Alcon Laboratories (India) Pvt. Ltd. vs Emco Tech Equipments Pvt. Ltd.

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 03.01.2023, passed by the Adjudicating Authority (National Company Law Tribunal, Court No. III, New Delhi) by which an application bearing C.P. (IB)/278/ND/2022 filed by the Appellant (Operational Creditor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (In short ‘Code’) r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (in short ‘Rules’) against the Respondent (Corporate Debtor) has been dismissed.

Before filing the application under Section 9 of the Code, the Appellant sent a demand notice dated 30.07.2021 under Section 8 of the Code, calling upon the Respondent to pay the operational debt of Rs. 10,87,79,899/-. This notice was replied by the Respondent on 18.08.2021, denying its liability but reserved its right to recover the amount of Rs. 3,25,00,000/- on account of alleged excess payment having been made.

It is the case of the Appellant that since there were some typographical errors in the demand notice dated 30.07.2021, therefore, the Appellant served a fresh statutory demand notice dated 25.01.2022 under Section 8 of the Code, calling upon the Respondent to pay the operational debt of Rs. 12,66,14,411/-. This notice was also replied by the Respondent.

As per the Appellant, it entered into an agreement dated 18.08.2014 with the Respondent for sale of imported products and equipment on a non-exclusive basis for the onward supply/distribution of the products and equipments to the customers. There was another agreement entered into between the parties on 30.03.2019. On the basis of the agreement, the Respondent issued various purchase orders to the Appellant for supply which were duly complied with and invoices were raised periodically from 09.05.2019 to 07.05.2021 but the Respondent failed to pay the outstanding invoices from June, 2018 onwards despite several emails exchanged between the parties.

In the defence, the Respondent alleged that it sent an email dated 26.04.2021 to the Appellant, requesting for the reconciliation of the accounts but it was not provided rather the Appellant sent an email dated 21.05.2021, demanding a sum of Rs. 8.66 Crores. It is also the case of the Respondent that the cheque drawn by the Respondent in favour of the Appellant was dishonoured with the remarks ‘returned for exceeds arrangement’ for which a notice dated 25.05.2021 under Section 138 of the NI Act was sent by the Appellant to the Respondent. The Respondent sent a reply to the notice on 09.06.2021 informing the Appellant that after the finalization of the internal audit of the accounts, it has been ascertained that an excess payment of Rs. 3.25 Crores has been made and the Appellant was asked to provide for the account statement for the reconciliation of the accounts otherwise it was stated to be presumed that an amount of Rs. 3.25 Crores is receivable by the Respondent. It is also the case of the Respondent that a legal notice dated 23.06.2021 was sent to the Appellant for the recovery of the amount of Rs. 3.25 Crores. It is further pleaded by the Respondent that a complaint before the Economic Offences Wing, Delhi Police (EOW) was filed by the Respondent on 27.08.2021 against the Appellant for the acts of cheating and criminal breach of trust etc. and causing loss to the tune of Rs. 11 Crores and that a complaint was made before the CJM, Patiala House Courts on 29.09.2021 under Section 156(3) of CrPC under the relevant provisions of the IPC.

On the basis of the pleadings and material on record, the Adjudicating Authority recorded a finding in Para 13 of the impugned order on the basis of which the petition filed by the Appellant under Section 9 of the Code has been dismissed. For the purpose of quick reference to the finding recorded by the Adjudicating Authority, Para 13 of the impugned order is reproduced as under:-

Counsel for the Appellant has submitted that the Respondent has been acknowledging the debt on the basis of summaries of reconciliation of accounts and in this regard accounts statement dated 31.03.2019, 30.06.2019, 31.10.2019, 31.12.2019, 31.03.2020 and 31.08.2020 have been referred to which are also reproduced as under:

He has further submitted that pre-existing dispute has to be seen before the issuance of demand notice and not to be raised for the first time in the reply to the demand notice. In this context, he has submitted that a complaint before the EOW on 27.08.2021 and a complaint filed before the CJM Patiala House Courts on 29.09.2021 are both after the demand notice issued on 30.07.2021 and are of no use. It is therefore submitted that the only document available on record, discussed in Para 13 of the impugned order (Supra), are the emails exchanged between the parties dated 26.04.2021, 28.04.2021, 21.05.2021 and 09.06.2021 as these are before the cut-off date of demand notice dated 30.07.2021. It is submitted that the Respondent gave a post dated cheque no. 137742 dated 23.04.2021 of Rs. 1.5 Crores and sent an email dated 21.12.2020. In this regard, the Appellant sent a letter dated 22.12.2020 about the receipt of cheque, also mentioned therein that Respondent is yet to pay Rs. 8,65,66,175/-and this letter was signed by Harshit Sharma, present director and son of erstwhile director of the Respondent. The said letter dated 22.12.2020 is also reproduced as under:-

It is further submitted that since the aforesaid cheque was signed by late Pradeep Kumar Sharma who had unfortunately expired, therefore, on 22.03.2021, the Respondent through Harshit Sharma informed the Appellant that a fresh cheque is being sent as the earlier cheque became redundant due to the death of the signatory and also stated therein that the amount is being paid keeping in view of the commitment and mutual undertaking signed by him previously. The said email dated 22.03.2021 is reproduced as under:-

It is further submitted that fresh cheque no. 137742 dated 23.04.2021 of an amount of Rs. 1.5 Crores was deposited by the Appellant for realization but it was bounced on the ground ‘exceeds arrangements’ and thereafter, on 26.04.2021, Harshit Sharma sent an email to the Appellant in which he referred to the cheque dated 23.04.2021 and stated that the cheque has been stopped for the purpose of payment because of certain unmatched accounts to the tune of Rs. 3.80 Crores approximately. He also stated therein that he will issue a fresh cheque as soon as the accounts are settled. The said email dated 26.04.2021 is also reproduced as under:-

Besides the email dated 26.04.2021, the Respondent has relied upon another email dated 28.04.2021 in which it was urged by the Respondent that a sum of Rs. 10,43,11,561.18/- has been paid in excess and in this regard only a prima facie opinion is drawn. The said email dated 28.04.2021 is also reproduced as under:-

Both these emails were denied by the Appellant through its email dated 21.05.2021 which is also reproduced as under:-

The Adjudicating Authority has then referred to reply to the notice dated 09.06.2021 which was sent by the Respondent through its Advocate. This reply is about the statutory notice issued under Section 138 of the NI Act, 1881. The said reply is also reproduced as under:-

Under the instructions of my client M/s Emcotech Equipments Pvt. Ltd and its directors, I hereby serve upon you the joint reply of the all the noticees as mentioned in the above captioned notice dated 25th May 2021, in the following terms:

Besides these documents, the Appellant has referred to email dated 29.05.2020 to contend that the Respondent had admitted its liability (debt) and also referred to the payment plan. The said email dated 29.05.2020 is also reproduced as under:-

As regards the notice dated 23.06.2021, it was sent through a counsel by the Respondent by which the Respondent has asked for the payment of excess amount of Rs. 3.25 Crores. The said notice is also reproduced as under:-

The Adjudicating Authority also observed that since notice dated 25.05.2021 was sent by the Appellant to the Respondent in respect of dishonoured cheque dated 23.04.2021, therefore, it is a dispute between the parties which was existing before the demand was raised on 30.07.2021 by way of a notice issued under Section 8 of the Code. Counsel for the Appellant has argued that pending of proceedings under Section 138 of the NI Act, 1881 would not amount to a dispute under the provisions of the Code and would not preclude an applicant from seeking its remedy under the Code. He has referred to two decisions of this Tribunal rendered in the case of Sudhi Sachdev Vs. APPL Industries Ltd., CA (AT) (Ins) No. 623 of 2018 and V. Venkata Satyanarayana Vs. Pattabi Enterprise, CA (AT) (CH) (Ins) No. 427 of 2022. He further argued that though the Respondent has urged in its email dated 26.04.2021 that account has to be reconciled but till the issuance of notice dated 30.07.2021 and filing of the application under Section 9 of the Code, no account much less prepared by the Respondent, showing even prime facie, that the Respondent has to recover the excess amount from the Appellant, about which there is a dispute has seen the light of the day. It is thus argued that it is a concocted story by the Respondent for the purpose of denying its liability. In this regard, he has relied upon a decision of the Hon’ble Supreme Court rendered in the case of Mobilox Innovations Pvt. Ltd. Vs. Kirusaa Software Pvt. Ltd. (2018) 1 SCC 353 in which it has been held that ‘the dispute should not be a patently feeble legal argument or assertion of fact unsupported by evidence. The dispute which are spurious, hypothetical or illusory ought not be permitted to stall the proceedings under Section 9 of the Code.

In the end, it is submitted that the Adjudicating Authority has erred in only referring to the documents placed on record by the Respondent while making its observation for dismissing the application filed by the Appellant and has not adverted to even a single document placed by the Appellant in support of his case. It is further submitted that the defence of the Respondent has to be looked into only in context with the case set up by the Appellant which is conspicuous by its absence in the present case as stated.

On the other hand, Counsel for the Respondent, while defending the impugned order, has submitted that there is no error in the impugned order which may call for any interference by this Court. It is submitted that the dispute was raised by the Respondent on 26.04.2021 in its email when it was brought to the notice of the Appellant that because of certain unmatched accounts to the tune of Rs. 3.80 Crores, the cheque presented by the Appellant for an amount of Rs. 1.50 Crores, has been dishonoured as the bank was asked to stop the payment and has also referred to email dated 23.04.2021. However, he has been candid enough to admit during the course of hearing that the cheque was not dishonoured because the Bank was informed to stop the payment rather it was dishonoured because ‘exceeds arrangements’. He also admitted that neither the email dated 26.04.2021 nor email dated 28.04.2021 and any account showing the payment of excess money to the tune of Rs. 3.80 Crores as per email dated 26.04.2021 and Rs. 10,43,11,561.18/- as per email dated 28.04.2021 was shared with the Appellant or even set up in defence in its reply. He has also fairly conceded that any dispute post issuance of notice under Section 8 of the Code is not required to be looked into and therefore, relied upon emails dated 26.04.2021 and 28.04.2021. He has argued that there has been a pre-existing dispute between the parties, therefore, the order has rightly been passed by the Adjudicating Authority.

We have heard Counsel for the parties and perused the record with their able assistance.

The summary of reconciliation produced by the Appellant dated 31.03.2019, 30.06.2019, 31.10.2019, 31.12.2019, 31.03.2020 and 31.08.2020 would show that the Respondent was in debt of the amount to be paid to the Appellant. We have also found that post dated cheque dated 23.04.2021 of Rs. 1.5 Crores given by the Respondent to the Appellant on 21.12.2020 was accepted by the Appellant and in that acknowledgement the Appellant has raised the issue of payment of Rs.8,65,66,175/- which was duly acknowledged by the Respondent (Harshit Sharma as a director) and had at no point of time raised any dispute regarding irregularity in the accounts. It so happened that since the cheque no. 137742 was drawn by Pradeep Kumar Sharma (since deceased), therefore, Harshit Sharma, vide its email dated 22.03.2021, brought to the notice of the Appellant that since the signatory of the cheque died, therefore, he would require to give another cheque and again he stated that he is giving its amount for settling recoveries. On 23.04.2021 the cheque was bounced and from then onwards the relationship between the parties became sour as the Respondent then sent an email dated 26.04.2021 and for the first time stated that the cheque has not been honoured on their instruction as according to the Respondent it had to recover an amount of Rs. 3.80 Crores, paid excess to the Appellant but this assertion was made in the email without any supporting evidence. Thereafter, on 28.04.2021 this amount was raised to Rs. 10.43 Crores i.e. within two days without supported any evidence much less prima facie, in order to inspire confidence, that the Respondent is justified in raising the dispute but the Adjudicating Authority has accepted the assertion made in both emails as a gospel truth despite the fact that the Hon’ble Supreme Court in the case of Mobilox Innovations Pvt. Ltd. (Supra) has held that the dispute should not be a patently feeble legal argument or assertion of fact unsupported by evidence. The dispute which are spurious, hypothetical or illusory ought not be permitted to stall the proceedings under Section 9 of the Code and in the present case we could not find any evidence on record except the bald assertion of the Appellant that it had paid an excess of Rs. 3.80 Crores thought it had been continuously accepting the reconciliation accounts.

In such circumstances, we are of the considered opinion that there is an error on the part of the Adjudicating Authority in dismissing the application. Consequently, the appeal is hereby allowed and the impugned order is set aside. The application filed under Section 9 is admitted. However, for the purpose of further proceedings i.e. appointment of IRP and other orders to be passed under Section 14 of the Code, the matter is sent back to the Adjudicating Authority. The parties are directed to appear before the Adjudicating Authority on 11^th December, 2023.