Apavarga Trading Company vs Hazel Foods Pvt. Ltd.

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ in short) by the Appellant arising out of the Order dated 13.09.2022 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-II, New Delhi) in CP(IB) No.314/ND/2019. By the Impugned Order, the Adjudicating Authority has dismissed the Section 9 petition filed by the Appellant seeking to bring the Corporate Debtor under the rigours of Corporate Insolvency Resolution Proceedings (‘CIRP’ in short). Aggrieved by this impugned order, the present appeal has been preferred.

The Learned Counsel for the Appellant submitted that Apavarga Trading Company, present Appellant /Operational Creditor is a partnership firm engaged in the business of trading of kirana goods and supplied grocery items to the Corporate Debtor /Respondent. It has been claimed that the Corporate Debtor received grocery items on credit basis from the Operational Creditor without any advance payment on the assurance that the Corporate Debtor would pay within 15 days on the raising of invoices. But payments were made irregularly by the Corporate Debtor on running account basis. The last payment was made on 05.05.2016 and this payment was duly accounted for in the statement of account on 01.06.2016.

The Learned Counsel for the Appellant further submitted that the Corporate Debtor was sent all the invoices against orders placed by them and that the Corporate Debtor is liable to pay an amount of Rs.72,31,268.36 against outstanding bills. Further, interest at the rate of 24 per cent was additionally chargeable as per market practice and as mentioned in the invoice. However, since the Corporate Debtor did not clear the outstanding dues after May 2016, the Appellant issued a demand notice under Section 8 of IBC on 22.11.2018. The notice was delivered on the Corporate Debtor on 26.11.2018. Since the corporate debtor did not reply to the demand notice and did not make any further payments to discharge their outstanding liability and furthermore no notice of dispute was received, application under Section 9 was filed before the Adjudicating Authority for initiation of CIRP against the Corporate Debtor.

The Learned Counsel for the Respondent refuting the contentions made by the Appellant stated that in their reply before the Adjudicating Authority it was submitted that no default had occurred in the discharge of their liabilities and that the claim of the Operational Creditor contained disputed question of facts which require investigation by civil courts. It is further submitted that one Shri Moti Kumar was working as an accountant with the Corporate Debtor from 12.08.2002 till 08.10.2016. However, without their prior permission and knowledge, Shri Moti Kumar during this period had joined as a partner in the partnership firm of the Operational Creditor. The Learned Counsel for the Respondent contended that Shri Moti Kumar in connivance with the Operational Creditor manipulated and forged records to show purchase orders having been placed by the Corporate Debtor with the Operational Creditor and that the Corporate Debtor had also lodged a police complaint against Shri Moti Kumar on 23.05.2019 for fraud, forgery and misappropriation of funds.

We have duly considered the detailed arguments and submissions advanced by the Learned Counsel for both the parties and perused the records carefully.

Coming to the role of Shri Moti Kumar in the transactions conducted between the Operational Creditor and Corporate Debtor as a ground of dispute, we note that the Learned Counsel for the Appellant has admitted that Shri Moti Kumar worked with the Corporate Debtor for nearly 12 years before he joined as a partner of the partnership firm of the Operational Creditor. It was also submitted that Shri Moti Kumar continued to work with the Corporate Debtor even after joining as a partner in the partnership firm but with the prior knowledge and instructions of the Corporate Debtor and that the Corporate Debtor had in fact on his own volition waived the condition of employment by Shri Moti Kumar in the partnership firm. The Appellant has thus contended that the Respondent was fully aware while sourcing material from the Operational Creditor that Shri Moti Kumar was working as a partner in the partnership firm of the Operational Creditor. It has also been stated that the police complaint filed by the Corporate Debtor against Shri Moti Kumar was 31 months after his resignation. Moreover, the complaint having been lodged with the police much after the Section 9 application was filed before the Adjudicating Authority, this police complaint has to be rejected as a spurious defence.

We note that the Adjudicating Authority took cognisance of the fact that Shri Kumar joined the Corporate Debtor as an accountant on 12.08.2002 and continued to work there until he resigned on 08.10.2016. The impugned order has also taken note of the fact that Clause 4 of the letter of appointment of Shri Moti Kumar as accountant with the Corporate Debtor stipulated that he shall not take up directly or indirectly any outside duties, works or consultancy while in employment of the company without express written permission from the management. The Adjudicating Authority after perusing the partnership deed dated 14.02.2014 has also noted that at the point of time when Shri Moti Kumar was admitted as one of the partners in the partnership firm of the Operational Creditor, he was still working as an accountant with the Corporate Debtor and therefore this conduct was in breach of the prohibition imposed by Clause 4 of his appointment letter. We also note that no material document has been produced by the Appellant to show that the Shri Moti Kumar worked with the Operational Creditor while also serving as an accountant with the Corporate Debtor with express written permission from the latter. It is an undisputed fact that Shri Moti Kumar resigned from the Corporate Debtor firm finally on 08.10.2016 at which point of time he worked both with the Corporate Debtor and the Operational Creditor. There is also no doubt in our mind that at the time of joining the partnership firm, he was barred from taking any outside duties in terms of the appointment letter issued by the Corporate Debtor. Given the above, we are satisfied that the doubts expressed by the Adjudicating Authority about the questionable role of Shri Moti Kumar is not unfounded.

It has also been observed by the Adjudicating Authority that the Operational Creditor actively concealed this material fact in their Section 9 application that their partner Shri Moti Kumar was working as an accountant in the Respondent Company during 2014 to 2016 when the transactions under reference have occurred between the parties. The Adjudicating Authority has therefore come to the conclusion that this dual employment of Shri Moti Kumar not only casts serious doubt on the transactions carried out between the Operational Creditor and the Corporate Debtor during the period of February 2014 to May 2016 but also points towards possible manipulation.

While analysing the dispute raised by the Corporate Debtor, it has also been noted by the Adjudicating Authority that the appointment letter and resignation letter of Shri Moti Kumar and the relevant invoices pertain to a date prior to issuance of the demand notice.

The Learned Counsel for the Respondent further submitted that the Respondent in their reply before the Adjudicating Authority had pointed out that during this period when the Shri Moti Kumar was working concurrently for the Corporate Debtor and Operational Creditor without any prior permission of the Corporate Debtor, he was on the one hand placing purchase orders for the Corporate Debtor being his employee and on the other hand supplying goods to the Corporate Debtor from the partnership firm of the Operational Creditor where he was also a partner. It has therefore been contended that Shri Moti Kumar made payments illegally to the Operational Creditor. It was further submitted that no authorised person of the Corporate Debtor has signed and stamped the receipt of several invoices. The name of the persons who signed the said invoices is also not mentioned. In support of their contention, reference was made to pages 314-317, 320-323 of Appeal Paper Book (‘APB’ in short) which contain invoices which clearly show stamp without any signature endorsement. In some invoice there is no stamp of the Corporate Debtor embossed thereon. It is further noted from certain invoices that curiously the date of receipt of goods precedes the date of invoices as at pages 139, 145, 146 of APB. Furthermore, some invoices submitted are marked with handwritten MRN number without any receipt delivery stamp which are placed from pages 378-400 of APB. It was therefore submitted that the invoices lack authenticity being forged and fabricated and thus the liability of the Corporate Debtor has been created by fraudulent means.

We note that the Adjudicating Authority having noted the material concealment of the fact by the Operational Creditor regarding the fact that Shri Moti Kumar was working concurrently in both the entities i.e. the partnership firm of the Operational Creditor and the Corporate Debtor at the time of transactions and after having considered the rival submissions and after seeing the documents on record have held that it raises serious doubts as to whether the Respondent really committed any default or there is an element of fraud in the transactions. It has therefore held that the dispute needs more investigation and beyond the scope of the Adjudicating Authority in terms of the judgement of the Hon’ble Supreme Court in (2018) 1SCC 353 Mobilox Innovations Pvt Ltd vs Kirusa Software Pvt Ltd (‘Mobilox’ in short). It would be useful to peruse the relevant excerpts of the impugned order at paras 19 and 20:

It is well settled that in section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court. If we apply the above cited test laid down in Mobilox by the Hon’ble Supreme Court to the facts of the present case, it is clear that defence was raised by the Corporate Debtor in their detailed reply filed in Section 9 application which in our considered view is not illusory or moonshine and that the nature of dispute raised was such that it required adjudication by competent court. The Adjudicating Authority has therefore correctly applied the ratio of the Mobilox judgement.

For the foregoing reasons, we are of the view that the Adjudicating Authority has rightly dismissed the application of the Appellant filed under Section 9 of IBC. We are satisfied that the impugned order does not warrant any interference. We however make it clear that in the event the Appellant seeks remedy before any other appropriate forum, it shall be open for the Appellant to raise all pleas as permissible in law. There is no merit in the Appeal. The Appeal is dismissed. No order as to costs.