RMY Industries LLP Vs. Apple Industries Pvt. Ltd. Through its Official Liquidator - We are of the view that the Adjudicating Authority is empowered to consider any application filed by the Liquidator or Successful Auction Purchaser, which may arise with regard to terms and conditions of auction sale or sale as going concern as per the Liquidation Regulation..

 NCLAT (12.10.2022) in RMY Industries LLP Vs. Apple Industries Pvt. Ltd. Through its Official Liquidator [Company Appeal (AT) (Insolvency) No. 1114 of 2022] held that; 

• We are of the view that the Adjudicating Authority is empowered to consider any application filed by the Liquidator or Successful Auction Purchaser, which may arise with regard to terms and conditions of auction sale or sale as going concern as per the Liquidation Regulation.

Excerpts of the Order;

12.10.2022: Heard learned counsel for the appellant. This Appeal has been filed against the order dated 01.08.2022 by which order I.A. No. 880/2022 filed by the Appellant for certain reliefs and concessions has been rejected.

 

# 2. Appellant was the Successful Auction Purchaser in the liquidation proceeding where assets were sold as going concern on ‘as is where is’ basis. In the application I.A. No. 880 of 2022, the Appellant in Para 28 has claimed about 30 reliefs and concessions. The Adjudicating Authority has rejected application observing that no relief and concession can be granted.

 

# 3. Learned counsel for the Appellant has relied on judgment of this Tribunal in “Company Appeal (AT) (Ins.) No. 650 of 2020, M/s Shiv Shakti Inter Globe Exports Pvt. Ltd. vs. M/s KTC Foods Private Limited”. In the aforesaid case with regard to liquidation sale as going concern Liquidator has filed application for certain relief which was related to the past dues and prayer for extinguishment of past/ remaining unpaid outstanding liabilities, which was permitted.

 

# 4. We are of the view that the Adjudicating Authority is empowered to consider any application filed by the Liquidator or Successful Auction Purchaser, which may arise with regard to terms and conditions of auction sale or sale as going concern as per the Liquidation Regulation. We, thus, are of the view that end of justice be served in giving liberty to the Appellant to file an appropriate application before the Adjudicating Authority, which may arise from the terms and conditions of the auction sale or sale as going concern, which may be considered by the Adjudicating Authority. The Appeal is disposed of with liberty aforesaid.

 

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Namdeo Ramchandra Patil Vs. Vishal Ghisulal Jain RP - The essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as ‘financial debt’ within the meaning of Section 5(8) of the Code.

NCLAT (19.09.2022) in Namdeo Ramchandra Patil Vs. Vishal Ghisulal Jain RP [Company Appeal (AT) (Insolvency) No. 821 & 940 of 2021] held that;

• Pre-condition for a debt being a Financial Debt is disbursement against the time value of money and when any amount is raised from an allotment under real estate such transaction is also covered under Section 5(8)(f).

• The pre-condition for application of Explanation (i) of Section 5(8)(f) is raising of an amount from allottee.

• When we look in the real nature of the transaction entered between the Corporate Debtor and the Appellants – Landowners, the landowners were entitled to share the constructed area in the ratio of 45:55 and allotment of flats and commercial units in lieu of their entitlement under the Development Agreement does not make the transaction of allotment a Financial Debt within the meaning of Section 5(8)(f).

• The definition of “financial debt” in Section 5(8) then goes on to state that a “debt” must be “disbursed” against the consideration for time value of money. “Disbursement” is defined in Black’s Law Dictionary (10th ed.) to mean:

• The basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8);

• The essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as ‘financial debt’ within the meaning of Section 5(8) of the Code. 

• This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money.”

Excerpts of the Order;

These two Appeals have been filed against the same order dated 08.09.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court No.5 by which order I.A. No. 1035 of 2021 filed by the Landowners/ Intervenors has been rejected. 

 

The brief facts of the case necessary to be noticed for deciding these Appeals are:

(i) The Corporate Debtor – ‘M/s Wadhwa Buildcon LLP’ is a real estate company. A Development Agreement dated 23.01.2006 was entered between M/s Wadhwa Buildcon LLP and the Landowners including the Appellants – ‘Namdeo Ramchandra Patil’ and ‘Ravikant Ramchandra Patil’ for development of a parcel of land belonging to the Landowners including the Appellants. As a consideration for the development rights given by the Landowners, Corporate Debtor had agreed to give 45% of the constructed area out of the total construction to the Landowners. Area sharing between the parties was in the ratio of 45:55. In pursuance of the Development Agreement, development was carried out by the Corporate Debtor.

(ii) On an application filed by Bank of India under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘I&B Code’) an order was passed by the Adjudicating Authority on 28.07.2020 initiating insolvency resolution process against the Corporate Debtor.

(iii) The Corporate Debtor had issued allotment letter in favour of the Appellants allotting a number of 117 Flats and 20 Commercial Shops. In the insolvency resolution process, the Appellants alongwith four co-owners filed a claim as Financial Creditor for a sum of Rs.129,98,09,612.57/- which included the total value of flats and commercial shops alongwith interest on delayed possession.

(iv) The Resolution Professional admitted the claim of the Appellants as a Financial Creditor and Appellants were invited to participate in the 6th CoC Meeting as Financial Creditors. The Bank of India, Financial Creditor objected to the inclusion of Appellants – Landowners in the CoC in the 7th CoC Meeting held on 29.04.2021.

(v) An application – I.A. No. 1035/MB/2021 was filed by the Bank of India against the inclusion of Appellants as Financial Creditors in the CoC. The Appellants – Landowners were not party to I.A. No. 1035 of 2021, hence, they filed I.A. No. 1450 of 2021 to intervene in the said I.A. No. 1035 of 2021. The Adjudicating Authority heard the parties as well as Resolution Professional and by impugned order dated 08.09.2021 allowed the I.A. No. 1035 of 2021 filed by the Bank of India and dismissed the I.A. No. 1450 of 2021 filed for intervention by the Landowners/Appellants.

 

# 2. Company Appeal (AT) (Ins.) No. 821 of 2021 has been filed by the two out of six landowners who had filed the claim before the Resolution Professional. Company Appeal (AT) (Ins.) No. 940 of 2021 has been filed by ‘Vishal G. Jain, Resolution Professional’. In these appeals following prayers have been made:-

 

Prayers made in Company Appeal (AT) (Ins.) No. 821 of 2021:

“INTERIM PRAYERS:

i. The Hon’ble Appellate Tribunal may be pleased to stay the operation of the order dated 08.09.2021 whereby the Ld. Tribunal directed the Resolution Professional to reconstitute the CoC with one week from passing of the Order and also to Convey Meeting accordingly;

ii. The Hon’ble Tribunal may be pleased to pass such further or other order(s) as may deem fit and proper in the facts and circumstances of the case.

 

FINAL PRAYERS:

i. The Hon’ble Appellate Tribunal may be pleased to set aside the common order dated 08.09.2021 passed in IA-1450/2021 AND IA-1035/2021 In Company Petition no. 2946/MB/2019 in the matter of Bank of India V/s M/S Wadhwa Buildcon LLP passed by the Ld. Adjudicating Authority and reject the IA – 1035/2021 filed by the Bank of India challenging the inclusion of Appellants as Financial Creditors.

ii. The Hon’ble Appellate Tribunal may be pleased to pass any such further or other order(s) as this Hon’ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the case to grant justice to the appellants and the company.”

 

Prayers made in Company Appeal (AT) (Ins.) No. 940 of 2021:

“A. Set aside Clause 30, 31 and 32(ii) of the Impugned Order dated 8th September 2021 Hon’ble National Company Law Tribunal (NCLT), Mumbai Bench in CP No. 2946/I&B/2019 titled as Bank of India Vs Vishal G Jain;

Alternatively

B. Omit/ modify/ expunge the unsubstantiated allegations / adverse remarks/observations and directions made against the Appellant in para 30, 31 and 32(ii) of the impugned order dated 8th September 2021;

C. Pass any other order as this Hon’ble Tribunal may deem fit in the fact and circumstances of this case and in the interest of justice”

 

# 3. We have heard Shri Jitender Chaudhary, learned counsel for the Landowners, Mr. Krishnendu Datta, learned senior counsel appearing for the Resolution Professional and Shri Parthiv J. Mehta, learned counsel for Bank of India.

 

# 4. Learned counsel for the Appellants in Company Appeal (AT) (Ins.) No. 821 of 2021 challenging the order of the Adjudicating Authority submits that the claim filed by the Appellant as Financial Creditor was rightly admitted by the Resolution Professional. The Appellants have been allotted 117 flats and 20 commercial shops which allotment was made consequent to the Development Agreement entered between the parties dated 23.01.2006. It is submitted that Appellants are ‘allottee’ within the meaning of the Real Estate (Regulation and Development) Act, 2016. Hence, they are also ‘Financial Creditors’ within the meaning of Section 5 Sub-section (8) of the I&B Code, 2016. The Adjudicating Authority committed error in holding the Appellants as not Financial Creditors.

 

# 5. Shri Krishnendu Datta, learned senior counsel appearing for the Appellant in Company Appeal (AT) (Ins.) No. 940 of 2021 submits that even if the decision of the Resolution Professional admitting the claim of the landowners as Financial Creditors was an error of judgment, there is no malafide on part of the Resolution Professional so as to send a copy of the order to the IBBI. Observations made by the Adjudicating Authority in Para 31 and directions in Para 32(iii) ought to be expunged.

 

# 6. Learned counsel appearing for the Bank of India refuting the submissions of learned counsel for the Appellant contended that Resolution Professional committed serious error in admitting the claim of Landowners as Financial Creditors whereas they were joint venture partners in the Development Agreement having right to share the developed area. It is submitted that by wrongful inclusion of the Appellants/ Landowners in the CoC, the vote share of the Bank of India (Financial Creditor) has come down from 98.37% to 20.31%. In spite of objection raised to the Resolution Professional by the Bank of India, the Resolution Professional did not correct his decision and has also contested the claim of the Bank before the Adjudicating Authority. It is submitted that the allotment of flats and commercial shops consequent to the Development Agreement does not make the claim of the Appellant as Financial Debt.

 

# 7. We have considered submissions of learned counsel for the parties and perused the record.

 

# 8. The relevant facts including the Development Agreement dated 23.01.2006 entered between the parties i.e. the Corporate Debtor and the Landowners are captured in Para 22 of the order of the Adjudicating Authority, which is useful to extract. Para 22 is as follows:-

“22. The Bench notes that the Corporate Debtor Company i.e., M/s Wadhwa Buildcon LLP, is a Real Estate Company against which Corporate Insolvency Resolution Process had commenced on 28.07.2020. The real estate Project undertaken by the Corporate Debtor are in the nature of joint venture project viz. Wadhwa Rhodesia has been undertaken by the Corporate Debtor on a parcel of land belonging to the 6 land owners viz. Mr. Namdeo Patil, Mr. Parshuram Patil, Mr. Ashok Patil, Mr. Vinayak Patil, Mr. Nana Patil, Mr. Ravikant Patil. As a consideration for the development rights, the Corporate Debtor has agreed to pay, as per the Development Agreement dated 23.01.2006, 45% of the constructed area out of the total construction. Thereby, the Corporate Debtor had an area sharing arrangement in the ratio of 45:55. In addition, the Landowners also received from the Corporate Debtor a refundable security deposit of Rs.1.75 crores which was to be returned to the Landowners after when the constructed developed area is handed over by the Corporate Debtor to the Landowners. A copy of the Development Agreement has been duly attached by the Applicant, i.e., Bank of India, to the Application.”

 

# 9. The present is a case where on the land which was offered by the landowners including the Appellants the development was proposed to be undertaken by the Corporate Debtor. A Development Agreement was entered between the parties where area sharing was in the ratio of 45:55 percent. The Landowners has also received a refundable security deposit of Rs.1.75 Crores from the Corporate Debtor. Learned counsel for the Appellants has much emphasized on the fact that as per the Development Agreement 117 flats and 20 commercial shops have been allotted to the landowners and they are allottee within the meaning of RERA Act, 2016. It is submitted that when Appellants are allottees then they cannot be held to be Promoters as has been held by the Adjudicating Authority. It is submitted that by virtue of the allotment made by the Corporate Debtor, the Appellants are Financial Creditors within the meaning of Section 5(8) of the I&B Code.

 

# 10. Section 5(8) of the Code which is relevant for the present case, is as follows:-

“5(8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

[Explanation. -For the purposes of this sub-clause,-

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and

(ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;”

 

# 11. We may now also notice the definition of ‘allottee’ under the RERA Act, 2016 as contained under Section 2(d):-

“2(d) “allottee” in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent;”

 

# 12. By an amendment made in the I&B Code by Act 26 of 2018, ‘allottees of real estate’ have also come within the definition of Financial Creditors. Explanation added in the Section 5(8)(f) is as follows:-

“[Explanation. -For the purposes of this subclause,-

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and

(ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]”

 

# 13. When we look into the provision of Section 5(8)(f) Explanation (i) and (ii), it is clear that pre-condition for a debt being a Financial Debt is disbursement against the time value of money and when any amount is raised from an allotment under real estate such transaction is also covered under Section 5(8)(f). The pre-condition for application of Explanation (i) of Section 5(8)(f) is raising of an amount from allottee. The present is not a case where an amount has been raised from the Appellants – the Landowners. The submission of the Appellant that they are allottees within the meaning of Section 2(d) of RERA Act does not make their transaction as a Financial Debt within the meaning of Section 5(8)(f). It is relevant to notice that RERA Act itself has noticed the definition of ‘Promoter’ under Section 2(zk). When we look in the real nature of the transaction entered between the Corporate Debtor and the Appellants – Landowners, the landowners were entitled to share the constructed area in the ratio of 45:55 and allotment of flats and commercial units in lieu of their entitlement under the Development Agreement does not make the transaction of allotment a Financial Debt within the meaning of Section 5(8)(f). The Adjudicating Authority in the impugned order has rightly relied on the judgment of Hon’ble Supreme Court in “Pioneer Urban Land and Infrastructure Ltd. vs. Union of India, (2019) 8 SCC 416”, where the term ‘disbursal’ was explained in Para 70 of judgment and following has been observed:-

• “70. The definition of “financial debt” in Section 5(8) then goes on to state that a “debt” must be “disbursed” against the consideration for time value of money. “Disbursement” is defined in Black’s Law Dictionary (10th ed.) to mean:

- “1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 

-  2. The money so paid; an amount of money given for a particular purpose.””

 

# 14. We may also notice judgment of the Hon’ble Supreme Court in “Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors., (2020) 8 SCC 401”, where Hon’ble Supreme Court while examining the definition under Section 5(8) of the I&B Code noticed the essentials for Financial Debt. In Para 46, the Hon’ble Supreme Court has again emphasised that essential element is disbursement against time value of the money. Para 46 of the judgment is as follows:-

• “46. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become ‘financial debt’ for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of ‘disbursement’ against ‘the consideration for the time value of money’ could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub- clauses (a) to (i) of Section 5(8) would be falling within the ambit of ‘financial debt’ only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as ‘financial debt’ within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money.”

 

# 15. When we look into the facts of the present case and transaction  entered by the Appellants – Landowners with the Corporate Debtor, we do not find any error in the decision of the Adjudicating Authority holding the Appellants-Landowners as not Financial Creditors. The Company Appeal (AT) (Ins.) No. 821 of 2021, thus, deserved to be dismissed.

 

# 16. Now coming to the Company Appeal (AT) (Ins.) No. 940 of 2021, certain observations have been made by the Adjudicating Authority in Para 31 of the order and directions has been issued to the Registry to forward the copy of the order to IBBI. Whether, on the strength of observations made by the Adjudicating Authority in Para 31, any proceeding is to be undertaken that question is to be considered by the IBBI. Observations made by the Adjudicating Authority were on the facts and sequence of events in the case. We only notice that there has been no allegation against the Resolution Professional of any malafide or any ulterior motive.

 

# 17. In view of the foregoing discussion, both the Appeals are dismissed.

 

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Indrani Saha Vs. BK Podder Printing Private Limited - This Adjudicating Authority is satisfied that since the above-mentioned email id is registered with the ROC as the email-id of the company, the service of the demand notice to the said email id is valid.

NCLT Kolkata-II (19.09.2022) in Indrani Saha Vs. BK Podder Printing Private Limited [CP(IB) No. 140/KB/2020] held that;

• However, it is to be noted that the said email id is registered with the Registrar of Companies and the Operational Creditor, having notice of the said fact, has sent the Demand Notice to the above-mentioned email id. 

• Regarding the said issue, this Adjudicating Authority is satisfied that since the above-mentioned email id is registered with the ROC as the email-id of the company, the service of the demand notice to the said email id is valid. As such, the demand notice was successfully delivered to the Corporate Debtor and no reply was given by it. 

• At the same time, the fact that no reply to the demand notice was issued by the Corporate Debtor, would not prevent the Corporate Debtor from bringing on record facts to establish pre-existing disputes relating to the instant petition.

• “…Even otherwise, mere failure to reply to the demand notice does not extinguish the rights of the Operational Creditor to show the existence of a preexisting dispute...”

• The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

• So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.

Excerpts of the Order;

# 1. This Court convened through hybrid mode. 

 

# 2. This is a Company Petition filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) by Indrani Saha, sole proprietor of International Paper Concern (Operational Creditor), seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against BK Podder Printing Private Limited (“Corporate Debtor”). 

 

# 3. The Corporate Debtor is a public company incorporated on 17.05.2012. The authorized share- capital of the company is ₹5,25,00,000/- and the paid-up share- capital of the company is ₹5,02,25,000/-. 

 

# 4. The total amount claimed by the Operational Creditor is ₹58,78,873/- plus interest @18% from 31.08.2019 and the date of default is 05.03.2018. The Demand notice under section 8 of the Code was issued by the Operational Creditor on 13.11.2019. No reply was sent by the Corporate Debtor.

 

# 5. Submissions on behalf of the Operational Creditor: 

5.1 The Operational Creditor is engaged in various businesses including distribution and supply of superior quality duplex board, paper reel and paper sheet manufactured by renowned vendors of the industry. 

5.2 Upon various orders being placed by the Corporate Debtor over emails dated 24.11.2017, 03.01.2018, 12.04.2018 and 16.04.2018, the Operational Creditor sold and delivered various specifications of GSM papers to the Corporate Debtor. The said goods were received by the Corporate Debtor without raising dispute of any nature whatsoever. Accordingly, invoices were raised by the Operational Creditor which were also received by the Corporate Debtor without demur. However, the Corporate Debtor failed to make payments within the scheduled time of 7 days as agreed upon and as a result, interest became payable @1.5% per month. 

5.3 In January 2018, the prices of paper were increased nominally. Such increases were duly communicated to the Corporate Debtor. 

5.4 The last supply of paper made by the Operational Creditor to the Corporate Debtor’s factory was on 23.04.2018. The Corporate Debtor has made payments of the Operational Creditor’s invoices from 05.01.2018 up until 03.04.2019. However, despite repeated requests from the Operational Creditor end and continued assurances from the Corporate Debtor, no payments have been forthcoming for the remaining invoices. 

5.5 As on date, a total sum of Rs. 58,78,873/- is due and payable by the corporate debtor on account of unpaid invoices and unpaid interest on paid invoices. Furthermore, the operational creditor is entitled to interest at the rate of 18% per annum till the date the invoices remain unpaid. 

5.6 The Operational Creditor issued a letter dated 02.09.2019 to the Corporate Debtor asking for payment of dues stated above. The Corporate Debtor replied by a letter dated 03.09.2019 and sought to raise frivolous disputes with regard to providing originals of the challans issued by the Mill from which delivery was made and shortage of paper reels supplied. No contemporaneous dispute was ever raised by the Corporate Debtor with regard to the disputes sought to be raised by the letter dated 03.09.2019. Furthermore, all supplies have been duly acknowledged by the staff of the Corporate Debtor by countersigning the invoices and the invoices corresponding to the supplies made have been passed by the Accounts Department of the Corporate Debtor. 

5.7 Accordingly, the Operational Creditor issued demand notice in Form 3 accompanied with form 4, claiming ₹58,78,873/- on 07.11.2019. The tracking report obtained shows that the “Door was locked” of the registered office of the Corporate Debtor at the time of delivery attempted by the postal delivery attempted by the postal authorities. Therefore, the envelope containing the Demand Notice was returned as “Not Claimed”. 

5.8 Under such circumstances, the demand notice was also served to the Corporate Debtor by email on 13.11.2019. Now Reply to the same was received from the Corporate Debtor. 

5.9 The default is continuing since 05,03,2018, which is the first date on which the Corporate Debtor failed to make payment of invoice dated 26.02.2019. 5.10 The Operational Creditor has relied on the following documents to support his claims: 

• a. Demand notice in Form 3, being Annexure A; 

• b. Tracking Report from India Post Website, being Annexure B; 

• c. A copy of the Returned Envelope, being Annexure C; 

• d. A copy of the email sent to the Corporate Debtor, being Annexure D;

• e. A copy of the email dated 24.11.2017, being Annexure F; 

• f. Copies of invoices, being Annexure H; 

• g. Copies of other letters, being Annexure J. 

 

# 6 Submissions on behalf of the Corporate Debtor: 

6.1 The applicant has suppressed the fact that in all the correspondences by and between the parties from the very beginning the email ID of the Corporate Debtor has been categorically mentioned as bkp1097.rediffmail.com. Even the documents annexed by the Operational Creditor/applicant shows the aforesaid fact. However, the Operational Creditor had sent the Demand Notice in Form No. 3 to two different email IDs i.e., rkpukp2003@gmail.com and ibkp1097@gmail.com. 

6.2 The email ID rkpukp2003agmail.com is the email ID of the statutory Auditor of the respondent who is not at all a party in the dispute between the Operational Creditor and Corporate Debtor. Further, the email ID ibkp1097@gmail.com does not belong to the Corporate Debtor at all. 

6.3 Further, the purported amount as claimed by the Operational Creditor is disputed since long i.e. since 01.10.2018 wherein the respondent had sent a letter dated 01.10.2018 vide email to the applicant and thereby had raised various disputes regarding the quantity/weight of the goods supplied by the operational creditor through the concerned paper mill and that in such letter it had been categorically mentioned that there had been a short supply of 7 Kgs, in every paper reels supplied by the Operational Creditor, totaling to a shortage of 7161 Kgs. In fact, the Operational Creditor had accepted the aforesaid dispute by its reply email dated 01.10.2018. The Operational Creditor therein admitted that the excess amount will be credited after the full payment of disputed invoices is made. 

6.4 On 30.08.2019, the Operational Creditor had sent a demand notice thereby demanding a vexatious claim of Rs. 28,82,557/- + interest thereon. The Corporate Debtor had immediately replied and categorically disputed the aforesaid demand vide its letter dated 03.09.2019 wherein it had again raised the issue of short supply of the quantity of paper reels, excess rates for different quality of paper reels and art boards as also some serious issues regarding non-furnishing of original challans and reel charts issued by M/s. Supreme Paper Mills Limited. The Operational Creditor replied to the said letter of dispute vide letter dated 19.09.2019. On receipt of the same, the Corporate Debtor issued a counter- reply dated 27.09.2019. The Operational Creditor has not rebutted the said counter- reply. Copies of the aforesaid letters is annexed to the Reply-Affidavit and marked as Annexure “D”. 

6.5 It is to be further noted that though the Operational Creditor has raised a point of purported approval of their bills by the accounts department of the Corporate Debtor, it has failed to file any confirmation of accounts from the Corporate Debtor. This fact clearly shows that there is a dispute regarding the claimed amount. 

6.6 In reply to the letter of the Corporate Debtor dated 03.09.2019, the Operational Creditor, vide letter dated 19.09.2019 admitted that disputes amount of ₹3952/- had been raised in excess in the invoices. Therefore, there are serious pre-existing disputes in the instant matter. 

6.7 Further, for continuous business transaction, the Corporate Debtor time to time made payments for supply of paper reels and Art boards, sometime which exceeds the billed Amount, and by this way the Corporate Debtor had already paid a sum of Rs. 2,46,00,000/- (Rupees Two Crores forty six lakhs) against the different invoices raised by the Operational Creditor by excluding the excess bills for shortage of goods and excess rates, which were accepted by the Operational Creditor. 

6.8 Further, the Corporate Debtor did not pay any amount against any particular bills and/or invoice, thus it is should not be construed that any payment has been made by accepting the purported increased rate any goods supplied by M/ s. Supreme Paper Mills Ltd. The copy of the bank statements of the Corporate Debtor in respect is annexed to the Reply affidavit and marked with letter “E”. 

6.9 Further, the rate for various supplies had not also been finalized by and between the parties as would be depicted from the email of the respondent dated 12.04.2018 and 16.04.2018. 

 

7 Supplementary Affidavit on behalf of the Corporate Debtor: 

7.1 The Corporate Debtor, vide supplementary affidavit dated 13.06.2022, has introduced to the record, a report from the Postal Authorities showing the “return delivery” of the purported demand notice of the Operational Creditor, along with a letter dated 08.04.2022 by the Deputy Director, PO (BD & MKTG) Kolkata GPO. 

7.2 Further, the Corporate Debtor has reiterated that the email id being rupukp2003@gmail.com belongs to its statutory auditor and that the Operational Creditor has deliberately sent the demand notice to wrong email IDs. 

 

8. Analysis and Findings: 

8.1 We have heard the Ld. Counsel for the Operational Creditor and the Ld. Counsel for the Corporate Debtor and perused the record. 

8.2 A perusal of Part IV of the Form V, specifically page 7, reveals that the Operational Creditor has submitted that the Corporate Debtor has made payments for invoices ranging from 05.01.2018 till 03.04.2019. However, the amount claimed by the Operational Creditor is for 11 invoices ranging from 27.02.2018 to 23.04.2018. Further, the date of default mentioned by the Operational Creditor on page 9 of the petition is 05.03.2018 which is for default relating to an invoice dated 26.02.2019 i.e. a future date. Further, the said invoice dated 26.02.2019 has not been put on record. Therefore, the instant petition is an incomplete one. 

8.3 Also, keeping in mind that the date of default is 05.03.2018, a perusal of Annexure E of the Reply Affidavit shows that various payments have been made by the Corporate Debtor to the Operational Creditor on 27.03.2018, 06.04.2018, 07.04.2018, 20.04.2018 and so on. As such, the date being 05.03.2018 cannot be considered as date of default and therefore the instant petition is defective in nature. 

8.4 The first defence taken by the Corporate Debtor is that the demand notice was not delivered to it. The Operational Creditor has claimed that the demand notice sent by post to the Corporate Debtor has returned as “not claimed”. The Corporate Debtor, on the other hand has produced a letter dated 08.04.2022 by the Deputy Director, PO (BD & MKTG) Kolkata GPO which suggests that the demand notice was return-delivered on 19.11.2019. 

8.5 Regarding the service of the demand notice by email, the Corporate Debtor has contended that the Operational Creditor has deliberately sent the demand notice to wrong email addresses. The Corporate Debtor has contended that the email id being rupukp2003@gmail.com belongs to its statutory auditor and therefore, the communication of the Demand Notice to said email id cannot be held as a valid delivery of the same. However, it is to be noted that the said email id is registered with the Registrar of Companies and the Operational Creditor, having notice of the said fact, has sent the Demand Notice to the above-mentioned email id. 

8.6 Regarding the said issue, this Adjudicating Authority is satisfied that since the above-mentioned email id is registered with the ROC as the email-id of the company, the service of the demand notice to the said email id is valid. As such, the demand notice was successfully delivered to the Corporate Debtor and no reply was given by it. 

8.7 At the same time, the fact that no reply to the demand notice was issued by the Corporate Debtor, would not prevent the Corporate Debtor from bringing on record facts to establish pre-existing disputes relating to the instant petition.

8.8 In this regard, we would like to rely on the decision taken by the Hon’ble NCLAT in the matter of M/s. Brand Realty Services Ltd. Vs. M/s. Sir John Bakeries India Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 958 of 2020] wherein the following was held: 

• “[….] We thus are of the considered opinion that mere fact that Reply to notice under Section 8 (1) having not been given within 10 days or no reply to demand notice having been filed by the Corporate Debtor does not preclude the Corporate Debtor to bring relevant materials before the Adjudicating Authority to establish that there are pre existing dispute which may lead to the rejection of Section 9 application. In the above context, we may refer to Judgement of this Tribunal in “Neeraj Jain Vs. Cloudwalker Streaming Technologies Private Limited” (Company Appeal (AT) Ins. No. 1354 of 2019) decided on 24th February, 2020 in paragraph 50 following observations have been made by this Tribunal: “…Even otherwise, mere failure to reply to the demand notice does not extinguish the rights of the Operational Creditor to show the existence of a preexisting dispute...” (para 13) 

8.9 Now dealing with the Corporate Debtor’s contention of pre-existing disputes, it can be seen that the dispute relating to the weight of the reels supplied was first raised by the Corporate Debtor vide letter dated 01.10.2018 i.e. much prior to the issuance of the demand letter by the Operational Creditor on 02.09.2019. the said dispute has also been acknowledged by the Operational Creditor vide email dated 01.10.2018. 

8.10 Thereafter, several correspondences have been shared between the parties relating to the abovementioned dispute and other disputes including disputes regarding the short supply of the quantity of paper reels, excess rates for different quality of paper reels and art boards, non furnishing of original challans and reel charts. 

8.11 Therefore, without going into the merits of the said disputes, this adjudicating authority is satisfied that there are pre-existing disputes in the instant petition. 

8.12 In regard to maintainability of the petition in light of such pre-existing disputes, we would like to refer to the decision of the Hon’ble Supreme Court in the matter of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited1 wherein it was held that:

•  “The scheme of Section 7 stands in contrast with the scheme Under Section 9 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in Subsection (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.” (Para 29) 

The Apex Court, in Mobilox Innovations Private Limited (Supra) further held that:

• “…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.” (Para 40) 

8.13 Keeping in mind the aforementioned judgment, we are of the opinion that the pre-existing disputes in the instant case are not mere feeble arguments, instead they are backed by evidence. As such, in presence of pre-existing disputes, the instant petition is not maintainable. 

8.14 In light of the above-mentioned facts and circumstances, this Adjudicating Authority is satisfied that the instant petition is liable to be rejected. 

8.15 Consequently, C.P.(IB) No. 140/KB/2020 shall stand dismissed. Needless to say, the Operational Creditor is free to pursue its remedies under any other law, and the dismissal of the present petition shall not stand in the way of such pursuit of remedies. 

8.16 The registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps. 

8.17 Certified Copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

 

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