Varda Spining & Weaving Mills Pvt. Ltd vs Jindal Cotex Ltd

Varda Spining & Weaving Mills Pvt. Ltd. ...Appellant

Versus

Jindal Cotex Ltd. ...Respondent

Present:

For Appellant : Shri Arvind Kr. Gupta, Ms. Purti Marwaha Gupta and Ms. Henna George, Advocates

For Respondent : Shri Ahsan Ahmad and Shri Rohit Chaudhary, Advocates

ORDER

08.12.2017 The appellant (Operational Creditor) preferred an application

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

referred to as the 'I & B Code') for initiation of 'Insolvency Resolution Process' of

the respondent - 'Jindal Cotex Ltd.'. Having noticed that there is an 'existence

of dispute' between the parties, the Adjudicating Authority (National Company

Law Tribunal) Chandigarh Bench, Chandigarh by the impugned order dated 25th

October, 2017 rejected the application No. CP(IB) No. 63/Chd/Pb/2017.

2. Learned counsel appearing on behalf of the appellant -Operational

Creditor submitted that a notice dated 21st July, 2016 to the respondent -

'Corporate Debtor' under Section 433 and 434 of the Companies Act, 1956

informing that out of total outstanding amount of Rs.12,26,05,047/-, the

Company Appeal (AT) (Insolvency) No. 306 of 2017 1 respondent has made part payment of Rs.4,10,07,375/- and there is still

outstanding dues of Rs.8,15,97,672/- as on 21.08.2014. In reply to such notice

the Corporate Debtor informed that no further amount is payable to the

Operational Creditor and the amount already paid is full and final. According to

the learned counsel for the appellant the dispute as alleged is not based on any

evidence. However, if it is accepted that a sum of Rs. 4 crores has been received

by the appellant, which according to respondent is full and final, is not

entertained by the Adjudicating Authority.

4. Similar issue fell for consideration before the Hon'ble Supreme Court in

'Mobilox Innovations Private Ltd. vs. Kirusa Software Pvt. Ltd.' - 2017 SCC ONLINE

SC 1154 wherein the Hon'ble Supreme Court observed as follows:

"40. 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

Company Appeal (AT) (Insolvency) No. 306 of 2017 2 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 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."

Company Appeal (AT) (Insolvency) No. 306 of 2017 3 While observing so, the Hon'ble Supreme Court further held

that :

"44. This being the case, is it not open to the adjudicating

authority to then go into whether a dispute does or does

not exist?"

The Hon'ble Supreme Court further observed 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, as quoted below:

"54. 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 chaff and to reject a

Company Appeal (AT) (Insolvency) No. 306 of 2017 4 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."

5. In the present case as we find that there is an 'existence of dispute' and

notice of dispute has been received by the 'Operational Creditor', we uphold

the impugned order passed by the Adjudicating Authority. We find no merit

in this appeal. The appeal is accordingly dismissed. However, in the facts

and circumstances of the case, there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] [ Justice A.I.S. Cheema ] Member (Judicial) Member (Judicial)

/ns/uk

Company Appeal (AT) (Insolvency) No. 306 of 2017 5