Kkalpana Industries (India) Ltd. vs Windsor Cables Pvt. Ltd.

Per Dr. V. K. Subburai (Member Technical)

This is an application filed by the Applicant Kkalpana Industries (India) Ltd. seeking to initiate corporate insolvency resolution process ("CIRP") of the Respondent Windsor Cables Pvt. Ltd., under Section 9 of the Insolvency and Bankruptcy Code 2016 ("the Code") for the alleged default on the part of the Respondent in clearing the debt of Rs. 7,06,725/- owed to the Applicant. The details of transactions leading to the filing of this application as averred by the Applicant are as follows:

The Applicant had a subsisting business relationship with the Respondent wherein the Respondent would place verbal purchase orders with the Applicant and the Applicant would deliver said goods on the basis of their verbal communications. It is pertinent to state that the Applicant used to maintain a running account for all the business transactions executed with the Respondent.

From the period of September 2015 to November 2015, the Respondent had placed 9 purchase orders with the Applicant in piece meal for procurement of polyethylene compound KL-XL-03 and polyethylene compound KL-XL-SCION at its Mumbai branch. As per the terms agreed by the parties the Respondent had to settle/clear the invoices within 67 days from the date of invoice.

The Respondent during the said period had purchased goods worth Rs.12,09,371/-. The Respondent out of the said amount has paid an amount of Rs.5,10,166/- in tranches as acknowledgment of its debt towards the Applicant over the period of 4 years from 2015 to 2019.

Concurringly, a purchase order was made by the Respondent with the Applicant at its Delhi branch for an amount of Rs.37,534/- against which a payment was received for an amount of Rs.30,000/- and a balance of Rs.7,534/- was carried forward to the Respondent’s account.

All the above stated goods were delivered to the registered office of the Respondent in Delhi. As per clause 5 of the terms and conditions of the invoices raised upon the Respondent, the Respondent had to communicate to the Applicant any complaints with regard to quality of goods delivered within 10 days from the receipt of goods. No complaints whatsoever have been made by the Respondent either within the said period or any time thereafter with regard to the goods supplied till date.

As per the books of accounts maintained by the Applicant an amount of Rs.7,06,725/- is outstanding and payable by the Respondent.

The Respondent has stated the following in its reply:

The present application is not maintainable and serves to be dismissed at the very threshold as there exists a dispute vide communication dated 22.04.2019 addressed by the Respondent to the Applicant prior to the issuance of the demand notice dated 13.06.2019 on the basis of which the present application has been filed. Vide the aforesaid communication dated 22.04.2019 it has been specifically intimated to the Applicant that certain goods pertaining to the invoices under which amounts are being claimed were never delivered and the rest of the goods were defective and of substandard quality. The express understanding between the parties that no amounts would be released in respect of the said invoices was also specifically intimated to the Applicant. Existence of the said dispute is further borne out from a bare perusal of the fact that subsequent to the aforesaid defective goods sent by the Applicant there has been no communication or transaction between the parties for a period of more than 2 and a half years thereafter.

The present application is barred by limitation. The last date on which the amounts, if any, became payable by the Respondent to the Applicant as per the invoices annexed by the Applicant itself was on 03.02.2016. the demand notice under which amounts are being claimed is dated 13.06.2019. neither is there any acknowledgment of the alleged debt by the Respondent, nor is there any part payment by the Respondent in acknowledgment thereof, as has been falsely suggested by the Applicant in the present application.

A bare perusal of the documents will reveal that the payment were always made by the Respondent to the Applicant from invoice to invoice and there was no open, running or current account between the parties. To conceal the said fact and mislead the Tribunal the Applicant has deliberately concealed the following facts and documents from this tribunal:

a. Invoice No. SUR/1645 dated 13.08.2015 for an amount of Rs.1,27,687/- against which a payment of Rs.1,27,687/- has admittedly been made by the Respondent on 08.09.2015.

b. Invoice No. SUR/2200 dated 21.09.2015 for an amount of Rs.1,22,062/- against which a payment of Rs.1,22,062/-had admittedly been made by the Respondent on 09.12.2015.

c. Invoice No. SUR/1955 dated 03.09.2015 for an amount of Rs.2,41,875/- against which a payment of Rs.2,50,000/- had admittedly been made by the Respondent.

d. Invoice No. DEL/18-19/416 dated 09.06.2018 against which a payment of Rs.1,75,670/- has been made by the Respondent.

e. Invoice No. DEL/18-19/444 dated 12.06.2018 for an amount of Rs.37,524/- against which payment of Rs.30,000/- has been made by the Respondent on 14.06.2018 in full discharge of the same.

f. Invoice No.9201001266 dated 19.03.2019 for an amount of Rs.1,18,000/- against which payment of Rs.1,18,000/- has been made by the Respondent.

The goods supplied by the Applicant to the Respondent under the invoices were either defective or not delivered. The same was duly communicated to the Applicant and the following two payments were made by the Respondent to the Applicant in full and final discharge of its debt:

a. Payment of Rs.1,22,062/- on 09.12.2015 against invoice no. SUR/2200 dated 21.09.2015 for an amount of Rs.1,22,062/- which has been falsely stated by the Applicant to be made by the Respondent in discharge or acknowledgment of the alleged debt by the Applicant.

b. Payment of Rs.2,50,000/- against invoice no. 1955 dated 03.09.2015 for an amount of Rs.2,41,875/- which payment has falsely been stated by the Applicant to be paid by the Respondent in discharge of or acknowledgment of the alleged total outstanding amount.

On account of sub-standard and defective goods supplied by the Applicant to the Respondent, the Applicant cleared its entire liability in respect of the previous transactions between the parties lastly by making the payment of Rs.2,50,000/- and as such, there were no further transactions between the parties and accounts stood closed since the Applicant supplied the aforesaid defective goods to the Respondent in 2015.

Thereafter in June 2018 the Applicant approached the Respondent and expressed its interest to supply goods to the Applicant and start afresh the business between the parties. Believing the representations of the Applicant, the Respondent placed a purchase order upon the Applicant and made a payment of Rs.1,75,670/- towards the same on 05.06.2018. A further transaction between the parties took place in June 2018 wherein the Respondent purchased goods from the Applicant and made payment of Rs.30,000 in due discharge of its liability in respect of the said invoice only. Similarly, the aforesaid invoice dated 19.03.2019 which has been deliberately concealed by the Applicant was raised by the Applicant upon the Respondent for an amount of Rs.1,18,000/- against which the on-account payment of Rs.1,18,000/- was made by the Respondent to the Applicant simultaneously.

The interest amount calculated by the Applicant at the rate of 245 per annum is wholly misconceived and baseless. A bare perusal of the documents reflecting the transactions show that neither was interest ever charged demanded or accounted for by the Applicant, neither has the same been paid by the Respondent.

The Applicant in its rejoinder has stated the following:

It is an admitted fact that the goods were delivered in 2015 and since then the goods have remained in the Applicant's possession. As per the Respondent's case the defects and the dispute have existed since 2015 but the document relied on by the Respondent to prove such dispute is dated 22.04.2019 which is nothing but a mere reply to the incomplete demand notice dated 04.04.2019. Thus, this defence of the Respondent is an afterthought and baseless.

The Respondent has falsely stated that there was no running account. It is an admitted fact that after payment of Rs.2,50,000/- was made by the Respondent on 06.06.2016 afterwards there was no transaction between the parties for 2 years. During the said period repeated phone calls were made to the Respondent to clear its outstanding amount but no payment whatsoever were made by the Respondent. It was only upon the request of the Respondent to place more purchase orders that the business relation was resumed between the parties and an understanding was reached between the parties that the Applicant would accept new purchase orders of the Respondent only if it simultaneously clears off its outstanding debt. In furtherance of such understanding an invoice dated 09.06.2018 was issued upon the Respondent for an amount of Rs.87,556/- and as per the averments made by the Respondent himself a payment of Rs.1,75,670/- was made on 05.06.2018 against the invoice dated 09.06.2018. The payment was made in excess balance of Rs.88,114/- was adjusted towards outstanding debt of the Respondent which is also reflected in documents already placed on record. Furthermore, the Respondent had also made a payment of Rs.50,000/- on 16.03.2019 i.e. 2 days before a new purchase order i.e. invoice dated 18.03.2019 was accepted and delivered by the Applicant. The said payments were not made against any invoice but against its outstanding debt and the same is reflected in the bank statement of the Applicant which is already placed on record. Therefore, it is apparent from the conduct of the Respondent that such understanding was in existence between the parties and the said part payments made by the Respondent on 05.06.2018 and 16.03.2019 were in acknowledgment of its debt and therefore the application is within limitation.

We have heard the arguments of the parties and perused the documents. The issues to be adjudicated in the present matter are as follows:

Whether the present application is barred by limitation? ii. Whether there is a pre-existing dispute between the parties?

The amounts have been claimed under different invoices. The last invoice under which the amount is claimed to be due is dated 30.11.2015. The invoice states that the payment has to be made within 67 days. Thus, the limitation period is supposed to end in February 2019. The Respondent made a payment of Rs.1,75,670 on 05.06.2018. The invoice dated 09.06.2018 was for only Rs.87,556/-. Thus, the payment made by the Respondent exceeded the invoice amount by Rs.88,114/-. The Respondent has failed to give any explanation for the excess payment. The only logical justification of such excessive payment is that the amount of Rs.88,114/- was to be set off against the earlier debt. Since this payment was made within the limitation period a fresh period of limitation will be computed since the date of such payment by virtue of Section 19 of the Limitation Act, 1963. Thus, the present application is not barred by limitation.

In relation to the second issue the Applicant has relied on Praxis Corporate Services Pvt. Ltd. vs Powa Cubicles Pvt. Ltd. in which the Hon'ble NCLAT held that a reply to the first demand notice raising a dispute will not be considered a pre-existing dispute between the parties. The Respondent has relied on Shyam Metallics and Energy Limited vs Rathi Steel and Power Limited and Sh. Narender Sharma vs Vistar Construction Pvt. Ltd. The order in Shyam Metallics can be distinguished from the case on the basis of its facts since the Hon'ble NCLAT in this order had taken into consideration the fact that debtor had initiated arbitration after raising disputes in the reply to the first demand notice. The case of Narender Sharma is also different from the present case because even before the issue of the first demand notice, a legal notice was issued by the creditor to the debtor in reply to which the debtor raised certain disputes. The Hon'ble NCLAT considered this reply to the legal notice to hold that there was a pre-existing dispute between the parties. Thus, the order in Praxis will apply to the present matter. The reply to the first demand notice cannot be relied on by the Respondent to claim that there is a pre-existing dispute between the parties.

As the application is within the limitation period and there is no pre-existing dispute between the parties the present application is maintainable and deserves to be admitted since the debt and default has been clearly established by the Applicant. Considering the circumstances this Tribunal is inclined to initiate CIRP of the Respondent.

A moratorium in terms of Section 14 of the Code is imposed forthwith in following terms:

From the list of interim resolution professionals ("IRP") made available by IBBI, Mr. Naresh Kumar Munjal (email id:nkmunjalcacs@yahoo.co.in) is being confirmed by this Bench as the IRP in the present matter. He shall take such further steps as are required under the statute, more specifically in terms of Section 15, 17 and 18 of the Code and file his report within 30 days before this Bench.

The Applicant shall deposit a sum of Rs. 2 lakhs to enable the IRP to meet the immediate expenses. The same shall be accounted for by the IRP and shall be reimbursed to the Applicant to be recovered as costs of the CIRP.