Surendra Sancheti vs Gospell Digital Technologies Co. ...

[Arising out of the Impugned Order dated 19.12.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench- I in C.P. (IB) No. 137/MB/C-I/2023]

In the matter of: SURENDRA SANCHETI (SHAREHOLDER OF ALTIUS DIGITAL PRIVATE LIMITED) Residing at A-602, Blue Bell Apartment, Devi Dayal Road, B P S Plaza, Mulund, Mumbai- 400080 ...Appellant Versus

1. GOSPELL DIGITAL TECHNOLOGIES CO. LIMITED Gospel Industrial Park, Guanshandong Steet, Chenzhou City, Suxian District, Hunan, China- 423000 Email: haojg@gospell.com ...Respondent No.1 2. Dushyant Dave Interim Resolution Professional, Altius Digital Private Limited 102, 1st Floor, Building No. A-5, Babosa Industrial Park, Saravali Village, Nashik- Mumbai Highway, Bhiwandi, Thane, Maharashtra- 421302 Email: cirp.altius@decoderesolvency.com ...Respondent No.2

Present :

For Appellant : Mr. Sunil Fernandes, Sr. Advocate with Mr. Milan Singh Negi, Mr. Ashish Pyasi, Mr. Nikhil Kumar Jha, Ms. Rajshree Choudhary and Ms. Akriti Gupta, Advocates.

For Respondent : Mr. Sandeep Bajaj, Mr. Sharath Sampath, Mr. Mayank Biyani and Ms. Kavya Singh, Advocates. JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

19.12.2023 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in

C.P. (IB) No. 137/MB/C-I/2023. By the impugned order, the Adjudicating

Authority has admitted the Section 9 petition against the Corporate Debtor

and ordered initiation of Corporate Insolvency Resolution Process ("CIRP" in

short) of the Corporate Debtor. Aggrieved by the impugned order, the present

appeal has been preferred by the shareholder of the Corporate Debtor.

2. Coming to the brief facts of the case, the Operational Creditor had a

business relationship with the Corporate Debtor and supplied Set Top Boxes

("STB" in short) on credit to the Corporate Debtor. Since the payments were

not forthcoming from the Corporate Debtor and allegedly the latter continued

to remain in default, the Operational Creditor sent a Legal Notice dated

07.07.2022. Despite the Legal Notice, the Corporate Debtor failed to make

payment of the pending amount to the Operational Creditor. The Legal Notice

was followed by reminders until filing of statutory demand notice under

Section 8 of the IBC on 18.11.2022 demanding an amount of USD 121,47,968

towards principal amount. A notice of dispute to the Demand Notice was

issued by the Corporate Debtor to the Operational Creditor on 01.12.2022

Page 2 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 disputing the entire operational debt. The Operational Creditor proceeded to

file the Section 9 application on 14.12.2022 claiming an amount of USD

129,07,968 towards principal amount. The date of default in the Part-IV of

Form 5 was 10.03.2020. The Adjudicating Authority has by the impugned

order admitted the Section 9 petition against the Corporate Debtor and

ordered initiation of CIRP of the Corporate Debtor. Aggrieved by the impugned

order, the present appeal has been preferred by the Appellant.

3. We have heard Shri Sunil Fernandes, Ld. Sr. Advocate appearing for the

Appellant while Shri Sandeep Bajaj, Ld. Advocate represented the Respondent.

4. Making his submissions, the Ld. Sr. Counsel for the Appellant

submitted that the impugned order has been predicated on the sole ground

that the Appellant-Corporate Debtor had acknowledged dues to the tune of

USD 88,81,595 in an email dated 03.03.2021. It was contended that the

Adjudicating Authority had failed to notice that in the same email, the

Appellant had disputed the dues to the tune of USD 58,25,889. Furthermore,

two other emails were issued by the Corporate Debtor on 02.06.2021 and

03.06.2021 in which multiple disputes were raised ranging from grounds of

poor quality of goods supplied, reconciliation of accounts, recovery from

debtor, settlement of debt notes etc. These emails had also been acknowledged

by the Operational Creditor and having been issued prior to the statutory

demand notice under Section 8 of IBC, it signified pre-existing disputes which

were wrongly overlooked by the Adjudicating Authority. The Ld. Sr. Counsel

Page 3 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 for the Appellant submitted that the Adjudicating Authority had wrongly

bifurcated the operational debt into disputed operational debt and undisputed

operational debt and admitted the Corporate Debtor into CIRP on the ground

that the undisputed debt was above the threshold limit. Another contention

raised by the Appellant is that their business relationship with the Operational

Creditor was governed by an agreement dated 21.06.2015 and not by the

agreement claimed by the Operational Creditor. Submission was pressed that

the Adjudicating Authority had ignored the fact that the existence of this

agreement dated 21.06.2015 is adequately substantiated as these find

mention in the emails dated 02.06.2021 and 03.06.2021 sent by the Appellant

to the Operational Creditor. Denial by the Operational Creditor of the

agreement dated 21.06.2015 by itself constituted a dispute and thus was a

sufficient ground for rejection of the Section 9 application. It was therefore

incumbent upon the Adjudicating Authority to take cognisance of these pre-

existing disputes which has however erroneously not been done.

5. Refuting the submissions made by the Appellant, the Ld. Counsel for

the Respondent submitted that the Operational Creditor had always made

delivery of goods to the Corporate Debtor within the time period agreed by the

parties on the basis of purchase orders issued by the Corporate Debtor. The

Corporate Debtor had been accepting delivery of the STBs without raising any

demur or protest but made only partial payments to the Operational Creditor

for the goods supplied because of which Operational Creditor issued

reminders for payment to the Corporate Debtor. The Corporate Debtor had

Page 4 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 confirmed that as per its books a sum of USD 88,81,595 was due and payable

to the Operational Creditor. Despite making clear admission of their liability

towards Operational Creditor, the Corporate Debtor did not pay the entire

amount which was due and payable to the Operational Creditor and this

amount outstanding being more than the threshold of Rs 1 Cr, debt and

default was established. It was also vehemently contended that the material

on record does not in any way support the case of the Corporate Debtor that

the business understanding between the two parties was determined by the

agreement dated 21.07.2015 and that this was a spurious defence

unsupported by evidence. The Respondent has relied on the judgment of this

Tribunal in Naresh Choudhary Vs Sterling Enameled Wires Pvt. Ltd. in

CA(AT)(Ins.) No. 39 of 2023 wherein it was held that if at the time of

acknowledging the outstanding operational debt, the subsistence of any pre-

existing dispute lacked foundation, then it is a fit case for admission of Section

9. The Respondent also relied upon the judgement of this Tribunal in

Nandamuri Meenalatha Vs Mis. Quality Steels and Wire products and

Anr. CA(AT)(Ins.) No. 11 of 2023 wherein it had been held that if debt

confirmation was made by the Corporate Debtor and part payment was made

after that by the Corporate Debtor under invoices submitted by the

Operational Creditor, it tantamount to valid and proper admission of debt and

default in the eyes of law. Attention was also drawn to the judgements of this

Tribunal in Pankaj Agarwal Vs H.V.R. Industries Pvt. Ltd. & Anr. in

CA(AT)(Ins.) No. 482 of 2022 and Ashish Sudeshkumar Goyal, Suspended

Director of Superchem Coatings Pvt. Ltd. Vs Padam Electronics & Anr.

Page 5 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 in CA(AT)(Ins) No. 86 of 2022 that when part of the debt is admitted by the

Corporate Debtor and if such admitted debt is above the threshold, then no

error is committed by the Adjudicating Authority in admitting the application

for initiating CIRP. Hence, following the above ratios, in the present case, there

was no infirmity in the impugned order passed by the Adjudicating Authority

admitting the Section 9 application.

6. We have duly considered the detailed arguments and submissions

advanced by the Learned Counsel for both the parties and perused the records

carefully.

7. The short point for our consideration is whether payment to the

Operational Creditor was due from the Corporate Debtor giving rise to an

operational debt, and if so, whether a default has been committed by the

Corporate Debtor in respect of payment of such operational debt having

already become due and payable and whether the said operational debt

exceeds the threshold level and is an undisputed debt.

8. This examination would be in line with the test which has been laid

down by the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs.

Kirusa Software Private Limited (2018) 1 SCC 353 for the Adjudicating

Authority while examining an application under Section 9, the relevant

excerpts of which are 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)

Page 6 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024

(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 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."

9. Let us now see whether the first two tests laid down by Mobilox

judgment supra of operational debt exceeding the threshold level having

become due and payable but not yet paid is applicable in the present case.

10. The Operational Creditor has placed material on record which shows

that in response to their email dated 17.12.2020 as placed at page 929 of

Appeal Paper Book ('APB' in short), the Corporate Debtor in their reply email

dated 21.12.2020 as placed at page 927 of Appeal Paper Book ('APB' in short)

clearly admitted that they had made total imports of about USD 70 million

during the period from 2016 to November 2020 against which they had paid

only USD 57 million to the Operational Creditor. It was however contended by

the Corporate Debtor that the Adjudicating Authority had not taken

cognisance of the fact that the alleged balance confirmation dated 03.03.2021

was issued on the insistence of the Operational Creditor with the limited

purpose of disclosure.

Page 7 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024

11. It is equally pertinent to note that the same email of 21.12.2020 further

explains the financial difficulties faced by the Corporate Debtor which led to

the outstanding dues which remained unpaid which is as reproduced below:-

"Due to Covid 19 situation lot of disruption has happened in the Business lot of business cash flow has been badly impacted. Some of the business faced disruptions, we are trying to collect the funds as soon as possible so we can send the same to Gospell and reduce the outstanding."

12. The contents of the above email make it amply clear that the Corporate

Debtor had admitted the operational debt and held adverse cash-flow to be

the cause for non-payment of the operational debt and as such no dispute

with the Operational Creditor was attributed for non-payment of the same.

That there was no dispute between the Operational Creditor and Corporate

Debtor at this stage when debt was acknowledged by the Corporate Debtor

can also be inferred from the fact that the Corporate Debtor stated in the same

debt-acknowledgement email that they are proud of opening up India market

for the Operational Creditor and to play their part in building the growth

strategies of the Operational Creditor in the Indian market. The tone and tenor

of the email clearly shows that that the Corporate Debtor while admitting the

debt had shown their commitment to participate with the Operational Creditor

in building their brand presence in India thereby showing that there was no

dispute between the parties on the business dealings.

13. Submission has also been pressed by the Operational Creditor that even

thereafter their auditor had addressed an email to the Corporate Debtor on

Page 8 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 25.02.2021 seeking balance confirmation of account of Corporate Debtor with

the Operational Creditor which is placed at page 860 of APB. We have looked

at the balance confirmation which was signed and stamped by the Corporate

Debtor and sent to the Operational Creditor on 03.03.2021 as placed at page

859 of APB. The balance confirmation document at page 862 shows that the

Operational Creditor had sought balance confirmation of USD 147 million

from the Corporate Debtor. Even at this stage, the Corporate Debtor

unequivocally admitted owing an amount of USD 8.8 million to the

Operational Creditor as on 31.12.2020. There is no doubt that a differential

amount of USD 5.8 million was pointed out in the signed and stamped

confirmation but on perusing the document, we are unable to read any signs

of outright refusal or denial on their part to pay their admitted amount of debt

of USD 8.8 million in the email of 03.03.2021. In any case, we cannot entertain

any doubt in our minds that Corporate Debtor had admitted a debt of USD

8.8 million qua the Operational Creditor which amount stood clearly above

the threshold level.

14. It is the case of the Corporate Debtor that in their subsequent emails

of 02.06.2021 and 03.06.2021, they had disputed the outstanding debt.

Though these emails were issued subsequent to the balance confirmation sent

on 03.03.2021, nevertheless, these emails were issued prior to the statutory

demand notice under Section 8 of IBC. However, when we peruse the email of

03.06.2021carefully which is placed at pages 961-963 of APB, we notice that

even in this email, the admission of debt and default as on 21.12.2020 was

Page 9 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 again acknowledged by the Corporate Debtor wherein the Corporate Debtor

has acknowledged that "approximate outstanding as per our books is USD 7-8

million, we will share the detail break-up again." In the same email, the

Corporate Debtor has also indicated that certain debit notes were required to

be settled but even at this juncture they did not deny the existing outstanding

amount to be repaid. In addition, it was once again reiterated that due to

Covid-19, their cash flows had been impacted. It has also been indicated that

once the account is settled, they would clear the account as per original

mutual agreement and discuss for new business. Nowhere, in the

communication have they denied the fact that they owed the debt to the

Operational Creditor. The aforementioned repeated admissions by the

Corporate Debtor amounts to be a clear acknowledgment of debt being due

and payable. The contention of the Corporate Debtor that only part of the debt

has been admitted by the Corporate Debtor does not hold ground as long as

the admitted debt which has been admitted is clearly above the prescribed

threshold limit of Rs 1 cr. The Corporate Debtor has duly admitted the

outstanding debt and default which is a valid and proper admission in the

eyes of law. In the attendant facts and circumstances, no error was committed

by the Adjudicating Authority in admitting the application for initiating CIRP.

15. This now brings us to the third test as laid down by Mobilox judgement

as to whether there is existence of dispute between the parties.

Page 10 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024

16. Material placed on record show that while the Corporate Debtor had

admitted their liability a number of times but payments were not forthcoming

from them, the Operational Creditor had sent a Legal Notice dated 07.07.2022.

Despite this notice, the Corporate Debtor failed to make payment of the

pending amount to the Operational Creditor. The Legal Notice was followed by

filing of statutory demand notice under Section 8 of the IBC on 18.11.2022. It

is at this stage that a notice of dispute was issued by the Corporate Debtor to

the Operational Creditor on 01.12.2022 disputing the entire operational debt.

17. It is the case of the Corporate Debtor that in their Notice of Dispute as

placed at page 876 of the APB, it was clearly stated by them that the said

demand notice did not disclose the existence of agreement dated 21.06.2015

which had been executed between the Corporate Debtor and the Operational

Creditor which agreement laid down the original understanding of the

contractual relationship between the parties. The Ld. Sr.Counsel for the

Appellant submitted that the Appellant by way of an affidavit had brought on

record before the Adjudicating Authority the agreement dated 21.06.2015. It

was also stated that the notice of dispute also highlighted that the Operational

Creditor had inter-alia failed to address a host of other disputes raised by the

Corporate Debtor from time to time.

18. We would like to first deal with the issue of the agreement dated

21.06.2015 which has been projected by the Corporate Debtor as a bone of

contention between the parties since this original agreement has been denied

Page 11 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 and disowned by the Operational Creditor. It has been contended by the

Corporate Debtor that in terms of this agreement as placed at page 914 of the

APB, the Corporate Debtor was to receive handling charges at the rate of per

STB Rs 50 and 4% of sales volume. The sales were to be conducted by the

Corporate Debtor to customers identified by the Operational Creditor and at

prices decided by the Operational Creditor. The recovery of the outstanding

amount was to be undertaken by the Operational Creditor which also

undertook to bear all losses, damages, penalties etc. incurred during the

transaction with the Corporate Debtor. However, the Adjudicating Authority

had simply side-stepped the existence of this agreement dated 21.06.2015 and

did not give its findings on the denial by the Operational Creditor of the

agreement dated 21.06.2015 which constituted a pre-existing dispute and was

sufficient ground for rejection of the Section 9 application.

19. Per contra, it is the contention of the Operational Creditor that the

Corporate Debtor in its affidavit in reply to the Section 9 petition on

14.09.2023 had adverted attention to a copy of an agreement dated

21.07.2015 for the first time and not in their reply to Section 8 demand notice.

The Operational Creditor vehemently denied and disputed the existence of any

such agreement of 21.07.2015 and stated by way of an affidavit before the

Adjudicating Authority that this agreement was a forged and fabricated

document created to prejudice the mind of the Adjudicating Authority.

Submitting that no mention was ever made of this alleged agreement prior to

filing of the reply to Section 9 application, the Operational Creditor was

Page 12 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 constrained to file an additional affidavit denying the existence of the alleged

agreement as placed at page 1081 of APB. It was also pressed that the alleged

agreement dated 21.07.2015 was not executed by any person authorised by

the Operational Creditor. It has also been stated in the affidavit that the

21.07.2015 agreement was not made/executed on the letterhead of the

Operational Creditor which is the standard business practice of the

Operational Creditor. Hence it was contended that this was a frivolous

contention raised as an afterthought and deserved to be disregarded.

20. From the material placed before us, we find that this alleged agreement

was never specifically mentioned by the Corporate Debtor at any point of time

prior to filing the reply to the Section 9 application. No specific disputes as to

which agreement governed their contractual relationship was raised prior to

the issuance of statutory demand notice on under Section 8 of the IBC by

either parties. More importantly, we find from the records that the Corporate

Debtor adopted contradictory and shifting stand on the agreement governing

their business relationship. This becomes clear when we look at the notice of

dispute dated 01.12.2022 wherein the Corporate Debtor has claimed that the

business relationship with the Operational Creditor was guided by an

agreement dated 04.10.2016 and there is no mention of the agreement of

21.07.2015. It may be useful to extract the relevant portions of the Notice of

Dispute which reads as follows:

"4. We say that your client has not set out the true and correct facts of the matter. The relevant facts relating to the case are briefly stated as follows:

Page 13 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 i. There was an arrangement between ADPL and your client for appointing ADPL as its exclusive distributor to purchase goods and resell and services in India for a particular period. The arrangement was recorded in the agreement dated 4 th October 2016. Further, there was subsequent Agreement dated 01st September 2018 which was entered between the said parties from time to time to extend the tenure in the agreement."

(Emphasis supplied)

21. We notice from the above reply that even at the stage of notice of dispute,

the Corporate Debtor has only mentioned about some agreement of

04.10.2016 and subsequent agreement of 01.09.2018 while there is no

mention of the agreement of 21.07.2015. It is therefore a misleading statement

made by the Corporate Debtor that the agreement of 21.07.2015 finds mention

in the Notice of Dispute. Furthermore, if this constituted the principal ground

of dispute, as has been contended by the Corporate Debtor before the

Adjudicating Authority, it was expected of them to have adverted the particular

attention of the Operational Creditor to this agreement and for their not acting

in compliance with this agreement. No supporting documents are available on

record to show exchange of any sustained correspondence with the

Operational Creditor regarding the principal agreement or subsequent

agreements which determined their contractual relationship prior to issue of

demand notice. In the absence of any such previous references to the

agreement of 2015, we, therefore, find credence in the argument of the

Operational Creditor that this agreement of 21.07.2015 was brought to the

fore on 14.09.2023 for the first time when the Corporate Debtor filed its reply

Page 14 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 to the Section 9 application purely as an after-thought with the sole purpose

of avoiding their liability to pay the outstanding amount.

22. This brings us to yet another contention of the Appellant that the

Operational Creditor on multiple occasions supplied inferior quality of goods.

This issue was flagged and brought to the notice of the Operational Creditor

on several occasions by the Corporate Debtor. It was also contended that the

Operational Creditor had admitted the quality disputes qua the goods supplied

during the period 2017-2020 and that debit notes were issued from time to

time which therefore evidences pre-existing disputes. Though the Corporate

Debtor on 03.03.2021 had signed the confirmation for receivable and

repayable balances amounting USD 88,81,595, it was simultaneously brought

to the notice of the Operational Creditor that some amount was due to the

Corporate Debtor from the Operational Creditor because of defective goods.

Thus, there was need of account adjustment between the parties and their

emails dated 02.06.2021 and 03.06.2021 specifically pointed out account

reconciliation issues between the parties. It was also vociferously contended

that the outstanding amount was disputed since the Corporate Debtor had

sent an email on 29.01.2021 to the Operational Creditor informing them that

they had reflected a debit note of USD 4.5 million in their audited books of

accounts for F.Y. 2019-20. The Adjudicating Authority had clearly failed to

look into the issue of reconciliation of accounts which were subsisting and

pending adjustments required to be made between the Operational Creditor

and the Corporate Debtor. It was asserted that in a Section 9 application, as

Page 15 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 soon as the Adjudicating Authority comes across any dispute between the

parties, it is required to reject the Section 9 application without further

investigation. In the present case, the Adjudicating Authority went ahead to

ignore the disputes between the parties while admitting the Section 9

application.

23. It is the counter contention of the Operational Creditor that purchase

orders were placed by the Corporate Debtor in the ordinary course of business

on them as placed at pages 103 to 110 of APB. The Operational Creditor had

supplied the goods as per specifications required by the Corporate Debtor

following which the Operational Creditor had raised invoices. It was asserted

that the very fact that the Corporate Debtor had been placing purchase orders

upon Operational Creditor since 2015 and the Operational Creditor had been

making delivery of all goods within the time period, which delivery of goods

have been accepted by the Corporate Debtor and even consumed without any

demur shows that there was no question of any pre-existing dispute. It is also

their contention that no correspondence has been placed on record by the

Corporate Debtor to demonstrate that the Corporate Debtor was entitled to

any discount and/or commission as alleged. The Corporate Debtor had

themselves admitted that for the goods it had imported from the Operational

Creditor, the balance confirmation as on 31.12.2020 stood at USD 88,81,595

as due and payable to the Operational Creditor. It was also pressed hard that

the Corporate Debtor had not only shared balance confirmations as per their

own books of account to the Operational Creditor but also made payments to

Page 16 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 the Operational Creditor of an amount of USD 714,699 between the period

04.01.2021 to 20.07.2022 against the admitted amount due and payable by

it to the Corporate Debtor. This payment post balance confirmation clearly

showed that the Corporate Debtor clearly admitted outstanding debt and

default which is a valid and proper admission in the eyes of law. The alleged

discrepancy between the books of accounts of Corporate Debtor and the

Operational Creditor was on account of a unilateral debit note of USD 4.5

million which did not have the approval of the Operational Creditor as at pages

978-979 of APB. It is the contention of the Operational Creditor that as this

debit note was issued unilaterally, it cannot be looked upon as a dispute. The

Operational Creditor had infact replied back on 01.02.2021 agreeing to look

into the debit note as placed at page 979 of APB. The issue of debit-notes as a

ground of dispute as contended by the Corporate Debtor was therefore

misplaced and lacks foundation. It was therefore contended that Adjudicating

Authority had correctly noted that the Corporate Debtor had always

acknowledged the unpaid outstanding liability amount which being above the

threshold level of Rs 1 cr clearly established debt and default.

24. At this stage we may look into how the Adjudicating Authority has dealt

with the issue of pre-existing disputes as raised by the Corporate Debtor. The

relevant extracts from the impugned order is as reproduced below:

"28. Nonetheless, the Corporate Debtor has consistently acknowledged that 7-8 million is outstanding and this payment is held up because of poor realization from debtors. We find that email dated 03.03.2021 from the Corporate Debtor clearly demonstrates the outstanding debt of Rs USD 8,881,595/-. Though, the Corporate

Page 17 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 Debtor has raised the issue of discounts, write-offs, goods returned and free goods and the Operational Creditor has consistently assured to look into these issues on case to case basis, we are of considered view that a debt of more than Rupees One Crore, which can be said to be undisputed, is certainly in default. Further, even if it is accepted that the Applicant was to be paid upon realization from the customers, it is not the case of the Corporate Debtor that the amount outstanding from the customer along with the value of unsold stock is higher or equal to the amounts to be collected from the customers.

29. It is undisputed fact that the evidence on record pertaining to import of goods by the Corporate Debtor i.e. invoice, shipping bill and confirmation of account balance clearly suggests that the payment was to be made within fixed period as stated on each invoice. These documents nowhere support the agreement dated 21.07.2015 claim to be correct understanding by the Corporate Debtor. We also find that the Corporate Debtor has consistently expressed difficulty in clearing the outstanding dues on account of Covid-19 Pandemic."

(Emphasis supplied)

25. Coming to our analysis and findings, we notice that no material has

been placed on record by the Corporate Debtor to show that they had

categorically rejected the outstanding dues claimed by the Operational

Creditor prior to issue of demand notice. There is no evidence of any outright

denial of the liability to pay which has been placed on record by the Corporate

Debtor. Furthermore, we notice that Corporate Debtor while admitting the

outstanding debt had also admitted in the same breath that they were working

to promote the global presence of the Operational creditor in India which

affirms that there were no differences between them with regard to the

agreement basis which they were conducting their business operations. When

we look at the impugned order, we find that the Adjudicating Authority has

Page 18 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 considered the entire gamut of facts holistically. We are also satisfied with the

findings of the Adjudicating Authority that facts on record speak loud and

clear that the Corporate Debtor/Appellant all along admitted that it owed an

operational debt to the Operational Creditor which amount was in excess of

the threshold limit until their reply to the Section 8 demand notice. When the

operational debt had already arisen and become due and invoices raised were

not specifically disputed there is nothing on record which detracts from the

operational debt having become due and payable. We also notice that debit-

notes notwithstanding, the Appellant had acknowledged that they were liable

to pay the outstanding operational debt. The Corporate Debtor never disputed

or questioned the offer made by the Operational Creditor to look into the debit

notes for making appropriate credit adjustments. This puts a serious question

mark on the bona-fide of the bogey of pre-existing disputes being subsequently

raised by the Corporate Debtor. The alleged disputes claimed by the Corporate

Debtor are feeble and not supported by credible evidence. In sum, no real pre-

existing dispute is discernible. There is no good ground to establish any real

and substantial pre-existing dispute which can thwart the admission of

section 9 application against the Corporate Debtor. The Adjudicating

Authority therefore does not appear to have committed any error in holding

that all requisite conditions necessary to trigger CIRP under Section 9 stands

fulfilled.

26. When we look at the impugned order, we also find that the Adjudicating

Authority has looked into the judgements which has been relied upon by the

Page 19 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024 Corporate Debtor in Sanjay Bhausaheb Bhange Vs Khushbu Dye Chem Pvt.

Ltd. in CA(AT)(Ins.) No. 621 of 2022 and XYKno Capital Services Pvt. Ltd.

Vs Rattan India Power Limited in CA(AT)(Ins) No. 913 of 2022 and held

that that these judgments do not come to the aid of the Appellant since in

those cases the Corporate Debtor had not acknowledged the outstanding

amount unlike the present case where the outstanding debt has been clearly

admitted. We find no sound reasons to disagree with the Adjudicating

Authority since in the Sanjay Bhausaheb Bhange matter, the disputes

regarding business model as well as the outstanding amount clearly pre-dated

the demand notice which stands in sharp contrast to the factual matrix of this

case. Similarly, in the XYKno Capital Services matter, the outstanding

amount had not been acknowledged by the Corporate Debtor because of

chaotic management of the consultancy services by the concerned Operational

Creditor much prior to the demand notice. Another judgment relied upon by

the Corporate Debtor is the judgement of the Hon'ble Supreme Court in

Sabarmati Gas Ltd vs Shah Alloys (2023) 3 SCC 229. We entirely agree

with the ratio of this judgement that the touchstone of examination of Section

9 application should be the tests laid down in the Mobilox judgement supra

but cannot be unmindful of the fact that the attendant facts and

circumstances need to be seen and examined separately for each case to find

whether the pre-existing dispute rests on genuine foundation or not and tested

on those parameters, for the foregoing reasons explained above, the present

dispute alleged by the Corporate Debtor deserves to be brushed aside as

spurious.

Page 20 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024

27. Thus, even on the third test laid down by Mobilox judgment supra we

find that there is nothing credible to substantiate the pre-existence of dispute.

To our minds, for the reasons stated above, the grounds of disputes raised by

the Corporate Debtor are implausible and therefore deserves to be disregarded

being in the nature of a moonshine defence.

28. From the aforesaid discussion and analysis of attendant facts and

circumstances, we are of the considered opinion that the Appellant has

defaulted in the payment of operational debt which amount had clearly

become due and payable above the threshold limit, and further in the absence

of any credible or plausible pre-existing dispute, we find that no error has been

committed by the Adjudicating Authority in admitting the application under

Section 9 of IBC and initiating CIRP. We find no merit in this Appeal. Appeal

is dismissed. No Costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 13.11.2024

Abdul/Harleen

Page 21 of 21 Company Appeal (AT) (Insolvency) No. 583 of 2024