditor to deliver a demand notice to

Operational Debtor on occurrence of default in the prescribed form and manner,

wherein the due date of debt has been shown as 2/5/2019. The reply to

demand notice dated 2.5.2019 was sent through Advocate of the Corporate

Debtor vide letter dated 21.5.2019. The letter mentions that the demand raised

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 14 of 16 by the Occupational Creditor is totally illegal as the amount demanded is not the

liability of the company (M/s. PP Telecell Marketing Pvt. Ltd.), as there was no

direct transaction between the parties and the amount claimed by the

Operational Creditor. As has been discussed earlier in this judgment, the Sub

Distribution Agreement is valid and creates a Corporate Debtor and Operational

Creditor relationship between M/s. PP Telecell Marketing Pvt. Ltd. and M/s.

Park Network Pvt. Ltd. Therefore, the dispute tried to be raised by M/s. PP

Telecell Marketing Pvt. through his reply to the demand notice is imaginary and

not as defined in Section 8(2)(a) of the IBC 2016. Thus, it is clear that the

demand notice was sent on 2/5/2019 by the Operational Creditor to the

Corporate Debtor and the dispute raised does not hold any ground.

22. The last point to be looked at is whether the application under Section 9

of IBC, 2016 was filed by the Operational Creditor within the time period of

limitation. It is seen that the application dated 18.7.2019 was filed before the

Hon'ble NCLT (Adjudicating Authority) and as per para 4 of the application, the

date of default has been mentioned as 5/1/2019 and the amount of debt in

default is Rs.20,02,782/-. Therefore the application was filed within limitation.

23. In the light of the detailed discussion in the above mentioned paragraphs,

we find no reason to interfere with the impugned order dated 27.5.2020 of

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 15 of 16 Hon'ble NCLT, New Delhi (Adjudicating Authority) and therefore, dismiss the

appeal. The appeal is thus disposed off. There is no order as to costs.

(Justice Bansi Lal Bhat) Acting Chairperson

(V.P. Singh) Member (Technical)

(Dr. Alok Srivastava) Member (Technical)

New Delhi 14th September, 2020

/aks/

Company Appeal (AT) (Insolvency) No. 517 of 2020 Page 16 of 16