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Judgment
PER: DR. BINOD KUMAR SINHA, MEMBER- TECHNICAL
This is an application filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity 'the Code') read with rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity 'the Rules') with a prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent company, claimed to be the corporate debtor.
The applicant, is involved in the business of Solar EPC and O & M service provider offering top-notch solar plant design installation, operation, maintenance services and had supplied various items such as cable clips, solar equipment, insulator, ambient temperature sensor etc. to the Corporate Debtor, who was involved in the business of making solar energy.
The details of transactions leading to the filing of this petition as averred by the petitioner are as follows:
a. The Operational Creditor has been in business relation with the Corporate Debtor for past many years for providing their services.
b. The Operational Creditor submitted that the Corporate Debtor has failed to make the payment of Rs. 40,97,152/- which includes the principal outstanding amount of Rs. 32,02,719/- and an interest amount of Rs. 8,94,433/- calculated @ 24% p.a. as per the terms of the invoices. The said amount is due till 5th September 2019, in respect of the invoices raised from the period of 19th March, 2018 to 29th September 2018, which fell due between 18th April, 2018 to 29th October, 2018.
c. The Operational Creditor further stated that after the issue of the demand notice the corporate debtor via RTGS made a payment of Rs. 4,00,000/- on 12th September, 2019 to the operational creditor in respect of the outstanding dues leaving a balance of Rs. 36,97,152/- including interest.
d. The Operational Creditor submit that they have maintained the running ledger account of all the transactions done with the Corporate Debtor and also entries have been made as per the e invoices.
e. The Operational Creditor also stated that several reminders were made to the Corporate Debtor with respect to the outstanding due towards them but the same remains unpaid.
f. The Operational Creditor sent a Demand Notice as per provisions under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, dated 05.09.2019 via speed post and e-mail to the registered address/registered mail address of the Corporate Debtor demanding payment of an unpaid operational debt i.e. Rs. 36,97,152/-
g. The Corporate Debtor on receipt of the demand notice failed to reply to the said notice. Rather, sent an email dated 10th September 2019 stating therein, that they would clear the outstanding dues by way off three instalments. Pursuant to the aforesaid email, on 12th September 2019 a sum of Rs. 4,00,000/- was received against the outstanding dues.
h. The Operational Creditor has relied on below listed documents to prove their averments: -
The Copy of purchase order.
- The copy of the invoices along with delivery challan and eway bills issued by the Operational Creditor to the Corporate Debtor.
- The Copy of emails sent to the Corporate Debtor as the reminder to clear the said outstanding dues.
- The Copy of Letter dated 04.09.2018 seeking Assurance and Confirmation from the Corporate Debtor with regards to the payments due to the Operational Creditor.
- The Copy of mail dated 10.09.2019 by the Corporate Debtor stating to clear the dues via instalments.
The Corporate Debtor has filed its reply against the said Application. The main objections raised by the corporate debtor are as follows:
a. The Corporate Debtor stated that the present petition is not valid in the eye of law and as the present applicant does not fall under the definition of the Operational Creditor as mentioned under Section 5(20) of the IBC, 2016.
b. The Corporate Debtor further stated that both the parties had mutually agreed that the complete supply of products will be done by the Operational Creditor and the supply cost will be financed from the payment received by Renew Power Limited.
c. The Corporate Debtor further stated that the Operational Creditor made delay in supply of ACCB (Alternative current combiner box/which connects solar power plant to the grid), due to which a delay was caused in completion of the project. It is also submitted that the delivery of ACCB was to be done within 15 days of purchase order that is till 15.03.2018 as the purchase order was of 28.02.2018 and the delivery was done on 29.06.2018 by the Operational Creditor. An email as a reminder was also send to the Operational Creditor with respect to the delay caused in supply of goods.
d. The Corporate debtor further submits in his reply that due to the delayed caused by the Operational Creditor in providing the supply of ACCB further caused delay in completion of the project due to the delay caused in the project the Renew Power Limited charged 5% liquidated damages amounting to Rs. 9,69,252/- from the Corporate Debtor. In addition to the same, Renew Power took over the projects from the Corporate Debtor due to the delay in completion of the supply of ACCB and thereafter the Corporate Debtor had to suffer a loss of Rs. 48,39,579/-.
e. The Corporate Debtor also stated in its reply that they made a payment of only Rs. 9 lacs to the Operational Creditor.
f. The Corporate Debtor further stated that the claim made by the Operational Creditor herein, is an illegitimate claim.
g. The Corporate Debtor has relied on Copy of emails sent as a reminder to the Operational Creditor and Copy of the challan of delivery dated 29.06.2018.
The Applicant has filed the rejoinder and stated the following facts: -
a. The Operational Creditor submits that the reply is not been filed by the Authorized representative of the Corporate Debtor.
b. The Operational Creditor submits that the Corporate Debtor has failed to produce the subsequent email communications exchanged between the parties in the year 2019. As, those subsequent emails demonstrate that dispute among the parties had been resolved and there was no more dispute between the parties as regards the Operational Debt. In this regards the Corporate Debtor has also sent a letter seeking assurance and confirmation, dated 04.09.2018, wherein it is stated that payment shall be made by the corporate debtor as soon as the same is released by the Renew Power Project, who is the financeer of the said project i.e. by 25th September 2018. Further the corporate debtor stated that Corporate Debtor has repeatedly promised to make payment in the email communications done between the parties.
c. The Operational Creditor further states in their rejoinder that the Corporate Debtor didn't reply to the demand notice but on 10.09.2019 had sent an email promising therein to make the payments in 3 instalments as under:-Rs. 4,00,000/- on 11.09.2019 Rs. 17,00,000/- by 30.09.2019 Rs. 11,02,719 by 31.12.2019.
d. The Operational Creditor stated that in terms of the email dated 10.09.2019, payment of Rs. 4,00,000/- on 12.09.2019 and 5,00,000/- on 10.12.2019 were made. Furthermore, post-dated cheques in favour of operational creditor to secure the payment of outstanding debt were also given. Thus such an act of part payment of outstanding debts to be considered as an admission of liability by the Corporate Debtor.
The Corporate Debtor has filed the additional reply with respect to the rejoinder filed by the Operational Creditor and stated the following facts:-
a. The Corporate Debtor submitted in his reply that there is existence of dispute on account of the payment due from the third party i.e. Renew Power who had to release the payment of the Corporate Debtor.
b. The Corporate Debtor also submitted that whenever payments were received from the Renew Power, subsequently the payments were made to the Operational Creditor.
We have heard Ld. Counsel for both the parties and perused the averments made in the application, reply, rejoinder and additional reply filed by the parties. The relevant documents annexed with the respective submissions have also been examined. The Operational Creditor has been in business relation with the Corporate Debtor for the supply of various items such as cable clips, solar equipment, insulator etc. accordingly invoices were raised which became due within one month. As per the said invoices Rs. 40,97,152/- along with interest was due and payable. Thereafter, the Applicant had send various reminders and requested to clear the dues. As a consequence the Applicant was constraint to send the demand notice on 05.09.2019 demanding payment of an unpaid operational debt i.e. Rs. 36,97,152/-. The Corporate Debtor never replied to the said demand notice instead sent an email dated 10.09.2019 i.e. after the receipt of the demand notice stating therein that they would clear the outstanding dues by way of three instalments. Subsequently, on 12.09.2019 and 10.12.2019 made the payments of Rs. 4,00,000/- and Rs. 5,00,000/- respectively.
Considering the above facts we are of the opinion that the following issues can be framed:-
Whether there exists an Operational Debt as claimed by the Applicant?
Whether the operational debt due and payable as claimed by the Operational Creditor is disputed?
With respect to the issue of the amount claimed by the Applicant being the Operational Debt in this context it is worthwhile to refer the Section 3(21) of Insolvency Bankruptcy Code, 2016 "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority. Accordingly, in the present case the Applicant has provided goods to the Corporate Debtor and raised invoices accordingly. The said invoices have remained unpaid, hence, the outstanding amount, which remains due towards the Corporate Debtor falls within the definition of 'Operational Debt'.
With regards the issue of Operational Debt being disputed, it is the contention of the Corporate Debtor in its reply that there has been delay in supply of the goods by the Operational Creditor, but the said contention is not rational as the Corporate Debtor continued to take the goods from the Operational Creditor. Henceforth, the Corporate Debtor is estopped from raising such contention with respect to the delay in services by the Operational Creditor. The Hon'ble Supreme Court in catena of Judgements has laid down the principle that 'pre-existing dispute' which may be ground to thwart an application under Section 9 has to be a real dispute, a conflict or controversy. A conflict of claims or rights should be apparent from the reply as contemplated by Section 8(2). The Corporate Debtor is not to raise bogie of disputes, but there has to be real substantial dispute. The existence of dispute when the Demand Notice was issued is mandatory condition for exercising jurisdiction to reject the Application by the Adjudicating Authority as is referred to in sub-section (5) of Section 9. The statute uses the expression 'existence of a dispute'. The word 'dispute' has been defined in Black's Law Dictionary as in the following manner:-
"Dispute.
A conflict or controversy; a conflict of claims or rights; an assertion of a right, claim, or demand on one side, met by contrary claims or allegations on the other. The subject of litigation; the matter for which a relation to which jurors are called and witnesses examined. See Cause of action; Controversy; Justiciable controversy; Labour dispute."
In the present case, the Corporate Debtor never replied to the Section 8 notice, which should have been the first line of defence, if there was a genuine dispute existing between the parties. There is no merit in the dispute raised by the corporate debtor as mere reply being filed by the corporate debtor to the present application, is unable to establish any pre-existing dispute which requires any further adjudication from proper Authority. Additionally, the corporate debtor in its reply has also specifically stated that the existence of dispute is on account of the payment due from the third party i.e. Renew Power Limited, who had to release the payment of the Corporate Debtor and the Corporate Debtor failed to disclose that the disputes as regards the delay in completion of the Renew Power Project, had been resolved between the applicant and the corporate debtor.
Additionally, it is also highlighted that the Corporate Debtor has admitted its liability vide letter titled as “Letter Seeking Assurance and Confirmation” dated 04.09.2018, wherein giving assurance with regards to making the due payments when the same is received by the Corporate Debtor from the financers of their Project i.e. Renew Power Limited and vide email dated 10.09.2019, sent after the issuance of the demand notice. Moreover, Applicant has also filled an affidavit under Section 9 (3)(b) of IBC, 2016 stating that no notice of dispute has been raised.
Therefore, we are of the opinion that the claim of the Applicant is arising out of the provisions of goods and services, hence, it is an operational debt and there is no pre-existing dispute between the parties. This leaves no doubt that the default has occurred for the payment of the operational debt to the applicant and there is also a clear admission of liability by the Corporate Debtor. Hence, despite the fact that, the corporate debtor had raised dispute, in our view, the said dispute had been resolved among the parties or was a moonshine dispute. The debt of more than Rs.1 Lakh has become due to the applicant and there is an admitted default on part of the corporate debtor. We are also strengthened by the law laid down by the Hon'ble Supreme Court in "Innoventive Industries Ltd. Vs. ICICI Bank and Ors. – (2018) 1 SCC 407" wherein it is observed as follows: -
"The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority."
In the light of the above said facts and after giving careful consideration to the pleading of the parties and upon appreciation of the documents placed on record to substantiate the claims, this Adjudicating Authority is of the view that the Applicant needs to be succeed. Accordingly, the present petition (IB)-3463/(ND)/2019 filed by the applicant under Section 9 of the Code, 2016 stands admitted in terms of Section 9(5) of the Code and CIRP is hereby ordered to be initiated against the Corporate Debtor.
The applicant has not proposed the name of an IRP; therefore, this bench appoints Sh. Vijay Kumar Ahuja, as the Insolvency Resolution Professional of the corporate debtor. The registration number of the IRP being IBBI/IPA-002/IPN-N00652/2018-2019/12020 and email id [email protected] . IRP above named is appointed subject to the condition that no disciplinary proceedings are pending against him. The specific consent is required to be filed in Form 2 of Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rule, 2016 and disclosures be made as required under IBBI (insolvency Resolution Process for Corporate Persons) Regulations, 2016, within 3 days of passing this order.
We direct the applicant to deposit a sum of Rs. 2 lacs with the Interim Resolution Professional, namely Sh. Vijay Kumar Ahuja to meet out the expense to perform the functions assigned to him in accordance with regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within one week from the date of receipt of this order by the Operational Creditor. The amount however be subject to adjustment by the Committee of Creditors, as accounted for by Interim Resolution Professional, and shall be paid back to the Operational Creditor.
We also declare moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14 (1) (a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:
(a)The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b)Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c)Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d)The recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the corporate debtor."
(e)The IB Code 2016 also prohibits Suspension or termination of any license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concessions, clearances or a similar grant or right during the moratorium period."
It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14 (3) (b) of the Code.
The Interim Resolution Professional shall perform all his functions contemplated, inter-alia, by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the Code, Rules and Regulations. It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day to day affairs of the 'Corporate Debtor'. In case there is any violation committed by the ex-management or any tainted/illegal transaction by ex-directors or anyone else, the Interim Resolution Professional would be at liberty to make appropriate application to this Tribunal with a prayer for passing a appropriate orders. The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the 'Corporate Debtor' as a part of its obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.
A copy of the order shall be communicated to the applicant, Corporate Debtor and IRP above named, by the Registry. Forthwith, in addition, a copy of the order shall also be forwarded to IBBI for its records. Applicant is also directed to provide a copy of the complete paper book to the IRP. A copy of this order is also sent to the ROC for updating the Master Data. ROC shall send compliance report to the Registrar, NCLT.
Let copy of the order be served to the parties. Consign the file to the record room.