Str Holdings vs Lucent Cleanenergy Private Limited

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal(AT) (Ins)No. 367 of 2021

IN THE MATTER OF:

STR Holdings, INC. 10 water street, Enfield CT06082, USA US Federal (TIN): 27-1023344 (Represented through its President, Chairman & CEO Mr. Robert S. Yorgensen) ...Appellant

Vs.

Lucent Cleanenergy Pvt. Ltd. 14/15, 1st Floor, Pushpak Apt, Opp. Kaladarshan Flats, PrernatirthDerasar Road, Satellite, Ahmedabad - 380 015 Gujarat (Represented through its Managing Director Mr. PrafulBhavishya ...Respondent

Present: For Appellant : Mr. Raj Shekhar Rao, Sr. Advocate, Ms. Peppino Bhal, Ms. Maansi Sood, Mr. Areeb, Ms. DivyaBahl, Mr. Abhishek Bharti, Advocates

For Respondents : Mr. Ritin Rai, Sr. Advocate, Ms. Ritika Sinha, Ms. Natasha Dhurman Shah, Advocates

Company Appeal (AT) (Ins) No.367 of 2021 Page 1 of 38

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The present appeal has been filed by the Appellant- 'STR Holdings INC.

under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short

'Code') against the impugned order dated 15th March, 2021 passed by

the 'Adjudicating Authority' (National Company Law Tribunal),

AhmedabadBench in CP(IB) No. 852/NCLT/AHM/2019.

2. The Appellant is a 'Foreign Company' incorporated in the 'United States

of America' and is engaged in the business of providing high quality,

superior performance encapsulants for the photovoltaic(PV) module

industry. The Respondent is a Private Limited Company incorporated in

the state of Gujarat under the provisions of Companies Act, 1956 and

involved in manufacturing PV Encapsulants.

3. The grievance of the Appellant is that the Adjudicating Authority on

misapplication of facts and law has held erroneously that part of the

claim filed by the Appellant for outstanding payment due on raw material

invoices is not an 'operational debt' and that the remaining part of the

claim for balance payment for equipment being an 'operational debt' is

subject to disputes.

Company Appeal (AT) (Ins) No.367 of 2021 Page 2 of 38

4. The case of the Appellant is that they have supplied raw material to the

Respondent under 43 invoices against the purchase orders placed by the

Respondent. The Appellant is accepting the fact that the Respondent had

made payment of 27 such invoices out of 43 invoices. The remaining 16

invoices are unpaid being considered as 'short term financing'.

5. It is the Appellant who has entered into on 30.08.2016 a 'Term Sheet' for

Tolling and Joint Venture Agreement with the Respondent to provide

EVA Resin including TAICROS, Laromer and Dynasylan Chemicals (Raw

Material) and Equipment, technology and training to the Respondent for

tolling/manufacturing of PV encapsulants with an option to set up a

joint venture with the Respondent. The Appellant did not exercise its

option of setting up a Joint Venture as envisaged in the Tolling and Joint

Venture Agreement with the Respondent. The Appellant instead sold raw

material to the Respondent and provided the Respondent with credit

period of 365 days for effecting payments for the same. The respondent

utilized the credit period to process/toll the Raw Material to manufacture

the PV Encapsulants/finished goods. The Respondent sold the finished

goods to end customers under the Respondent's Tax invoices. Receipts

for sale of finished goods were received by the Respondent in the

Respondent's bank accounts. After adjusting its tolling charges and other

expenses, the Respondent used the proceeds from the sale of finished

Company Appeal (AT) (Ins) No.367 of 2021 Page 3 of 38 goods to pay the Appellant, for the Raw Material sold to the Respondent

under the Appellant's commercial invoices. Records were maintained by

the Respondent in its Sales Register.

6. It is stated by the Ld. Sr. Counsel for the Appellant that from July 2016

to October 2018, the Appellant sold Raw Material to the Respondent

under the Appellant's 43 Commercial Invoices raised on the Respondent

(Raw Material Invoice). On 19.03.2018, the Appellant and Respondent

also finalized terms for sale of Equipment (line4) for USD 400,000. The

Appellant raised an invoice for USD 200,000 and the balance payment

was to be paid by the Respondent faster by either increasing the discount

on tolling or by any other method that works. From 10.07.2018 till

22.03.2019 the Respondent paid the Appellant towards the Appellant's

20 Raw Material Invoices. Between 11.04.2019 to 16.04.2019 the

Respondent was liable to pay the Appellant's following three Raw

Material Invoices which were due and payable on 11.04.2019,

15.04.2019 and 16.04.2019:

i. Raw Material Invoice No. CLU180425 dated 11.04.2018 for USD

145,860 due and payable on 11.04.2019;

ii. Raw Material Invoice No. CLU180424 dated 15.04.2018 for USD

109,395 due and payable on 15.04.2019;

Company Appeal (AT) (Ins) No.367 of 2021 Page 4 of 38 iii. Raw Material Invoice No. CLU180423 dated 16.04.2018 for USD

108,732 due and payable on 16.04.2019.

7. As far as the Respondent is concerned, it has not disputed that a 'Term

Sheet' was executed between the parties which is purported to the Joint

Venture cum Tolling Agreement between the parties. They have also

agreed that the Respondent was only supposed to do job work (tolling)

utilizing the Respondent existing manufacturing facilities for the

Appellant and as per clause 5, tolling arrangement was envisaged and

the Respondent was supposed to do the job work and all raw material

were to be supplied by the Appellant and the Respondent was to only

carry out production as a job worker. A tolling fee of US$ 0.125 per sq.

mtr was also agreed to be paid. Further, since it is a tolling arrangement,

it is obvious that the responsibility of the Respondent was to only carry

out the production as a job worker ad give the finished goods to the

Appellant and it was for the Appellant to then sell the products so

manufactured by the Respondent on tolling basis.

8. The Ld. Sr. Counsel for the Respondent has stated that the Roles and

Responsibilities have been defined in the Term Sheet. On part of the

Respondent, the responsibilities included to lease their existing factory

premises to the JV Company alongwith provisions of testing equipments,

Company Appeal (AT) (Ins) No.367 of 2021 Page 5 of 38 warehouse, etc and agreed to pay royalty to the Appellant on the sales

made by the JV.

9. It is also stated by the Ld. Sr. Counsel for the Respondent that as per the

tolling arrangement as envisaged in the term sheet, the appellant was

supposed to supply all the raw materials, packing materials and all other

inputs to the respondent for carrying out the job work. However, instead

of supplying the materials for job work, the appellant identified the

parties from whom the appellant wanted to source the imported raw

materials, the appellant thereafter raised their own purchase orders on

such parties in their own name for purchase of such imported raw

materials and made advance payment for imported raw materials to such

suppliers who then supplied the materials to the respondent company.

The respondent has never raised any PO on the appellant or on any of

the suppliersof the imported Raw Material. However, since as per the job

work arrangement, the purchases are required to be made by the

appellant and then the material in question is required to be given for job

work by the appellant to the respondent. It is only normal and logical

that the purchases are actually made by the appellant in its own name

and the material of import purchase is shipped by the supplier to the

respondent.

Company Appeal (AT) (Ins) No.367 of 2021 Page 6 of 38

10. Since it was the responsibility of the respondent to clear the goods

from the customs, as a part of the stipulated procedural formalities in

this regard, the respondent had to file a Bill of Entry and book the

purchase as if the purchase has been made by the respondent. However,

at the time of clearing the material from the customs the only document

available with the respondent is the invoice copy of the original supplier.

Thus, it was technically and legally not possible for the respondent to

show that the material is received on job work basis otherwise the

material could never has been cleared from the custom department in

the absence of the relevant supporting legal documents. Hence in all the

cases of materials so made available by the appellant, in the books of the

respondent the purchase are recorded in the name of the original

suppliers and never in the names of the appellant. The advance payment

made by the appellant to the suppliers is accounted in the books of the

respondent as an advance payment made to the supplier by the

appellant on behalf of the respondent (in partial fulfillment of tolling

arrangement).

11. It is also stated by the Ld. Sr. Counsel for the Respondent that

under this hybrid arrangement the appellant STR has only facilitated the

purchases by making advance payment covering only the basic prices of

import purchases. As and when STR used to make such purchases, as

Company Appeal (AT) (Ins) No.367 of 2021 Page 7 of 38 elaborated above, by way of intimation of such purchases having been

made and advance payments have been made, STR has been raising

invoices on the respondent. Again, such invoices have been raised in lots

from time to time and have been given to the respondent again in lots for

accounting purposes so that based on such invoices or proforma invoices

the respondent can book such advance payments made by STR to

various suppliers by giving corresponding credit to STR. Thus, the so

called invoices mentioned by the appellant are not really the actual

invoices covering the supply of goods by the appellant to the respondent

but are essentially in the nature of proforma invoices or intimations

about such purchases being facilitated by the appellant. The actual

supplies have been made by various suppliers directly to the respondent

as mentioned earlier and also as mentioned in the said proforma

invoices. Thus, it is respectfully submitted that these alleged invoices are

not actual invoices but are only intimations of advance payments made

by the appellant for facilitating the purchases. All expenses incurred by

the respondent on behalf of the appellant as per the tolling arrangement

are required to be reimbursed by the appellant (for e.g. payments made

for purchase of other raw materials, packing materials, chemicals,

consumables, stores, clearing and forwarding expenses for clearance of

import purchase, etc). The respondent has, therefore, raised

Company Appeal (AT) (Ins) No.367 of 2021 Page 8 of 38 reimbursement invoices on the appellant for this type of expenses. The

appellant has not made supply of any goods or services to the

respondent, and there is not a single purchase booked by the respondent

in the name of the appellant, the appellant has only facilitated the

purchases as per the above arrangements by way of advance payments

made to the supplier.

12. It is stated by the Ld. Sr. Counsel for the Respondent that in a

nutshell the appellant has never made any supply of goods or services

and therefore there is no 'operational debt" which is payable and due as

per Section 5(21) of the Code and therefore the appellant is not an

operational creditor as per Section 5(20) of the Code.Section 5(20) &

Section 5(21) of the Code is depicted below, for brevity and clarity:

"Section 5 (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;

Section 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

repayment of dues arising under any law for the

time being in force and payable to the Central

Company Appeal (AT) (Ins) No.367 of 2021 Page 9 of 38 Government, any State Government or any local

authority;"

13. There were significant pre-existing disputes - i.e. disputes arising

out of the hybrid structure of the JV operations between the respondent

and the Appellant and which have also been brought out by the

respondents by way of their replies to the demand notice sent by the

Appellant. Acknowledging the existence of the disputes between the

parties (i.e. the Appellant and the respondents) and in order to resolve

the disputes, the parties had mutually agreed to identify their disputes

and categorize them for reconciliation of the same in five identified

buckets as under:

Bucket 1: Receivables from end customers of PV

Encapsulant

Bucket 2: Outstanding payment for Equipment (Line

4 and STRM Blender)

Bucket 3: Inventory (Raw material, packaging,

finished goods)

Bucket 4: Scrap/ Waste/bad debts

Bucket 5 : Miscellaneous ( GST, Credit note

adjustments,etc )

Company Appeal (AT) (Ins) No.367 of 2021 Page 10 of 38

14. The Adjudicating Authority has held that the parties were

operating between themselves as per the Term Sheet. The Term Sheet for

tolling and Joint Venture Agreement as stated above and has also held

that the Respondent was a job worker for tolling and entitled for tolling

fee. The break up of the claim has also been provided by the Adjudicating

Authority which reflects that the claim is for remittance of money

collected from end customers, cost of inventory given for

tolling/production not used or accounted for supply of equipment

(machinery for production line). The claim is made by the Applicant as

Operational Debt. The Adjudicating Authority has further held that there

are disputes between the parties among other things regarding scrap and

other wastages on usage of inventory, functioning of some parts of

equipments and on other claims of the appellantas shown in various

mails.

Based on the above observations the Adjudicating Authority has

dismissed the petition treating it as it is not qualified under Section 9 of

the Code for admission.

15. We have carefully gone through the submissions made by the Ld

Sr. counsels for the parties and the documents available on records

including citation and laid down provisions of the I & B Code, 2016, and

we are having the following observations:-

Company Appeal (AT) (Ins) No.367 of 2021 Page 11 of 38 a. It is not in dispute that the parties have entered into contemplated to

enter into Term Sheet for Tolling and Joint Venture Agreement for the

Ethylene Vinyl Acetate (EVA) Films Project Rev.5 Draft August, 30,

2016 appearing at page 25 to 29 affidavit in reply filed by the

Respondent and the same is depicted below, for brevity and clarity:

Company Appeal (AT) (Ins) No.367 of 2021 Page 12 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 13 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 14 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 15 of 38 b. It is also not in dispute that the Appellant has supplied the materials

to the Respondent and the Respondent has cleared the goods from the

custom and also released a part payment of the outstanding dues.

c. It is also not in dispute that the parties have also entered into the

Terms Sheet for sale of equipment vide email dated 15th March, 2018/

19th March, 2018 and the same is depicted below:

Company Appeal (AT) (Ins) No.367 of 2021 Page 16 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 17 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 18 of 38 d. The Respondent's submission that the Appellant has not raised any

purchase order on the Appellant does not seem to be correct. The

various purchase order produced by the Appellant is appearing at

page 519 to 532 of the Appeal Paper Book in Vol-II, for brevity and

clarity, the purchase order appearing at page 519 & 532 are

reproduced below just for the sake of example:

Company Appeal (AT) (Ins) No.367 of 2021 Page 19 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 20 of 38 e. It does not seem to be correct that the invoices are performa invoices

as it appears from the details of commercial invoices appearing at

page 39 and page 60 of the rejoinder vol.-1. The first & last invoices

are reproduced below for the sake of convenience:

Company Appeal (AT) (Ins) No.367 of 2021 Page 21 of 38 Company Appeal (AT) (Ins) No.367 of 2021 Page 22 of 38 f. However, the Respondent is much smaller party in comparison to the

Appellant and hence the Appellant has much bargaining power than

the Respondent. Although, Equity has no consideration under the

Code but prima facie one of the cause of action is also based on

Equity considerations.

Company Appeal (AT) (Ins) No.367 of 2021 Page 23 of 38 g. It seems that Respondent has made some part payments also to the

Appellant against their commercial invoices. However, it is a grey area

and there is a need to go into details of voracity of various

submissions made by the Appellant and the Respondent.

h. The Appellant has cited the following judgments of Hon'ble Apex

Court and also of this Tribunal, some of which are discussed below:

i. Mobilox Innovation Pvt. Ltd., Vs. Kirusa Software Pvt. Ltd

(2018) 1 SCC 353 held at para 33-34, 37-38 &51

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

Company Appeal (AT) (Ins) No.367 of 2021 Page 24 of 38 receipt of the demand notice or invoice, as the case may be. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the self-same 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor or send an attested copy of the record that the operational creditor has encashed a cheque or otherwise received payment from the corporate debtor (Section 8(2)(b)). It is only if, after the expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corporate debtor or notice of dispute, that the operational creditor may trigger the insolvency process by filing an application before the adjudicating authority under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 5, accompanied with documents and records that are required under the said form.

Under Rule 6(2), the applicant is to dispatch by registered post or speed post, a copy of the application to the registered office of the corporate debtor. Under Section 9(3), along with the application, the statutory requirement is to furnish a copy of the invoice or demand notice, an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt and a copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor. Apart from this information, the other information required under Form 5 is also to be given. Once this is done, the adjudicating authority may either admit the

Company Appeal (AT) (Ins) No.367 of 2021 Page 25 of 38 application or reject it. If the application made under sub-section (2) is incomplete, the adjudicating authority, under the proviso to sub-section 5, may give a notice to the applicant to rectify defects within 7 days of the receipt of the notice from the adjudicating authority to make the application complete. Once this is done, and the adjudicating authority finds that either there is no repayment of the unpaid operational debt after the invoice (Section 9(5)(i)(b)) or the invoice or notice of payment to the corporate debtor has been delivered by the operational creditor (Section 9(5)(i)(c)), or that no notice of dispute has been received by the operational creditor from the corporate debtor or that there is no record of such dispute in the information utility (Section 9(5)(i)(d)), or that there is no disciplinary proceeding pending against any resolution professional proposed by the operational creditor (Section 9(5)(i)(e)), it shall admit the application within 14 days of the receipt of the application, after which the corporate insolvency resolution process gets triggered. On the other hand, the adjudicating authority shall, within 14 days of the receipt of an application by the operational creditor, reject such application if the application is incomplete and has not been completed within the period of 7 days granted by the proviso (Section 9(5)(ii)(a)). It may also reject the application where there has been repayment of the operational debt (Section 9(5)(ii)(b)), or the creditor has not delivered the invoice or notice for payment to the corporate debtor (Section 9(5)(ii)(c)). It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility (Section 9(5)(ii)(d)). Section 9(5)(ii)(d) refers to

Company Appeal (AT) (Ins) No.367 of 2021 Page 26 of 38 the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected (Section 9(5)(ii)(e)).

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.

37.It is now important to construe Section 8 of the Code.

Company Appeal (AT) (Ins) No.367 of 2021 Page 27 of 38 The operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means a claim in respect of the provision of goods or services, including employment, or a debt in respect of repayment of dues arising under any law for the time being in force and payable to the Government or to a local authority. This has to be contrasted with financial debts that may be owed to financial creditors, which was the subject matter of the judgment delivered by this Court on 31.8.2017 in Innoventive Industries Ltd. v. ICICI Bank &Anr. (Civil Appeal Nos.8337-8338 of 2017). In this judgment, we had held that the adjudicating authority under Section 7 of the Code has to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor within 14 days. The corporate debtor is entitled to point out to the adjudicating authority that a default has not occurred; in the sense that a debt, which may also include a disputed claim, is not due i.e. it is not payable in law or in fact. This Court then went on to state:

"29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre- existing - i.e. before such notice or invoice was received by the corporate debtor. The

Company Appeal (AT) (Ins) No.367 of 2021 Page 28 of 38 moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise."

38. It is, thus, clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in the prescribed form. The corporate debtor is then given a period of 10 days from the receipt of the demand notice or copy of the invoice to bring to the notice of the operational creditor the existence of a dispute, if any. We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which "the existence of a dispute" alone is mentioned. Even otherwise, the word "and" occurring in Section 8(2)(a) must be read as "or" keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as "or". If read as "and", disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitration proceedings and

Company Appeal (AT) (Ins) No.367 of 2021 Page 29 of 38 not otherwise. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an arbitral tribunal or a court for upto three years, such persons would be outside the purview of Section 8(2) leading to bankruptcy proceedings commencing against them. Such an anomaly cannot possibly have been intended by the legislature nor has it so been intended. We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties.

51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. 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) (Ins) No.367 of 2021 Page 30 of 38 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.

ii. K.Kishan Vs. Vijay Nirman Company Pvt. Ltd (2018) 17 SCC 662 has held at para 30:

"30.With regard to the submission of learned counsel for the respondent, that the amount of Rs.1.71 Crores stood admitted by Mr. Banerji's client, as was recorded in the Arbitral Award, suffice it to say that cross-claims of sums much above this amount has been turned down by the Arbitral Tribunal, which are pending in a Section 34 petition challenging the said Award. The very fact that there is a possibility that Mr. Banerji's client may succeed on these cross-claims is sufficient to state that the operational debt, in the present case, cannot be said to be an undisputed debt."

iii. Sudhir Sales and Services Ltd. Vs. D. Art Furniture Systems Pvt.Ltd., 2018 SCC Online NCLAT 779 has held at para 27:

"27. In view of the aforesaid fact, we hold that there

is no pre-existing dispute in the present case and

the Adjudicating Authority wrongly relied on the

Company Appeal (AT) (Ins) No.367 of 2021 Page 31 of 38 letter dated 13th November, 2013 and letter dated

9th September, 2017 to reject the claim of the

Appellant. We accordingly set aside the impugned

order dated 24th April, 2018 passed by the

Adjudicating Authority in Company Petition No. (IB)-

94 (PB)/ 2018 and remit the case to the

Adjudicating Authority for admitting the application

under Section 9 filed by the Appellant- ('Operational

Creditor'), in absence of any defect. The

Respondent- ('Corporate Debtor') cannot raise any

objection before the Adjudicating Authority for

admission of the application under Section 9, having

heard by this Appellate Tribunal and the issue

having decided. However, the order passed in this

appeal will not come in the way of the Respondent-

'Corporate Debtor' to settle the claim with the

Appellant- ('Operational Creditor') before admission

of the application under Section 9 of the 'I&B Code'

in which case, the Appellant- 'Operational Creditor'

may withdraw the application."

Company Appeal (AT) (Ins) No.367 of 2021 Page 32 of 38 iv. Embee Software Pvt. Ltd. Vs. Solicon Pvt. Ltd. 2019 SCC Online NCLAT 1518 held at para 35:

"35. In the foregoing detailed discussions and also this Tribunal taking into account the vital fact that the Respondent in its Reply notice dated 17.05.2018 had disputed the claim of the Appellant and its liability to pay etc. by raising serious bonafide factual pre-existing disputes, which requires an in depth examination / investigation and the said disputes which cannot be gone into any summary proceedings under the 'I&B' Code, it is held by this Tribunal that the application filed by the Appellant as an Applicant before the Learned Adjudicating Authority is not maintainable in the eye of law. Consequently, the appeals fail and the same is dismissed without costs. Before parting with the case, it is made clear that dismissal of application filed by the Appellant before the Adjudicating Authority will not preclude it to seek appropriate remedy before the Competent Forum for redressal of grievance of course, in accordance with law and in the manner known to law if it so desires/so advised."

i. The Respondent has cited the various judgment of Hon'ble Apex Court

as well as of this Tribunal:

1). CA(AT)(Ins) No. 149 of 2019 Tanya Bhatnagar Vs. Mohamed

Hesham Amin BashaMashaa'I and Ors. held at para 3& 12:

Company Appeal (AT) (Ins) No.367 of 2021 Page 33 of 38 "3. It was brought to our notice that no agreement

or arrangement was made between 'M/s. Global

Energy Talent Private Limited' and the 1st

Respondent and, therefore, no application under

Section 9 of the 'I&B Code' was maintainable.

12. This order will not come in the way of other

creditors who may move before appropriate forum

for appropriate relief. The appeal is allowed with

aforesaid observation. However, in the facts and

circumstances of the case, there shall be no order

as to cost."

However, the above case is not helping the

Respondent as this is a case where there is no

agreement or arrangement between the parties.

Whereas in the present case, the Appellant has

produced the purchase order and the copy of the

invoices. This Tribunal is not a Trial Court but it

is a summary proceeding.

We are not in a position to go into the details what

has been internal understanding between the

parties. The Term Sheet produced by the

Company Appeal (AT) (Ins) No.367 of 2021 Page 34 of 38 Respondent is also a revised draft only. Hence,

taking shelter under this judgment is not tenable

either on law or on fact.

2) Civil Appeal No. 9597 of 2018 in Transmission Corporation of

Andhra Pradesh limited Vs. Equipment Conductors and

Cables Limited held at para 51:

"51. It is clear, therefore, that once the operational

creditor has filed an application, which is otherwise

complete, the adjudicating authority must reject the

application under Section 9(5)(2)(d) if notice of dispute has

been received by the operational creditor or there is a

record of dispute in the information utility. It is clear that

such notice must bring to the notice of the operational

creditor the "existence" of a dispute or the fact that a suit

or arbitration proceeding relating to a dispute is pending

between the parties. 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 important to separate the grain from the

Company Appeal (AT) (Ins) No.367 of 2021 Page 35 of 38 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." The aforesaid principle squarely

applied to the present case.

The above cited case is virtually meant for two things

that I&B Code cannot be used for chasing of payment

and at the same time it cannot be applied where there is

existence of dispute. However, in the present case, there

was a reconciliation meeting and as a result of which an

email was sent from Respondent to the Appellant setting

out payment schedule for the future remittance as

appearing at page 91 of the Appeal Paper book.

j. All this reflects that there is a need to find out voracity of various

submissions and the business module; it does not seem to be

straight jacket case that there is no payment due to the Appellant

Company Appeal (AT) (Ins) No.367 of 2021 Page 36 of 38 from the Respondent but at the same time it cannot confirmed that

all sums as demanded by the Appellant is due and payable in law

and on fact by the Respondent as there seems to be some back to

back payment understanding between the parties as appears from

the record.

k. Hence, in the fitness of thing, justice demands to refer back the

matter to the Adjudicating Authority for having a fresh look on

various issues relating to the business module and the purchase

order and invoices raised by the Appellant and the payment so far

released and the balance due linking it to the back to back receipt

from customer for the supply made by the Respondent which is a

joint responsibility. Accordingly, without commenting on the merit of

the case, we are remanding back the matter to the Adjudicating

Authority for a fresh look and the Adjudicating Authority is

requested to dispose of the matter expeditiously in accordance with

law.

l. The Appellant and the Respondent are directed to appear before the

Adjudicating Authority - National Company Law Tribunal,

Ahmedabad Bench on 18th April, 2022. Accordingly, the Appeal is

disposed of.

Company Appeal (AT) (Ins) No.367 of 2021 Page 37 of 38 m. The Registry is directed to send the copy of judgment to the

'Designated Registrar' of 'National Company Law Tribunal,

Ahmedabad Bench' for placing before the 'Hon'ble Members'.

Pending Application, if any, stands disposed of.

Interim order, if any, passed by this Tribunal, stands vacated.

No order as to costs.

[Justice M.Venugopal] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

31stMarch, 2022

New Delhi

Raushan.K

Company Appeal (AT) (Ins) No.367 of 2021 Page 38 of 38