Rajratan Babulal Agarwal vs Agarwal Coal Corporation India Pvt Ltd & ...

[Arising out of Order dated 16.7.2020 passed by National Company Law Tribunal, Court No.V, Mumbai Bench in C.P. (IB) No.2361/ NCLT/MB/2019]

IN THE MATTER OF: Before NCLT Before NCLAT

Rajratan Babulal ... Appellant Agarwal Gokul - Flat No.4, Geet Gopal Apartment Opp Laxmi Process, Ichalkaranji - 416115, Dist. Kolhapur, Maharashtra

Office: 10/868, Koik Building, Vardhaman Chowk, Shahpur Road, Ichalkaranji, Dist. Kolhapure 416115 Maharashtra

Vs.

1. Agarwal Coal Corporation Petitioner Respondent No.1 India Pvt. Ltd. 2, Matra Kripa Chameli Park Near Goyal Nagar, Indore - 452016

2. Shri Tradco Deesan Respondent/ Respondent No.2 Private Limited Corporate Debtor 6, Anantwadi, 4th Floor, Bhuleshwar, Mumbai 400 002 2

Through Interim Resolution Professional 101, Monoplex Plaza, Deep Bungalow Chowk, Model Colony, Pune 411 016

3. Fanendra (Deleted) IRP Respondent No.3 Harakchand Munot Interim Resolution Professional for Shri Tradco Deesan Private Limited 6th Floor, Mafatlal House Building, HR Parekh Marg, Backbay Reclamation, Mumbai 400 020

For Appellant: Shri Anish Agarwal, Shri Mayur Khandeparkar, Shri Tejas Agarwal and Vanshia Gupta, Advocates

For Respondents: Shri Vivek Kohli, Senior Advocate with Shri Abhishek Swaroop, Advocate (Intervener on behalf of COC) Shri V.N. Dubey, Advocate (R-1) Shri Kunal Chheda, Advocate (IRP - R2) Shri Fanendra Munot, Erstwhile IRP Shri Ayush J. Rajani, PCA (RP)

JUDGEMENT

(15th March, 2021) A.I.S. Cheema, J. :

1. The Appellant is Director of Respondent No.2 - Shri Tradco Deesan

Private Limited - the Corporate Debtor. The Appeal has been filed by the

Appellant against Impugned Order dated 16th July, 2020 passed by the

Adjudicating Authority (National Company Law Tribunal Court No.V,

Mumbai Bench) in C.P. (IB) No.2361/ NCLT/MB/2019 (Annexure A-1 Page

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- 57). By the said Impugned Order, the Adjudicating Authority admitted

the Application filed under Section 9 by the Respondent No.1 - Agarwal

Coal Corporation India Pvt. Ltd. (ACCPL). Thus, this Appeal is against the

admission Order.

2. The Appellant claims and it is argued that the Corporate Debtor

required high grade imported coal for its boilers and the Operational

Creditor was the supplier. The appeal mentions particulars with regard to

earlier transactions between the parties and how there was short supply.

The Appellant claims that because of short supplies, business of the

Corporate Debtor has suffered. It is claimed that there was correspondence

in this regard and the Operational Creditor gave vague responses. As per

the Appellant due to short supplies, the business of Corporate Debtor

suffered and had quantified the losses at Rs.95,70,000/-. It is claimed that

the Operational Creditor had assured to make good the losses. The Appeal

refers to the payments made and it is claimed that the Operational Creditor

failed to honour the Agreement and when negotiations broke down, to

pressurize Corporate Debtor, sent the Notice dated 9th April, 2019

(Annexure A-11 - Page 77). The Appellant claims that with the Notice, two

tax invoices were attached STC-01-18/4042 and STC/01-18/4135.

According to Appellant, Corporate Debtor never received these invoices

dated 22nd January, 2018 and 31st January, 2018, before the Notice under

Section 8 was sent. The Invoices bear component of GST which when

verified by the Corporate Debtor, the GSTIN portal of the Central/State

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Government did not show any such invoices. The Appellant claims that

these were false and fabricated invoices and with such invoices, no goods

were ever supplied or received. Copy of the GSTIN portal had been filed at

Annexure A-14.

3. Appellant claims that the Notice dated 9th April, 2019 was replied

vide Annexure A-15 dated 18th April, 2019 (Page - 88). According to the

Appellant, the Adjudicating Authority vide Order dated 9th September,

2019, directed the Operational Creditor to amend the Petition and produce

copy of Statement of Accounts. When amended copy was filed and ledger

relating to Corporate Debtor maintained by the Operational Creditor was

sent, it showed that entries relating to Agarwal Trading Corporation Pvt.

Ltd. had been shown fraudulently in the account of the Corporate Debtor.

The original amended Petition has been pointed out at Page - 95 (Annexure

A-18) and the amended Petition is pointed out as Annexure A-19 (Page -

102).

4. The learned Counsel for the Appellant referred to such documents

from the record and pointed out that the Impugned Order admitting the

Petition should not have been passed as there were pre-existing disputes

and the fact that the invoices raised, on the basis of which Section 8 Notice

was sent and the Petition under Section 9 was filed, were suspect. It is

stated that the Appellant did demonstrate to the Adjudicating Authority

that under the said invoices (Annexure A-12 and Annexure A-13 - Pages

81 and 82), no goods were sent to raise the said invoices.

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5. According to the Counsel for the Appellant, the Application under

Section 9 should have been dismissed considering the unreliable records

on the basis of which the Petition was being tried to be maintained.

6. Mr. Fanendra Harakchand Munot is IRP who was appointed by the

Impugned Order. He was arrayed as Respondent No.3 in this Appeal but

when the matter came up before this Tribunal on 4th August, 2020, it was

stated that the Appellant has already settled the claim of Respondent -

Operational Creditor. However, Counsel for Respondent No.3 stated that

COC (Committee of Creditors) is already constituted. This Tribunal had on

that date observed that Respondent No.3 is in-charge of affairs of the

Corporate Debtor - Respondent No.2 and as such, Respondent No.3 being

IRP (Interim Resolution Professional), he need not be arrayed as party

Respondent. Thus, his name came to be struck off.

7. The IRP has, however, filed Reply to the Appeal and stated that he

had no comments with regard to the question of law raised and grounds

raised by the Appellant in the Appeal. He referred to how he has made

efforts to take over the charge and has stated further particulars with

regard to the CIRP (Corporate Insolvency Resolution Process).

8. The Appellant in Rejoinder (Diary No.21659) has argued that the

Respondent No.1 - Operational Creditor had not filed Reply as the claim is

already settled. This was noted in our Order dated 11th November, 2020 as

Counsel for Respondent No.1 stated that claim of Respondent No.1 -

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Operational Creditor is already settled. The matter proceeded as it was

stated that COC has been formed. In the Rejoinder, the Appellant has

referred to various particulars and events after the admission order was

passed to show that the IRP - Mr. Fanendra Harakchand Munot hurriedly

formed COC to scuttle settlement taking place. We will refer to those facts

later. At present, we are looking into only the merits of the Appeal.

9. The learned Counsel for the Appellant submits that in the

background of the Petition as referred above and Reply filed by the

Corporate Debtor (Page - 111), the Adjudicating Authority referred to the

same in short and made observations as under:-

"4. Heard the Counsel on either side. This Bench has gone through the pleadings of both sides. The following are the observations of this Bench:-

a. The claim in this petition arises out of supply of goods by the petitioner to the corporate debtor and hence debt claimed in this petition in an operational debt as defined under section 5(21) of the Code.

b. The contention of the Corporate debtor that the loss suffered by them to the extent of Rs.95,70,000/- on account of short supply of goods has to be taken into account while deciding this petition and in such a eventuality the Petition has to be dismissed is a far fetching argument considering the fact that the proceedings under the Code is of summary nature.

c. Even though the Corporate Debtor submits that there are pre existing disputes, no record/material has been produced by the Corporate Debtor in support of his contention and hence the submission in this

Company Appeal (AT) (Ins) No.661 of 2020 7

aspect cannot be accepted and the same is rejected.

d. Mere short supply of goods will not fall within the definition of dispute as provided under Section 5(6) of the Code which reads as below:

'dispute' includes a suit or arbitration proceedings relating to -

a. The existence of the amount of debt;

b. The quality of goods or services; or

c. The breach of a representation or warranty;

e. The petitioner explained that the debiting of account to the extent of Rs.12,32,816/ on 29/06/2017 was on account of some debit notes raised by the petitioner for certain payments made by a sister concern of the petitioner, namely Agarwal Transport Corporation Private Limited, cannot be accepted as the said amount is not agreed by the Corporate Debtor, which was also missing in the statement of account sent by the petitioner to the Corporate Debtor previously and hence the said amount has to be deducted from the amount claimed of Rs.21,82,821/- and after this adjustment the claim has to be scaled down to Rs.9,50,005/-.

f. The submission of the Corporate Debtor that the abovesaid debit entry to extent of Rs.12,32,816/ made on 29/06/2017 by the petitioner should be a credit entry instead of debit, is wholly baseless and is rejected.

g. The submission of the Corporate Debtor that the two invoices claimed in the demand notice / petition were not received by them is unacceptable for the following reasons:

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 The petitioner's explanation that the GSTIN portal of the central/state government, as shown in exhibit J of the reply filed by the corporate debtor, that the split invoices for serial number 254 to 267 relates to the consolidated invoice dated 22.01.2018 bearing number STC/01-18/4042 and the split invoices for serial number 268 to 284 relates to the consolidated invoice dated 31.01/2018 bearing number STC/01-18/4135, is quite convincing and the same is accepted.

 Further the Corporate Debtor has made payments to the petitioner to the extent of Rs.1,90,69,826/- (Rs. 25 Lakhs on 23/1/2018, Rs.25 lakhs on 6/3/2018, Rs.25 lakhs on 5/4/2018, Rs.26,17,272/- on 5/5/2018, Rs.19,28,400/- on 24/5/2018, Rs.40,24,154/- on 18/6/2018, Rs.10,00,000/- on 19/7/2018, Rs.10,00,000/- on 21/1/2018, Rs.10,00,000/- on 21/9/2018.), as reflected in the ledger account, after raising the abovesaid two invoices. If the contention of the Corporate Debtor that the two invoices are not really there, it will lead to a situation where the Corporate Debtor has made substantial excess payment to the petition over and above the balance due. Hence on this count also, the contention of the corporate debtor that two invoices were not issued, fails.

5. The above discussion clearly shows that the Corporate Debtor is liable to pay sum of Rs.9,50,005/- to the petitioner in view of the fact that the amount debited to the extent of Rs.12,32,816/- has to be excluded from the claimed amount of Rs.21,82,821/-. The corporate debtor defaulted in making payment to the petitioner."

Company Appeal (AT) (Ins) No.661 of 2020 9

10. The Counsel for Respondent No.1 - the original Operational Creditor

in response to the Appeal has simply stated that the Operational Creditor

has received its dues and has not traversed the contentions raised by the

learned Counsel for the Appellant. Apart from Respondent No.1 not

challenging the averments made on merits of the Appeal, we have gone

through the record. It is apparent from record that the Operational

Creditor sent Notice under Section 8 of IBC, dated 9th April, 2019

(Annexure A-11) claiming amount in default of Rs.21,82,821/- and

annexed two invoices (Annexures A & B). The Corporate Debtor responded

with a Reply dated 18th April, 2019 (Annexure A-15 - Page 88) and, inter

alia, claimed that the demand made in the Notice was with a view to extract

money and to harass the Corporate Debtor and there was creation of false

record. Corporate Debtor claimed that against the said invoices which were

sent, no coal was supplied or received and that the amounts as claimed in

the invoices were not due or payable.

11. The Operational Creditor still went ahead to file Application under

Section 9 of IBC and when the parties appeared before the Adjudicating

Authority, the Operational Creditor was required to file amended Petition.

The original Petition is at Annexure A-17 and amended Petition is at

Annexure A-18. We agree with the learned Counsel for the Appellant that

the Adjudicating Authority erred in sitting down to scale down the amount

due from Rs.21 Lakhs to Rs.9.5 Lakhs when the record showed that the

accounts of the Operational Creditor showed dues of sister concern of the

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Operational Creditor namely - Aggarwal Transport Corporation Pvt. Ltd.,

put against the Corporate Debtor. The learned Counsel for the Appellant

rightly submits that before the Adjudicating Authority, it became clear that

against the two invoices, no goods had been supplied or received. The

Operational Creditor had to concede that GSTIN portal did not reflect the

invoices because the invoices sent with the Notice were now claimed to be

consolidated invoices. It is rightly argued that the claims made in Notice

under Section 8 were on the basis of false accounts and the invoices sent

on the basis of such accounts, were seriously suspect and the existence of

dispute raised on this count by the Corporate Debtor, could not have been

ignored. We find that in the facts of the present matter, it was not correct

on the part of the Adjudicating Authority to sit down and settle the

accounts like a Civil Court and that the Application should not have been

admitted considering the fact that accounts on the basis of which Section

8 Notice was sent were apparently unreliable, having huge disparity. This

is case of debt not due being claimed. Had right amount been claimed

Corporate Debtor would have immediately paid as subsequent events

show.

12. For such reasons, in the facts, particular to this matter, the Appeal

deserves to be allowed and the Impugned Order deserves to be quashed

and set aside.

13. Before parting, it would be appropriate in the facts of the present

matter to refer to the dispute raised by the Appellant with regard to the

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conduct of the Respondent No.3 - IRP. The learned Counsel for the

Appellant referred to Rejoinder (Diary No.21659) to submit that when

Adjudicating Authority passed Impugned Orders dated 16.07.2020 as

admitting the Application under Section 9 after scaling down the debts

claimed from Rs.21,82,821/- to Rs.9,50,005/-, the Corporate Debtor

immediately offered the said amount to the Operational Creditor which was

also accepted by the Operational Creditor. The Counsel referred to

WhatsApp messages exchanged between the Appellant and the IRP -

Fanendra Harakchand Munot, copes of which have been filed as Annexure

A-31 with the Rejoinder. The Counsel pointed out that when particulars of

the settlement were conveyed to the IRP, the IRP stated that his fees may

be considered as of Rs.3 Lakhs (Rejoinder Page 21). It is argued and

Rejoinder shows that after the Impugned Order dated 16.07.2020, the

Appellant and Respondent No.1 - Operational Creditor entered into written

Agreement (Annexure A-27 - Page 14) to pay 100% of the amount recorded

by the Adjudicating Authority plus fees of the IRP. According to the

Appellant on 31.07.2020 itself, Rs.9,50,005/- were paid to the Respondent

No.1 by online transaction, the particulars of which are given in Rejoinder

para - 4.1. It is stated that even the IRP was paid online an amount of

Rs.2,36,000/-. The learned Counsel pointed out that copy of settlement

was also forwarded to the IRP as can be seen from WhatsApp message,

copy of which is at Page - 22 of the Rejoinder. Learned Counsel submitted

that the IRP gave his bank account number to receive the amount and also

received the amount and copy of settlement as is apparent from Annexure

Company Appeal (AT) (Ins) No.661 of 2020 12

A-31. The learned Counsel referred to particulars of the conversation

between Corporate Debtor and the IRP and added that although the

Corporate Debtor took desperate steps to settle the claim of Operational

Creditor and entered into settlement with the Operational Creditor and

although the IRP received the fees he demanded on 31.07.2020 but still

IRP went ahead to form COC. The Counsel referred to the Settlement

Agreement dated 31.07.2020 as at Annexure A-27 and the e-mail sent to

the IRP vide Annexure A-28. The Appellant claims that the IRP was

informed on 01.08.2020 about the fact of filing of the present Appeal and

that it was listed on 4th August, 2020 (the next working day, as 1st was

Bakrid and 2nd and 3rd were holidays). Copy of the letter in this regard, is

pointed out at Annexure A-30. When the matter came up on 4th August,

2020 before this Tribunal, the IRP claimed before the Tribunal that COC

is already constituted. According to the learned Counsel for the Appellant,

the action of IRP was with the object of scuttling the possibility of

settlement which had already taken place and in which even the

Operational had already been paid. The learned Counsel submits that the

object of IBC is to see that there should be resolution of Corporate Debtors

if they are unable to pay debt. When in the present matter, the Corporate

Debtor has already paid, the Corporate Debtor has been forced into a

process of CIRP because of the act of the IRP.

14. At the time of arguments, we have also heard Counsel for IRP -

Fanendra Harakchand Munot, although he had been deleted earlier. The

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written submissions have been filed with Diary No.25488. In the written

submissions, the IRP has tried to justify his actions on the basis of showing

calculation of time/period as per the Regulations to claim that within two

days of verification of claims, he was required to form the COC. He has

indicated that claims of Rs.173 Crores were verified by him on 01.8.2020

and hence, COC had to be formed by 03.08.2020.

15. We feel sad to see such conduct of the IRP. Heavens would not have

fallen if when the matter came up before this Tribunal on 4th August, 2020,

COC had not yet been formed. It was a matter of just one day and such

behavior of the IRP we are unable to appreciate. Such conduct is not

conducive to the aims and objects with which IBC has been enacted.

16. It will be open for the Appellant to convey the facts to IBBI

(Insolvency and Bankruptcy Board of India) for suitable consideration.

17. Coming back to the merits of the matter, as we have held that the

Application under Section 9 should not have been admitted, we pass the

following Order:-

ORDER

(A) For above reasons, the Appeal is allowed. The Impugned Order is

quashed and set aside. The Application under Section 9 of IBC filed by

Respondent No.1 - Operational Creditor before the Adjudicating Authority

is dismissed.

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(B) Actions taken by IRP/RP in consequence of the Impugned Order are

quashed and set aside. The Corporate Debtor is released from the rigour of

law and is allowed to function independently through its Board of Directors.

The IRP/RP will hand back the records and management of the affairs of

Corporate Debtor, to the Board of Directors.

(C) The IRP/RP will place particulars regarding CIRP costs and fees before

the Adjudicating Authority and the Adjudicating Authority after examining

the correctness of the same, will give directions regarding payment, as per

provisions existing under IBC.

The Appeal is disposed accordingly. No costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Mr. V.P. Singh] Member (Technical) rs

Company Appeal (AT) (Ins) No.661 of 2020