Shri Anshdeep Chaddha vs M/S S. E Power Limited

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Ins) No.498 of 2021

IN THE MATTER OF:

Sh. Anshdeep Chaddha, S/o SH. Deepak Chaddha, 19/310, Shahzada bagh, Daya Basti, Old Rohtak Road, New Delhi - 110 035 Promoter/Shareholder Chowdhry Rubbers & Chemicals Pvt. Ltd. ...Appellant

Vs.

1. S.E.Power Ltd. Survey No. 54/B, Pratapnagar, Jarod-Savli Road, Samlaya, Vadodara - 391 520 (Gujarat) ...Respondent No.1

2. Chowdhry Rubbers & Chemicals Pvt. Ltd 19/310, Shahzada bagh, Daya Basti, Old Rohtak Road, New Delhi - 110 035 Through its IRP Sh. Mukesh Gupta ...Respondent No.2

Present: For Appellant : Ms. Jaya Goyal and Ms. Manpreet Kaur, Advocates.

For Respondents : Mr. Rahul Kumar, Advocate for R1

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

Company Appeal (AT)(Ins) No.498 of 2021 Page 1 of 18

1. The Appeal has been filed by the Appellant under Section 61 of the

'Insolvency and Bankruptcy Code 2016' (the Code) against the impugned

order dated 03.06.2021 passed by the 'National Company Law Tribunal,

Principal Bench-IV, New Delhi (the Adjudicating Authority) in C.P. No. IB-

218(PB)/2018.

2. The Appellant has sought the followings reliefs:

• Call for record for the Adjudicating Authority in respect of C.P. No.

IB-218(PB)/2018 titled as S.E.Power Ltd. Vs Chowdhury Rubbers &

chemicals Pvt. Ltd;

• Allow the present appeal and set aside the impugned final

order/judgment dated 03.06.2021 passed by the Adjudicating

Authority etc.

3. The Adjudicating Authority, while passing the impugned order dated

03.06.2021 has observed the followings:

"13.In the given facts and circumstances, the present

application is complete and the Applicant is entitled to

claim its dues, establishing the default in payment of the

operational debt beyond doubt. The present application

is admitted, in terms of section 9 (5) of IBC, 2016.

14. The applicant had proposed the name of IPR in the

application filed under section 9 of I& B Code, 2016,

thereafter, the applicant had filed an application seeking

Company Appeal (AT)(Ins) No.498 of 2021 Page 2 of 18 to change the name of the proposed IPR and proposed

the name of Mr.Mukesh Gupta as IRP. The application

was allowed vide order dated12.05.2021, taking Form 2

on record of the said IRP. As a consequence, Mr. Mukesh

Gupta is be and hereby appointed as IRP of corporate

debtor having registration number IBBI/IPA001/IP-P-

01494/2018-19/12254 (email -

camukeship@rediffmail.com) as IRP subject to the

condition that no disciplinary proceedings are pending

against such an IRP named who may act as an IRP in

relation to the CIRP of the Respondent and specific

consent is filed in Form 2 of Insolvency and Bankruptcy

Board of India (Application to Adjudicating Authority)

Rule, 2016 and make disclosures as required under IBBI

(insolvency Resolution Process for Corporate Persons)

Regulations, 2016 within a period of one week from the

date of this order.

15. We direct the Operational Creditors to deposit a sum

of Rs. 2 lacs with the Interim Resolution Professional,

namelyMr.Mukesh Guptato meet out the expense to

perform the functions assigned to him in accordance with

regulation 6 of Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Person)

Company Appeal (AT)(Ins) No.498 of 2021 Page 3 of 18 Regulations, 2016. The needful shall be done within one

week from the date of receipt of this order by the

Operational Creditor. The amount however be subject to

adjustment by the Committee of Creditors, as accounted

for by Interim Resolution Professional, and shall be paid

back to the Operational Creditor.

16. As a consequence of the application being admitted

in terms of Section 9(5) of IBC, 2016, moratorium as

envisaged under the provisions of Section 14(1), shall

follow in relation to the Corporate debtor, prohibiting as

per proviso (a) to (d) of the Code. However, during the

pendency of the moratorium period, terms of Section

14(2) to 14(4) of the Code shall come in force.

17. A copy of the order shall be communicated to the

Applicant, Corporate Debtor and IRP above named, by

the Registry. In addition, a copy of the order shall also be

forwarded to IBBI for its records. Applicant is also

directed to provide a copy of the complete paper book to

the IRP. A copy of this order be also sent to the ROC for

updating the Master Data. ROC shall send compliance

report to the Registrar, NCLT."

4. "The submission made by the Appellant/ pleadings and Written

Submission available on record are summarized in the following manner:

Company Appeal (AT)(Ins) No.498 of 2021 Page 4 of 18

a) It is the case of the Appellant that the Appellant has received

demand notice dated 09.11.2017 under the Code in Form III & IV

claiming an amount of Rs. 8,42,863/- towards the goods supplied

from 29.02.2016 till 09.08.2016.

b) It is stated by the Ld counsel for the Appellant that the Corporate

Debtor (CD) in response to the demand notice dated 09.11.2017 sent

a reply through its counsel dated 23.11.2017 stating that the

dispute with regard to the quality of goods, adjustment of cost of

material not lifted, difference of profit towards commission are still

pending and cited various emails. Certain issues raised in the reply

to the demand notice are extracted below for convenience:

"it is surprising that you the addressee have

mentioned you're your emails of demand but

conveniently forgot to address the emails raised by

my client of the disputes as of the supplied to various

customers on account of products rate, sub-standard

quality, rejection of your product reclaimed rubber.

Rather your sub-standard quality product have put

my client's reputation of supplier of quality raw

material at risk and instead of resolving the dispute

raised by different customers and my client was

Company Appeal (AT)(Ins) No.498 of 2021 Page 5 of 18 forced to sell the goods at loss of more than (Rs.

1,33,000/-) of cochin supply which is mentioned in

your present notice. (If you require the invoice of the

said sale of the customer, can be sent to you for your

perusal.

Further, my client have also sent you the work

sheets, test reports; complaint from various

customers are enclosed, herewith as your product

was not meeting the specifications as claimed by you

the addressee. However, you the addressee failed to

resolve the same till date. Complaints from customers

are an eye opener yet you the addressee chose to

issue notice of insolvency and bankruptcy to my

client and it is more so shocking that the same is in

backdrop of that you have made my client as

Distributor and Consignment agent for development

of your business and approached my client as my

client has goodwill in the business of rubber and

chemicals since last more than 50 years through its

predecessors.

Company Appeal (AT)(Ins) No.498 of 2021 Page 6 of 18 Further you had put responsibility on my client to

share all updates about the products ( Reclaimed

rubber) you supplied, my client took orders 'through

its hard earned goodwill across India through sheer

dint of hard work and my client placed before you.

The market information, with regard to

product/customers/competitors and about the

customers complaint regarding the product through

various, emails, which you have deliberately forgot

to mention in your instant notice, and you the

addressee had agreed to ensure timely delivery,

product quality, time need based support but failed

to adhere to the same and dispute are still, pending.

It is shocking that instead of resolving the dispute,

you the addressee chosen the provisions of

Insolvency & bankruptcy to recover the dues, for

which you are not entitled at all for the demanded

sum. Further, it is made clear that my client in made

payment in running account manner and never

made any, payment as per invoice and as you the

addressee failed to address the issues arisen in the

Company Appeal (AT)(Ins) No.498 of 2021 Page 7 of 18 supplies made by you, my client have not received

the payments from the customers and you the

addressee despite being problems faced by

customers, instead of resolving the dispute and

issues, Pressurizing my client to make the payment

for the goods ( reclaimed rubber ) you have supplied

and stock weighing around 3,750 Kg. still lying at

Kolkata against the invoice mentioned in your notice

and you can take back the stock, which is of no use

to my client. You the addressee could have taken

back the unused stock long back, yet did not made

any effort to resolve the issue and forcing my client

to succumb to your demand under Insolvency &

bankruptcy Code, 2016. Further you the addressee

is liable to pay to my client Rs. 30,797/ as neither

you had paid the said amount nor issued Credit note

for the same being difference noted in the

transactions. Work sheet is annexed herewith for

your reference. Further, you are aware that you the

addressee cannot escape the issues which are still

pending since last 18 months but you the addressee

Company Appeal (AT)(Ins) No.498 of 2021 Page 8 of 18 yourself stopped the business through my client

since then as you could not attend the complaints of

the customers across India and very conveniently

with malafide intention did not even mentioned

emails, addressed by client to you. Emails dated

26.4.2016, 27.4.2016, 4.5.2016, 7.5.2016,

25.5.2016, 1.6.2016, 4.6.2016, 9.6.2016,

27.6.2016, 6.7.2016, 15.7.2016, 27.7.2016,

8.9:2016, 18.11.2016 are annexed herewith. Neither

you have taken back the material weighing around

3,750 Kg. from Kolkata nor adjusted the losses

suffered by any client and as your unused material

is of no use to my client and by not lifting the

material, you the addressee yourself is responsible

for the same and cannot demand from my client for

the said delivery. Further, you the addressee cannot

demand the amount for questionable goods supplied

and lying unused as my client is consignment agent.

and not a manufacturer of running an industry for

the consumption of goods supplied by you. It is

further very ironic that at the same time you the

Company Appeal (AT)(Ins) No.498 of 2021 Page 9 of 18 addressee demanding amount for the goods

supplied, but for the reasons best known to you, fails

to take back the material lying unused and

pressurizing my client to pay for the same, which you

yourself failed to sold on your own to the same

manufacturer across the country. You are further

called upon to lift the material weighing 3,750 kg. As

stated in the reply and reduce the value of the said

unused material, adjust the loss of Rs.1,33,000/-

suffered in Cochin issue credit note worth Rs. 30,797

and freight charges (actual ) borne by my client

failing which my client will have no option. but to

initiate legal action for the same in addition to claim

for damages."

c) In spite of the reply to the demand notice, the Respondent No.1 filed

an application before the Adjudicating Authority for claiming of Rs.

8,42,863/- On the issue of defective goods, reference may be made

to Annexure 9-12 of the Appeal paper book. The Respondent No.2

even then settled the dispute with R1. The impugned order passed

by the Adjudicating Authority, the R2 without prejudice to its rights

and contentions made the entire payment of Rs.8,43,000/- released

Company Appeal (AT)(Ins) No.498 of 2021 Page 10 of 18 to the R1 against the total amount of Rs. 8,42,863/- as mentioned

in the claim form. Thereafter, the Respondent No.2 approached the

R1 and the 'Interim Resolution Professional' (IRP) to close the matter

as the entire payment claimed in Section 9 application was paid.

However, the R1 has increased the claim amount which he has made

in the Application Form of Rs. 8,42,863/- to an illegal demand of

Rs. 16,22,682/-.

d) It is stated by the Ld counsel for the Appellant that the differential

amount which they have increased from Rs. 8,42,863/- to Rs.

16,22,682/- on 15.06.2021 is the differential amount as towards

interest rate @24% p.a.

e) Ld counsel for the Appellant has also stated that the R2/CD filed an

application bearing no IA No. 2641/ND/2021 under Rule 11 of the

NCLT Rules 2016 before the Adjudicating Authority which was

subsequently withdrawn by the order dated 02.07.2021 on the

statement made by the IRP that the Operational Creditor and CD

are discussing the resolution of the issue involved with respect to

the settlement and payment of additional debt. Now the OC, even

raised the issue of some payment of penalty for Form-C for Rs.

2,10,000/- as per the Appellant which was not raised in the

Application filed before the Adjudicating Authority.

Company Appeal (AT)(Ins) No.498 of 2021 Page 11 of 18

f) The Ld counsel for the Appellant has also stated that the R1 didn't

settle the matter while the CD has already paid the amount claimed

in Form-V and have increased the frivolous demand of Rs. 16 lakhs

plus.

g) The Appellant has cited case laws to supplement his case:

• State of Punjab and Ors. Vs. Krishan Dayal Sharma, AIR 1990

SC 2177;

• S.S.Polymers, Vs. Kanodia Technoplant Limited, CA(AT)(Ins) No. 1227 of 2019

h) The Ld counsel for the Appellant has submitted that they have

already prepared a Bank Draft bearing No. 022495 dated 17.06.202

of Rs. 15,21,553/- drawn on HDFC Bank in favour of S.E. Power

Ltd/R1, towards full and final settlement of the claim but still R1 is

not filing withdrawal form as per Regulation 30A r/w Section 12A of

the Code.

5. The submission made by the Respondent No.1 is stated herein below in a

summarized manner:

a. The R1 has submitted that they have filed an application on 02.02.2018

before the Adjudicating Authority on the failure of the Appellant not

paying their dues and they have also stated since the Adjudicating

Company Appeal (AT)(Ins) No.498 of 2021 Page 12 of 18 Authority has passed order after three years of filing his Application so

they are charging interest.

b. It is also stated in the reply of the R1/ OC that they have filed a petition

for CIRP before the Adjudicating Authority and not for recovery of

payment. They are claiming the amounts towards Form-C because that

penalty was levied on them by the concerned department of commercial

tax.

c. The Ld counsel for the Respondent no.1 has also stated that they are

charging 20% interest p.a. as has been charged by sales department

and the CD delayed release of payment and hence they are charging

interest. They have also cited the Hon'ble Supreme Court Judgments

in Syndicate Bank, Chennai Vs. Mohan Brothers, (2004) 10 SCC 549,

in view of the proviso to Section 34(1) CPC, stated that "if the liability

in relating to the sum adjudged had arisen out of commercial

transaction, the rate of such further interest may exceed 6%p.a. but

shall not exceed the contractual rate of interest. Accordingly, the

interest being charged can neither be called exorbitant or a belated

claim". There is no requirement under law for the Applicant under the

Code to approach the Adjudicating Authority showing the interest

payable by law while determining debt due. It is submitted that the

requirement is to show that an amount as specified by the Code as

Company Appeal (AT)(Ins) No.498 of 2021 Page 13 of 18 threshold is due and the debt is ascertainable. The debt in question is

not the interest component only. The principal was outstanding on the

basis of which the Respondent approached the Adjudicating Authority,

not with a view of recover the amounts but to ensure that the affairs of

the Cd are brought in order and it remains a going concern.

6. We have carefully gone through the pleadings of the parties and extant

provisions of the Code including their written submissions and we are having

the following observations:

a. It is also not in dispute that initiation of CIRP has been filed by OC/R1, no

doubt reflects outstanding amount of Rs. 8,42,863/- and for raising that

amount they have also provided the detail break down in the application

form itself and the same amount of Rs. 8,42,863/- is also been shown in the

demand notice in Form-III appearing at page 84 of the Appeal paper book.

b. It is also not in dispute that the amount of Rs. 8,43,000/- has not been paid

to the Respondent, as no where it is controverted that they have not received

this amount.

c. It is also evidently clear that in response to the demand notice and reply

given by the CD it is made clear that there is an issue of the 'product not

meeting the specification' i.e. quality dispute is existing and certain stocks

to be lifted by the R1 which has been rejected by the CD. There is a complaint

Company Appeal (AT)(Ins) No.498 of 2021 Page 14 of 18 to the CD for some of the material supplied by R1 and the same is pointed

out in multiple emails as mentioned in the reply to the demand notice.

d. As a result of all this, this Tribunal is coming to the firm view that initiation

of CIRP is not warranted when CD is in a position to pay back the dues and

have already paid back the dues under the threat of the Code and initiation

of CIRP, the R1 raising a post frivolous claim by enhanced claim resulting

from interest and other associated cost is unwarranted and unhealthy under

the provisions of the Code. The Code has a prime object for ease of doing

business and the Hon'ble Apex Court repeatedly settled the law that the

purpose of the Code is not chasing for payment rather for ease of doing

business and improving the wealth of the CD.

e. The Hon'ble Supreme Court has already settled the matter that the provision

of the Code is not intended to be a substitute to be a recovery forum. The

Hon'ble Supreme Court in Civil Appeal No.9597 of 2018, "Transmission

Corporation of Andhra Pradesh limited Vs. Equipment Conductors and

Cables Limited" vide para 15 has already held that "IBC is not intended to

be a substitute to a recovery forum and also laid down that whenever there

is existence of real dispute, the IBC provisions cannot be invoked. The Code

cannot be used whenever there is existence of real dispute and also whenever

the intention is to use the Code as a means for chasing of payment or

building pressure for releasing the payments."

Company Appeal (AT)(Ins) No.498 of 2021 Page 15 of 18 f. Section 9(5) of the Code which is enumerated herein below also

specifically makes it clear that if there is a dispute, it is not the job of

the 'Adjudicating Authority' or the 'Appellate Authority' to assess the

dispute whether they will get the claim or not, but on certain perception

of judicial assessment if it looks that the claim of dispute is genuine

and the Operational Creditor has no other purpose except to put the

CD into doldrum and to collapse its business then naturally it is not

accepted from either provision of the Code or law laid on the subject to

initiate CIRP. Section 9(5) of the Code, for brevity and clarity, is depicted

below:

"The Adjudicating Authority shall, within fourteen days

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

an order--

(1) admit the application and communicate such decision

to the operational creditor and the corporate debtor if,--

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

complete;

(b) there is no [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate

debtor has been delivered by the operational creditor;

Company Appeal (AT)(Ins) No.498 of 2021 Page 16 of 18

(d) no notice of dispute has been received by the

operational creditor or there is no record of dispute in the

information utility; and

(e) there is no disciplinary proceeding pending against

any resolution professional proposed under sub-section

(4), if any."

g. In view of the above facts and circumstances of the case as also law

laid down on the subject, we set-aside the impugned order dated

03.06.2021 passed by the Adjudicating Authority ('National Company

Law Tribunal, Principal Bench-IV, New Delhi) in C.P. No. IB-

218(PB)/2018. In the result, 'Corporate Debtor' is released from the

rigor of the 'Corporate Insolvency Resolution Process'. All actions

taken by the 'Interim Resolution Professional'/ 'Resolution

Professional' and 'Committee of Creditors', if any, are declared illegal

and set-aside. The Resolution Professional is directed to handover the

records and assets of the 'Corporate Debtor' to the Director of the

'Corporate Debtor' immediately.

h. The matter is remitted back to the Adjudicating Authority to decide

the fee and cost of the 'Corporate Insolvency Resolution Process' as

incurred by the 'Interim Resolution Professional, which is to be borne

Company Appeal (AT)(Ins) No.498 of 2021 Page 17 of 18 and paid by the Operational Creditor. The Appeal is allowed with the

aforesaid observations and directions.

Pending application, if any, stands disposed of.

Interim order, if any, stands vacated. No order as to costs.

[Justice Rakesh Kumar] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

04th August, 2022 New Delhi

Raushan.K

Company Appeal (AT)(Ins) No.498 of 2021 Page 18 of 18