Grasim Industries Limited vs Madhya Bharat Papers Limited

This petition is filed to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 9 of Insolvency and Bankruptcy Code, 2016 R/w Rule 4 of Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016.

Brief contents of the petition are as follows:

The petitioner/operational creditor supplied various kinds of materials to the respondent/corporate debtor in response to purchase orders placed by it. The petitioner had raised invoices for the materials supplied and delivered to the respondent. The amounts under the invoices were payable on the due dates mentioned in the invoices. As per payment condition, in case of delay the respondent is liable to pay 18% interest. The petitioner maintains running account of the respondent and used to give credit to the payments or part payments made by the respondent. The respondent is liable to pay balance amount in respect of 24 invoices dated from 26.10.2014 to 03.12.2016. The respondent lastly paid a sum of Rs.6,25,000/- on 11.02.2019. Out of Rs.6,25,000/- a sum of Rs.5,57,045/- was credited into invoice No. 2001019021 dated 12.02.2019 and balance amount of Rs.67,955/- was credited to old dues on 12.02.2019. The respondent confirmed the due amount of Rs.22,32,029/- by letter of confirmation dated 27.09.2016. There after the respondent failed to make any payment towards the dues. The principal due amount is Rs.66,35,617/- and interest is Rs.85,71,188/, total due amount as on 31.07.2020 is Rs.1,49,14,142/- The petitioner sent statutory Form 3 notice dated 02.04.2021 to the respondent, then reminders also issued but the respondent failed to pay the dues. Hence this petition.

Brief contents of reply are as follows:

The respondent is carrying on paper manufacturing business and having business transaction with Aditya Birla Chemical Industries Ltd, amidst of ongoing transactions in the year 2016 Aditya Birla Chemical Industries Ltd, merged with Grasim Industries Limited/ petitioner. The petitioner sent a legal notice dated 3.3.2019 demanding an amount of Rs.22,31,909/- with regard to the Purchase order No.4/006 dated 14.4.2014. In the said legal notice petitioner reiterated that respondent vide letter dated 27.09.2016 has confirmed outstanding amount of Rs.22,32,029/-. In the said legal notice dated 03.03.2019 the petitioner mentioned about 13 invoices and due amount of Rs.22,32,029/- The respondent made the payments for the invoices raised in the year 2018 which was adjusted against invoice no. 2301017172 dated 28.01.2018. The contention of petitioner that they have maintained running account is denied. The invoices filed by the petitioner were never acknowledged by the respondent. The unauthenticated invoices produced by the petitioner are time barred. The invoices relates back to the year 2016. The respondent paid a sum of Rs.6,25,000/- on 11.02.2019. After deducting a sum of Rs.6,25,000/- from the notice mentioned amount of Rs. 22,32,029/, the due amount is Rs.16,07,029/-. By adding contractual rate of interest it comes to Rs.37,50,181/- as on the date of filing of the petition, which is less than the threshold amount. It is also noted that the petitioner given different date of default. The petitioner mentioned in part IV (2) of Form the default date is 31.07.2020, so the petition is hit by Section 10A of IBC 2016.

Brief contents of the rejoinder are as follows:

The corporate debtor in the meeting held on 08.02.2019 agreed to clear all old dues and .by e-mail dated 11.02.2019 agreed to clear the all-old dues. The petitioner had sent a notice dated 3.3.2019 to the respondent and not received any reply letter dated 3.7.2019 from the respondent as alleged in the reply. The invoices mentioned in the letter dated 03.03.2019 are in respect purchase orders referred to poly Aluminium chloride. The outstanding 24 invoices mentioned in the petition are in respect of other purchase orders and other product supplied by the operational creditor to the corporate debtor. The maintaining of running account by the petitioner is evident from Annexure-A10 to Annexure-A12. This company petition is filed within limitation. It is denied that the invoices are unauthenticated as alleged by the respondent. The payment and part-payment made by the respondent between 2014 and 2016 are reflected in the Axis Bank statement of account of the petitioner. The statement prepared by the petitioner in this regard is Annexure-15. The corporate debtor had signed the Balance confirmation letter dated 27.09.2016 for supply of liquid PAC as on 31.03.2016. Further by email dated 11.02.2019 the respondent acknowledged and agreed to clear all old over dues. In pursuance of consensus arrived at between the parties the respondent paid a sum of Rs.6,25,000/-. on 11.02.2019. As per arrangement a sum of Rs.5,57,045/- was adjusted towards the invoice no.20010119021 dated 12.02.2019 Annexure-A16 and balance amount of Rs.67,955/ was adjusted towards old over dues. It is denied that the respondent not confirmed the balance of due amount mentioned in letter dated 27.09.2016 Annexure-A9. The default took place in the year 2019 as stated in the company petition, the date referred in petition 31.07.2020 is the cutoff date for calculating the total amount of default, hence the petition is not hit by Section 10A of BC 2016.

Brief facts of the Sur- rejoinder are as follows:

The corporate debtor denies the contention of the petitioner that the respondent agreed to clear all old dues vide e-mail dated 11.02.2019, It is stated that no amount is due and outstanding to be paid by the respondent to the petitioner. The notice sent by the petitioner dated 03.03.2019 demanding an amount of Rs.22,31,909/- was with regard to the Purchase order No.4/006 dated 14.4.2014. Even if the notice of the petitioner dated 03.03.2019 is considered then the respondent is liable to pay a sum of Rs.22,31,909/- and not the amount claimed in the petition. In the scenario it can be inferred that the petitioner has different claims arising out of different work order, having different amount and different dates of default which cannot be clubbed together. The respondent not signed the balance confirmation letter dated 27.09. 2016.The company petition is liable to be dismissed.

Points for consideration are:

Whether the petition is barred by limitation?

Whether the interest to be clubbed with principal to meet threshold limit of Rs.1 crore?

Point No.1:

The petitioner has filed this petition for initiation of CIRP against the respondent for non-payment of consideration for the goods supplied under 24 invoices mentioned below.

As per the statement of account submitted by the petitioner a sum of Rs.63,42,954/- is due towards principal and a sum of Rs.85,71,188/- is due towards interest in total a sum of Rs.1,49,14,142/- is due and payable by the respondent as on 31.07.2020. The invoices on which claim of the petitioner based are dated from 26.10.2014 to 03.12.2016 and amount payable there on from 10.12.2014 to 18.01.2017. This petition is filed on 24.12.2021. Thus, when we calculate three years from the last invoice due date, the limitation period expires with 18.01.2020.

On the petitioner side submitted that the petitioner maintains running account. The last payment a sum of Rs.6,25,000/- was paid by the respondent on 11.02.2019. The petitioner further submitted that out of Rs.6,25,000/- a sum of Rs.5,57,045/- was adjusted against invoice no.20010119021 dated 12.02.2019 (not belongs to subject invoices) and balance sum of Rs.67,955/- was adjusted toward old dues. In part IV (2) of the petition referred working sheet Annexure-I (page 109 of petition) In this working computation table chart the amount of Rs.67,955/- paid on 11.02.2019 is not given credit, hence it shows that the said amount might be credited towards any other dues unconnected with petition invoices.

The petitioner also filed the HDFC Bank statement of Account of the petitioner for the period from 01.01.2019 to 31.03.2019.(Annexure J in petition page 110) The payment of Rs.6,25,000/- of the respondent credited into the account of the petitioner on 11.02.2019. On the petitioner side submitted that since the petition is filed within three years from the date of last payment 11.02.2019 the petition is filed in time and not barred by limitation. This last payment is not given credit to any of 24 invoices filed in this petition, this amount has credited into invoice dated 12.2.2019 hence the amount paid for in respect entirely different transaction will not helpful to extend the period of limitation of this petition.

On the petitioner side filed Axis Bank statement of Account of the petitioner for the period from 01.04.2014 to 31.03.2015.(Annexure 15 in rejoinder page 45-92) In the said Bank statement the amount received from the Respondent were credited into the account of the petitioner are marked with (✓) tick mark. The following payments of respondents are given credit to the account of the petitioner:

As per the Axis Bank account statement the last payment was made on 30.06.2015 but these payments are not pertaining to any of 24 invoices filed in this petition, even otherwise since the last payment was made on 30.06.2015 it will not in any way save the limitation for this petition filed on 24.12.2021.

The above credited amounts in the Bank accounts are not reflected in the computation table chart Annexure I and not given in credit to the due amounts payable under the subject invoices, so these payments are not helpful to the petitioner to extend limitation.

The petitioner filed statement of collection received from the respondent during the financial years 2014-2016 (page 94 of rejoinder) The invoice numbers, mentioned in the said statement are not relating to the invoices involved in this petition upon which this petition has been filed. Further the last payment was made as per the statement of collection is 01.02.2016, then this statement also not useful to extend the period of limitation.

On perusal of Annexure-I, shows that the petitioner given credit to a sum of Rs. 91,765/- as part payment on 30.09.2018 in respect of invoice No.9205039373. As a part payment a sum of Rs.1,96,662 paid on 31.12.2016 and a sum of Rs.4,236/- paid on 23.03.2020 in respect of invoice No.9200021882. But no document has been filed to prove that these payments were made by the respondent. The Bank statements also not reflected these payments. The computation chart table discloses that the petitioner dealt the dues of each invoice in separate manner not in composite manner.

Normally in business transaction, maintaining running account means the supplier continuously supply the goods to the customer, the customer has not paid the amount to any specific supply/bills, but whatever the amount the customer paid has been given credit to the due amount. Here the records show that the petitioner has been given credit to the specific invoices. In the situation limitation period not to be calculated from the total struck of balance amount shown in the account of the petitioner, instead limitation to be calculated from the date of default of each invoices as provided under Article 15 of Limitation Act 1963.

In our case as per Annexure-I commutation chart the due date for the payment of amount as per invoices are on or prior to 18.01.2017. Part payment adjustment was made in respect of invoice (a) No.9205039373 dated 26.10.2014. The amount payable due date as per this invoice is 10.12.2014 but the part payment of Rs.91,765/- was paid on 30.09.2018 after the expiry of three years limitation period hence this part payment adjustment is not useful to extend the period of limitation. The payment adjustment was made in respect of invoice (j) No.9200021882 dated 03.02.202015. The due date for Rs.3,88,438/- as per the invoice is 20.03.2015, a sum of Rs.1,96,662/-was adjusted as part payment on 31.12.2016, this payment extends the limitation since it was paid before the expiry of limitation period, another part payment adjustment was made on 23.03.2020 after the expiry of extended period of limitation. Even though there is no document to show that these part payments were made by the respondent, even otherwise if the contention of the petitioner is admitted since they were made after expiry of limitation period, the part payments will not assist the case of the petitioner.

The next plea of the petitioner in respect of limitation is, it is stated that the respondent acknowledged the debt by executing letter of confirmation dated 31.03.2016. For this on the petitioner side rely upon (Annexure 9 of petition page No.221) This is the letter addressed by the petitioner to the respondent requesting him to confirm the balance of Rs.22,32,039/- as on 31.03.2016. The letter was received in the Kolkata office of the respondent on 17.10.2016 by acknowledging the receipt of letter after affixing the seal "Received the contents Not verified D.I.Ltd Kolkata." The receipt of the requisition letter alone will not amount to acknowledgement of debt. The portion ear marked in the letter for confirmation of debt is kept blank/unsigned. The acknowledgement is also not for the default amount mentioned in this petition it is only for Rs.22,32039/- As per section 18 of Limitation Act 1963 the acknowledgement must be signed personally or duly authorized agent, so in the absence any signature the unsigned letter of requisition of petitioner is not amounts to an acknowledgement of debt.

The petitioner sent demand notice dated 03.03.2019 (Annexure A14 page 43 of rejoinder) to the respondent demanding the respondent to pay a sum of Rs.22,31,909/- in respect of 14 invoices out of 24 invoices involved in this petition. In this notice petitioner called upon the respondent to pay the due amount of Rs.22,31,909/- within seven days. Further in the notice it is stated that a sum of Rs.2,33,640/- received on 01.04.2018 was given credit to the invoice No.2301017172 dated 28.01.2018 it shows that the petitioner dealt the invoices individually. The contention of the petitioner that a sum of Rs.5,57,045/- out of Rs.6,25,000/- paid on 11.02.2019 was given credit to the invoice no.2001019021 dated 12.2.2019 also fortified the fact that the petitioner dealt each invoices specifically/individually.

The petitioner sent statutory notice dated 02.04.2021 to the respondent to its registered office was returned with an endorsement “addressee cannot be located” hence notice was delivered on respondent’s branch office at Kolkata. In the notice it is mentioned that petitioner sent earlier notice dated 16.09.2020 but due to certain discrepancy it was canceled, but the copy of the said canceled notice is not produced. The period of limitation to file petition under section 7 & 9 IBC 2016 is three years under Article 137 of Limitation Act 1963. The Hon’ble supreme court in ‘B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Ors.’ (2019) 11 SCC 633 held as follows:

In this case cause of action arose or right to sue accrues on the day on which the due date fixed for payment in the invoices. Here the petition under section 9 IBC 2016 was filed after the expiry of three years limitation period from the amount payable date recorded in the invoices. Further in respect calculating period of limitation when the petition is filed on the basis of invoices The NCLAT-Delhi in Company Appeal (AT) Insolvency No. 281 of 2022 S.M. Ghogbhai, Versus Schedulers Logistics India Pvt. Ltd. dated 23.05.2022 held as follows:

This right to sue accrues from 10.12.2014 to 18.01.2017 on the basis of 24 invoices prior to three years period from filing of this petition on 24.12.2021. This petition is filed after the expiry of three years period; hence it is answered that the petition is barred by limitation.

The petitioner relies upon 24 invoices and submitted that respondent is liable to pay 18% interest, for default period, as per the default clause mentioned in the invoices. The petitioner claims a sum of Rs.63,42,954/- as principal and a sum of Rs.85,71,188/- towards the default interest and reached the threshold amount of Rs.1,49,14,142/-. On the respondent side denies the liability of paying default interest. It is further submitted that all 24 invoices are not acknowledged by the respondent. On perusal of invoices filed in this petition reveals that the invoices are not acknowledged by the respondent, in the absence of any acknowledgement made by the respondent, it cannot be construed as concluded agreement. There is no pale of controversy the threshold amount includes principal and interest, to include interest as part of threshold there must be a written agreement for interest. In this case even though there is a clause in the invoices to charge 18% interest on delayed payment, but the invoices are not acknowledged/signed by the respondent, in such a circumstances the default interest clause found in invoices are not binding upon the respondent.

In this case no agreement was entered between the parties that interest is payable by the respondent, except as mentioned in the invoices that a 18% interest shall be charged on delayed payments. The imposition of interest is solely on unilateral condition of the invoice, it is not binding upon the respondent. In the absence of any promise of the respondent to pay such default interest, the interest cannot be clubbed with the principal amount to reach the threshold amount of Rs.1crore as stated in section 4 of IBC 2016 All interest cannot be treated as a debt, if any interest is payable in terms of an agreement then debt includes the interest. In respect of non-binding of unilateral imposition of interest in invoices the Karnataka High Court elaborated in Jyothi Limited vs Boving Fouress Limited [MANU/KA/1022/2000] as follows:

The NCLAT-Delhi in C.A.No.148 of 2018 Pavan Enterprises vs Gammon India dated 27.07.2018 held, "if in terms of any agreement interest is payable to the Operational or Financial Creditor then the debt will include interest" The petitioner has failed to bring forth any agreement between the parties that a default in payment would attract interest. The interest is claimed only in terms of a unilateral clause in the invoice and respondent never agreed or counter signed hence the interest claimed in this petition cannot be clubbed with principal to arrive threshold limit.

In the circumstances it is answered that inclusion of interest of Rs.85,71,188/ with principal amount of Rs.63,42,954/ to reach threshold limit is not valid. In consequence the petition does not reach the threshold amount of Rs.1 crore. Thus, this point is answered.

In view of answers arrived to issues framed this petition is Dismissed.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.