M/s Mustafa Enterprises vs M/s Bharat Potteries Limited

Per: Shri Deep Chandra Joshi, Judicial Member

This Application has been filed by the M/s Mustafa Enterprises through its authorised representative Mr. Mohammad Waqas ('Operational Creditor/ Applicant'), seeking to initiate Corporate Insolvency Resolution Process ('CIRP') against M/s Bharat Potteries Limited ('Corporate Debtor / Respondent'), under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the 'IBC'/ 'Code') read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 ('Rules').

The Applicant, M/s Mustafa Enterprises, is engaged in the business of selling Calcium Phosphate. Its registered office is located at B-53, Shadman Colony, Gujarat, Pakistan. The alleged default on the part of the Respondent for the non-payment of operational dues amounting to $ 27,052.50 (USD Twenty-Seven Thousand Fifty-Two and Fifty Cents Only) ~ Rs. 19,34,253.75/- (Rupees Nineteen Lakhs Thirty-Four Thousand Two Hundred Fifty-Three and Seventy-Five Paisa Only) along with interest payable @ 18% per annum.

The Corporate Debtor, M/s Bharat Potteries Limited, is an Unlisted Public Company incorporated under the Companies Act, 1956 on 01.02.1990, having CIN: U26913RJ1990PLC005290. The Respondent has its registered office at F/ 555-559, Road No. 6, Vishwakarma Industrial Area, Jaipur, Rajasthan - 302013. The Corporate Debtor has an Authorised Share Capital of Rs. 2,50,00,000/- (Rupees Two Crores Fifty Lakhs Only) and Paid-Up Share Capital of Rs. 1,93,84,000/- (Rupees One Crore Ninety-Three Lakhs Eighty-Four Thousand Only). A copy of the Corporate Debtor’s Master Data as per the Ministry of Corporate Affairs is annexed as Annexure – A1 of the Application.

The details of the transactions leading to the filing of this Application are averred by the Applicant vide Diary No. – 3029/2019 dated 24.12.2019 are as follows:

a. The Applicant is engaged in the business of selling Calcium Phosphate. The Applicant conducts his business operations in the name and style of M/s Mustafa Enterprises, which is a sole proprietorship firm of which the proprietor is the Applicant.

b. The Corporate Debtor approached the Applicant and placed two purchase orders on 28.03.2017 for the supply of a total of 50 metric tonnes of calcium phosphate for a sum of $ 25,000 (Twenty-Five Thousand dollars) at the rate of $ 500 per Metric tonnes. As per the terms of the purchase order, the amount was to be paid within 25 days from the date of the Bill of Lading. The Corporate Debtor also requested the Applicant to raise the proforma invoice according to the purchase order. The Applicant raised the pro-forma invoice, as per which the quantity variation could be in the range of +/- 10% of the quantity.

c. The Applicant supplied 54 metric Tonnes of calcium phosphate vide two bills of lading dated 10.04.2017 bearing number GLPLMUN-017006 and another bill of lading dated 23.04.2017 bearing number GLPLMUN-0170014. Despite having received the goods, Corporate Debtor did not make the payment. The Applicant time and again requested the Corporate Debtor to make the outstanding payment, however, the Corporate Debtor did not pay a single penny. The Applicant also requested vide emails dated 02.08.2017 and 04.08.2017 to make payment.

d. Instead of making the payment, the Corporate Debtor issued a debit note dated 26.09.2019, wherein the Corporate Debtor admitted that it had received goods worth Rs. 21,83,870/- (Rupees Twenty-One Lakh Eighty-Three Thousand Eight Hundred Seventy Only) from the Applicant. It was further stated that owing to the alleged defect in the quality of goods, the Corporate Debtor is debiting the account of the Applicant by a sum of Rs. 10,91,935/- (Rupees Ten Lakh Ninety-One Lakh Nine Hundred Thirty-Five Only) thereby leaving a balance of Rs. 10,91,935/- Rupees Ten Lakh Ninety-One Lakh Nine Hundred Thirty-Five Only) to be paid to the Applicant. The Applicant submitted that the debit note was false and baseless, as the allegation of defect in quality was baseless and without any proof and the same was raised at a belated stage after 6 months from the date when the goods were received by the Corporate Debtor.

e. In spite of the above, the Corporate Debtor admitted that it owes a sum of Rs. 10,91,935/- (Rupees Ten Lakh Ninety-One Lakh Nine Hundred Thirty-Five Only) to the Applicant. After not receiving the payment for over a period of 2 ½ years, the Applicant issued a demand notice dated 10.10.2019 under Section 8 of the Code. The demand notice was sent by email dated 18.10.2019 and speed post on 19.10.2019 which was delivered to the Corporate Debtor on 23.10.2019 however the Corporate Debtor did not give any response to it.

f. The aforementioned details as reflected in Part IV of the Application are as follows:

Consequent to the notice issued by this Adjudicating Authority, the Respondent filed its Reply vide Diary No. 535/2022 dated 25.02.2022 stating as follows:

a. The Respondent contended that the present Application filed by the Applicant is not maintainable in the eyes of law and the same is required to be dismissed in timelines with costs at the Applicant has not come before this Adjudicating Authority with clean hands. The entire Application is nothing but a gauntlet of lies, falsehood, suppression, and concealment of material facts.

b. The Corporate Debtor also relied on the following judgments:

ii) The Hon'ble Supreme Court in the case of Transmission Corporation of A.P. Limited Vs. Equipment Conductors & Cables Ltd. (MANU/SC/1192/2018: [2018]98) taxmann.com 375/150 SCL 447(SC)

c. The dispute very well falls within the ambit of Section 5(6) of the Code which provides as below: dispute includes a suit or arbitration proceedings relating to a) the existence of the amount of debt; b) the quality of goods or service; or c) the breach of a representation of warranty. The Applicant has failed and neglected to comply with section 9(3)(b) of the Code and furnish an affidavit truthfully stating that no notice has been given by the Corporate Debtor related to a dispute of the alleged unpaid operational debt.

d. Further, the bills that have been issued are being issued in the name of Mustafa Enterprises whereas the Application has been filed by "Mohammad Waqas". The sanctity of filing the present Application is under challenge as there has been no proof attached which shows the authority on behalf of the Mohammad Waqas to file the said Application.

e. The Applicant has delivered the material less than the said stipulated quality as stated in the purchase order also the quality delivered was poor quality, also in relation to the same the Applicant was to submit an affidavit under Section 9(3)(b), but the same has not been submitted by the Applicant.

f. As per the authority letter, it is well established that the Applicant has not filed the Application for initiating CIRP but the only aim is to recover the amount in a fraudulent manner, the objective of the act is that the company becomes the going concern and not for recovering the amount which shows the intent of the Applicant from the authority letter which shall defeat the purpose of the act.

The Applicant has also filed an affidavit for placing on record the Settlement Agreement dated 15.12.2022 vide diary No. 518/2023 dated 24.02.2023 wherein it was mutually agreed between the parties that the Corporate Debtor shall pay Rs. 14,00,000/- (Rupees Fourteen Lakh Only) as full and final payment in terms of the settlement arrived between the Applicant and Corporate Debtor.

The Applicant filed its Written Submission vide Diary No. 1247//2023 dated 18.05.2023 and stating the following:

b. The Applicant had also relied on the following judgments:

At the later stage the Corporate Debtor has filed an additional affidavit vide Dairy No. 2471/2023 dated 11.10.2023 wherein the Corporate Debtor states that in terms of the Settlement Agreement dated 15.12.2022, the Corporate Debtor had made the payment of the agreed amount in three instalments through demand draft. The particulars of the said payments in terms of the settlement agreement are as follows:

We have heard the Learned Counsels for the parties and perused the averments made in the Application, Reply, Additional Affidavits, Written Submissions, and the Documents enclosed with the Application.

This Adjudicating Authority having perused all the relevant papers and finding them in order notes that the Registered Office of the Respondent is situated in Jaipur, and therefore Adjudicating Authority has jurisdiction to entertain and try this Application. Further, this matter is within the purview of Laws of Limitation, as the time period of default is in the year 2017 and the Application was filed before this Adjudicating Authority on 24.12.2019, hence the period of three years after the default occurred had not been exhausted at the time of filing of this Application. Therefore, the present Application has been filed within the prescribed period of limitation.

Before we come to the facts of the present case, the statutory scheme with regard to the Application under Section 9 needs to be recapitulated. Section 8 of the Code requires the Operational Creditor on the occurrence of default to deliver a Demand Notice on unpaid Operational Debt. Section 8(2) provides that Corporate Debtor within a period of 10 days of the receipt of the Demand Notice bring to the notice of the Operational Creditor existence of dispute if any. Section 8 of the Code is as follows:

In the present case, the first issue for consideration is whether the Demand Notice under Section 8 of the IBC, 2016 has been served to the Corporate Debtor. The Applicant in Form – 4 has served the Demand Notice dated 16.10.2019 to the Corporate Debtor on 19.10.2019 through the registered post and e-mail on 18.10.2019.

The next issue for consideration is whether there is a dispute regarding the quality of the goods supplied by the Applicant to the Corporate Debtor. In the present case the Corporate Debtor has disputed the claim of the Applicant on account of deficiency of the quality and the same was contended in the purchase order that the quality of goods delivered was poor. The contention of the Operational Creditor that the dispute regarding the quality of goods was raised after 6 months of delivery of the same is not tenable. The purchase orders along with Performa invoices and bill of lading were raised by the Applicant in the months of March and April 2017 and the alleged dispute was raised by the Corporate Debtor on 26.09.2017 by way of issuance of the Debit Note on the account of the quality of the goods supplied by the Applicant. There was no mention of the quality of goods being sub-par at any time before the said scenario. The defence taken by the Corporate Debtor was an afterthought to shrug off liability and was not covered in a pre-existing dispute. Therefore, it is considered an afterthought with the sole intention to stall the commencement of insolvency resolution proceedings against the Corporate Debtor. Therefore, it is held that there exists no dispute, as contemplated under Section 8(2)(a) of the Code.

Before we delve into the issue before us, it is important to refer to the Additional Affidavit filed by the Corporate Debtor wherein it is seen that the Corporate Debtor has made the payment of Rs. 13,50,000/- (Rupees Thirteen Lakh Fifty Thousand Only) in terms of the Settlement Agreement dated 15.12.2022. The particulars of the said payments to in terms of the Settlement Agreement are as follows:

Once a certain amount is paid by the Corporate Debtor as a settlement against full payment and the same is corroborated by the said additional affidavit filed by the Corporate Debtor, the Operational Creditor cannot be allowed to go back and undo the same as it pleases, and when it pleases.

Therefore, it is clear from the documents produced before us that the Corporate Debtor has already paid Rs. 13.50 Lacks in compliance of the Settlement Agreement. We need not go into the ingredients of Section 9 in the present matter as it is clear from the documents presented before us that a settlement was arrived at between the parties for payment of Rs. 14,00,000/- (Rupees Fourteen Lakh Only) as full and final payment against the total claim of the Applicant. Out of that the Corporate Debtor has made of Rs. 13,50,000/-(Rupees Thirteen Lakh Fifty Thousand Only) via Demand Draft. Hence the present application is pursued with an intention to recover the alleged outstanding amount by initiating CIRP proceedings, it is not a fit case for admission and the same is liable to be rejected. It is a settled position of law that provisions of the Code cannot be invoked for the recovery of outstanding amount but it can be invoked to initiate CIRP for justified reasons; as the spirit of legislation of the Code is for the resolution of debt and not for recovery.

Hence, the Application is dismissed. The Order in the present matter is made in terms of Section 9 (5) (ii) of IBC, 2016 and based on the facts and pleadings submitted by the parties in the instant case and shall not prejudice any matter or proceedings between the parties, if any, before any other Court, Tribunal or any judicial or other authority.

Let the copy of the Order be served to the parties and IBBI.