G L Engineering Industries Private Limited vs Supreme Engineering Limited

Per: Chandra Bhan Singh, Member (Technical)

This is an Application No. CP(IB)424/MB/2020 filed by G. L. Engineering Industries Private Limited, Petitioner, who has furnished Form No. 5 under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in the capacity of “Operational Creditor” by invoking the provisions of section 9 of Insolvency & Bankruptcy Code, 2016 (Code) against Supreme Engineering Limited, Respondent, for initiating Corporate Insolvency Resolution Process (CIRP).

In the requisite Form, under the head “Particulars of Operational Debt” the total amount in default is stated to be Rs. 4,64,65,107/- as on 31.07.2019plus further delayed payment charges @1.92% per month for 5 months from 01.08.2019 to 31.12.2019.

The Petitioner is a private limited company and in the business of supply of steel materials, etc. and the Respondent is a public limited company and engaged in manufacturing and dealing in the business of steel products.

The Petitioner states that on receiving oral instructions from the Petitioner, the Respondent have executed orders for supply of steel materials as per business practice agreed, accepted and followed between the Petitioner and the Respondent. The Petitioner states that they had sold, supplied and delivered to the Respondent from time to time on high seas sale basis and domestic local sales in India of steel materials, etc. The Petitioner further states that the Respondent has not raised any objections regarding quality, quantity, delivery schedule and rate thereof on receipt of the steel materials.

The Petitioner further states that the Respondent had given assurances to clear all the outstanding debts due and payable be them against the said supplies made to them and that the Petitioner even accommodated the Respondent for delayed payment from time to time though the amounts were due upon the receipt of supplies of the goods by the Respondent.

The Petitioner states that vide the confirmation letter dated 30.05.2019 and further letter dated 01.07.2019 issued by the Respondent to the Petitioner, the Respondent have admitted debt/liability of the two dishonoured cheques of Rs. 4,16,18,466/-and Rs. 7,76,706/- issued by the Respondent, which is as per the Petitioner an admitted liquidated debt/liability by the Respondent.

The Petitioner further mentions that on 30.05.2019 they received a confirmation letter issued by the Respondent. After receipt of the said letter wherein the Respondent had admitted the liability of Rs. 4,16,18,466/- and accordingly issued a cheque of Rs. 4,16,18,466/- in favour of the Petitioner, which was payable on 30.06.2019, thus initially the debt of Rs. 4,16,18,466/- fell due on 30.06.2019.

The Petitioner states that thereafter they received another letter dated 01.07.2019 from the Respondent seeking extension of time for the presentment of the said cheque by the Petitioner and requesting the Petitioner to make said presentation of the cheque on 31.07.2019 instead of 30.06.2019.

The Petitioner states that the Respondent also agreed to pay the delayed payment charges for permitting the extension of said period until 31.07.2019 which amounts to Rs. 7,76,706/-. Thereafter the Respondent issued a cheque of Rs. 7,76,706/- to the Petitioner for delayed payment charges.

Thereafter both the cheques issued by the Respondent in favour of the Petitioner were deposited in the Bank for realisation. The Petitioner states that both the cheques were dishonoured and returned vide memo dated 02.08.2019 with a remark “Exceeds Arrangement” and “Funds Insufficient” respectively.

After that the Petitioner through its Advocate had issued a notice dated 26.08.2019 under the provisions of Negotiable Instrument Act, 1881 calling upon the Respondent to pay the returned cheques amount and overdue delay payment charges @1.92% p.m. as agreed by the Respondent until the date of payment within 15 days from the date fo the receipt of the said notice. In-spite of receipt of the said notice the Respondent failed to pay the amount and overdue interest to the Petitioner. The Respondent also failed to reply to the said notice.

Thereafter the Petitioner made several follow up reminders, but the Respondent failed to make the payment. Hence, on 04.11.2019 and on 07.11.2019 the Petitioner issued a demand notices demanding a payment of Rs. 4,23,95,172/- along-with delayed payment charges @1.92% p.m. until the date of payment as due and payable by the Respondent to the Petitioner. The said notices were received by the Respondent on 05.11.2019 and on 09.11.2019.

The Respondent, through its advocate replied to the said Demand Notice through its advocate on 14.11.2019 denying the liability.

The Respondent replied to the said Demand Notice through its advocate on 14.11.2019 denying the liability. The Respondent also filed a reply to the petition raising following contentions;

a. The Respondent denied having signed the letter dated 30.05.2019 and thus the same, he says, is fabricated, forged and malafide.

b. The Respondent mentions that the notice dated 26.08.2019 for payment of the alleged unpaid sum of Rs. 4,23,95,172/- is completely misconceived, baseless and denied. The definition of “operational debt” required “a claim in respect of provisions of goods or services including employment or a debt in respect of the payment 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”. The Respondent says that the Petitioner has failed to disclose the type and details of the goods alleged under the debt now sought to be claimed. Therefore, the Respondent mentions that the Petitioner has miserably failed and deliberately neglected to furnish any details with respect to the provisions of goods in terms of date on which these transactions took place, quantities, amounts, purchase orders, contracts, invoices, delivery challans and/or receipts.

c. The Respondent submits that the Petitioner has used the term “oral orders” and usual “business practice” in order to conceal the fact that there were actually no transactions for provision of goods. The Petitioner has failed to provide any such details as mandate under Section 8 of the Code. The Petitioner failed to produce the aforesaid documents even at the time of inspection held on 19.12.2019 citing that the same are only “supplementary” as specifically stated in the letter dated 20.12.2019.

d. In the absence of any such proof of transactions, the said claim of the Petitioner is merely an extortion based on false and fabricated letters, after forging Respondent’s signature and thus the present petition deserves to be dismissed in limine with costs.

e. In view of absence of details of the transactions including any documents to substantiate and in the absence of relevant dates, amounts and quantity, the Respondent denies any/all transactions having taken place in the past three years for which any sums are due and thereby deny the legal validity and locus of this present Petition.

f. The Respondent through its advocate vide its letter dated 14.11.2019 replied to the Petitioner denying the allegations therein, particularly denying any operational debt due at all. The Petitioner, once again issued a Notice vide letter dated 07.11.2019 for an alleged unpaid Operational Debt and thereafter filed the present Petition. However, the Petitioner has suppressed Respondent’s earlier letter dated 08.01.2020 addressed to the Advocates for the Petitioner. Vide the said letter, the Respondent has inter-alia denied having signed or given any acknowledgement of debt.

g. The Respondent mentions that the Petitioner is misusing the cheques given by Respondent only for the purpose of security. The said cheque was given only out of due force and undue influence upon the Respondent without any admission of liability by the Respondent.

The Petitioner in its rejoinder made submissions as follows;

a. the Petitioner deny the allegations made therein as false in view of the fact that no evidence substantiating the said allegations is made out in absence of any evidential proof in support thereof in the said reply.

b. Petitioner mentions that its claim squarely falls within the definition of Section 5(21) of the I&B Code relating to the operational debt on the basis of documents annexed to the application. The application is in due compliance of the provisions of Law u/s 8 of I &B Code read with regulations applicable thereto.

c. the Petitioner states that the contents of the documents annexed to the application sufficiently show that the claim of the Petitioner is for the operational debt due from the Respondent.

d. In the issue of limitation, the documents of unequivocal confirmation of debt as annexed to application are sufficient for the purpose of the existence of the operational debt.

e. While denying the existence of transactions relating to the claim, the Petitioner has not given any supportive documents describing the nature of transactions as to the truth about the same on the records of the Respondent.

f. Regarding the letter of Respondent’s Advocate dated 08.01.2020, it was received only after the filing of the NCLT application on 10.01.2020. The Petitioner have replied to the said letter by their letter dated 13.01.2020, which is duly received by the Advocate of the Respondent.

The Bench notes that this Petition has been filed by the Applicant, G. L. Engineering Industries Private Limited under Section 9 of the IBC, 2016 for a total debt amount of Rs. 4,64,65,107/- due as operational debt from the Respondent. The basis of this claim, as mentioned by the Petitioner, is based on supply of steel material on high seas sale basis as well as domestic sale between the Applicant and the Respondent.

The Bench notes that the sole basis of claim, as far the Petition is concerned, rests as the Petitioner mentions, on two confirmation letters dated 30.05.2019 and 01.07.2019 regarding payment of outstanding dues by the Respondent for the supply of steel materials and goods delivered on high seas sales basis and domestic local sales in India. The sum and substance of letter dated 30.05.2019 is that after adjustments of all, as on 30.06.2019, a sum of about Rs.Rs. 4,16,18,466/- crore is due. Similarly, in the letter dated 01.07.2019 as per the Petitioner, a request for extension of time was sought by the Respondent up to 31.07.2019, for which the Respondent also agreed to pay the delayed payment charges for permitting the extension of said period until 31.07.2019 which amounts to Rs. 7,76,706/-. With the letter dated 30.05.2019 a cheque of Rs.4,16,18,466/- was issued by the Respondent.

Similarly, vide letter dated 01.07.2019 a cheque of Rs.7,76,706/- dated 31.07.2019 was issued by the Respondent. The Petitioner mentions that since the two cheques have been dishonored, they have filed Petition under Section 9 of IBC, 2016.

The Bench here also notes that with the Petition no invoice or any details with respect of provision of goods in terms of debt for which the transaction has taken place, quantities, amount, purchase orders, contract, invoices, delivery challan or any receipt were submitted. The Petitioner has just mentioned that these transactions were as a result of “oral orders” and usual “business practice” between the parties.

The Respondent in their submissions have denied having ever signed these two letters dated 30.05.2019 and 01.07.2019 and also mentioned that these are forged and fabricated letters. The Respondent has also denied the contents of the letters. Regarding the cheques issued by the Respondent for an amount of Rs. 4,16,18,466/- and Rs. 7,76,706/-, the Respondent mentions that these were advance payments for future transactions and has nothing to do with any past payment to the Petitioner.

Before going further in the matter this Bench would like to reiterate the definition of Operational Debt as per Section 5(21) which reads as under: -

(Emphasis supplied).

Therefore, the Bench notes that the Petitioner has to disclose the type and details of the goods for which a debt has arisen and which is being claimed by the Petitioner. Since the Petitioner had not furnished any details for the provision of goods, this bench while hearing the mater on 27.02.2020, gave one last chance to the Petitioner to submit on affidavit enclosing all the invoices and proof of delivery of the material to the Respondent corresponding to the amount of debt which has been claimed in the Petition.

The Bench notes that on 03.03.2020, on affidavit the Petitioner produced 37 invoices which as per the Petitioner are due and payable by the Respondent. The Bench notes that in the additional affidavit filed by the Petitioner, the Petitioner has given a compilation by way of Exhibit ‘O’ recording the documents and transactions between the parties. The details regarding the 37 invoices raised on M/s. Supreme Engineering by the Petitioner as provided in the Additional Affidavit dated 03-03-2021, is as under:-

The Bench notes that the compilation relates to 37 invoices commencing 11.11.2013 to 23.01.2018. The Respondent in reply dated 09.02.2021 has adequately demonstrated invoice-wise that full and complete payment has been made. Each of the invoices of the Petitioner was duly paid on time and thus there was no question of any interest for delayed payments.

The Petitioner has again filed an additional affidavit on 09.03.2020 where in addition to the sum corresponding 37 Invoices, it has added random heads of expenses such as late charges, khalapur expenses, travel charges, etc. However, none of these including the other debit note as mentioned in Exhibit ‘01’ has any supporting invoices.

The Bench had gone through the additional affidavit enclosing debit note and invoices submitted by the Petitioner in support of debt due from the Respondent. It is very surprising to note that in the affidavit filed on 03.03.2020 annexing 37 Invoices from 11.11.2013 to 23.01.2018a total amount of Rs. 8,74,54,968.02/- has been shown as due. However, in the reply to the rejoinder furnished by the Respondent on 18.02.2021, it has been clearly demonstrated that all the 37 invoices have been paid. The specific details of the payment of these invoices as provided by the Respondent in reply to the rejoinder dated 19-02-2021 and not denied by the Petitioner clearly shows that such payment has been made. The details of such payment made is as under:

In fact, from the above running account it has been demonstrated by the Respondent that against a payment due of about Rs.8,74,54,968.02/- they have made in the running account as on 23.01.2018 i.e., the date on which the last of the 37 vouchers were paid, a total payment of Rs. 9,50,93,520/- which is over and above the payment to the Petitioner against the 37 vouchers. The Bench also notes this fact that the Rs.9,50,93,520/- have been made has not been denied by the Petitioner.

The Petitioner has also submitted the Ledger of the Respondent appearing in the books of accounts of Petitioner vide their affidavit dated 09.03.2020. This ledger pertains to the period from 01.04.2013 to 31.03.2020. It can be seen that even as per the Petitioner up to 23.01.2018 all the dues has been fully and completely paid by the Respondent. Here the Bench notes that after 23.01.2018 all the entries made by the Petitioner are suspect for the simple reason that in the ledger account from 01.04.2017 to 31.03.2018 abruptly ends on 23.01.2018 where the debit balances the credit and no further entry either by way of debit or credit has been made. However, in the opening balance of 01.04.2018 a debit amount of Rs. 3,26,45,901.32/- abruptly appears for which no explanation has been given by the Petitioner. After that all the debit entries are journal entries passed by the Petitioner. These are evidently mere unilateral/adjustment entries passed by the Petitioner without there being any evidence like supporting invoices or any proof of delivery of goods or services to the Respondent or GST payments towards such transactions. A snapshot of ledger account of the Respondent as submitted by the Petitioner from 01.04.2017 to 31.03.2020 is as under:

It can be seen from the above that these type of journal entries does not support the case of the Petitioner to claim such amounts where unilateral adjustment entries are passed. In other words these are neither any sale or bank receipt entries and hence said claims of the Petitioner lacks merit.

The Bench further notes that for this additional amount which has been claimed by the Petitioner by way of random expenses like delay charges, khalapur expenses and travel charges, no supporting invoices have been produced. In fact, the Bench further notes that the claims regarding the delay charges, khalapur expenses, travel charges etc. has no documentary evidence regarding any agreement between the parties. The Bench also notes that the 37 invoices referred to by the Petitioner do not mention any payment terms. Only in 7 invoices an interest at 18% p.a. has been mentioned. Similarly, in none of these 37 invoices, barring one, any proof of payable amount on account of delayed payment has been mentioned. Only one invoice mentions in its terms a delay of 365 days.

The Bench takes note that this applicable rate of 2.25% as claimed by the Petitioner has never been a part of any of the invoices and it has been mentioned by the Petitioner only while drawing a summary table without any proof. Therefore, the Bench finds that all these charges like delayed charges, khalapur expenses, travel charges, for which no invoices have been raised are baseless claims, not based on any mutual agreement or any documentary proof.

This Bench, therefore, concludes that there is nothing on record which shows that any outstanding Operational Debt as a claim in respect of provision ‘supply of goods or services’ by way of invoices or any documents has been proved by the Petitioner. In fact, all the 37 invoices which have been put on record by the Petitioner as due from the respondent has been fully paid and are not outstanding. The additional claim amount raised by way of other charges is frivolous, unsubstantiated, not based on any documentary proof and not even any invoices to that effect has been raised from the Petitioner. Further any claim arising out of Journal entries are unilateral adjustment claims and by no stretch of imagination can be said to be a claim arising out of supply of goods and services.

Regarding the two confirmatory letters from the Respondent i.e., 30.05.2019 and 01.07.2019 the Respondent has mentioned that it is a forged and fabricated document which has not been signed by them and its contents are also denied as false and baseless. The contention of the Respondent in light of the above that it had issued those two cheques of about Rs.4.16 crores and about Rs.7.76 lakhs was only as security keeping in mind the business relationship between the parties, appears to be tenable. In any case, the dishonor of the cheques is a subject matter of Negotiable Instruments Act, 1881 and only proves that the Respondent is not interested in paying any ‘security deposit’ to the Petitioner. The Bench is of the view that it does not relate to any outstanding amount due from the Respondent by way of any operational debt.

In view of the above the Petition CP (IB)424/MB/2020 is “Dismissed”.

The Registry is directed to communicate this order to both the parties.