Mr. V Venkata Satyanarayana, Vs M/s Pattabi Enterprise & Anr. - A ‘Corporate Debtor’, is entitled in ‘Law’ to advance a ‘Plea’, that the ‘Default’ had not taken place and that ‘Debt’, including a ‘Disputed Sum’, is not ‘Due’. A ‘Debt’ may not be ‘Due’, if it is ‘not payable’ in ‘Law’ or ‘Fact’

NCLAT (13.12.2022) in Mr. V Venkata Satyanarayana, Vs M/s Pattabi Enterprise & Anr. [Company Appeal (AT)(CH)(Ins) No.427/2022 & IA Nos.1058 & 1059/2022] held that; 

• That only in the ‘Reply’ of the ‘Corporate Debtor’ to the issuance of ‘Statutory Demand Notice’, the ‘quality’ aspect of ‘Goods’ was taken and on an earlier occasion there was ‘no correspondence’, that was ‘exchanged’ / ‘communicated’ between the parties or that was not placed before the ‘Adjudicating Authority’,

• The aspect of existence of ‘Default’, takes a ‘prime seat’, and the reason supposed to be projected by the ‘concerned Party’ viz., ‘inability to pay’, is of ‘no avail.

• A ‘Corporate Debtor’, is entitled in ‘Law’ to advance a ‘Plea’, that the ‘Default’ had not taken place and that ‘Debt’, including a ‘Disputed Sum’, is not ‘Due’. A ‘Debt’ may not be ‘Due’, if it is ‘not payable’ in ‘Law’ or ‘Fact’

• A mere ‘pendency’ of a ‘Civil Suit’ or a ‘Criminal Case’, under Section 138 of the ‘Negotiable Instrument Act’, will not preclude an ‘Applicant,’ to seek an ‘appropriate remedy’, under the ‘Insolvency & Bankruptcy Code, 2016’, if he so desires / advised.

• It cannot be forgotten that the ‘Proceedings’ in the ‘Insolvency & Bankruptcy Code, 2016’ are ‘summary’ in ‘Nature’, and it is not an ‘adversarial in Character’. An ‘Adjudicating Authority’, (‘Tribunal’) is not a ‘Civil Court’, to decide about the ‘Contract’ entered into between the parties concerned.

Excerpts of the order;.

13.12.2022 : Heard Mr. V Raghunath, the Learned Counsel for the ‘Appellant’, at the ‘Admission stage’, itself.

 

# 2. The ‘Appellant’ / ‘Suspended Board of Director’ of the ‘Corporate Debtor’ has focused the instant Comp. App. (AT)(CH)(Ins) No.427/2022, as an ‘Aggrieved Person’, on being dissatisfied with the ‘impugned order’ dated 30.06.2022 in CP(IB) No.320/9/HDB/2021, passed by the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad).

 

# 3. The ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad), while passing the ‘impugned order’ dated 30.06.2022, in CP(IB) No.320/9/HDB/2021 (filed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’) at ‘Paragraph Nos.6 to 10’, had observed the following :-

• 6. “The ledger account of the Corporate Debtor, in the books of account of the Operational Creditor, pertaining to a period from 01.04.2019 to 31.03.2020, exhibits an amount of Rs.2,36,39,065/- as being due to the Operational Creditor, from the Corporate Debtor. Further, the payment of Rs.50,00,000/- that the Corporate Debtor claims to have made, is recorded in the said ledger account.

• 7. The Corporate Debtor claims that the Petitioner has raised fictitious invoices, without supplying the goods, as mentioned therein. However, the numbered and dated invoices that have been listed out by the Corporate Debtor tally with those filed by the Petitioner, and are identical. Further, even assuming that the said invoices are fictitious, the Corporate Debtor has not stated the details of the purported invoices under which supply has been made and payment effected, as is claimed by it.

• 8. Secondly, the Corporate Debtor, in its reply to the statutory demand notice of the Petitioner, stated that the goods supplied were made using poor quality paper and are not useful for the purpose of export packaging. There is nothing on record to suggest that the Corporate Debtor had communicated the same to the Petitioner, prior to the issuance of the demand notice. It appears that such a complaint about the quality of goods, possibly raised for the first time at such a stage, is a facade taken to avoid making the payments that are due to the Petitioner.

• 9. Thirdly, the Corporate Debtor claims that the material had been lying in its godowns, without being of any use and the Petitioner was asked several times to lift the goods and vacate the premises. While such an averment finds a place in the reply of the Corporate Debtor to the statutory demand notice of the Petitioner, no prior correspondence to that effect has been placed on record by the Corporate Debtor, in order to substantiate the claim, thereby hollowing the same.

• 10. Fourthly, with regard to the next defense employed by the Corporate Debtor, citing the filing of a complaint under Section 138 of the Negotiable Instruments Act, 1981, in the Court of the V Judicial Magistrate of First Class, Mysuru, it is settled that proceedings under Section 138 of the Negotiable Instruments Act, 1881, do not amount to a pre-existing dispute, and are, therefore, not an impediment to proceedings under Section 9 of the Code, 2016. We derive support from the ruling of the Hon’ble NCLAT in Sudhi Sachdev v. Appl Industries (Company Appeal (AT) (Insolvency) No.623/2018), in which it was held that pendency of a case under Section 138 of the Negotiable Instruments Act, 1881, actually amounts to admission of debt and not an existence of dispute.”

and ‘admitted’ and declared ‘Moratorium’ etc.

 

# 4. Assailing the ‘Validity’, / ‘Propriety’, / ‘Legality’ of the ‘impugned order’ in in CP(IB) No.320/9/HDB/2021, passed by the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) dated 30.06.2022, the Learned Counsel for the ‘Appellant’ submits that the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad), had committed an ‘error’ in ‘admitting’ the ‘Application’, filed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, without appreciating the ‘real facts and circumstances’ of the ‘instant Case’.

 

# 5. According to the Learned Counsel for the ‘Appellant’, that the ‘Corporate Debtor’, had not ‘acknowledged’, the copies of ‘Bills’, submitted by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ and the ‘Delivery Challans’ or any ‘Acknowledgment’ about the ‘Delivery of the Goods’, covered under the purported ‘Bills’.

 

# 6. It is represented on behalf of the ‘Appellant’ that the ‘Corporate Debtor’ had acknowledged the ‘amounts’, claimed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ and the ‘amounts’ claimed is not ‘entitled’ to ‘recover’ by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’. Added further, the ‘Balance Sheet’, etc., projected before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) were not ‘acknowledged’ by the ‘Corporate Debtor’.

 

# 7. In this connection, this ‘Tribunal’, relevantly points out that according to the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, it is a ‘Partnership Firm’, engaged in the business of ‘printing boxes’, ‘lamination boxes’, packaging material’ and other ‘allied activities’, having its ‘Registered Office at 70-71, Hootagally Industrial Area, Hootagally, Mysore, Karnataka.

 

# 8. The ‘Corporate Debtor’ is a ‘Private Limited Company’ and it is exporting the ‘sea food products’ and availed services of the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ for ‘packaging the materials’ and in this regard, there was an ‘understanding’ between the Parties, in terms of the ‘quotation’, furnished by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, after which the ‘goods’ were supplied and ‘invoices’ were raised.

 

# 9. The clear cut stand of the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ is that ‘every invoice’ raised, till the date of filing of the ‘Application’, before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) was accepted by the ‘Corporate Debtor’, without any ‘Demur’ or any ‘Dispute’. Apart from that, the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ had credited the ‘GST’, on the account of the ‘Corporate Debtor, in a ‘timely manner’ and kept sending ‘by Post’, the copy of the ‘Account Statement’ and further that the ‘Corporate Debtor’, had also ‘acknowledged’ the ‘Balance’ and ‘E-mailed’ the ‘Ledger’ to the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, clarifying the ‘GST Credit’ aspect.

 

# 10. The grievance of the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) is that the ‘Corporate Debtor’ is liable to ‘pay’ to the ‘seller’ a total sum of Rs.2,90,30,715/- and in this regard the ‘Corporate Debtor’, had no intention to clear the ‘Dues’ and hence, the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ perforced to issue a ‘Statutory Demand Notice’, in directing the ‘Corporate Debtor’ to clear the ‘outstanding sum’ of Rs.2,90,30,715/-, being the ‘Default sum’, within ‘Ten Days’, of the receipt of the ‘Demand Notice’ sent to the ‘Registered E-Mail Address of the Company’, as well as to the ‘E-mail address of its Director’, as available on the ‘Ministry of Corporate Affairs’ website’.

 

# 11. Per contra, the ‘Corporate Debtor’, before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) in its ‘Reply’, had averred that the ‘Operational Creditor’s claim’ is mainly based on ‘Nine Invoices’, for supply of ‘ply printed corrugated boxes and laminated boxes and the ‘Corporate Debtor’ had not placed all the ‘purchase orders’, for supply of ‘materials’ to be supplied with the ‘invoices’ to the ‘Corporate Debtor’.

 

# 12. The ‘defence’ projected before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) on behalf of the ‘Corporate Debtor’ is that the 1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ is claiming ‘huge sum’, without supply of ‘Goods’ and raised the ‘amount’, with ‘Fictitious Invoices’ and further, that the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, without supplying the ‘Goods’ had raised the ‘invoices’ only to bring the ‘Company’ into an ‘insolvency’.

 

# 13. In regard to the ‘Plea’ of the ‘poor quality of paper’, the ‘Corporate Debtor’ had taken a stand, before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) that in the ‘subject matter’ in issue, there was a ‘pre-existing dispute’, in regard to the ‘quantity and quality’ of the goods supplied and that the time line, which are delivered to the ‘Corporate Debtor’ are not useful for ‘accepted parties’ and the time of the ‘Corporate Debtor’ was wasted, since the Goods sent by the ‘Corporate Debtor’ were not allowed for ‘shipment’.

 

# 14. The stand taken by the ‘Corporate Debtor’, before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) is that the ‘poor quality’ of ‘Boxes’, were supplied by the 1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, which are of ‘no use’ for ‘exporting’ any kind of material, and they were ‘lying’ in the Godown, without any use.

 

# 15. Coming to the aspect of the Section 138 of the ‘Negotiable Instrument Act, Criminal Case, the ‘Corporate Debtor’ was summoned to the ‘Criminal Court’, ‘Mysuru’, based on the ‘false case’, filed by the ‘Operational Creditor’ and in fact, Mr. Nerella Mohan Rao, though was not a ‘Director of the Corporate Debtor’, his signatures were fabricated on the ‘Cheques’ of the ‘Corporate Debtor’ with the ‘forged signatures’ and the matter is pending as on date.

 

# 16. Lastly, in the ‘Reply’ before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad), the ‘Corporate Debtor’ had come out with a ‘candid plea’ that there was a ‘pre-existing dispute’, and as such, the ‘Section 9’ Application filed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ is not maintainable, per se, in the eye of ‘Law’.

 

# 17. It may not be out of place, for this ‘Tribunal’, to make a pertinent mention that in CP(IB) No.320/9/HDB/2021, the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ had averred that the ‘Operational Creditor’ had levied interest at the rate of 9% per annum, after giving ‘Credit’ period of ‘30 Days’, as agreed to, between the ‘Parties’ and in the ‘E-mail’ updated the ‘Ledger’, to the ‘Corporate Debtor’ and, in fact, in spite of several requests made by the ‘Operational Creditor’ to the ‘Corporate Debtor’, the ‘Corporate Debtor’ had failed to ‘effect the payment’, but came out with a ‘false assurance’ and in ‘reality’, the payment was not effected.

 

# 18. This ‘Tribunal’, has ‘Heard’ the Learned Counsel for the ‘Appellant’ / ‘Suspended Board of Director’ of the ‘Corporate Debtor’ and ‘noted’ his contentions.

 

# 19. In so far as the ‘Ledger Account’ of the ‘Corporate Debtor’ in the ‘Books of Account’ of the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’, for the period from 01.04.2019 to 31.03.2020 is concerned, a sum of Rs.2,36,39,065/- is shown as a ‘sum due’ to the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ from the ‘Corporate Debtor’, although Rs.50,00,000/- was said to have been paid by the ‘Corporate Debtor’, the same was mentioned in the ‘Ledger Account’ of the Corporate Debtor.

 

# 20. A ‘Corporate Debtor’, in ‘Law’ is entitled to take all ‘available ‘Defences’ and the ‘Dispute’, purportedly raised by the ‘Corporate Debtor’ is not to be a ‘weak one’ or ‘near assertion of fact’ and that too ‘unsupported’ with any ‘satisfactory material’.

 

# 21. The very fact that a ‘criminal complaint’ before the Hon’ble Judicial Magistrate of First Class Court No.V, Mysuru, is filed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ against the ‘Corporate Debtor’, that itself, will clearly, unerringly points out to the ‘Admission of Debt’, and that will not point out an ‘existence of dispute’, as held by this ‘Tribunal’s Judgment’, in ‘Sudhi Sachdev v. Appl Industries’ (Comp. Appl. (AT) (Ins) No.623/2018, which has been rightly ‘quoted’ by the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) in ‘Paragraph 10’ of the ‘impugned order’.

 

# 22. As regards the ‘quality of materials’, that was ‘supplied’ and the ‘supplied goods were lying in the Godown’, without any use, etc., this ‘Tribunal’, pertinently points out, that only in the ‘Reply’ of the ‘Corporate Debtor’ to the issuance of ‘Statutory Demand Notice’, the ‘quality’ aspect of ‘Goods’ was taken and on an earlier occasion there was ‘no correspondence’, that was ‘exchanged’ / ‘communicated’ between the parties or that was not placed before the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad), to support the ‘Claim’ of the ‘Corporate Debtor’.

 

# 23. Under the Insolvency & Bankruptcy Code, 2016, the aspect of existence of ‘Default’, takes a ‘prime seat’, and the reason supposed to be projected by the ‘concerned Party’ viz., ‘inability to pay’, is of ‘no avail. In a given case, if a ‘Debt’ is ‘Disputed’, yet, if the ‘amount’ is more than Rs.1,00,000/- (Rupees One Lakh Only), now Rs.1,00,00,000/- (Rupees One Crore Only) the same is ‘maintainable in Law’. No wonder, an ‘Adjudicating Authority’, (‘Tribunal’), is not ‘empowered’ to ‘decide’ the ‘Default Sum’.

 

# 24. A ‘Corporate Debtor’, is entitled in ‘Law’ to advance a ‘Plea’, that the ‘Default’ had not taken place and that ‘Debt’, including a ‘Disputed Sum’, is not ‘Due’. A ‘Debt’ may not be ‘Due’, if it is ‘not payable’ in ‘Law’ or ‘Fact’

 

# 25. A mere ‘pendency’ of a ‘Civil Suit’ or a ‘Criminal Case’, under Section 138 of the ‘Negotiable Instrument Act’, will not preclude an ‘Applicant,’ to seek an ‘appropriate remedy’, under the ‘Insolvency & Bankruptcy Code, 2016’, if he so desires / advised.

 

# 26. It cannot be forgotten that the ‘Proceedings’ in the ‘Insolvency & Bankruptcy Code, 2016’ are ‘summary’ in ‘Nature’, and it is not an ‘adversarial in Character’. An ‘Adjudicating Authority’, (‘Tribunal’) is not a ‘Civil Court’, to decide about the ‘Contract’ entered into between the parties concerned.

 

# 27. Be that as it may, this ‘Tribunal’ relevantly points out that the ‘Defence’ to be taken by the ‘Corporate Debtor’ in a given Case, cannot be ‘namesake one’ / ‘moonshine one’ or an ‘illusory one’. Further, on a careful consideration of the contentions advanced on behalf of the ‘Appellant’ / ‘Suspended Board of Director’ of the ‘Corporate Debtor’, and also this ‘Tribunal’, on going through the ‘impugned order’ dated 30.06.2022 in CP(IB) No.320/9/HDB/2021 passed by the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad), comes to an ‘inevitable’ and ‘irresistible conclusion’, that the view arrived at by the ‘Adjudicating Authority’, (National Company Law Tribunal, Hyderabad Bench, Hyderabad) in ‘Admitting’ the ‘Application’ filed by the ‘1st Respondent’ / ‘Petitioner’ / ‘Operational Creditor’ (under Section ‘9’ of the I&B Code, 2016 r/w Rule 6 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 is ‘Free from any Legal Flaws’. Viewed in that perspective, the instant Comp. App. (AT)(CH)(Ins) No.427/2022 fails.

 

In fine, the instant Comp. App. (AT)(CH)(Ins) No.427/2022 is ‘dismissed’ without Costs. The connected pending IA/1058/2022 (For ‘Urgent Listing) and IA/1059/2022 (For ‘Stay’) are Closed.

 

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M/s Agarwal Veneers Vs. Fundtonic Service Pvt. Ltd. - If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of ‘Reorganising’ or ‘Resolution of the Company’ does not arise.

 NCLAT (05.08.2022) in M/s Agarwal Veneers Vs. Fundtonic Service Pvt. Ltd. [Company Appeal (AT) (Ins) No. 968 of 2020] held that

• # 16 . . . . . . .If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of ‘Reorganising’ or ‘Resolution of the Company’ does not arise. . . . . . .

• # 17. The Hon’ble Supreme court in ‘Vidarbha Industries Power Ltd. vs. Axis Bank Ltd’. 2022 SCC Online SC 841 has observed that even if there is a ‘debt’ and ‘default’, the Adjudicating Authority should use its discretion in admitting/ rejecting an Application. In the instant case, the Adjudicating Authority has rightly rejected the Application on this ground too.

 

Excerpts of the order;

This Appeal challenges the order dated 29.09.2020, passed by Learned Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench, Ahmedabad) Court-2 in C.P. (I.B) No. 824/NCLT/AHM/2019, whereby the Application under Section 9 of the Insolvency and Bankruptcy Code,2016(herein after referred to ‘the Code’) was rejected. By the impugned order, Ld. Adjudicating Authority has observed as follows:

• “9. On perusal of the records it is found that the Respondent has issued two demand notices (page 28-55), the first one dated 24.06.2019 and second one dated 20.07.2019. Demand notice which is a pre- requisite under Section 8 of the Insolvency & Bankruptcy Code, 2016 for filing the petition under Section 9, is signed and issued by an advocate on behalf of M/s. Nehru & Co. (Advocates and Legal Consultants), whereas, the petition is signed by Mr. Rohit Agarwal, Partner of the applicant firm on the basis of authority letter dated 20.08.2019 issued by the other partner of the partnership firm. On perusal of the records it is found that no authority is given to the advocate to issue demand notice or for filing an application u/s 9 of the IB Code. Similarly, no document is produced by the applicant showing that the advocate who has signed the application is associated with the company for a long period and can take such steps on behalf of the company. Therefore, the demand notice which is a prerequisite for filing an application under Section 9 of the itself is bad in the eye of law.

• 10. On perusal of the records it is found that the Respondent Company is a going concern and at present giving employment to 20 employees. Hence, it would defeat the very purpose of the Code, if a going concern generating revenue, the employees and stakeholders are subject to the rigors of the CIRP. It appears that the operational creditor has filed the instant petition as a tool of recovery mechanism which is not the objective of the IBC. It is a settled law that the Code is not intended to be a substitute to a recovery forum. More so, when the corporate debtor company falls within the category of Micro, Small and Medium Enterprise (MSME), CIRP proceedings against a going concern Jeopardising livelihood of several families is against the objectives of IB Code and cannot be used to jeopardise the financial health of a solvent company by pushing it into insolvency Initiating

• 11. Notwithstanding above, it is found that the petitioner has not produced on record documents like copy of the purchase order and delivery challan to substantiate its claim. Moreover, the applicant has not produced on record a copy of bank statement showing that no payment is received from the corporate debtor towards the invoices against which the claim has been raised.

• 12. Under the facts and circumstances discussed above, the Adjudicating Authority has no other option but to dismiss the petition as it is bad in the eye of law and not maintainable on the very reason that the demand notice is issued without any authority.

• 13. In the result, company Petition No. CP (IB) 824 of 2019 stands dismissed and disposed of. However, this will not stand in the way of the Petitioner approaching the appropriate forum seeking to enforce its claim against the Respondent, as this petition has been dismissed on the issue of maintainability taking into consideration the provisions of IB Code, 2016”.

 

# 2. Submissions of the Ld. Counsel appearing on behalf of the Appellant.

• Ld. Counsel appearing for the Appellant strenuously submitted that the Adjudicating Authority has overlooked the Principle laid down by the Hon’ble Supreme Court in “Macquarie Bank Ltd. vs. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 , wherein the Hon’ble Apex Court has observed that an advocate can issue the demand notice on behalf of its client. It is submitted that an advocate from Nehru & Co. (Advocates and Legal Consultants) issued the demand notice under Section 8 of the Code upon instructions from the Appellant/Operational Creditor. It is further submitted that the Adjudicating Authority has erroneously observed that the Corporate Debtor is an MSME and a going concern having twenty employees and that initiating CIRP proceedings would defeat the purpose of the Code. This cannot be a ground for dismissal of the Application under Section 9 of the Code. It is argued that a perusal of the Section 20 of the Code would make it amply clear that the objective of the Code is not to put the Operational Creditor through rigours of the CIRP Process, but to instead maximize the value of assets of such persons, to promote entrepreneurship and balance the interest of all stakeholders.

• Ld. Counsel further contended that the Adjudicating Authority has failed to appreciate the evidence of acknowledgment in the Ledger Statement and ought to have given a reasonable opportunity to the Appellant to file other documents. The Corporate Debtor did not raise any dispute regarding the products supplied or the invoices raised by the Appellant either before issuing the demand notice, or after receiving the same. In fact, the Respondent has also made part payments towards the invoices raised by the Appellant. It is strenuously argued that a copy of the certificate from the ‘financial institutions’ maintaining the accounts of the operational creditor and conforming that there is no payment of an unpaid operational debt by the corporate debtor is not a condition precedent for triggering the CIRP. The Adjudicating Authority has failed to take into consideration that Section 9(3) (c) of the Code was amended and the words ‘by the Corporate Debtor, if available’ was substituted.

 

# 3. The Ld. Counsel relied on the following judgments in support of his case:

• Macquarie Bank Ltd. vs. Shilpi Cable Technologies Ltd., 2018 SCC Online SC 264 [Pg. Nos. 159-201, Appeal].

• M/s Bannari Amman Spinning Mills Ltd. vs. M/s. My Choice Knit & Apparels Pvt. Ltd., 2019 SCC NCLAT 1121 (Para.3, Pg. No. 220, Appeal).

• International Road Dynamics vs. Reliance Infrastructure, CA (AT) (Ins) No. 72 of 2017)

• Sagufa Ahmed & Ors vs. Upper Assam Plywood Products Pvt. Ltd. & Ors. Civil Appeal Nos. 3007-3008 of 2020.

 

# 4. Submissions of the Ld. Counsel appearing on behalf of the Respondent:

• The Ld. Counsel for the Respondent/Corporate Debtor vehemently argued that the present Appeal is not maintainable, as the Appellant has not placed on record any purchase order/ delivery challan/bank statements in support of their Application before the Adjudicating Authority. There can be no sale or supply of goods without a purchase order. The operational creditor is only attempting to recover their claims through these CIRP proceedings.

• It is submitted that the demand notices issued by the Operational Creditor were never served on the Corporate Debtor and the same was pointed out by the Corporate Debtor in their ‘Affidavit in Reply’ filed before the Adjudicating Authority. The Corporate Debtor is a ‘going concern’ and an MSME with a sales turnover of Rs. 1,61,74,968/- and the present Application preferred by the Appellant is only an attempt to recover the dues.

 

# 5. The Ld. Counsel for the Respondents placed reliance on the following judgments to buttress his arguments:

• Mr. V Nagarajan Resolution Professional vs. SKS Ispat & Power Ltd. (CA (AT) (Ins) No. 561 of 2020, dated 13.07.2020.

• Neeraj Jain Director of M/s Flipkart India Pvt. Ltd. vs. Cloud walker Streaming Technologies Pvt. Ltd. & Ors. in CA (AT) (Ins) No. 1354 of 2019, dated 24.02.2020.

• Anand Natvarlal Khant vs. Kush Structure Pvt. Ltd. in CA (AT) (Ins) No. 502 of 2021, dated 23.07.2021.

• Pankaj Aggarwal vs. Union of India & Ors. , W.P. (C) 3685 of 2020 & CM Appls. 13194/2020,13195/2020,13196/2020.

Assessment:

 

# 6. The brief point for consideration which arises in this Appeal is whether the Adjudicating Authority was justified in rejecting the Section 9 Application preferred by the Appellant herein.

 

# 7. It is the main case of the Appellant/Operational Creditor that the Adjudicating Authority has wrongly observed that the demand notice under Section 8 of the Code was issued by an advocate and is therefore not valid.

 

# 8. The Adjudicating Authority in para 9 of the impugned order has observed that the demand notice which is a prerequisite for filing of the Application under Section 9 is bad as no document was produced by the Applicant/Appellant showing that the advocate who has signed the Application is associated with the Company for a long period and can take such steps on behalf of the Company.

 

# 9. We are of the considered view that as far as this issued is concerned, an advocate can, on behalf of the Company issue a demand notice under Section 8 and no such document is required to establish his ‘period of association’ with the said Company. At this juncture, we place reliance on the observations of the Hon’ble Supreme Court in ‘Macquarie Bank Ltd. vs. Shilpi Cable Technologies Ltd., 2018 2 SCC 674’ , in which the Hon’ble Apex Court in para -49 has observed as follows:

• “49. Since there is no clear disharmony between the two parliamentary statues in the present case which cannot be resolved by harmonious interpretation, it is clear that both statutes must be read together. Also, we must not forget that Section 30 of the Advocates Act deals with the fundamental right under Article 19(1) (g) of the Constitution to practice one’s profession. Therefore, a conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of the Code together with the Adjudicating Authority Rules and Forms thereunder would yield the result that a notice sent on behalf of an operational creditor by a lawyer would be in order”.

 

Therefore, we are of the earnest view that the observation by the Adjudicating Authority in para -9 be set aside.

 

# 10. However, the Application was not dismissed on this ground alone. A perusal of the impugned order shows that the Adjudicating Authority has dismissed the Application even on merits, the grounds being that the Corporate Debtor is an’ MSME’ and a ‘going concern’ and a ‘viable entity’.

 

# 11. It is also observed by the Adjudicating Authority that the Operational Creditor had filed the Petition as a tool of recovery and that the Code is not intended to be a substitute to a Recovery Forum. Further, the Adjudicating Authority has also noted that the Appellant/Applicant has not produced on record any bank statements to show that payments were received from the Corporate Debtor against the invoices based on which the claims have been raised.

 

# 12. The Contention of the Ld. Counsel for the Appellant submitted that a reasonable opportunity ought to have been given to the Appellant to file further documents namely the Purchase orders and the corresponding delivery challans and that the Adjudicating Authority had erroneously dismissed the Application, on this ground too, is untenable, as the record shows that the Appellant herein, had sought time before the Adjudicating Authority and has failed to produce the relevant documents. Part –V of Form 5 mandates that relevant document(s) under which the debt has become due must be annexed in compliance of this requirement, the Appellant ought to have filed the relevant Purchase Orders based on which its claim was raised. Part-V, Column 7 of form 5 also mandates that a statement of the bank account where deposit or credit is received, ought to be attached.

 

# 14. It is clear from the aforenoted provisions of the Code and also the Regulations therein that unless the Operational Creditor along with its Application furnishes a copy of the invoices, the bank statements and the financial accounts, the Adjudicating Authority is empowered to reject an incomplete Application.

 

# 15. Lastly, we address to the Contention of the Ld. Counsel for the Appellant that merely because the Corporate Debtor is a going concern and an MSME, the Adjudicating Authority ought not to have rejected the Application on this ground also. 

 

# 16. The Preamble of IBC is carefully worded to describe the spirit and objective of the Code to be ‘Reorganisation’ and ‘Insolvency Resolution’, specifically omitting the word ‘Recovery’. The Parliament has made a conscious effort to ensure that there is a significant difference between ‘Resolution’ and ‘Recovery’. The Hon’ble Supreme Court has time and again observed that the fundamental intent of IBC is ‘maximising the value of assets’ in the process of ‘Resolution’. In ‘Mobilox Innovations Private Limited’ Vs. ‘Kirusa Software Private Limited’, (2018) 1 SCC 353, the Hon’ble Apex Court has examined in detail the United Nations Legislative Guide on Insolvency, in which the IBC finds its roots. Any Application to commence CIRP can be denied when the Creditor is using Insolvency as an inappropriate substitute for Debt Recovery Procedures. If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of ‘Reorganising’ or ‘Resolution of the Company’ does not arise. This Tribunal in ‘Binani Industries Limited’ Vs. ‘Bank of Baroda & Anr.’, Company Appeal (AT) (Ins.) No. 82 of 2018, has differentiated between ‘Recovery’ and ‘Resolution’ and has observed that IBC is not a Recovery Proceeding. ‘Recovery’ dispossesses the ‘Corporate Debtor’ of its assets while a Resolution is an effort to keep it afloat. Further, this Tribunal in ‘Asset Advisory Services’ Vs. ‘VSS Projects’, CP (IB) No. 96/7/HDB (2017), and also in ‘Praveen Kumar Mundra’ Vs. ‘CIL Securities Ltd.’, 2019 SCC OnLine 21 | P a g e Company Appeal (AT) (Insolvency) No. 512 of 2021 NCLAT 334, has noted that CIRP cannot be initiated with fraudulent intent ‘for any purpose other than the Resolution of Insolvency or Liquidation’ and therefore it is clearly covered under Section 65 of the Code.

 

# 17. The Hon’ble Supreme court in ‘Vidarbha Industries Power Ltd. vs. Axis Bank Ltd’. 2022 SCC Online SC 841 has observed that even if there is a ‘debt’ and ‘default’, the Adjudicating Authority should use its discretion in admitting/ rejecting an Application. In the instant case, the Adjudicating Authority has rightly rejected the Application on this ground too.

 

# 18. For all the aforenoted reasons, this Appeal fails on merits and is accordingly dismissed. No order as to costs.

 

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Blogger’s Comments; The above judgement is “per-incuriam”.  The judgement of the Hon’ble Supreme court has been misquoted. 

 

SCI (12.07.2022) in Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. [Civil Appeal No. 4633 of 2021] held that;

• # 75. Significantly, Legislature has in its wisdom used the word ‘may’ in Section 7(5)(a) of the IBC in respect of an application for CIRP initiated by a financial creditor against a Corporate Debtor but has used the expression ‘shall’ in the otherwise almost identical provision of Section 9(5) of the IBC relating to the initiation of CIRP by an Operational Creditor.

• # 76. The fact that Legislature used ‘may’ in Section 7(5)(a) of the IBC but a different word, that is, ‘shall’ in the otherwise almost identical provision of Section 9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid operational debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor.

 

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M/s S.S. Engineers V/s Hindustan Petroleum Corporation Limited (HPCL) & Ors. - The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor.

 Supreme Court (15.07.2022) in M/s S.S. Engineers V/s Hindustan Petroleum Corporation Limited (HPCL) & Ors. [Civil AppealNo.. 4583 of 2022] held that;

• 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.

• We repeat that the object of the Code, at least insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a real dispute between the parties as to the debt owed does not exist

• that the filing of a Section 34 petition against an arbitral award shows that a preexisting dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 has taken place.

• It is not for this Court to adjudicate the disputes between the parties and determine whether, in fact, any amount was due from the appellant to the HPCL/HBL or vice-versa.

• The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor. 

• On a reading of Sections 8 and 9 of the IBC, it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. 

• If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor.

Excerpts of the order;

This appeal is against a judgment and order dated 10th January, 2022 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi allowing Company Appeal (AT)(Insolvency) No. 332 of 2020 filed by the Respondent No.1 Hindustan Petroleum Corporation Limited (HPCL) and setting aside the order dated 12.02.2020 passed by the National Company Law Tribunal (NCLT), Kolkata, admitting an application filed by the appellant under Section 9 of the Insolvency and Bankruptcy Code (IBC) as Operational Creditor, for initiation of the Corporate Insolvency Resolution Process (CIRP) against HPCL Biofuels Ltd. (HBL), a wholly owned subsidiary of HPCL. The NCLAT directed the Adjudicating Authority NCLT to close the proceedings for CIRP initiated against HBL.

 

# 2. On or about 15.11.2018, the appellant filed an application for initiation of CIRP against HBL under Section 9 of the IBC in the Kolkata Bench of the NCLT. On 07.03.2019, HBL filed its reply to the said application made by the appellant and the appellant also filed a rejoinder thereto.

 

# 3. By an order dated 12.02.2020, the Adjudicating Authority (NCLT) admitted the application for initiation of CIRP filed by the appellant, rejecting the contention raised by HBL that there were pre-existing disputes between the parties in respect of the claim of the appellant.

 

# 4. From the List of Dates filed by the appellant, it appears that between 27.06.2012 to 30.08.2012, various tenders were floated by HBL for enhancing the capacity of the Boiling Houses of HBL at Lauryia and Sugauli from 1750 TCD to 3500 TCD.

 

# 5. The appellant submitted its offer pursuant to the tenders. On or about 15.10.2012, four purchase orders were issued to the appellant in relation to the tender work of enhancing the capacity of the Boiler Houses. On 01.11.2012, Purchase Orders were issued by HBL for enhancing the Juice Heater and Evaporator Section and Pan and Crystallization Section at Sugauli Plant on a turnkey basis.

 

# 6. Between 21.11.2012 to 25.03.2013, the appellant raised invoices in respect of the purchase orders. It is not necessary for this Court to go into the details of what transpired between 21.11.2012 when the appellant started raising invoices of HBL and 29.12.2013.

 

# 7. Suffice it to mention that on 29.12.2013, HBL sent an email to the appellant pointing out that the appellant had been violating the terms of the purchase order and backing out from its commitments thereunder, thereby causing huge losses to HBL. HBL contended that because of the failure of the appellant to honour its commitments in terms of the Tenders/Purchase Orders it had to procure materials from other vendors.

 

# 8. On 02.01.2014, HBL sent a letter to the appellant stating that the appellant had acted in violation of the General Terms and Conditions, inter alia, by raising improper invoices for materials not supplied, not renewing bank guarantees, failing to effect supplies and complete work within the stipulated period. It was alleged that the service rendered and/or materials supplied by the appellant were of poor quality.

 

# 9. On 03.01.2014, HBL raised a debit note in respect of consumption by the appellant of spares and consumables from the warehouse of HBL. A series of correspondence followed. By a letter dated 11.4.2014 addressed to the appellant, HBL made allegations with regard to the service rendered and/or goods supplied by the appellants and contended that there was no payment outstanding from HBL to the appellant. On the other hand, HBL claimed that an amount of Rs.1.49 crores was due from the appellant, which amount excluded consequential losses.

 

# 10. On 07.5.2014, HBL sent an email to the appellant stating that HBL would not release money to the appellant as the quality of work done by the Appellant was poor and the Appellant had breached the terms and conditions of the Purchase Orders. Further correspondence ensued.

 

11. Between 11.03.2015 to 27.03.2018 C-forms were issued by HBL to the appellant under Section 8 of the Central Sales Tax Act read with Rules 12(1) of the Central Sales Tax (Registration and Turnover) Rules, 1957. The statutory duty of issuance of C-forms under the Central Sales Tax, do not and cannot constitute acknowledgment of any liability of HBL to the appellant, to make payment. On 09.7.2016, the appellant sent legal notice to HBL through its advocate, demanding payment or alternatively reference of the disputes to arbitration.

 

# 12. On 30.08.2017, the appellant sent a demand notice under Section 8 of the IBC to HBL claiming that a sum of Rs. 18,12,21,452/- (Rupees eighteen crores twelve lakhs, twenty one thousand four hundred and fifty two) along with interest, was due from HBL to the Appellant from 30.12.2013. A second demand notice was sent by the appellant to HBL on 07.08.2018. HBL replied to the demand notice dated 25.07.2018 received on 01.08.2018 disputing the claim. It is apparent from the records that there were pre-existing disputes between the parties and on 09.07.2016, a request had been made by the Operational Creditor to HBL to refer the disputes to Arbitration.

 

# 14. On 15.02.2018, the appellant filed its application under Section 9 of the IBC for initiation of CIRP against HBL, as stated above. By the order dated 12.02.2020, the Adjudicating Authority (NCLT) admitted the said application of the Appellant. The Adjudicating Authority, inter alia, held:

• “17. As regards the pre-existing dispute, we have gone through all the facts stated by the Corporate Debtor but having regard to the quantum of claim in respect of supplies order, in our considered view, the amount of disputed claim due and payable will be more than Rs. One lakh in any case. Hence, such claims do not help the case of Corporate Debtor in substantial manner. Having said so, we would further refer to the provisional statement attached with the letter of the Corporate Debtor dated June 25, 2014 copy of which has been placed at Page 1779 of Vol.10 of the paper book to find as to what is the factual position as per the stand of Corporate Debtor on various issues. As per this provisional statement, the total purchase order value has been shown as Rs.3818.72 lakhs. There have been several deductions including for service provided by Corporate Debtor to the Operational Creditor in the execution of the contract, entry tax, TDS, WCD, payment to parties/payment to Operational Creditor by the Corporate Debtor/sub-vendors and subcontractors/vendors of the Operational Creditor. These are normal deductions as per business practice and terms of contract. However, it is noteworthy that Liquidated Damage @ 5% amount to Rs.190.94 lakhs, Performance Bank Guarantee to the tune of 673.6 lakhs, work claim of Rs.352.00 lakhs for boiler house extension P.O. finalization and additional work 71 lakh have also been considered. The net effect has been worked out by Corporate Debtor as Rs.500 lakhs receivable from the Operational Creditor. If the boiler house extension and additional work are ignored, the amount recoverable from the Operational Creditor gets reduced to 63.13 lakhs. Further, if the amount retained for Performance Bank Guarantee is taken into consideration, then the amount payable to Operational Creditor works out at Rs.610.23 lakhs (i.e. 673-63.13). As noted earlier, L.D. is applicable @ 5% amounting to Rs.190,94 lakhs has already been deducted. Further, amount of Rs.400.55 lakhs in respect of Purchase Orders issued at the risk and cost of the vendor have also been deducted. Thus, all recoveries for non-performance/default has been considered and therefore, amount of Performance Bank Guarantee minus recovery i.e., 610.23 lakhs at least becomes payable by Corporate Debtor to the Operational Creditor. As an adjudication authority in the proceedings, we are not suppose to do this kind of working, but to find out the genuineness of the claim of pre-existing dispute, and amount of outstanding debt, it was necessary in the facts and circumstances of the case, hence, it has been so analysed on the basis of the provisional statement prepared and filed by the Corporate Debtor itself. At the cost of repetition, we again state that this statement takes into consideration all these disputes raised by the Corporate Debtor, hence, the amount payable by the Corporate Debtor remains in positive which is more than one lakh ultimately that too when we have considered the project as a whole against the claim of Operational Creditor of undisputed dues of supply portion only. We have also gone through the emails which have been taken into consideration. While preparing this provisional statement. Hence, on the basis of material on record, it cannot be said that any other dispute remains to be considered. Apart from this, the fact which is crucial to note is that the Corporate Debtor has awarded new work orders to the Operational Creditor subsequently which means that all the disputes relating to this contract had been considered/resolved and this fact has remained undisputed. Further, Form “C”s have been issued as late as up to March 2018. We further make it clear that we have analysed the provisional statement with limited objective of admissibility of this application and this analysis cannot be considered as expression of opinion on the amount of claim in any manner which may be actually due and payable.”

 

# 15. In our considered view, the Adjudicating Authority (NCLT) committed a grave error of law by admitting the application of the Operational Creditor, even though there was a pre-existing dispute as noted by the Adjudicating Authority.

 

# 16. When examining an application under Section 9 of the IBC, the Adjudicating Authority would have to examine 

• (i) whether there was an operational debt exceeding Rupees 1,00,000/- (Rupees One Lac); 

• (ii) whether the evidence furnished with the application showed that debt exceeding Rupees one lac was due and payable and had not till then been paid; and 

• (iii) whether there was existence of any dispute between the parties or the record of pendency of a suit or arbitration proceedings filed before the receipt of demand notice in relation to such dispute. If any one of the aforesaid conditions was not fulfilled, the application of the Operational Creditor would have to be rejected

 

# 17. In Mobilox Innovations Private Limited v. Kirusa Software Private Limited1, this Court held:-

• “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.

• ***

• 51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the 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.”

 

# 18. In K Kishan vs. Vijay Nirman Co. (P) Ltd.2, cited by the NCLAT in its impugned judgement, this Court held:-

• “22. Following this judgment, it becomes clear that operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardise an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations [Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311] , being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of rupees two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. We repeat that the object of the Code, at least insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a real dispute between the parties as to the debt owed does not exist  …………

• 27. We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an arbitral award shows that a preexisting dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 has taken place.”

 

# 19. In this Case, the correspondence between the parties would show that HBL had been disputing the claims of the Appellant on the contention that the appellant had not been adhering to the time schedules for completion of the contract work, had been  violating the terms of Tender documents and the Purchase Orders, and backing out from its commitments thereunder, thereby causing losses to HBL. HBL was constrained to procure materials from other vendors incurring losses.

 

# 20. The correspondence between the parties evince the existence of real dispute, particularly the letter dated 02.01.2014 from HBL to the appellant stating that the appellant had inter alia raised improper invoices for materials not supplied and had failed to effect supplies and complete work within a stipulated period; debit note dated 03.01.2014 raised by HBL in respect of consumption by the appellant of spares and consumables from the warehouse of HBL; letter dated 11.04.2014 from HBL to the Appellant, inter alia, contending there was no payment outstanding from HBL to the appellant and claiming that a sum of Rs.1.49 Crores was due from appellant to the HBL excluding consequential losses; an email dated 07.05.2014 from HBL to the appellant declining to release money claimed by the appellant on the ground of poor quality of work and breaches of the terms and conditions of the Purchase Order.

 

# 21. Going by the test of existence of a dispute, it is clear that HBL had raised a plausible defence. It was not for the Adjudicating Authority to make a detailed examination of the respective contentions and adjudicate the merits of the dispute at this stage.

 

22. As held by the NCLAT :-

• “The facts of the present case are being examined in the light of the law laid down by the Hon’ble Supreme Court, though the Learned Counsel for the ‘Operational Creditor’ has strenuously contended that the issuance of further work orders and the Notice issue by the ‘Operational Creditor’ invoking Arbitration does not amount to Existence of a Dispute’, the nature of communication on record with rival contentions clarify the ‘Existence of a Dispute’ between the parties prior to issuance of the Demand Notice. It has been time and again held that ‘it is enough that a ‘dispute exists’ between the parties.

• The communication between the parties as noted in para 10 read together with the Arbitration invoked by the ‘Operational Creditor’, we are of the considered view that there is an ‘Existence of a Dispute’ between the parties which is a genuine dispute and not a spurious, patently feeble legal argument or an assertion of fact unsupported by evidence.”

 

# 23. The learned NCLAT rightly observed that a perusal of the “Tender Enquiry dated 27.06.2012”, “Instructions to Bidders”, “General Conditions of Contract” and “Special Conditions of Contract”, showed that the tender was for ‘design, engineering, manufacture, procurement, supply, transportation to site, transit and storage, insurance storing at site, project management, civil work, mechanical works, electrical works, instrumentation work, mechanical works, electrical works, instrumentation work, erection, installation interfacing, testing, commissioning, performance testing, putting into successful commercial operation and handing over additional equipment goods, and material centrifugal section including civil foundation for enhancing the boiling house capacity from 1750 TCD to 3750 TCD on Lumpsum Turnkey Basis including civil foundation work’. It was also not in dispute that the  appellants had been issued further work on 13.06.2013 and 08.8.2013 all on Lumpsum Turnkey Basis.

 

26. In the impugned order, NCLAT set out a communication dated 02.01.2014 from HBL to the Appellant giving details of the acts and omissions of the Appellant, which tantamounted to breaches of contract on the part of the Appellant. Several other letters were also set out in the impugned order.

 

# 27. The impugned order takes note of the averment in the Appellant Operational Creditor’s Reply before the NCLT that despite several requests and reminder letters from 2013 to 2017, the Corporate Debtor HBL did not pay the amounts due, but raised baseless allegations and disputes.

 

# 28. The NCLAT found:

• 19. It is pertinent to note that on 09.07.2016, ‘prior to the issuance of the Demand Notice under Section 8 of the Code’, the ‘Operational Creditor’ invoked Arbitration pursuant to the 8 project orders issued by the ‘Corporate Debtor’, which itself substantiates the ‘Existence of a Dispute’. In the ‘Notice’ invoking Arbitration, the ‘Operational Creditor’ has stated that there is an outstanding of Rs.18,12,21,452/- and has further stated that they are ready to settle the disputes through Arbitration.

• 22. The communication between the parties as noted in para 10 read together with the Arbitration invoked by the ‘Operational Creditor’, we are of the considered view that there is an ‘Existence of a Dispute’ between the parties which is a genuine dispute and not a spurious, patently feeble legal argument or an assertion of fact unsupported by evidence”.

 

# 29. The HBL raised serious allegations against the appellant of breach of its contractual commitments. From the letter of HBL dated 02.01.2014, it is evident that HBL had been contending inter alia that work of erection and commissioning of electric power had not been done, the dead line of completion of the contract work had not been adhered to and the quality of the equipment supplied and/or work done was of poor quality.

 

# 30. This Court finds that there was a pre-existing dispute with regard to the alleged claim of the appellant against HPCL or its subsidiary HBL. The NCLAT rightly allowed the appeal filed on behalf of HBL. It is not for this Court to adjudicate the disputes between the parties and determine whether, in fact, any amount was due from the appellant to the HPCL/HBL or vice-versa. The question is, whether the application of the Operational Creditor under Section 9 of the IBC, should have been admitted by the Adjudicating Authority. The answer to the aforesaid question has to be in the negative. The Adjudicating Authority (NCLT) clearly fell in error in admitting the application.

 

# 31. The NCLT, exercising powers under Section 7 or Section 9 of IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor.

 

# 32. There are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor. However, if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed.

 

# 33. We find no grounds to interfere with the judgment and order of the NCLAT impugned in this appeal.

 

# 34. The appeal is dismissed.

 

# 35. Needles to mention that the appellant may avail such other remedies as may be available in accordance with law including arbitration to realise its dues, if any.

 

# 36. Pending applications, if any, stand disposed of accordingly.

 

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