Shareholder M/S J.P. Engineers Pvt. Ltd vs Sumit Bansal & Ors

[Arising out of Order dated 26th February, 2019 passed by National Company Law Tribunal, New Delhi Bench, Court-II in Company Petition (IB) No.1048/ND/2019]

IN THE MATTER OF: Before NCLT Before NCLAT

Adish Jain S/O Mohinder Jain Applicant/Petitioner Appellant Shareholder of J.P. Engineers Pvt. Ltd. 3/8, IInd Floor, Asaf Ali Road New Delhi - 110002. Versus 1. Sumit Bansal Respondents Respondent No.1 Insolvency Resolution Professional 1 to 2 Preeti Sumit Bansal and Co. Chartered Accountants B-11, 1st Floor, RDC Rajnagar Court Road, Ghaziabad, Uttar Pradesh 201002

2. Worldwide Metals Private Limited Respondent No. 2 404, 4th Floor, Aditya Tower, Laxmi Nagar, District Centre, Vikas Marg, Delhi 110092

For Appellant: Mr. P. Nagesh, Advocate. For Respondents: Mr. Abhishek Garg, Advocate for R-1. Mr. Ajay Kumar Vali, Advocate for R-2.

JUDGEMENT

(10th August, 2020)

[Per; Shreesha Merla, Member (T)]

1. Challenge in this Appeal is to the Order dated 26.02.2020, passed by

the Adjudicating Authority (National Company Law Tribunal, New Delhi), by which

Order, the Adjudicating Authority has admitted the Section 9 Application filed by

M/s. Worldwide Metals Pvt. Ltd., the Operational Creditor. Aggrieved by the said

Order, the shareholder of the Corporate Debtor M/s. J.P. Engineers Pvt. Ltd.,

preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code,

2016.

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2. Succinctly put, the facts in brief are that the Corporate Debtor was a

regular buyer of Aluminium Ingots and Wire Rods and had a running account

with the Operational Creditor. Appellant claims that the Principle Operational

Debt claimed by the Operational Creditor pertains to purchase of Aluminium

Ingots and Wire Rods for the period 06.12.2017 to 16.04.2018, for an aggregate

amount of 16,18,18,265/-. While admitting the Application under Section 9, the

Adjudicating Authority observed as follows:

'22. After hearing submissions of both the Parties and perusing the documents placed on record, this Bench has observed that the Corporate Debtor has not made any specific averments in its Notice of Dispute dated 05.11.2018 as regards to payment of the debt owed to the Operational Creditor to the other concerns namely, M/s Olympus Metal Private Limited, M/s Simla Holdings and M/ s Oyster Steels and Iron Pvt. Ltd. Further, on comparison of the Ledger of Operational Creditor and Corporate Debtor with the Bank Statements, it is apparent on the face of the record that the Corporate Debtor has made payments of Rs.1,95,34,823 on 21.10.2017 and Rs.1,95,79,294 on 10.11.2017 to the Operational Creditor by RTGS Bank transfer.

23. Further, the Corporate Debtor failed to produce any tri-parte agreement amongst the Operational Creditor, Corporate Debtor and its sister concerns, authorising the Corporate Debtor to make payments to other concerns. Moreover, the Debtors are Assets of the Company, which cannot be extinguished or transferred to another concern in the absence of any specific agreement or specific Board resolution to that effect in favour of the Corporate Debtor.

24. In view of the above, this Bench is of the opinion that the dispute raised by the Corporate Debtor is illusionary and moonshine, which is upstretched with an intention to erase its liability and defeat the claim made by the Operational Creditor.'

3. Learned Counsel appearing for the Appellant contended that the

Adjudicating Authority had ignored all documentary evidence with respect to 'pre-

existing dispute' as the Operational Creditor failed to disclose that even before the

issuance of demand notice dated 27.10.2018, to which the Corporate Debtor had

given a reply on 05.11.2018, the Operational Creditor had earlier issued a notice

dated 17.08.2018, claiming the same amount of Rs. 16,18,18,265/-; that the

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020 3

notice was replied to by the Corporate Debtor on 28.08.2018, wherein it was

specifically stated that as per mutual understanding, necessary journal entries in

the books of accounts being maintained by the Corporate Debtor and in terms of

the said journal entries, adjustments of payments were made and therefore no

amounts were outstanding in respect of the said invoices. Learned Counsel further

submitted that the Operational Creditor had acknowledged the reconciled

accounts for the period 04.11.2016 to 31.03.2017 and also for the period

01.04.2017 to 31.03.2018; that, the confirmation of accounts for the period

01.04.2018 to 31.03.2019, duly signed by the Directors of the Operational

Creditor and its sisters concern shows that no amount was due and payable.

Learned Counsel drew our attention to the confirmatory letter exchanged between

the Corporate Debtor and the Operational Creditor and their sister concerns and

vehemently contended that the journal entries have also been confirmed by M/s

Olympus Metal Pvt. Ltd., the sister concern of the Operational Creditor. He drew

our attention to entries dated 21.10.2017 and 10.11.2017 for account of Rs.

1,95,34,823/- and Rs. 1,95,79,294/- respectively and submitted that the journal

entries were also committed between M/s Simla Holdings and the Operational

Creditors in the confirmation of accounts for the period 01.04.2017 to 31.03.2018.

It is the case of the Appellant that M/s Oyster Steel and Iron Pvt. Ltd., another

sister concern of the Operational Creditor confirmed the accounting entry in the

ledger of the Corporate Debtor.

4. Per contra, Learned Counsel for the Respondent denied that any

such confirmation of accounts was ever entered into with the Corporate Debtor.

He submitted that none of the letters were signed by any of their Directors and

that the said letters authorising adjustments/entries were forged and fabricated

and drew our attention to the Rubber stamps with apparent error even in the

name of Operational Creditor and signatures on these documents stating that the

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020 4

signatures on the alleged authorising letter were purportedly done by clerical

employees who had no authority whatsoever to sign any such documents, and

pointed out an employee's record who had left service much before. Learned

Counsel pointed out that the earlier Reply dated 28.08.2018 claimed settlement of

Accounts as till 31.03.2018, which Operational Creditor disputes; and that, even

otherwise the Notice dated 27.10.2018 raised invoices, even after 31.03.2018

which are due and outstanding and were of amount more than Rs. 1 Lakh.

At this juncture, it is relevant to examine the ratio laid down by the Hon'ble

Supreme Court in "Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P)

Limited- 2017 1 SCC OnLine SC 353" wherein the Hon'ble Supreme Court held

that the 'existence of the dispute' must be pre-existing - i.e. it must exist before

the receipt of the demand notice or invoice, as the case may be and observed:

"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 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. ........"

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020 5

17. In the said case, the Hon'ble Supreme Court held as to what are the facts to be examined by the Adjudicating Authority while examining an application under Section 9, which is as follows:

"34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an "operational debt" as defined exceeding Rs.1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and

(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration Proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act."

18. From the aforesaid decision, it is clear that the existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the 'operational debt' is exceeding Rs. 1 lakh and the application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid 'operational debt', the application under Section 9 cannot be rejected and is required to be admitted.'

5. A perusal of the letters, journal entries relied upon by the Counsel

for the Appellant show several discrepancies. One such transaction received from

M/s Oyster Steel and Iron Pvt. Ltd. alleged to have been signed by one Mr. Vikas

Gandhi is dated 30.04.2018, whereas the material on record evidences that the

said Mr. Gandhi had already resigned on 22.01.2018 and was paid all his

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020 6

emoluments and therefore the submission of the Learned Counsel for the

Appellant that the said sister concern M/s. Oyster Steel and Iron Pvt. Ltd. had

confirmed the accounting entries in the ledger, inspires no confidence. This is

apart from the fact that signatures purporting to be of Mr. Gandhi being pointed

out by Appellant do not match even on bare reading of his service record. We find

force in the contention of the Learned Counsel appearing for the Operational

Creditor that the Articles of Association of the Company mandate the presence

and signature of the Director wherever the stamp of the Company is used and he

placed reliance on the ratio laid down by the Hon'ble Supreme Court, in Kotla

Venkataswamy V/s Chinta Ramamurthy, AIR MAD 579. Additionally, the

material on record shows that the ledger which the Appellant is relying upon and

states that they have been signed by the Operational Creditor and M/s Oyster

Steel and Iron Pvt. Ltd. are dated 01.04.2019 whereas the Operational Creditor

had demanded the same debt from the Corporate Debtor in the notices dated

17.08.2018 and 27.10.2018. Further, there are no substantial reasons given as to

why only the ledger of the Corporate Debtor depict these entries and the same are

not reflected in the ledger of the Operational Creditor when it is the specific case of

the Appellant that both sides have confirmed these accounts.

6. The submission of the Counsel for the Appellant that amounts of Rs.

1,95,79,294/- and Rs. 1,95,34,823/- dated 21.10.2017 and 10.11.2017

respectively are reflected in the journal entries in the ledgers of the sister concern

M/s Olympus Metal Private Limited is unsustainable specially keeping in view the

evidence on record and the specific pleading by the Operational Creditor in their

Rejoinder that these amounts have been paid to them through RTGS Bank

transfer. There are no substantial reasons given by the Corporate Debtor for

having sent a letter authorising the transfer of the same amount in favour of a

third Party, when the same amounts have admittedly been paid to the Operational

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020 7

Creditor itself. Hence, we find force in the contention of the Learned Counsel

appearing for Operational Creditor that these two amounts were never claimed as

'Operational debt' as they have already been paid. In the reply to the legal notice,

the Corporate Debtor has specifically stated that as on 31.03.2018 all amounts

have been reconciled between both the Parties, but remain silent about any

subsequent transactions. Even in the reply to the demand notice dated

05.04.2018 there is no specific pleading with respect to any dispute regarding

quality, quantity, price of the goods and services per se. It is significant to mention

that in the statement of 'Confirmation of Accounts', relied upon by the Appellant,

is dated 01.04.2019 and is for the period subsequent to 31.03.2018. This

document date is subsequent to the issuance of the demand notice and there are

no tenable grounds to explain the reasons for the Operational Creditor to have

signed this document, specially keeping in view that the 'Confirmation of

Accounts' shows 'Nil' balance. To reiterate, there is no documentary evidence filed

by the Appellant to substantiate their plea that all accounts have been reconciled

and signed by both the Parties except for filing these confirmatory letters which

portray so many discrepancies and therefore, inspire no confidence. Both the

defences raised by the Appellant's Counsel are mutually exclusive and cannot co-

exist as a debt cannot be disputed and discharged at the same time. We are of the

considered view that the Appellant did not raise any plausible contention

requiring further investigation and the argument raised is not substantiated by

any evidence. Hence, we are of the opinion that the 'dispute' does not truly exist in

fact and is spurious and the principle laid by the Hon'ble Supreme Court in

Mobilox Innovations Pvt. Ltd. (Supra) is squarely applicable to the facts of this

case.

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020 8

7. Therefore, we are of the view that there is no illegality or infirmity in

the Order passed by the Adjudicating Authority and hence this Appeal fails and is

dismissed accordingly. No order as to costs.

8. The Resolution Professional preferred IA No. 1509 of 2020. In

seeking direction against the Appellants for non-adherence/contempt of Order

dated 03.03.2020. Learned Counsel appearing for the Resolution Professional

submitted that the Appellants have wrongfully withdrawn money and not provided

any information with respect to the assets, the contact details of debtors,

purchase orders, invoices, and have also not handed over the physical assets as

appearing in the balance sheet as on 31.03.2019. He stated that they have not

been co-operating at all and in the garb of lockdown have even stopped

acknowledging the emails. Keeping in view the submission of the Learned Counsel

that an Application in this regard is already pending before the Adjudicating

Authority, preferred under Section 19 (2) of the IBC, 2016, regarding the non-

cooperation etc. of the suspended Directors, we dispose of this Application, with

liberty to Respondent No. 1 to pursue the matter with the Adjudicating Authority

who will decide the same as per law.

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

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

HA

Company Appeal (AT) (Insolvency) No. 379 of 2020 & I.A. No. 1509 of 2020