Soham Polymers Private Limited vs Flocksur India Private Limited

IN THE MATTER OF: Soham Polymers Pvt. Ltd. ...Appellant

Versus

Flocksur India Pvt. Ltd. ...Respondent Present: For Appellant: Mr. G. P. Madaan, Mr. Aditya Madaan and Mr. Aishwarya Adlakha, Advocates. For Respondent: Mr. Anupam Lal Das, Sr. Advocate with Mr. Sinha Shrey Nikhilesh and Mr. Nayan Dubey, Advocates.

ORDER

(Virtual Mode)

14.02.2022: Heard learned counsel for the Appellant as well as learned

counsel for the Respondent. This Appeal has been filed against the order dated

01.04.2021 passed by the Adjudicating Authority (National Company Law

Tribunal), New Delhi Bench VI by which application filed by the Appellant

under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as 'Code') has been rejected.

2. The Appellant had supplied goods to the Corporate Debtor. The present

dispute is regarding only four invoices dated 09.01.2018, 16.04.2018,

24.05.2018 and 22.10.2018. According to the invoices the payment was to be

made within 60 days after the delivery. After supply of the aforesaid goods

when payment was not made, several reminders were sent by the Appellant

and thereafter there has been WhatsApp chat between the parties regarding

payment, details of which has been brought on the record by the Appellant

before this Tribunal as well as before the Adjudicating Authority. Notice under

Section 8 was issued on 05.08.2019. Reply to the notice was issued on -2-

31.08.2019 and thereafter an application under Section 9 was filed on

11.11.2019 to which Reply was also filed. The Adjudicating Authority after

hearing the parties by order dated 01.04.2021 has rejected the application

under Section 9 on the ground that there was pre-existing dispute between

the parties. Challenging the order passed by the Adjudicating Authority, this

Appeal has been filed.

3. Shri Aditya Madaan, learned counsel for the Appellant contends that

the dispute which was sought to be raised by the Corporate Debtor was

spurious, hypothetical and illusionary and there is no material to support the

existence of any dispute. He further submits that the Adjudicating Authority

committed error in holding that the said dispute was dispute within the

meaning of Section 9 and rejected the application. It is submitted that the

Adjudicating Authority itself in para 6 has noticed the judgment of the Hon'ble

Supreme Court in the matter of "Mobilox Innovative Pvt. Ltd. vs. Kirusa

Software Pvt. Ltd." and has quoted the relevant portion of the judgment where

it was clearly laid down that so long as a dispute truly exists in fact and is not

spurious, hypothetical or illusory, the adjudicating authority is to reject the

application. It is submitted that for the first time after the issue of invoices

email was sent by the Corporate Debtor on 20.05.2019, where the dispute of

deficiency in quality of goods was raised prior to that there was several

WhatsApp chat where the Respondent - Corporate Debtor has not raised any

issue of deficiency in quality of goods and have not pointed out any such

dispute in the communication. It was when through WhatsApp Chat the

Appellant communicated that if payments are not received they are compelled

Company Appeal (AT) (Insolvency) No. 924 of 2021 -3-

to approach NCLT, as referred in WhatsApp Chat dated 17.03.2019, then on

20.05.2019 for the first time dispute was raised.

4. Learned counsel for the Respondent refuted the submissions made by

learned counsel for the Appellant and contended that there is dispute between

the parties which was duly communicated on 20.05.2019 which was prior to

receipt of notice under Section 8. Hence, the Adjudicating Authority has

rightly rejected the application under Section 9. It is further submitted by Mr.

Anupam Lal Das, learned counsel for the Respondent that due to deficiency in

the quality of goods the Corporate Debtor has to issue Credit Notes to its

buyers on 01.08.2019, 26.07.2018, 28.07.2018 and 14.05.2018 which have

been brought on record alongwith the Reply. He submits that issuance of

aforesaid credit notes clearly proves deficiency in quality of goods. Hence,

Section 9 application was rightly rejected.

5. We have considered submissions of learned counsel for the parties and

perused the record. Law on the subject is well settled and has been clearly

laid down by Hon'ble Supreme Court in the matter of "Mobilox Innovative Pvt.

Ltd. vs. Kirusa Software Pvt. Ltd.", Civil Appeal No. 9405 of 2017. In para 40

of the judgment following has been stated:-

"Therefore, all that the adjudicating authority is to see

at this stage is whether there is a plausible contention

which requires further investigation and that the

"dispute" is not a patently feeble legal argument or an

assertion of fact unsupported by evidence. It is

Company Appeal (AT) (Insolvency) No. 924 of 2021 -4-

important to separate the grain from the chaff and to

reject a spurious defence which is mere bluster.

However, in doing so, the Court does not need to be

satisfied that the defence is likely to succeed. The

Court does not at this stage examine the merits of the

dispute except to the extent indicated above. So long

as a dispute truly exists in fact and is not spurious,

hypothetical or illusory, the adjudicating authority has

to reject the application."

6. The Adjudicating Authority has only to look into as to whether the

dispute which is sought to be raised by the Corporate Debtor truly exists in

fact and it is not spurious, hypothetical or illusory. On the material which has

been brought on record we have only to find out as to whether there was any

dispute actually in fact exists in between the parties prior to issuance of

Section 8 notice or the dispute sought to be raised by the Respondent is only

an illusory dispute.

7. The last of the four invoices was the invoice issued on 22.10.2018 and

there are communications between the parties regarding non-payment. The

Appellant has brought on the record WhatsApp chat between the parties on

01.11.2018 whereby Corporate Debtor was informed that they have not made

payments nor responded to the calls. There are 34 communications between

the Appellant and the Corporate Debtor before email dated 20.05.2019 was

sent by the Corporate Debtor. It is useful to notice only few of them to know

Company Appeal (AT) (Insolvency) No. 924 of 2021 -5-

the actual happening which took place between the parties. On 13.03.2019

following was the message sent by the Appellant:

"I have no alternative but file a case against you in

NCLT. Today is the last call from me afterwards we

will meet in court."

8. The immediate reply of the said message was sent by the Corporate

Debtor on 13.03.2019 itself, which is to the following effect:

"Modekji factory is closed due to pollution I am running

to Chandigarh and Haryana pollution board we have

made them payments and factory will start this

weekend, please bare with me I have full plans to run

the factory and in mind you as our binder partner. Also

expected to transfer around 10-12 Lakh to you for

buying binder. Please bare with me for little bit longer.

Thanks for your patience and trust."

9. There have been several other messages sent by the Appellant. On

14.05.2019 Appellant wrote:

"Today's call was last. If I don't get payment within a

week I am going to take legal action."

10. It was after the said communication, on 20.05.2019, following email was

sent:-

Company Appeal (AT) (Insolvency) No. 924 of 2021 -6-

"Sir,

As you are aware, we have been doing business with

one another for the past many years and so far you

have always supplied us with Flock Binder as required

by us as per our standards and quality.

In the recent time you have supplied us with Flock

Binder and have raised a bill of Rs. 38 Lacs approx.

(Oct 18 -Rs.12.98 Lacs, Mary 2018-12.12 Lacs and

April 2018-12.74 Lacs) against the goods supplied by

you. Further you supplied us goods which was

accepted by us, it was further agreed that payment will

be made only when the goods are found to meet the

standards as required by us.

That several batches of fabrics were produced using

the goods supplied by you and were further supplied in

the market by us which were returned by further

purchasers, who complained that the produced fabrics

were below standard and aren't marketable because of

which, we have incurred huge damages along with the

bad reputation inflicted on our goodwill in the market.

Also, all huge quantity of material supplied by us in the

market has been returned due to your sub-standard of

Company Appeal (AT) (Insolvency) No. 924 of 2021 -7-

material supplied by you and is lying idle at our

warehouse.

Hence, you are kindly requested to collect the finished

goods/stock lying at our warehouse which has been

returned on account of your substandard material and

deduct the pending payment if any for the substandard

material supplied by you. Kindly make the

adjustments in your books accordingly.

Hoping for a prospering business ahead.

Regards."

11. The email which was sent on 20.05.2019 was also replied by the

Appellant on 22.05.2019 which has been brought on record at Annexure A/18.

It is useful to notice its paragraphs 4 and 7, which are to the following effect:

"4. It comes as an even bigger surprise that when we

were sending you reminders for payments not even

once did you talk about product quality concerns & nor

did you raise any of these concerns when you were

promising us payments over the phone whenever we

contacted you for the same. And now, after receiving a

REMINDER for the 34th time have you actually voiced

concerns regarding quality which is not only vague but

completely unacceptable & simply unreasonable & it is

Company Appeal (AT) (Insolvency) No. 924 of 2021 -8-

nothing but trying to find a way to further delay &

default on our payments.

7. Also, we would like to point out that we have

What's app & SMS records from almost 2 years where

you have promised us payments, which obviously have

not come on time & the only thing we have received is

different reasons or points to delay the said payment.

Not even once in those conversations have you talked

about inferior quality, or the above-mentioned claimed

terms even once. So, it's evident that there were no

such terms, nor any such quality issues & this mail has

been written only when we said that we will now

approach the courts for a redressal against our valid

dues."

12. From the correspondence which took place between the parties it is

noticed that before 20.05.2019 there is no iota of evidence at any point that

Corporate Debtor informed about deficiency in goods or lack of quality. It has

been emphasised by learned counsel for the Respondent that Credit Notes

dated 01.08.2019, 26.07.2018, 28.07.2018 and 14.05.2018 were issued to the

Buyers which have been brought on record alongwith the reply at page 33 to

38. According to the Respondent Credit Notes were issued to the buyers due

to bad quality of goods which were supplied by the Appellant. It is noted that

there is no communication to support that Credit Notes were issued due to

bad quality of goods supplied by the Appellants to the Corporate Debtor. If

Company Appeal (AT) (Insolvency) No. 924 of 2021 -9-

the Credit Notes were issued due to bad quality of materials supplied by

Appellant, there was no reason for the Corporate Debtor not to raise quality

concerns from 01.08.2018 till 20.05.2019. No correlation between the quality

of goods and Credit Notes have been established that the Credit Notes have

been issued due to bad quality of goods supplied by the Appellant.

13. We are of the view that in proceeding under Section 9, the Court has to

satisfied that dispute truly exists in fact and is not spurious, hypothetical or

illusory.

14. The present is a case where we are satisfied that there is no dispute, in

fact, prior to issuance of Section 8 notice. Appellant sent various

communications to the Corporate Debtor for payments and stated that it will

be compelled to go to NCLT for his claim, after which the Respondent first time

on 20.05.2019 informed that there is deficiency in the goods supplied. There

has been no communication regarding quality of goods after delivery of goods

by invoices dated 09.01.2018, 16.04.2018, 24.05.2018 and 22.10.2018 and

after more than six months' period the Respondent sent communication

regarding deficiency in quality of goods. The submission of counsel of the

Respondent that they informed the Appellant on 20.05.2019 about bad quality

of goods and asked to take away their goods, does not inspire any confidence.

If there was any deficiency in the quality of goods, Respondent ought to have

brought it to the notice of the Appellant immediately after receipt of the goods,

the email dated 20.05.2019 was sent when Appellant informed about taking

legal remedy.

Company Appeal (AT) (Insolvency) No. 924 of 2021 -10-

15. We are, thus, fully satisfied that present is a case where Corporate

Debtor is trying to raise illusory dispute and in fact no dispute existed. The

Corporate Debtor cannot be allowed to raise bogy of disputes to save it from

its liabilities and the debt under Section 9. We, thus, are satisfied that the

Adjudicating Authority committed error in rejecting Section 9 application on

the ground of dispute. In result, we set aside order dated 01.04.2021. Let the

Adjudicating Authority pass order for admission of the Application under

Section 9 after four weeks from today. In the meantime, it shall be open for

the parties to enter into settlement, if any. Subject to above, the Appeal is

allowed.

[Justice Ashok Bhushan] Chairperson

[Dr. Ashok Kumar Mishra] Member (Technical) Archana/nn

Company Appeal (AT) (Insolvency) No. 924 of 2021