Writers And Publishers Pvt. Ltd vs Oriental Coal Corporation & Anr

[Arising out of order dated 25.08.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Indore Special Single Bench at Ahmedabad in TP No.259/2019 [CP (IB) No. 203/9/NCLT/AHM/2018]

IN THE MATTER OF:

Writers and Publishers Pvt. Ltd. 6, Dwarka Sadan, Press Complex, MP Nagar Zone 1, Bhopal - 462 011 ...Appellant

Versus

1. M/s Oriental Coal Corporation, 65, East High Court Road, Ramdaspeth, Nagpur - 220 010 ...Respondent No. 1

2. Bhaskar Foods Pvt. Ltd. Through CA Shri Shambhulal Agrawal, Interim Resolution Professional, Sambhu & Associates, 2nd Floor, Kolkata Bazaar Building, Nayapara, Sambalpur, Odisha - 768001 ...Respondent No. 2

Present:

For Appellant: Mr. Ashish Dholakia, Sr. Advocate, Ms. Fareha Ahmad Khan, Mr. Arpit Kr. Singh, Advocates For Respondents: Mr. Bharat Gupta, Mr. Varun Tyagi, Advocates for R-1.

Company Appeal (AT) (Ins.) No.1170 of 2022 1 JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal is filed under Section 61 of Insolvency and

Bankruptcy Code 2016 ('IBC' in short) by the Appellant arising out of the

Order dated 25.08.2022 (hereinafter referred to as 'Impugned Order') passed

by the Adjudicating Authority (National Company Law Tribunal, Indore

Special Single Bench at Ahmedabad) in TP No.259/2019 in CP (IB) No.

203/9/NCLT/AHM/2018. By the Impugned Order, the Adjudicating

Authority admitted the application filed under Section 9 of the IBC by the

Operational Creditor, present Respondent No. 1. Aggrieved by this impugned

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

2. The brief facts of the case necessary to be noticed for deciding the

appeal are: -

 The present Appellant is the parent entity of Bhaskar Foods Private

Limited, the present Respondent No. 2 which was into manufacture

of certain products for which Steam Coal was required for use in

their plants. Purchase orders were issued by Respondent No.2 to

M/s Oriental Coal Corporation, Operational Creditor/Respondent

No.1 for supply of 500 MT of Steam Coal.

 The material was delivered from time to time by the Operational

Creditor /Respondent No.1 with corresponding invoices. The

purchase orders contained certain terms and conditions including

quality parameters.

Company Appeal (AT) (Ins.) No.1170 of 2022 2  For reasons of not having received payment for the materials

supplied, Respondent No.2 was served a demand notice by

Operational Creditor/Respondent No.1 on 12.03.2018 for

Rs.46,95,033/- including interest amount of Rs 28,63,389/-. The

demand notice was followed by filing of a Section 9 application before

the Adjudicating Authority in May 2018.

 The matter was first heard by a two member Bench of the National

Company Law Tribunal, Ahmedabad Bench-I. As the two members

on the Bench gave two separate dissenting final orders, the matter

was assigned to a third Member for disposal.

 The Adjudicating Authority on 25.08.2022 held that debt is

established, having been acknowledged by the Corporate Debtor,

and default having occurred, it admitted the Section 9 application

after holding that that defence of pre-existing dispute raised by the

Corporate Debtor is moonshine defence.

 Aggrieved by the above impugned order, the Appellant has preferred

this appeal praying for setting aside the impugned order.

3. Making his submissions, the Learned Counsel for the Appellant stated

that purchase orders was issued by Respondent No. 2 to Respondent

No.1/Operational Creditor on 17.12.2013 and 20.01.2014 for supply of Steam

Coal. The purchase orders clearly indicated the need to adhere to prescribed

quality parameters. While admitting that the coal supplies were received from

Respondent No.1, it was mentioned that part of the coal supplied was of

substandard quality as brought out by Coal Quality Assessment Laboratory

Company Appeal (AT) (Ins.) No.1170 of 2022 3 Reports. Submitting that the Respondent No.2 had got coal analysis done by

Coal Quality Assessment Laboratory which found that the calorific value

stipulated in the purchase orders was not met.

4. It has been further submitted by the Learned Counsel for the Appellant

that the Respondent No.2 made payments only for that part of the coal

consignment which was of acceptable quality while debit note was issued to

reduce the payment with respect to deficient quality of coal supply. The debit

note was issued in terms of the purchase orders which made a specific

mention that the cargo supply should meet the quality parameters failing

which the cargo shall be rejected or rebate shall be adjusted.

5. It was further claimed that payment of Rs.42,50,000/- was made by

Respondent No.2 between January 2014 to March 2015 to the Respondent

No.1. Further Debit note amounting Rs.17,59,286/- was raised against

Respondent No.1 on 16.11.2015 as no efforts were made to resolve the dispute

relating to supply of substandard quality of coal. The total balance of

payments to be made for the coal supply was Rs.28,31,644 on 14.11.2015

and that after adjusting the debit note amounting to Rs.17,59,286/-, only a

total amount of Rs.10,72,359/- became payable. It has also been claimed

that the Respondent No.2 made full and final payment of Rs.10,00,000/- on

12.01.2016 to Respondent No.1. It has been further submitted that the

Adjudicating Authority had failed to appreciate that the Respondent No.2 had

made regular payments throughout the period of dispute against

consignments that met the quality standards set out in the purchase orders.

Company Appeal (AT) (Ins.) No.1170 of 2022 4

6. Harping on the coal quality test reports, the Learned Counsel for the

Appellant has therefore contended that there was pre-existing dispute with

respect to inferior quality of steam coal supplied by the Operational Creditor

under Purchase Orders in question which had led to issue of debit note. It is

also submitted that the Adjudicating Authority failed to appreciate that

Respondent No.2 had justifiably raised the defence of pre-existing dispute but

by ignoring the Coal Standards Laboratory Test Reports the defence has been

erroneously viewed as "moonshine defence". It has also been submitted that

the Adjudicating Authority should have appreciated that these disputed

questions of facts between the parties can only be adjudicated through trial

in terms of the judgement of the Hon'ble Supreme Court in Mobilox

Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC

353 (hereinafter referred to as 'Mobilox').

7. It was also added that the Adjudicating Authority had failed to

appreciate the binding precedent of this Tribunal's decision dated 26.10.2021

upholding the order of the National Company Law Tribunal, Ahmedabad

Bench in an identical matter where the issue of debit note and lab reports

was held as constituting pre-existing disputes. It has been further stated that

the Adjudicating Authority had passed the impugned order without giving

them an opportunity of hearing as on two occasions they were unable to join

the hearing due to connectivity glitches.

8. The Learned Counsel for the Respondent No. 1 while refuting the

submissions made by the Appellant stated that debit note dated 16.11.2015

Company Appeal (AT) (Ins.) No.1170 of 2022 5 was never issued to them and that the issuance of debit note had actually

been brought up for the first time by Respondent No. 2 only at the time of

filing objections before the Adjudicating Authority in October 2018. It has

been contended that Respondent No.2 did not indicate in the objections filed

before the Adjudicating Authority as to how and by which mode the alleged

debit note was serviced upon Respondent No.1. No proof has either been given

to establish that the debit note was received by Respondent No.1. It has been

further pointed out that the alleged debit note suffers from several

discrepancies. It does not specifically refer to those invoices under which coal

supplied was found to be of inferior quality for which debit note was issued.

The debit note also makes mention of "details attached" but no details were

found attached. Moreover, the debit note mentions supply of coal from

January 2014 to February 2014 while no coal was supplied in February 2014.

The debit note also fails to indicate and bifurcate the tax amount. The alleged

debit note had been issued on 16.11.2015 which was more than 21 months

after the last supply was made. Thus it was asserted that the debit note had

been manufactured and was fabricated later on as an after-thought.

9. It has been vehemently contended that Respondent No.2 had never

raised any dispute with regard to quality of coal supply earlier. As regards

Coal Test Analysis Report, it has been contended that the reports are fake as

it does not indicate the name of the lab where test was done nor indicates the

date and time when the coal was tested and that the report was not filed or

annexed with objections when filed before the Adjudicating Authority. The

details of the invoice qua which the coal was tested is also absent. No proof

Company Appeal (AT) (Ins.) No.1170 of 2022 6 has either been submitted by the Respondent No.2 to show that the alleged

lab reports were communicated to Respondent No.1. No document has also

been placed on record by Respondent No.2 raising quality issues of the coal

supplied with Respondent No.1. It was asserted that the coal test reports are

concocted and were manufactured later on and were submitted for the first

time only as additional documents before the Adjudicating Authority and not

when the demand notice was issued in March 2018. The Learned Counsel for

the Respondent No.1 placed reliance on the judgment of Hon'ble Supreme

Court in Mobilox supra to assert that dispute, if any, has to be in existence

prior to the demand notice and should have been brought to the notice of the

Operational Creditor which has not happened in the instant case. The

Learned Counsel for the Respondent No. 1 has also mentioned that if the

alleged issue of debit note and the story of defect in goods was genuine, it is

in-explicable as to why payments were made even after January 2014 without

first resolving the alleged dispute. The fact that payment continued to be made

shows that the story of defect in goods was concocted and improbable.

10. On the issue of debt due and outstanding, it has been submitted by

Learned Counsel for Respondent No. 1 that Respondent No.2 by their own

admission in the objections filed have admitted the principal outstanding

amount for the financial year 2013-14 and 2014-15. Moreover, it was

submitted that Respondent No.2 has admitted the debt of Rs 28,31,644/- in

their email dated 05.08.2015 as placed at page 90 of their reply affidavit and

that this email has not been disputed by Respondent No.2 either before the

Adjudicating Authority or before this Tribunal. The total amount of debt in

Company Appeal (AT) (Ins.) No.1170 of 2022 7 Part IV filed under Section 9 application is Rs. 46,95,033/- of which the

amount receivable towards invoice issued was Rs.18,31,644/- and amount

receivable towards interest on delayed payments outstanding on invoice

issued was Rs.28,63,389/-. It has been also submitted by the Learned

Counsel for the Respondent No.1 that the supplies were made pursuant to

purchase orders issued by Respondent No.2 and the terms of the purchase

order clearly stated that payment was to be made within 20 days of the invoice

and that if the amount is not paid within the due period, interest @ 2% per

month was to be levied. No payments have however been received from

Respondent No.2 pursuant to demand notice issued on 12.03.2018. Thus the

debt having been acknowledged and no payment has been made even after

issue of demand notice the default in payment subsists.

11. Stating that the outstanding amount was not barred by limitation, it

was submitted that Respondent No.2 has been making part payments from

time to time with the last such payment having been made on 13.01.2016 for

a sum of Rs. 10,00,000/-. Since the last payment was made on 13.01.2016,

the Section 9 application filed on 09.05.2018 was well within the stipulated

period of limitation of 3 years. Furthermore, the admission and

acknowledgement of debt by Respondent No.2 in their email dated 05.08.2015

provides a fresh period of limitation of 3 years and hence the Section 9

application filed on 19.05.2018 was well within the period of limitation.

12. On the ground raised by the Appellant that the decision of this Tribunal

in CA(AT)(Insl) No.1015 of 2020 in the matter of Oriental Coal Corporation Vs.

Company Appeal (AT) (Ins.) No.1170 of 2022 8 Decore Exxoils Pvt. Ltd dated 26.10.2021 should have been held by the

Adjudicating Authority as binding precedent, it has been contended that as

the facts of the two cases relate to separate transactions and the entities

involved are not identical, the two cannot be inter-twined and hence the ratio

is not binding on the Adjudicating Authority.

13. It is further submitted that demand notice was sent on 12.03.2018 and

the receipt of the same not been denied or challenged by Respondent No. 2.

Respondent No.2 has also not denied that no reply was sent to the said

demand notice. Section 9 application was filed by Respondent No.1 before the

Adjudicating Authority in May 2018. However, during hearings, the

Respondent No.2 chose to remain absent on three consecutive days i.e.

13.05.2018, 09.07.2018, 01.08.2018 and finally filed its objection only in

October 2018. Moreover, the reasons for their absence on 3 consecutive dates

of hearing before the Adjudicating Authority has also not been explained. Yet

again, when the matter came up for hearing before the third member, after a

detailed hearing on 28.04.2022, the Respondent No.2 again did not appear

on 01.06.2022 and 27.06.2022 on the grounds that there were technical

glitches and could not join the hearing. This was merely an excuse

manufactured to drag and delay the proceedings as others did not find any

connectivity impediments during the date of hearing.

14. We have duly considered the detailed arguments and submissions

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

carefully.

Company Appeal (AT) (Ins.) No.1170 of 2022 9

15. The short point for our consideration is whether payment of operational

debt above the threshold limit to the Operational Creditor/Respondent No.1

had become due and payable and whether pre-existing dispute is discernible

or not. In this regard, the Hon'ble Supreme Court in Mobilox at Para 34 has

laid down what the Adjudicating Authority has to examine in an Application

under Section 9. Para 34 is 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)

(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."

Company Appeal (AT) (Ins.) No.1170 of 2022 10

16. Coming to the question of whether operational debt being due and

payable has remained unpaid or not, we find in the present case, the total

amount of debt in Part IV filed under Section 9 application by Respondent

No.1 is Rs. 46,95,033/- of which the amount receivable towards invoice

issued was Rs.18,31,644/- and amount receivable towards interest on

delayed payments was Rs.28,63,389/-. We find that the Adjudicating

Authority has also taken note that the invoice raised by Respondent No.1

stipulated interest @ 2% per month if invoices were not paid up by the due

period. This factum has not been controverted by Respondent No. 2 in their

submissions or pleadings. It has therefore been correctly held by the

Adjudicating Authority that the amount of interest for delayed payment has

become a part of contractual debt as per invoice and hence an operational

debt.

17. We also note that Respondent No.2 has admitted the debt of Rs.

28,31,644/- in their email dated 05.08.2015 as placed at page 90 of reply

affidavit of Respondent No. 1. This email has not been disputed by

Respondent No.2 either before the Adjudicating Authority or before this

Tribunal. The Adjudicating Authority in the impugned order has therefore

committed no error in holding that an amount of Rs.28,31,644/- as debt

stands acknowledged by the Corporate Debtor in their email dated

05.08.2015. That no payments have been received from Respondent No.2

pursuant to demand notice issued on 12.03.2018 is also not disputed. On the

issue whether the debt is time-barred, the Adjudicating Authority has duly

considered the matter and held that since the Corporate Debtor made the last

Company Appeal (AT) (Ins.) No.1170 of 2022 11 payment of Rs.10 lakhs on 13.01.2016 and Section 9 application was filed on

09.05.2018, the application was within limitation and not barred by law. As

it is well settled that any part payment shall trigger fresh period of limitation

from such date, we do not find any error in the findings of the Adjudicating

Authority in this regard and agree that the debt was not barred by limitation.

18. The Appellant's case on the other hand is that against the total balance

of outstanding payments of Rs.28,31,644/- on 14.11.2015, adjustment of

Debit note amounting Rs.17,59,286/- was raised against Respondent No.1 on

16.11.2015 in view of the dispute relating to supply of substandard quality of

coal merits appropriate attention. It has also been claimed that after adjusting

the debit note amounting Rs.17,59,286/-, only an amount of Rs.10,72,359/-

became payable against which full and final payment of Rs.10,00,000/- was

made on 12.01.2016 and thus there was no operational debt above Rs.1 lakh

due to Respondent No.1.

19. The issue of debit note raised by the Appellant brings for our

consideration as to whether there was a pre-existing dispute when Notice

under Section 8 was issued. It will be useful to have a look at the provisions

of Section 8 IBC which is as follows :-

"8. Insolvency resolution by operational creditor. -

(1) An operational creditor may, on the occurrence of a default,

deliver a demand notice of unpaid operational debtor copy of an

invoice demanding payment of the amount involved in the default to

the corporate debtor in such form and manner as may be prescribed.

Company Appeal (AT) (Ins.) No.1170 of 2022 12 (2) The corporate debtor shall, within a period of ten days of the

receipt of the demand notice or copy of the invoice mentioned in sub-

section (1) bring to the notice of the operational creditor -

(a) existence of a dispute, if any, or record of the pendency of the suit

or arbitration proceedings filed before the receipt of such notice or

invoice in relation to such dispute;

(b) the payment of unpaid operational debt-

(i) by sending an attested copy of the record of electronic

transfer of the unpaid amount from the bank account of the

corporate debtor; or

(ii) by sending an attested copy of record that the operational

creditor has encashed a cheque issued by the corporate

debtor.

Explanation. - For the purposes of this section, a "demand notice"

means a notice served by an operational creditor to the corporate

debtor demanding payment of the operational debt in respect of

which the default has occurred."

20. A plain reading of the above provision reveals that sub-section (2) of

Section 8 obligates the Corporate Debtor who has been delivered a Demand

Notice under Section 8(1) by Operational Creditor to bring to the notice of the

Operational Creditor the "existence of a dispute, if any, or record of the

pendency of the suit or arbitration proceedings filed before the receipt of such

notice or invoice in relation to such dispute". There is a statutory purpose for

requiring a Corporate Debtor for bringing into notice of the Operational

Company Appeal (AT) (Ins.) No.1170 of 2022 13 Creditor about the existence of a dispute in its reply to Section 8(1) notice.

The purpose is that if there is a dispute in existence, the same be immediately

communicated to the Operational Creditor so that he charts out his next

actionable step. If no mention of existence of dispute is made by the Corporate

Debtor, the Operational Creditor can go ahead and file an application under

Section 9(1). In the present case the demand notice has been served on

Respondent No.2 on 12.03.2018 to which no reply has been furnished by

Respondent No.2 and therefore the Respondent No.1 was well within its rights

to file the Section 9 application.

21. It is well settled that existence of dispute when the Demand Notice was

issued is a mandatory condition for exercising jurisdiction to reject the

application by the Adjudicating Authority as is envisaged in Section 9(5) of

IBC which reads as follows:-

"9. Application for initiation of corporate insolvency resolution

process by operational creditor. -

******* ****** ******

(5) The Adjudicating Authority shall, within fourteen days of the receipt

of the application under sub-section (2), by an order-

(i) admit the application and communicate such decision to the

operational creditor and the corporate debtor if, -

(a) the application made under sub-section (2) is complete;

(b) there is no payment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has

been delivered by the operational creditor;

Company Appeal (AT) (Ins.) No.1170 of 2022 14

(d) no notice of dispute has been received by the operational

creditor or there is no record of dispute in the information

utility; and

(e) there is no disciplinary proceeding pending against any

resolution professional proposed under sub-section (4), if

any.

(ii) reject the application and communicate such decision to the

operational creditor and the corporate debtor, if -

(a) the application made under sub-section (2) is incomplete;

(b) there has been [payment] of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for

payment to the corporate debtor;

(d) notice of dispute has been received by the operational

creditor or there is a record of dispute in the information

utility; or

(e) any disciplinary proceeding is pending against any

proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an

application under subclause (a) of clause (ii) give a notice to the

applicant to rectify the defect in his application within seven days of

the date of receipt of such notice from the Adjudicating Authority."

22. We now come down to examine whether there was any pre-existing

dispute raised during the stage of notice or whether there was any dispute

on the date of filing the application under Section 9 of the IBC in light of the

Company Appeal (AT) (Ins.) No.1170 of 2022 15 guiding principles laid down by the Hon'ble Supreme Court in Mobilox. It is

relevant to refer to paras 33, 51 and 56 of the said Judgment which is

extracted as hereunder:

"33............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 receipt of the demand notice

or invoice, as the case maybe. In case the unpaid operational

debt has been repaid, the corporate debtor shall within a period

of the self-same 10 days sent and 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 an operational creditor has encashed a cheque or

otherwise received payment from the corporate debt [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)........."

****** ***** *****

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

Company Appeal (AT) (Ins.) No.1170 of 2022 16 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 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."

****** ***** *****

"56. Going by the aforesaid test of "existence of a dispute", it

is clear that without going into the merits of the dispute, the

appellant has raised a plausible contention requiring further

investigation which is not a patently feeble legal argument or

an assertion of facts unsupported by evidence. The defense is

not spurious, mere bluster, plainly frivolous or vexatious. A

dispute does truly exist in fact between the parties, which may

Company Appeal (AT) (Ins.) No.1170 of 2022 17 or may not ultimately succeed, and the Appellate Tribunal was

wholly incorrect in characterizing the defense as vague, got-up

and motivated to evade liability."

23. Further, the Hon'ble Supreme Court in (2021) 10 SCC 483, Kay

Bouvet Engineering Ltd. vs. Overseas Infrastructure Alliance (India) (P)

Ltd. in para 21 has reiterated the same proposition in the following words:-

"21. .....All that the adjudicating authority is required 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

spurious defence which is a mere bluster. It has been held that

however, at this stage, the Court is not required to be satisfied as to

whether the defence is likely to succeed or not. The Court also cannot

go into the merits of the dispute except to the extent indicated

hereinabove. It has been held that so long as a dispute truly exists

in fact and is not spurious, hypothetical or illusory, the adjudicating

authority has no other option but to reject the application."

24. It is a well settled proposition that for a pre-existing dispute to be a

ground to thwart an application under Section 9, the dispute raised must be

truly existing at the time of filing a reply to notice of demand as contemplated

by Section 8(2) or at the time of filing the Section 9 application. In the present

case, we notice that no reply was framed in response to the demand notice at

Company Appeal (AT) (Ins.) No.1170 of 2022 18 all. In such circumstances the Adjudicating Authority is only required to look

into the substance of the pleadings to find out whether a real dispute is

discernible from the stated facts.

25. The Adjudicating Authority in its findings has noted that there was a

provision in the Purchase order which stipulated compensation against the

supply of inferior quality of goods. It also took note of the fact that the

Corporate Debtor had raised a debit note dated 16.11.2015 for an amount of

Rs.17,59,286/- towards inferior quality of coal supplied. However, whether

this dispute was in the nature of pre-existing dispute, it has held:

"The Corporate Debtor has not brought on record any

communication/evidence establishing pre-existing dispute prior

to issuance of the demand notice on 13.03.2018. There is no

acknowledgement of debit note by Operational Creditor neither

any proof is placed for service of debit note on Operational

Creditor by Corporate Debtor. No correspondence or any

document about any dispute between the parties. Thus, defence

raised by the Corporate Debtor that there is pre-existing dispute

is moonshine defence and an afterthought debate by the

Corporate Debtor".

26. Coming to the present case, we may now examine from the material on

record and related facts, as to whether the defence of debit note on account

of inferior quality of coal supply raised by the Respondent No. 2 as pre-

existing dispute is supportable or not. It is an undisputed fact that the notice

of demand was issued on 12.03.2018. Hence, we proceed to examine from

Company Appeal (AT) (Ins.) No.1170 of 2022 19 the material on the record to find out was to whether there was any dispute

raised by the Corporate Debtor regarding inferior quality of coal supplied by

Respondent No.1 prior to 12.03.2018 being the date on which Demand Notice

was issued. We find that the Coal Quality Assessment Reports have been

placed on record by Appellant in the Appeal Paper Book from pages 45-108.

As regards, Coal Test Analysis Report, no substantive proof has been

submitted by the Respondent No.2 to show that the lab reports were actually

communicated to Respondent No.1 before the issue of demand notice. No

document/correspondence has also been placed on record by Respondent

No.2 to establish that coal-quality issues were taken up with Respondent No.1

prior to issue of demand notice. Dispute, if any, has to be in existence prior

to the issue of demand notice and should have been brought to the notice of

the Operational Creditor which has clearly not happened in the instant case.

This lends credulity to the stand taken by the Learned Counsel for

Respondent No.1 that had genuine disputes been in existence, the

Respondent No.2 would have articulated these disputes by responding to the

demand notice and not remained silent. We are inclined to agree with the

Respondent No.1 that the coal test reports appear to be an after-thought

which is validated by the fact that these reports were submitted as additional

documents before the Adjudicating Authority by Respondent No.2 only after

the Section 9 application had been filed by Respondent No.1.

27. The absence of proof of delivery of the debit note to operational creditor

is yet another pertinent point raised by Respondent No.1 and lends credibility

to the contention that debit note dated 16.11.2015 was never issued to

Company Appeal (AT) (Ins.) No.1170 of 2022 20 Respondent No.1 on that date. The explanation of the Appellant that since the

Respondent No. 2 had sold its business hence postal receipts of debit notice

delivery are not available is not a cogent or persuasive explanation. We also

note that Respondent No.2 has not indicated in the objections filed before the

Adjudicating Authority as to how and by which mode the debit note was

actually serviced upon Respondent No.1. No proof has either been given while

filing their objections before the Adjudicating Authority to establish that the

debit note was received by Respondent No.1. It has been stated in the

rejoinder filed by the Appellant that the issue of supply of sub-standard coal

was raised during personal meetings but fails to explain why such a serious

matter was never followed-up in writing even once. It has also been pointed

out that the alleged debit note suffers from the discrepancy that it does not

specifically refer to those invoices under which coal supplied was found to be

of inferior quality. Moreover, the debit note suffers from a gross infirmity that

it mentions supply of inferior coal during the month of February 2014 while

no coal was supplied in February 2014. While disputes pertaining to

contractual issues are not to be resolved in Section 9 proceedings, we find it

intriguing that the debit note was issued on 16.11.2015 surpassing a period

of 21 months since the last supply was made.

28. In the light of the above, we are of the considered view that the findings

of the Adjudicating Authority that the defence raised by the Respondent No.

2 is an after-thought and a moonshine defence do not appear to be misplaced.

We find that the Adjudicating Authority in the present case has carefully

considered the reply and submissions made by the Respondent No.2 and has

Company Appeal (AT) (Ins.) No.1170 of 2022 21 correctly come to the conclusion that there is no ground to establish any real

and substantial pre-existing dispute. We also find no convincing reasons to

be persuaded that there was any pre-existing dispute.

29. Finally coming to the plea raised by the Appellant that the Respondent

No.2 was denied the opportunity of hearing before the Adjudicating Authority

on account of connectivity problems, we are of the view that had Respondent

No.2 been vigilant about protecting its own interests, they had ample

opportunity to approach the Adjudicating Authority to seek a hearing as there

was a long intervening gap between the last date of hearing and date of

pronouncement of order. We therefore find this plea to be superfluous and

do not attach any weight thereto.

30. In view of the foregoing discussion, we are satisfied that the

Adjudicating Authority did not commit any error in admitting the Section 9

application filed by Respondent No.1. There is no merit in the Appeal. Appeal

dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical) Place: New Delhi Date: 15.12.2022

PKM

Company Appeal (AT) (Ins.) No.1170 of 2022 22