Chempharm Industries India Private Limited vs SGS Pharmaceuticals Pvt. Ltd

P.S.N. Prasad, J

This is an application filed by the Applicant Chempharm Industries Pvt. Ltd. through its Authorized Representative Mr. Santosh Kumar seeking to initiate corporate insolvency resolution process ("CIRP") under Section 9 of the Insolvency and Bankruptcy Code 2016 ('the Code') of the Respondent SGS Pharmaceuticals Pvt. Ltd., for the alleged default on the part of the Respondent in clearing the debt of Rs. 21,81,444/- (Rupees Twenty Lakh Eighty One Thousand Four Hundred Forty Four Only) including the principal amount of Rs. 19,73,965, towards the material supplied by the Applicant. The details of transactions leading to the filing of this application as averred by the Applicant are as follows:

i. The Applicant is involved in the business of providing turnkey solutions for clean rooms/ operation theatre, it is also involved in providing firefighting, electricals, HVAC, civil construction solutions.

ii. The applicant has provided the HVAC system to the Respondent and submits that the same was checked through the process of validation report, which was done by a third party. The applicant further submitted that vide letter dated 13.08.2018 the representative of the Respondent has pointed out that work was satisfactory and there was some leakage issues that needed to be resolved. The applicant claims that the same issue was rectified by the Applicant and an email was sent asking for the due payment.

iii. The Applicant in terms of material supplied raised invoices upon the Respondent. It is stated that the Respondent has failed to make payment on account on invoices raised. The total amount of the outstanding dues is Rs. 21,81,444/- which pertain to material and services provided to the Respondent.

iv. The Applicant issued Demand Notice in the form of Form-3 under Section 8 of the Code read with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 dated 28.03.2019 calling upon the Respondent to clear the amount of default i.e. Rs. 21,81,444/-. The Respondent upon receipt of the Demand Notice dated 28.03.2019 issued a reply dated 14.04.2019.

v. The Respondent was duty bound to make payment to the Applicant on the basis of various invoices raised by the Applicant in terms of the services provided.

vi. The Respondent has failed to make any payment to the Applicant from the date of receipt of the demand notice dated 28.03.2019 till the filing of the present application.

Consequent to the notice issued by this Tribunal, the Respondent filed its reply in which the following contentions are made:

i. That the Respondent is not the defaulter and had paid full amount to the Applicant. The amount claimed as default is not the recoverable amount from the respondent and it has been falsely and illegally claimed by the applicant.

ii. That this petition by the applicant is not filed through proper authorization or board resolution. That the authorization letter of the Insolvency application is not a Board of Resolution, the heading of it is "To Whomsoever it may concern", it is not a proper authorization to file the present Insolvency Application. The respondent submits that the Board applicant fails to do work in a satisfactory manner and if the condition of the work is not good then the Respondent can hold Rs. 15 Lakh. The mail conversation dated 14.07.2017 between the applicant and the respondent also talks about the same, the email contains a specific declaration/condition that Rs. 15 Lakhs will be put on hold in lieu of unsatisfactory work.

v. That Mr. Nimish Gupta, Director of SGS Pharmaceuticals Private Limited (Respondent) has written a letter dated 15.11.2018 to the applicant stating that the Respondent has faced lots of monetary loss due to the unethical and unprofessional behavior of the applicant, the loss of business to the tune of Rs. 3 crore per month as lots of buyers shifted to other companies.

vi. The Respondent submits that he followed up for 6 months regarding the issues and every time the applicant was giving false commitments which were never fulfilled. The Respondent called Mr. Siddhartha, Mr. Sapra (Director of Chempharrn Industries Private Limited) and Mr. Rajendra 20-25 times daily and still there was no improvement regarding the said issue. The service installation head never visited the site of Respondent and false assurances were given each time, due to which the Respondent suffered monetary loss and damage to the goodwill.

vii. The Respondent wrote E-mails dated 02.11.2017, 20.11.2018 and 02.06.2018 to the applicant requesting them several times to expedite work. The site of Respondent was not handed over in time as there was a delay of five months, moreover the site was incomplete and the respondent had to get the remaining work done by himself.

viii. The Respondent submits that it is not liable to remit any single penny to the applicant and the present application is liable to be dismissed.

The Applicant has filed written submissions in which he has reiterated the certain points raised by him in the petition and they are as follows:

i. That the authorization letter has been signed by the Director of the Applicant Company, who authorized Mr. Santosh Kumar in proper capacity to act on its behalf.

ii. The Applicant submits that the demand notice was successfully delivered at the correct address of the Respondent i.e. SGS Pharmaceuticals Private Limited and the same was incorrect due to typographical error.

iii. That the letter dated 15.11.2018 is merely a generic letter and that the same was raised without any breakup or proper details of the debit note and amounts mentioned. The applicant placed reliance on the judgement of Hon'ble Supreme Court of India in "Mobilox Innovation Private Limited v. Kirusa Software Private Limited". The judgement enumerated the very importance of a proper plausible dispute and not a hollow one and the letter dated 15.11.2018 contains no proper case to be counted as a dispute and is not backed by proper evidence.

iv. That there was no formal agreement between the applicant and the Respondent neither the time was set for the work to be completed. The applicant submitted that the work was completed and the site was handed over to the associate of the Respondent vide its written note dated 13.08.2018 as mentioned in the application.

The Respondent has filed written submissions in which he has reiterated the certain points raised by him in the petition and they are as follows:

i. The Respondent submits that the Rule 23(1) of NCLT Rules permits an authorized representative to be present an application or petition before the Tribunal and section 179 of Companies Act, 2013 empowers the Board of Directors to do all such acts that a company is authorized to do. That in absence of Board resolution by the Board of Directors in favor of present Representative makes the present insolvency application as not maintainable before the Hon'ble Tribunal. The Respondent cited the Hon'ble NCLAT order in Palogix Infrastructure Private limited v. ICICI Bank Limited.

ii. The Respondent submitted that the dispute between the applicant and the Respondent is commercial one and therefore its is not maintainable as if a dispute which is specific related to Commercial transactions then it should be raised before the Commercial Court under the Commercial Courts Act, 2015.

iii. The Respondent submits that the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. v/s Kirusa software Pvt. Ltd. (2018) 1 SCC 353 held that the existence of dispute or arbitration proceedings necessarily be pre- existing, that is to say, it should exist prior to receipt of the Demand Notice, then the Corporate Debtor would be stave off from the Bankruptcy process had categorically laid down that, IBC was not intended to be substitute to a recovery forum.

iv. The Respondent further submitted that the Hon'ble Supreme Court in the judgement of Transmission Corporation of Andhra Pradesh Limited Vs. Equipment Conductors and Cables Limited 2018 (14) SCALE 176 laid down that, whenever there was existence of real dispute between the parties, then the provisions of Insolvency and Bankruptcy Code, 2016 could not be invoked.

We have gone through the documents filed by both the parties and heard the arguments made by the counsels. The Applicant had supplied the materials and provided the HVAC services. The Applicant has claimed an amount of Rs. 21,81,444/- as an outstanding operation debt from the Respondent.

From the perusal of the reply filed by the Respondent it is clear that the Respondent has sent an email on 15.11.2018, complaining about the delay in completion of work and quality of service provided by the petitioner and on perusal of the E-mails sent by respondent to the applicant dated 02.11.2017, 20.11.2018 and 02.06.2018 it can be concluded that the respondent has requested several times to the applicant for the timely completion of work and has complained about the delay in the completion of work. The project hand over report dated 13.08.2018 submitted by the neutral third party to certify the construction site submitted by the applicant in the petition also contains the fact that major leakage has been found in the work as well as work was not found as per the satisfaction of the third party. The documentary evidence submitted by both the parties clearly establishes the pre-existence of dispute between the parties prior to the issuing of notice by the Petitioner.

In light of the above, after giving careful consideration of the entire matter and hearing the arguments of the parties and upon appreciation of the documents placed on record to substantiate the claim, the present application is rejected and no cost is imposed on the Petitioner.