M/s Arham Enterprise vs Classic Corrugations Private Limited

It is submitted by the applicant that M/ s. Arham Enterprise [herein after referred to as "Operational Creditor"] is a partnership firm engaged in the business of manufacturing and supplying of kraft papers. The Operational Creditor has sold different types of kraft papers to M/s. Classic Corrugations Private Limited [herein after referred to as "the Corporate Debtor"] from time to time.

It is stated that the Operational Creditor has supplied the Kraft papers to the Corporate Debtor as per their requirement and in pursuance thereto, had raised invoices from time to time. The Operational Creditor has supplied the requisite Kraft papers to the Corporate Debtor till the month of June 2022. It is further stated that the Corporate Debtor has duly received the said kraft papers supplied by the Operational Creditor from time to time without raising any kind of dispute and/ or demur. Not only that, the Corporate Debtor has also consumed/ utilized the said kraft papers supplied by the Operational Creditor.

It is stated that as per the terms of the invoices, the Corporate Debtor was liable to make payments within 1 (one), 7 (seven) or 30 (thirty) days from the date of invoice, failing which the Operational Creditor was entitled to claim interest at the rate of 24% per annum. However, as per the mutual understanding and considering the long-standing business relations, the Operational Creditor was giving a general credit period of 30 (thirty) days to the Corporate Debtor for making payments towards the invoices so raised by the Operational Creditor.

It is stated that the Corporate Debtor used to make account payments to the Operational Creditor on adhoc basis, pursuant to the invoices raised by the Operational Creditor, from time to time. However, from August 2019, the Corporate Debtor has made insignificant on account payments against the total amount of invoices raised by the Operational Creditor. That last such on account payment was made by the Corporate Debtor on 06.07.2023 for an amount of Rs.75,000/- (Rupees Seventy-Five Thousand Only).

It is submitted that due to such insignificant payments, all the invoices raised by the Operational Creditor between the period of August 2019 to June 2022 remained outstanding and payment thereunder became overdue. As on today, a total number of 119 (One Hundred and Nineteen) invoices amounting to Rs. 3,49,84,107/- (Rupees Three Crores Forty-Nine Lacs Eighty-Four Thousand One Hundred and Seven Only) remains outstanding and payable. It is further submitted that all the aforementioned invoices are duly accepted by the Corporate Debtor. That despite consuming/ utilizing the products supplied by the Operational Creditor, the Corporate Debtor miserably failed to discharge its admitted liability.

It is stated that the Operational Creditor used to maintain a running account for the invoices so raised by the Operational Creditor and the payments so received from the Corporate Debtor. The said ledger account also depicts that an amount of Rs. 3,49,84,107/- (Rupees Three Crores Forty-Nine Lacs Eighty-Four Thousand One Hundred and Seven Only) is receivable by the Operational Creditor from the Corporate Debtor.

Furthermore, as per the stipulation contained in the invoices, in case where the invoices remained outstanding beyond the due date of payment, the Corporate Debtor is liable to pay interest at the rate of 24% per annum on such outstanding invoices. That in the present case, the invoices raised by the Operational Creditor have remained outstanding over an elongated period of time and accordingly, the Corporate Debtor is liable to pay interest as well to the Operational Creditor on such outstanding invoices. That considering the general trade practice, the Operational Creditor has merely levied interest at the rate of 12% per annum as against the rate of 24% per annum which is stipulated in the invoices. Therefore, the Corporate Debtor is liable to pay to the Operational Creditor a sum of Rs. 1,28,08,485/- (Rupees One Crore Twenty-Eight Lacs Eight Thousand Four Hundred and Eighty-Five Only) towards interest on the outstanding invoices computed upto 07.08.2023 at the rate of 12% per annum.

Accordingly, a total amount of Rs. 4,77,92,592/- (Rupees Four Crores Seventy-Seven Lacs Ninety-Two Thousand Five Hundred and Ninety-Two Only) admittedly and undisputedly remains outstanding and payable by the Corporate Debtor to the Operational Creditor as on 07.08.2023.

Apart from releasing nominal payments from time to time, the Corporate Debtor has even acknowledged its outstanding liability through various e-mail correspondences. That on 17.06.2023, director of the Corporate Debtor acknowledged the debt and informed that payment will be made looking into finances of the Corporate Debtor every month, since it is going through a difficult phase. Similarly, on 21.07.2023, director of the Corporate Debtor informed the Operational Creditor that it is waiting for funds and have made plans for releasing the payments as soon as funds are received. Thereafter, on 21.08.2023, director of the Corporate Debtor also agreed to send payment plan by evening.

Despite the above circumstances, the Corporate Debtor has neither provided a concrete plan for repayment of outstanding dues nor released any payments towards the outstanding dues. Thus, as on 07.08.2023, Rs. 3,49,84,107/- (Rupees Three Crores Forty-Nine Lacs Eighty-Four Thousand One Hundred and Seven Only) is due and payable towards the principal amount and Rs. 1,28,08,485/- (Rupees One Crore Twenty-Eight Lacs Eight Thousand Four Hundred and Eighty-Five Only) is payable towards the interest amount calculated at the rate of 12% per annum. Therefore, the Corporate Debtor is, admittedly and undisputedly, liable to pay total sum of Rs. 4,77,92,592/ (Rupees Four Crores Seventy-Seven Lacs Ninety-Two Thousand Five Hundred and Ninety-Two Only) to the Operational Creditor along with further running interest at the rate of 12% per annum from 07.08.2023 till the date of realization.

Under the circumstances, on 23.10.2023, the Operational Creditor was compelled to issue a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 calling upon the Corporate Debtor to pay an aggregate amount of Rs. 4,77,92,592/- (Rupees Four Crores Seventy-Seven Lacs Ninety-Two Thousand Five Hundred and Ninety- Two Only) in full within 10 (ten) days from the date of receipt of the said notice. The said Demand Notice was duly served upon the Corporate Debtor as well as its Director(s) through Registered Post Acknowledgement Due on 26.10.2023.

In response to the said Demand Notice, on 02.11.2023, director of the Corporate Debtor had sent an E-mail denying the demand raised by the Operational Creditor and vaguely stating that there are disputes between the parties. In the same E-mail, it had been also stated that the Operational Creditor shall receive a detailed reply within 10 (ten) days from the date of the said E-mail from his lawyer.

Subsequently, on 10.11.2023, the Corporate Debtor had addressed a letter to the Operational Creditor raising bald and baseless issues inter alia with respect to addressing Demand Notice to directors of the Corporate Debtor, the documents annexed along with the Demand Notice, opening balance in the ledger account maintained by the Operational Creditor, claim and computation of interest, bar of limitation period, pre-existing disputes, bar of Section 10A of the Insolvency and Bankruptcy Code, 2016, debt below the pecuniary jurisdiction, etc.

In the foregoing context, apropos to the issue pertaining to the debt being barred by the law of limitation, it is of great relevance to submit that the Corporate Debtor has categorically admitted and acknowledged its debt and liability towards the Operational Creditor in its own financial statements for the year ended on 31.03.2021 as well as on 31.03.2022 under the head "TRADE PAYABLES". Thus, by virtue of Section 18 of the Limitation Act, 1963, the present claim of the Operational Creditor duly falls within the period of limitation.

Further, on a bare perusal of the financial statements of the Corporate Debtor itself, it transpires that the admitted and acknowledged amount of outstanding debt due and payable to the Operational Creditor for both the years ending on 31.03.2021 and 31.03.2022 is above Rs. 1 Crore, i.e., above the threshold limit stipulated under the provisions of the Insolvency and Bankruptcy Code, 2016. Moreover, even after 31.03.2022, the Operational Creditor has supplied goods approximately worth Rs. 50,00,000/- (Rupees Fifty Lacs Only). Therefore, the contention of the Corporate Debtor that the debt which is due and payable falls below the pecuniary jurisdiction is highly misconceived and unwarranted.

In addition to the above, the contention of the Corporate Debtor with respect to there being a bar of Section 10A of the Insolvency and Bankruptcy Code, 2016 for the debt falling between the period of 25.03.2020 to 25.03.2021, it is relevant to submit that there is a continuous default on the part of the Corporate Debtor in repayment of the outstanding dues prior to, during and even post the period of Section 10A of the Insolvency and Bankruptcy Code, 2016. Moreover, without prejudice to the above, even if the invoices wherein the debt falls due between the said period of 25.03.2020 to 25.03.2021 are being excluded, then also a principal amount to the tune of Rs.2,20,72,116/- (Rupees Two Crores Twenty Lacs Seventy-Two Thousand One Hundred and Sixteen Only) with respect to 77 (Seventy-Seven) invoices admittedly remains outstanding and payable by the Corporate Debtor to the Operational Creditor, which apparently falls above the threshold limit of Rs. 1 Crore. That in the said context, reliance is placed on an order passed by the Hon'ble National Company Law Tribunal, Chennai Bench dated 21.04.2022 in the case of Classic Exports vs. Ram Charan Company Private Limited in CP/IB/157/CHE/2021.

Furthermore, the allegation of the Corporate Debtor with regards to existence of prior disputes pertaining to the quality of goods supplied by the Operational Creditor is merely a moonshine defense and an afterthought, in so far as subsequent to the alleged E-mails dated 06.01.2020, 13.01.2020, 04.02.2020, 23.04.2022, 25.04.2022 and 28.04.2022, the Corporate Debtor itself have sought time to make payments on account of non-availability of funds and has also promised to make repayments on a timely basis. The said fact is clearly evident from various E-mail correspondences annexed at ANNEXURE - H to the present application.

Therefore, the Operational Creditor is constrained to file the present application before this Hon'ble Adjudicating Authority for initiating Corporate Insolvency Resolution Process against the Corporate Debtor in accordance with the relevant provisions of the Insolvency and Bankruptcy Code, 2016.

It is denied that the operational debt is of an amount of Rs.4,77,92,592/- (comprising principal amount of Rs.3,49,84,107/- and interest amount of Rs.1,28,08,485/-) calculated at the rate of 12% per annum.

It is denied that the Operational Creditor has supplied kraft paper to the Corporate Debtor as per the requirement of the Corporate Debtor. I deny that the Operational Creditor has supplied kraft paper to the Corporate Debtor till the month of June 2022. It is denied that the Corporate Debtor received the kraft paper supplied by the Operational Creditor from time to time without raising any kind of dispute and/or demur. The Corporate Debtor has consumed/utilized all the kraft papers supplied by the Operational Creditor. In so far as the terms of the invoices are concerned, I shall refer to the invoices at the time of hearing. I state that as per the mutual understanding and considering the longstanding business relation, the general credit period would vary from 30 days to 90 days or even more.

It is denied the statements, averments and submissions made in Part IV (of the Company Petition) to the extent the same are contrary and inconsistent with what is stated hereafter. With a view to demonstrate that there is a "pre-existing dispute" with respect to the "operational debt".

It is denied that the statements, averments and submissions made in Part IV (of the Company Petition) to the extent the same are contrary and inconsistent with what is stated hereafter. With a view to demonstrate that there is a "pre-existing dispute" with respect to the "operational debt",

It is stated that the Operational Creditor had issued the statutory demand notice dated 23.10.2023. Alongwith the statutory demand notice dated 23.10.2013, the Operational Creditor had annexed interalia:

summary (but not the Invoices) of outstanding invoices for the period 02.08.2019 to 28.06.2022,

ledger account for the period 01.08.2019 to 07.07.2023 of the Corporate Debtor in the books of the Operational Creditor showing opening debit balance of Rs.3,72,04,872.60p as on 01.08.2019 along with quarterly summary of transactions from April-June 2017 to July- September 2023. However even though the transactions took place from June, 2017 no ledger account for the period June 2017 to 01.08.2019 was annexed,

bill-wise interest calculation sheet and

correspondence acknowledging debt.

The Corporate Debtor gave a reply dated 10.11.2023 (Annexure-K, pages 741-745 of the Company Petition) to the statutory demand notice dated 23.10.2023. The Corporate Debtor in its reply dated 10.11.2023 had called upon the Operational Creditor to provide to the Corporate Debtor, self-certified copies of the Invoices between the period June 2017 upto 28.06.2022. However, there was no response to the same.

It is submitted that there are inconsistencies/mismatch in the documents produced/relied upon by the Operational Creditor itself. The same can be demonstrated as follows:

Firstly, the Operational Creditor has not produced the ledger account of the Corporate Debtor maintained in the books of the Operational Creditor for the period June 2017 (when the transactions commenced) up to 01.08.2019. I submit that if the Operational Creditor is claiming any amount from the (debit) balance amount of Rs.3,72,04,872.60p/- (as of 1.08.2019), the ledger account up to 1.08.2019 is required to be produced.

It is stated that Annexure-C of the statutory demand notice dated 23.10.2023 and Annexure-F of the Company Petition (ledger account) a large number of entries therein pertain to "rate different and quarterly rebate" and purchases made by the Operational Creditor from the Corporate Debtor.

It is further stated that there were pre-existing disputes even prior to the issuance of the statutory demand notice dated 23.10.2023 with regard to the quality of goods supplied by the Operational Creditor. Such disputes were reflected in the emails dated 06.01.2020, 13.01.2020, 04.02.2020, 23.04.2022, 25.04.2022 and 28.04.2022. The said aspect has also been stated in paragraph 5 of the reply dated 10.11.2023 of the Corporate Debtor to the statutory demand notice dated 23.10.2023.

It may also be noted that a perusal of the Annexure-B, C and D of the statutory demand notice dated 23.10.2023 (equivalent to Annexure-, and of the Company Petition), the amount of the operational debt includes therein an alleged debt which would fall within the period prohibited by section 10A of the IBC (i.e. between 25.03.2020 to 25.03.2021).

With reference to Part V sub-para 4 of the Company Petition, It is stated that in so far as the record of default with the information utility is concerned (Annexure-N, pages 824-825 of the Company Petition), even the same states "07.07.2023" as the "debt start date" and also as "date of default". As demonstrated above, "07.07.2023" can never be the date of default in the facts of the present case.

I. It is seen that the Corporate Debtor has relied on few Judgements mainly on the judgment of Hon’ble NCLAT in matter of Neeraj Jain v. Cloudwalker Streaming Technologies Pvt. Ltd. (CA (AT)(Ins) No. 1354 of 2019) relying on the para's such as Nos. 42 to 45 and Nos. 47-48 which is reproduced as under:-

invoices falling under Section 10A and

invoices which are not falling under Section 10A.

The Respondent/Corporate Debtor M/s Classic Corrugations Private Limited is admitted in Corporate Insolvency Resolution Process under section 9(5) of the Code.

As a consequence, thereof, moratorium under Section 14 of Insolvency and Bankruptcy Code, 2016 is declared for prohibiting all of the following in terms of Section 14(1) of the Code:

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;

Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein;

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, 2022;

The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor.

The provisions of sub-Section (1) shall however, not apply to such transactions, agreements as may be notified by the Central Government in consultation with any financial sector regulator and to a surety in a contract of guarantee to a Corporate Debtor.

The order of moratorium under section 14 of the Code shall come to effect from the date of this order till the completion of the Corporate Insolvency Resolution Process or until this Adjudicating Authority approves the Resolution Plan under sub-section (1) of section 31 or passes an order for liquidation of the corporate debtor under Section 33 of the IBC 2016, as the case may be.

However, in terms of Section 14(2) to 14(3) of the Code, the supply of essential goods or services to the corporate debtor as may be. However, in terms of Section 14(2) to 14(3) of the Code, the supply of essential goods or services to the corporate debtor as may be.

As the Operational Creditor has not named any IRP in the matter, we hereby appoint Mr. Ashish Anantray Shah Registered Insolvency Professional Entity having registration number as IBBI/IPA-002/IP-N00214/2017-2018/10666, email-ID: ashish@ravics.com, Mobile No.9825940391, under section 13 (1)(c) of the Code to act as Interim Resolution Professional (IRP). The IRP shall conduct the Corporate Insolvency Process as per the Insolvency and Bankruptcy Code, 2016 r.w. Regulations made thereunder.

The IRP so appointed shall make a public announcement of the initiation of Corporate Insolvency Resolution Process and call for submissions of claims under section 15, as required by Section 13(1)(b) of the Code.

The IRP shall perform all his functions as contemplated, inter-alia, by sections 17, 18, 20 and 21 of the Code. It is further made clear that all personnel connected with the corporate debtor, its promoters, or any other person associated with the management of the corporate debtor are under legal obligation as per section 19 of the Code to extend every assistance and cooperation to the IRP. Where any personnel of the corporate debtor, its promoters, or any other person required to assist or co-operate with IRP, do not assist or cooperate, the IRP is at liberty to make appropriate application to this Adjudicating Authority with a prayer for passing an appropriate order.

The IRP shall be under a duty to protect and preserve the value of the property of the 'corporate debtor company' and manage the operations of the corporate debtor company as a going concern as a part of obligation imposed by section 20 of the Code.

The IRP or the RP, as the case may be shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIRP in respect of the Corporate Debtor.

We direct the Operational Creditor to pay IRP a sum of Rs.2,00,000/- (Rupees Two Lakh Only) in advance within a period of 7 days from the date of this order to meet the cost of CIRP arising out of issuing public notice and inviting claims till the CoC decides about his fees/expenses.

The Registry is directed to communicate this order to the Operational Creditor, corporate debtor, and to the Interim Resolution Professional, the concerned Registrar of Companies and the Insolvency and Bankruptcy Board of India after completion of necessary formalities, within seven working days and upload the same on the website immediately after pronouncement of the order. The Registrar of Companies shall update its website by updating the Master Data of the Corporate Debtor in MCA portal specific mention regarding admission of this Application and shall forward the compliance report to the Registrar, NCLT.