Sun Pharmaceutical Industries Ltd vs Allychem Laboratories Pvt Ltd

IN THE MATTER OF: Sun Pharmaceuticals Industries Ltd ...Appellant

Versus Allychem Laboratories Pvt. Ltd. ...Respondent

Present: For Appellant : Ashish Verma, Advocate.

For Respondent : Keshav Gupta, Advocate.

ORDER

(HYBRID MODE)

[Per: Justice Rakesh Kumar Jain (Oral)]

02.08.2024 This appeal is directed against the order dated 16.06.2021,

passed in I.A. No. 123/2020 filed in C.P. (IB) No. 173/Chd/CHD/2018, by the

National Company Law Tribunal, Chandigarh Bench, Chandigarh ('Tribunal')

by which a petition filed by the Appellant under Section 9 of the Insolvency &

Bankruptcy Code, 2016 ('Code') has been dismissed.

2. In brief, the Appellant filed a petition under Section 9 of the Code r/w

Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process

('CIRP') against the Corporate Debtor for the resolution of an amount of Rs.

4,50,40,493.98/-.

3. It is alleged that there was a business relationship between the parties

because both the Appellant and the Respondent had entered into an "Exclusive

Technology Transfer & Manufacturing Agreement" dated 01.03.2010 for a

period of five years which was renewed from time to time.

4. As per the terms of the agreement, the Operational Creditor granted

license to the Corporate Debtor to use its technology during the period which

was agreed to by the Corporate Debtor for manufacture and supply of the

products on an exclusive basis and an obligation was placed on the Corporate

Debtor to adhere to the terms & conditions.

5. It is further alleged that as per Clause 3.16 of the said agreement, the

Operational Creditor provided the Corporate Debtor with raw material for the

manufacturing and packaging of the product.

6. The difference between the parties arose when the Operational Creditor

stated to have conducted a physical verification on the premises of the

Corporate Debtor in July 2017 and came to know about the missing stock of

the raw material which created a doubt in the mind of the Operational Creditor

that the Corporate Debtor has misappropriated the raw material, which

belonged to the Operational Creditor, in breach and violation of the Agreement.

The Physical Verification Report was prepared by A.K. Kalia & Associates,

Chartered Accountants. Apropos, the Operational Creditor issued the demand

notice as prescribed under Section 8 of the Code dated 02.11.2017 and

17.11.2017.

7. No Reply to the demand notice was given by the Corporate Debtor.

Thereafter, the Operational Creditor filed the application under Section 9 in the

prescribed form to which Reply was filed by the Corporate Debtor and

Rejoinder was filed by the Operational Creditor.

8. The Tribunal has referred to various clauses of the agreement in para 27,

in which one of the Clause, namely, Clause 4.4 provides that the "ALLYCHEM

shall, to the satisfaction of RANBAXY rectify and indemnify against any

deficiencies identified during the course of any audit by RANBAXY". However,

the Learned Tribunal dismissed the application filed by the Operational

Creditor on the ground that the amount claimed by the Operational Creditor

was not due as no documents/ annexures/ enclosures to the CP or to the

rejoinder were attached in this regard. The precise para recorded by the

Adjudicating Authority, is as under :-

"29.***Accordingly, the petitioner claimed. an amount of Rs. 4,50,40,493.98/- from the respondent. According to the petitioner the debt fell due on the date when various raw materials was supplied to the respondent vide Annexure E and the same were found short vide Annexure F. As rightly pointed out by the learned counsel for the respondent neither in Form 5 nor in any of the documents/annexures/enclosures to the CP or to the rejoinder, the petitioner stated how the amount of Rs, 4,50,40,493.98 is arrived at. It is also not coming forth from the pleadings of the CP that whether the entire amount is with regard to the shortage of the stocks supplied by the petitioner to the respondent or by way of qualifying the damages for breach of the terms of the Annexure B Agreement. The Petition miserably failed to give a proper calculation/ computation of the amount claimed as a debt due from the respondent. The invoices were raised by third party vendors in favour of the petitioner. The petitioner has not raised any invoice against the respondent. In this view of the matter, we are of the considered view that the petitioner failed to establish the relationship of an operational creditor and corporate debtor between the petitioner and respondent and also failed to prove any ascertained and established debt either in respect of any services rendered or goods supplied to the respondent or for any breach of trust or terms of agreements. Hence, the issue is answered in the negative."

9. At the outset, Counsel for the Appellant submits that the Tribunal has

erred in not taking into consideration all the documents on record, much less

the Rejoinder which has been filed by the Appellant in which the calculation

has been given in a format as Annexure A-J, therefore the Impugned Order has

been passed without the application of mind.

10. He further submitted that the Tribunal has erred in observing that since

the invoices were not raised, therefore the petition is not maintainable. In this

regard he has relied upon a decision of the Hon'ble Supreme Court rendered in

the case of Consolidated Construction Consortium Limited Vs. Hitro Energy Solutions Private Limited [MANU/SC/0152/2022] and has pressed

Paras 24, 41 to 43 which are reproduced as under :-

"24. Rule 5 of the 2016 Application Rules provides the manner in which the demand notice under Section 8(1) has to be delivered. It provides thus:

"5. Demand notice by operational creditor.--(1) An operational creditor shall deliver to the corporate debtor, the following documents, namely--

(a) a demand notice in Form 3; or

(b) a copy of an invoice attached with a notice in Form 4. (2) The demand notice or the copy of the invoice demanding payment referred to in sub-section (2) of Section 8 of the Code, may be delivered to the corporate debtor,

(a) at the registered office by hand, registered post or speed post with acknowledgment due; or

(b) by electronic mail service to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor.

(3) A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility, if any."

Thus, under sub-rule (1) of Rule 5, an operational creditor can send the demand notice under Section 8(1) IBC through two methods:

(i) a demand notice in Form 3; or

(ii) a copy of an invoice attached with a notice in Form 4.

Form 3 requires the operational creditor to provide the following information in relation to the operational debt:

"2. Please find particulars of the unpaid operational debt below:

Particulars of Operational Debt

1. TOTAL AMOUNT OF DEBT, DETAILS OF TRANSACTIONS ON ACCOUNT OF WHICH DEBT FELL DUE, AND THE DATE FROM WHICH SUCH DEBT FELL DUE.

2. AMOUNT CLAIMED TO BE IN DEFAULT AND THE DATE ON WHICH THE DEFAULT OCCURRED.

(ATTACH THE WORKINGS FOR COMPUTATION OF DEFAULT IN TABULAR FORM)

3. PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY).

4. DETAILS OF RETENTION OF TITLE ARRANGEMENTS (IF ANY) IN RESPECT OF GOODS TO WHICH THE OPERATIONAL DEBT REFERS.

5. RECORD OF DEFAULT WITH THE INFORMATION UTILITY (IF ANY).

6. PROVISION OF LAW, CONTRACT OR OTHER DOCUMENT UNDER WHICH DEBT HAS BECOME DUE.

7. LIST OF DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT AND THE AMOUNT IN DEFAULT."

In contrast, Form 4 provides:

"[Name of operational creditor], hereby provides notice for repayment of the unpaid amount of INR [insert amount] that is in default as reflected in the invoice attached to this notice."

Hence, a demand notice for an operational debt by an operational creditor does not necessarily need to be accompanied by an invoice, but it may be sent where such debt arises under a "provision of law, contract or other document" and for which documents can be attached along with the demand notice.

41. We have to now consider the 'debt' in the present appeal. According to the Appellant, it is the advance payment CMRL made on their behalf to the Proprietary Concern, which was encashed even though the project between CMRL and the Appellant was terminated. On the other hand, the Respondent has attempted to urge that there was no privity of contract between the Appellant and the Respondent, and that CMRL had not transferred the debt to the Appellant. We reject both these submissions. It is amply clear from the facts that the debt arises from purchase orders between the Appellant and the Proprietary Concern (which is the underlying contract), regardless of whether CMRL may have made the payment on behalf of the Appellant. Thus, the ultimate dispute still remains between the Appellant and the Proprietary Concern, and the debt arises from that.

42. It is then that we come to the core of the dispute-while the Appellant has argued that the debt is in the nature of an operational debt which makes them an operational creditor, the Respondent has opposed this submission. The Respondent's submission, which was accepted by the NCLAT, seeks to narrowly define operational debt and operational creditors under the IBC to only include those who supply goods or services to a corporate debtor and exclude those who receive goods or services from the corporate debtor. For reasons which shall follow, we reject this argument.

43. First, Section 5(21) defines 'operational debt' as a "claim in respect of the provision of goods or services". The operative requirement is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver. Such an interpretation is also supported by the observations in the BLRC Report, which specifies that operational debt is in relation to operational requirements of an entity. Second, Section 8(1) of the IBC read with Rule 5(1) and Form 3 of the 2016 Application Rules makes it abundantly clear that an operational creditor can issue a notice in relation to an operational debt either through a demand notice or an invoice. As such, the presence of an invoice (for having supplied goods or services) is not a sine qua non, since a demand notice can also be issued on the basis of other documents which prove the existence of the debt. This is made even more clear by Regulation 7(2)(b)(i) and (ii) of the CIRP Regulations 2016 which provides an operational creditor, seeking to claim an operational debt in a CIRP, an option between relying on a contract for the supply of goods and services with the corporate debtor or an invoice demanding payment for the goods and services supplied to the corporate debtor.

While the latter indicates that the operational creditor should have supplied goods or services to the corporate debtor, the former is broad enough to include all forms of contracts for the supply of goods and services between the operational creditor and corporate debtor, including ones where the operational creditor may have been the receiver of goods or services from the corporate debtor. Finally, the judgment of this Court in Pioneer Urban (supra), in comparing allottees in real estate projects to operational creditors, has noted that the latter do not receive any time value for their money as consideration but only provide it in exchange for goods or services. Indeed, the decision notes that "[e]xamples given of advance payments being made for turnkey projects and capital goods, where customisation and uniqueness of such goods are important by reason of which advance payments are made, are wholly inapposite as examples vis-à-vis advance payments made by allottees". Hence, this leaves no doubt that a debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt."

11. He has submitted that the Tribunal has further committed an error in

observing that the Appellant has failed to establish the relationship between

the Operational Creditor and Corporate Debtor without recording any specific

findings except observing that the said finding has been recorded on the basis

of the finding recorded earlier, which we have already reproduced.

12. On the other hand, Counsel for the Respondent has submitted that the

petition filed by the Appellant under Section 9 of the Code was not in

accordance with law because the date of default is conspicuous by its absence,

both in the notice issues under Section 8 of the Code as well as the petition

filed by the Appellant under Section 9 of the Code.

13. He has further submitted that even if the Respondent has failed to file

the Reply to the demand notice even then the demand notice has to be in

accordance with the Code and the regulations as per which the date of default has to be mentioned by the Appellant and that as to how the amount which is

sought to be resolved is due. He further submits that though the Tribunal has

not given a finding on this issue, which though has been raised specifically yet

this issue goes to the root of the case.

14. However, he is candid enough, that there is an error apparent on the

record where the Tribunal has recorded that the Appellant has not given the

calculation even in the Rejoinder which is though available therein as

Annexure AJ. However, he has tried to argue that there is no error in the

finding recorded that the Appellant has failed to establish the relationship

between the parties of Operational Creditor and the Corporate Debtor but he

conceded that while recording this finding, no material has been discussed by

the Tribunal in that regard as to how it has reached to this conclusion.

15. We have heard both the Counsel for the Parties and perused the record

with their able assistance.

16. Counsel for the Appellant has challenged the findings recorded against it

and in this process he has firstly submitted that there is no application of mind

on the part of the Tribunal while recording that the Appellant has failed to

attach the documents/ annexures/ enclosures to the CP or to the rejoinder to

show how the amount of Rs. 4,50,40,493.98/- has been arrived at.

17. In this regard, we are one with the Appellant because the Rejoinder was

filed before the Tribunal in which calculation is given in Annexure J and appended as Annexure A-7 in this appeal with all necessary details to show as

to how the amount of Rs. 4,50,40,493.98/- has been calculated.

18. We have also found that the finding recorded by the Tribunal that the

Appellant has not raised any invoices, therefore, the petition is not

maintainable is against the law laid down by the Hon'ble Supreme Court in the

case of Consolidated Construction Consortium Limited (Supra).

19. Thus, in view of the aforesaid facts and circumstances, we are of the

considered view that this is one such case which requires reconsideration by

the Tribunal to decide the lis again after taking into consideration the entire

pleadings, supporting evidence led by both the parties. Therefore, we allow this

appeal, set aside the Impugned Order and restore the C.P. (IB)

No. 173/Chd/CHD/2018 filed by the Appellant. We also make it clear that

while setting aside the Impugned Order we are not making any observation on

the merit of the case which shall be re-examined by the Learned Tribunal and

at that time, it shall take into consideration all the pleas available to both the

parties including the preliminary objection.

20. The parties are directed to appear before the Tribunal on 27.08.2024.

21. In so far as the I.A's are concerned, there are three applications on

record. In so far as application bearing I.A. No. 1729 of 2021 for seeking

exemption from filing dim/illegible copy and I.A No. 1728 of 2021 for seeking

exemption from filing certified copy are concerned the same are hereby Closed. Whereas the I.A No. 1730 of 2021 for seeking permission to place on record the

additional document, Counsel for the Appellant prays that he does not want to

press this application at this stage rather he has requested that he may be

granted permission to file the same before the Tribunal. Permission is granted

to do so. If any such application is filed, the Tribunal shall consider the same

after affording opportunity to the Corporate Debtor to contest the same, if so

advised.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim/Ravi