M/s. J C Electronica Pvt. Ltd. vs M/s. NA Bhutho Na Bhavisyathi Tech Pvt. Ltd.

C.P. (IB) No. 126/BB/2023 is allowed vide seperate order.

Report if any, be filed by IRP on 23.07.2025.

The present Petition was filed on 24.04.2023 under section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016, by JC ELETRONICA PRIVATE LIMITED (“Operational Creditor/Petitioner”) seeking to initiate Corporate Insolvency Resolution Professional Process (“CIRP”) against NA BHUTHO NA BHAVISHYATHI TECH PRIVATE LIMITED (hereinafter referred as “Corporate Debtor/Respondent”) on the ground that the Corporate Debtor has committed a default in payment of an outstanding amount of Rs.1,20,37,200/- (Rupees One Crore Twenty Lakhs Thirty Seven Thousand and Two Hundred Only) on 14.03.2022. The Record of Default in Form D issued by NcSL is filed with the Petition. An Affidavit U/s 9(3) (b) regarding there being no pre-existing Dispute and Demand Notice under Section 8(1), Form 3 are also submitted.

Relevant brief facts of the case are as follows:

On 18.12.2023, the Respondent filed its statement of objection, contended as under: -

That this Petition by the Operational Creditor is not maintainable as the Operational Creditor has not complied with the mandatory requirement under section 8(1) of the Code as the Demand Notice dated 16.01.2023 in Form No.3, sent by the Operational Creditor, is not a valid notice in the eyes of law because the said demand notice has been signed by the advocate for the Operational Creditor claiming as if they have been authorized to issue the notice but the advocate has not been authorised by a Board Resolution of the Operational Creditor to issue such a notice. Thus, the said demand notice is non est document sent without the authority and cannot be taken into consideration for entertaining the above application of the Applicant. It is submitted that the Supreme court in Macquarie Bank Ltd. Vs Shilpi Cable Technologies Ltd. (2018) 2 SCC 674, has held that a lawyer can act only on the basis of due authorization. An act done without authority cannot be ratified subsequently. At this backdrop, there is no lawful demand under section 8(1) of the Code. In the absence of lawful demand and the notice for demand being non-est and defective document, the Application based on the said demand notice is not maintainable.

The Operational Creditor only after being satisfied with the samples had placed an order from the Corporate Debtor for the procurement of Electronic Components. Though the delivery period was 4 weeks from the date of receipt of the advance payment, the Operational Creditor started pressurising the Corporate Debtor to expedite and deliver the electronic components within 3 weeks as against the agreed 4 weeks. The Respondent, being a start-up, was finding it difficult to handle the Operational Creditor's pressure to deliver the goods before agreed timeline which was further aggravated due to supply chain issues with the Corporate Debtor's suppliers based in Shenzhen, Hong Kong and United Kingdom which were still gripped in the Pandemic i.e. Covid 19, they found it difficult to deliver the goods within 3 weeks due to which the Corporate Debtor was forced to place order with another international vendor based in U.S.A. Further, after about 3-5 weeks of the receipt of the electronic components, the Operational Creditor informed the Corporate Debtor that the said electronic components are not fitting to their end component and they are of the opinion that the electronic components supplied are fake or counterfeit. The Corporate Debtor immediately contacted its international suppliers who put the blame squarely on the insufficient time to test and verify the goods as the same were sent in a hurry and thus might not have met the standards of the samples sent earlier. This was due to significant pressure applied by the Operational Creditor, to deliver the electronic components in 3 weeks from the date of receipt of the advance payment instead of agreed timeline of refund because the quotation issued by the Respondent clearly states that there is no Cancellation or refund policy and thus the Applicant is not entitled to the refund of money due to defects in the electronic components the Operational Creditor has procured from the Corporate Debtor during the guarantee period The e-mail correspondence copy of the quotation issued by the Respondent to the Applicant is annexed as Annexure A to the Reply.

It is also contended that there is no admitted debt by the Corporate Debtor as there is a dispute with respect to the quality of the goods which amounts to a Pre-existing Dispute that cannot be adjudicated before this Tribunal and has to be filed before the appropriate authority. It is further submitted that the Operational Creditor has no right to seek refund of money as unpaid debt because of the goods delivered are alleged to be defective and they are entitled for replacement.

The Corporate Debtor also contended that the Operational Creditor had misused a cheque for Rs. 40,00,000/- (Rupees Forty lakhs) which was given as a security, by presenting the same without bringing it the notice of the Corporate Debtor.

In light of the above, the Corporate Debtor prays for dismissal of the petition as not maintainable, nor complied with the mandatory requirement of the Demand Notice under section 8(1) of the Code and involving a pre-existing dispute.

The Petitioner filed rejoinder contending as under:

Operational Creditor can issue a notice of Operational Debt through a demand notice and the Demand Notice served is legally compliant: The Operational Creditor submits that Demand Notice was dispatched to the Corporate Debtor by a legally authorized advocate under instructions from the Operational Creditor and it is denied that Demand notice dated 16.01.2023 is not a valid notice in the eyes of law because there is no legal requirement that an advocate is not authorized to send the demand notice because there is no authorisation letter or any board resolution. This fact has been further substantiated by the judgement of Hon'ble NCLAT in Mohit Minerals Ltd Vs. Nidhi Impotrade Pvt. Ltd, Company Appeal (AT)(Insolvency)No. 905 of 2021" wherein it has been held that

Promises of Refund and Admitted Liability: The Operational Creditor submits that the Terms and Conditions of the Purchase order ("PO") clearly stated that in case of any quality and functional issues with the parts, the supplier shall refund the entire amount within a period of 24 hours and the issuing of the proforma invoice by Corporate Debtor clearly establishes that the Corporate Debtor accepted the terms and conditions of the PO issued by the Operational Creditor and issued the proforma invoice dated 18.01.2022 and a Contractual Relation was thus created. It is further submitted that the Corporate Debtor, on various occasions and through various emails and communications, has promised the refund. The Corporate Debtor issued a cheque dated 25.07.2022 of Rs. 40,00,000/- (Rupees Forty Lakhs only) in favour of the Operational Creditor which was dishonoured on presentation. The Corporate Debtor vide an email dated 28.06.2022 has mentioned that the said payment shall be considered as the payment towards balance amount. It is further vehemently denied that the Operational Creditor misused a cheque for Rs. 40,00,000/- (Rupees Forty Lacs Only) which was given as a security. As the cheque was issued after numerous requests of the Operational Creditor as a part and parcel to the refund amount towards the fake goods delivered by the Corporate Debtors and not a security cheque which position was admitted by Mr. Hemantha, Director of respondent, in a mail dated 28.06.2022. It is also mentioned that the Operational Creditor after issuance of statutory demand notice dated 16.01.2023 under the IBC (AAA) Rules, 2016, the Corporate Debtor had transferred an amount of Rs. 10,00,000/- (Ten Lakhs Only) to the Operational creditor on 03.02.2023. The act of making a payment after the receipt of demand notice is an admittance to the legal liability and affirms the existence of Legal Debt.

Replacement not a ground to not refund- It is submitted that the Corporate Debtor in their submissions had expressed willingness to replace the goods. It is apprised that the question of replacement does not even arise in the present case as the documents based on which the transaction was established i.e. the Purchase Order clearly stipulates refund in case of defective goods. Further, despite such condition being present, ample opportunity was granted to the Corporate Debtor to replace when in fact the Corporate Debtor again delivered defective goods. It is also apposite to mention that the replacement is not a remedy as the Corporate Debtor has made various part payment for their liability as a Corporate Debtor.

There is no pre-existing dispute between the parties. - The Operational Creditor submits that the Corporate Debtor raised the existence of Pre-existing disputes for the first time in reply/objections to the petition and same was not raised when the Statutory demand Notice dated 16.01.2023 whereby the Corporate Debtor had the option to either dispute the said Statutory demand notice by highlighting a prior dispute or could have proved the satisfaction of the claim. However, the Corporate Debtor did not choose to dispute the Claim by not replying to the said demand notice of the Operational debtor and this abundantly proves the liability of the Corporate Debtor. It is further submitted that it is for the first time that the Corporate Debtor is raising such frivolous claims relating to pre-existing dispute merely to distract the attention of Tribunal and evade the consequences under the Code as there exists no Pre- Existing Dispute.

Operational Creditor and Corporate Debtor had a Contractual relationship – The Operational Creditor states that as the Corporate Debtor accepted the terms and conditions of the PO issued by the Operational Creditor and issued the PI dated 18.01.2022 and therefore a Contractual Relation was thus created. It is further submitted that the contentions of the Corporate Debtor that there were notable delays due to supply chain and Covid 19 pandemic issues with the Corporate Debtor's suppliers based in Shenzhen, Hong Kong and United Kingdom there was difficulty in delivering the goods within 3 weeks cannot be a ground not to supply genuine goods or refund amount due to the Operational Creditor because the agreement to supply the goods was between the Operational Creditor and the Corporate Debtor and hence the privity of Contract continues between them. Moreover, the Corporate Debtor being fully aware of the situation and circumstances and having knowledge of their own business had accepted the agreement and quoted the delivery time. It is also added that averments of third-party intervention are not only unprofessional but just a mere attempt to escape their liability.

We have heard the Learned Counsels for parties and carefully perused the record

This Petition was filed on 24.04.2023 and the date of Default mentioned in Form No. 5 is 14.03.2022. The claim of petitioner is well within the period of Limitation.

The Petitioner had issued a PO on 17.01.2022 and the Corporate Debtor accepted the terms and conditions of the PO dated 17.01.2022 and issued the proforma invoice dated 18.01.2022. The Petitioner had then forwarded an advance payment of Rs.77,70,000/- in accordance with the terms and conditions of the proforma invoice. The main argument of the Corporate Debtor herein is that an advance payment of an invoice does not amount to an Operational debt and there is a pre-existing dispute regarding the quality of goods and therefore it constitutes a pre-existing dispute as per Section 8 of the IBC, 2016. On .16.02.2024 following order was passed:

The Petitioner/Operational Creditor in compliance of order has filed written submissions and relied upon on the judgment of Hon'ble Supreme Court in the matter of Consolidated Construction Consortium Limited Vs. Hitro Energy Solutions Private Limited, Civil Appeal 2839/2020 wherein para 43 it has been held that"-

The Hon'ble Supreme Court after examining the facts involved in the issue clearly laid down that a debt that arises out of the advance payment made for supply of goods and services will be considered as an Operational debt and Operational Creditor can issue a notice of Operational Debt through a prescribed demand notice or an invoice and the Demand notice can be issued based on documents proving the existence of debt not necessarily being the invoice.

For the purpose of existence of Pre-existing Dispute, the Corporate Debtor herein has relied on the fact that there is a dispute relating to the genuineness of the electronic components

We have thoughtfully considered the contentions raised by the Corporate Debtor with regard to existence of a Pre-existing dispute relating to the genuineness of the electronic components are of the considered view that the Corporate Debtor has failed to make out a case of pre-existing dispute. In this regard, it is worth mentioning that at no point of time till the demand notice was served on the Corporate Debtor had any objection been raised on behalf of the Corporate Debtor that the genuine goods were supplied in time to the petitioner. It was only when this petition was filed, the Corporate Debtor raised this defence for the first time which seems to be noting but an afterthought. It is also pertinent to point out that prior to the issuance of demand notice, the Corporate Debtor vide an email dated 28.06.2022 had informed the Operational Creditor of issuance of a cheque dated 25.07.2022 of Rs. 40,00,000/- (Rupees Forty Lakhs only) as the payment towards balance amount and acknowledged its liability to pay. Further, after the issuance of demand notice on 16.01.2023, the Corporate Debtor transferred a sum of Rs.10,00,000 to the Operational Creditor which reinforces the fact that the Corporate Debtor had acknowledged the said liability ruling out the projection of pre-existing dispute.

In this regard reliance is placed on the judgment of Hon'ble Supreme Court in the case of Mobilox Innovations Pvt Ltd Vs. Kirusa Software Pvt Ltd (2017) ibclaw.in 01 SC

Further the Hon'ble NCLAT, in the case of Deepak Modi Vs. Shalfeyo Industries Pvt. Ltd, (2023) ibclaw.in 215 NCLAT in Para 13 has held the following

The material on record including Record of Default issued by NeSL in Form-D dated 01.06.2023, shows that there is no record of dispute in the Information Utility, nor any documents submitted to show any dispute. The contention of respondent regarding there being pre-existing dispute does not hold substance.

From the above discussion, the Petitioner has been able to establish the existence of operational debt and its default having been committed by the Corporate Debtor and further that there is no pre-existing dispute between the parties. Therefore, in our considered view, it is a fit case for admission u/s 9 of the Insolvency and Bankruptcy Code, 2016.

Accordingly, the petition is allowed and the respondent/Corporate Debtor having failed to discharge its operational debt above prescribed threshold is admitted to under Corporate Insolvency Resolution Process and consequently moratorium is declared in terms of Section 14 of the Code imposing following prohibitions to be complied with by all concerned:

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.

It is further directed that the supply of essential goods or services to the Corporate Debtor as may be specified, shall not be terminated or suspended or interrupted during the moratorium period.

The provisions of Section 14(3) shall however, not apply to such transactions 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 shall have effect from the date of this order till completion of the Corporate Insolvency Resolution Process or until this Bench approves the Resolution Plan under sub-section (1) of Section 31 or passed an order for liquidation of Corporate Debtor under Section 33 of the IBC as the case may be especially under Sections 15, 17, 18, 20 and 21 of IBC, 2016.

In Part-III of Form No.5, Mr. Srikantiah Shivaswamy, bearing Registration No. IBBI/IPA-001/IP-P00411/2017-2018/10727 has been proposed as Interim Resolution Professional (IRP). His written consent and credentials have been given in Form No.2 attached with this Petition. In view of the above, we appoint Mr. Srikantiah Shivaswamy, Registration No. IBBI/IPA-001/IP-P00411/2017 2018/10727 having registered address at RF 4 Santara Magan Place Doddakammahalli, Hulimavu off Bannerghatta Road, Bangalore, Karnataka, 560076, contact no.: 9620959256 and email: [email protected] as the Interim Resolution Professional of the Corporate Debtor to carry out the functions as mentioned under the IBC. The fee payable to IRP/RP shall be in accordance with the IBBI Regulations/Circulars/Directions issued in this regard. The Interim Resolution Professional is directed to take the steps as mandated under the IBC, 2016 especially under Sections 15, 17, 18, 20 and 21 of IBC, 2016.

The Operational Creditor shall deposit a sum of Rs 2,00,000/- (Rupees Two Lakhs Only) with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors.

The Interim Resolution Professional shall after collation of all the claims received against NA BHUTHO NA BHAVISHYATHI TECH PRIVATE LIMITED and the determination of the financial position of the Corporate Debtor constitute a Committee of Creditors and shall file a report, certifying constitution of the Committee to this Tribunal on or before the expiry of thirty days from the date of his appointment, and shall convene first meeting of the Committee within seven days for filing the report of Constitution of the Committee. The Interim Resolution Professional is further directed to send monthly progress reports to this Authority.

A copy of the order shall be communicated to both the parties. The learned Counsel for the Petitioner shall deliver a copy of this order to the IRP forthwith. The Registry is also directed to send the copy of this order to the Interim Resolution Professional at his e-mail address forthwith.