M/s Parkash Cotton Pressing Factory vs Allahabad Bank & Anr.

Pursuant to an application bearing C.P. No.(IB) 67/Chd/Pb/2017), filed under Section 7 of the Code by the Allahabad Bank (hereinafter referred to as the “Financial Creditor” or “Respondent No.1”), this Tribunal vide its Order dated 29.09.2017 (copy annexed as Annexure A/1 with the CA) initiated the CIRP of M/s Supreme Tex Mart Limited (hereinafter referred to as the “Corporate Debtor”).

The Applicant is the Operational Creditor of the Corporate Debtor and his claim of Rs.3,01,90,402/- was duly admitted in relation to CIRP of the Corporate Debtor.

The Corporate Debtor went into liquidation vide this Tribunal Order dated 08.08.2018 (a copy annexed as Annexure A/2 with the CA). The RP continued the operations of the Corporate Debtor on uninterrupted, as a going concern as per the provisions of Regulation 32(c) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereinafter referred to as the “Liquidation Regulations”).

As per the mandate of Section 20(1) of the Code, the RP shall make every endeavour to protect and preserve the value of the property of the Corporate Debtor and manage its operations as a going concern. Therefore, keeping in mind this object, the Applicant still continued to supply raw material to the Corporate Debtor in spite of its unpaid claim of Rs.3,01,90402/- just with intent to help the Corporate Debtor being run as going concern.

Subsequently the Corporate Debtor went into liquidation and it was ordered by this Tribunal that the same may undergo liquidation as a going concern. At the time of liquidation, the Corporate Debtor owed an amount of Rs.7,19.65,695/- towards the supply of raw material by the Applicant during the of CIRP period besides the admitted amount of claim as Operation Creditor of Rs.3,01,90.402/-. The Applicant supplied raw materials worth Rs.3.34,48.392/- post the liquidation order.

Subsequently, the Applicants were paid certain amount for the raw materials supplied during the CIRP process and certain amount for the raw materials supplied during the liquidation process. As per the accounts of the Applicant, Rs.2,00,00,000/- have been paid for the bills pertaining to the raw materials supplied during the CIRP and Rs.1,40,00,000/- have been paid for the raw materials supplied during the liquidation. The Liquidator had to clear (a) Rs.5,19,65,695/- on account of the pending CIRP costs of raw materials supplied during the CIRP, (b) Rs.1,94,00,000/-on account of the raw materials supplied during the liquidation process, and (c) Rs. 2.29,56,480.20/- on account of interest due.

Therefore, the Applicant in order to seek his dues for the CIRP process moved CA No.429/2018 before this Adjudicating Authority seeking direction that the dues of the Applicant being classified as CIRP costs must be cleared by the Respondent No.2 on priority. This Tribunal, vide its order dated 27.11.2018 (copy annexed as Annexure A/3 with the CA), disposed off the CA No. 429/2018 by holding that the dues of the Applicant have a priority over the dues of any Financial Creditor.

The Liquidator had been duly deducting TDS on the interest due and the Form 26AS (copy annexed as Annexure A/5 of the CA) shows the TDS deducted on account of interest paid till 31.03.2018. Now on account of non-payment of the due towards the Applicant, interest due has accumulated to the tune of Rs.2,29,56,480.2/- as shown in table below

The memo of parties shows Mr. Bhupesh Gupta as the Liquidator of the Corporate Debtor. However, Mr. Bhupesh Gupta, who was appointed as Liquidator vide order dated 08.08.2018, was replaced with Mr. Ravinder Goel as the Liquidator, vide this Tribunal order dated 01.11.2019 in CA No. 941 of 2019. Thus, the reply has been filed through Mr. Ravinder Kumar Goel in capacity of the Liquidator of the Corporate Debtor.

The Hon'ble NCLT had vide its order dated 06.12.2023 disposed off IA No. 739/2019 as being infructuous, by noting that CA No. 739/2019 and CA No. 606/2018 are filed by the Applicant and the claim of Applicant is taken care of in CA No. 606/2018.

The Applicant had earlier filed CA No. 429/2018 and CA No.466/2018 also on similar issues and contentions. But the Applicant never claimed any interest on his amount due in CA No. 606/2018, CA No.429/2018 and CA No.466/2018. In fact, a bare perusal of the Invoices attached by the Applicant shows that none of the Invoices had any provision or stipulation for interest.

Similar to Applicant, various other suppliers had also made supplies during CIRP/ liquidation period. The Applicant in its applications had been claiming to get the amounts released even before the closure of CIRP/liquidation, i.e., even before the realization of proceeds from the sale of assets of the Corporate Debtor.

The Financial Creditors of the Corporate Debtor had raised various issues/ concerns regarding the costs during CIRP and liquidation and therefore, State Bank of India, one of the Financial Creditors of Corporate Debtor, had filed an IA No.574/2021 under Section 60(5) of the IBC, read with Rule 11 of the NCLT Rules 2016, seeking appropriate directions to appoint a competent person to get the audit of the CIRP cost of the whole CIRP period, as well as the liquidation cost for the period of the Corporate Debtor from 08^th August, 2018 to 31^st October, 2019, thus, seeking a audit for the period from 29.09.2017 to 31.10.2019. The said IA No.574/2021 was allowed by this Tribunal vide Order dated 28.09.2022, by directing the Liquidator to appoint independent Auditor for the purpose of audits of books of account of the Corporate Debtor.

Accordingly, D. Pathak & Co., Chartered Accountants, were appointed to do the audit and after conducting the Audit exercise, the Report dated 14.02.2023 was submitted to the Liquidator, which was then placed before the Financial Creditors in a meeting held on 22.02.2023 and before this Tribunal vide IA No. 674/2023. Subsequently, due to some glitches being discovered in Audit report, an updated report (copy annexed as Annexure R-9 to the reply) was submitted by way of IA No.1323/2023 and taken on record on 01.08.2023 (copy annexed as Annexure R-8 to the reply).

Pursuant to the audit conducted as per the documents/ information provided by the Applicant, Auditor did not find any amount due to the Applicant on account of interest and it was identified by the Auditor, the outstanding amount of the Applicant for the supplies made during CIRP period and liquidation period as below:

In terms of undertaking signed by the Applicant, it has accepted the amount determined by the Auditor in full and final satisfaction of the dues and accordingly, the amount of Rs.6,95,24,683.35 was paid to the Applicant after receipt of aforesaid undertaking in furtherance of the directions given by this Tribunal Order dated 06.12.2023.

The Applicant had never pressed for his IA No.739/2019 and never made any submissions in this regard before this Tribunal at any point of time. The Appeal filed before Hon'ble NCLAT against the order dated 06.12.2023 in IA No.739 of 2019 is only an afterthought, and a malafide attempt to extort money from the Corporate Debtor in an illegal manner.

There are no purchase orders or supply contracts relied upon by the Applicant to claim interest from the Corporate Debtor. The Applicant has not produced any document to show that the Corporate Debtor agreed to pay interest on account of delayed payment of the invoices, especially for the period of CIRP/ liquidation. No interest is payable to a party as a matter of right, especially for the period of CIRP/ liquidation, because the same will then also disturb the distribution in terms of Section 53 of IBC.

The Liquidator has recently received a GST Show Cause Notice No. 89/2024-25-GST dated 30.07.2024 for Corporate Debtor, from the Office of The Principal Commissioner, Central GST Commissionerate, Ludhiana, in relation to illegal availing of ITC based on goods-less invoices of fake/ non-existing/ non-operational suppliers, including the Applicant herein. It has been mentioned in the said GST Notice that based on the investigation, it has been found that the Applicant (Parkash Cotton Pressing Factory) is also a fake/ non-existing/ non-operational supplier. The same has been observed after an investigation being conducted on this aspect, the details of which are mentioned in the said GST notice itself. As per Panchnama dated 03.09.2020 drawn by the officers of DGGI Jaipur Zonal Unit, the firm in the name and style of M/s Parkash Cotton Pressing Factory could not be found. On further enquiry, it was gathered by the Officers that no such factory had ever worked at the given address or nearby area. Further statement of Sh. Kushagar Garg S/o Sh. Vijay Kumar (Karta of M/s Parkash Cotton Pressing Factory) has also been taken into account for the same.

It is a well settled law that the Judicial Notices of Trade Practices and Customs can be taken into consideration to understand the practice adopted in a particular market and as per a clarificatory circular for the year 2018-2019 (copy appended herewith as Annexure A-1 of the rejoinder) issued by Indian Cotton Association Limited (formerly known as Northern India Cotton Association limited), it is a common practice and convention amongst the suppliers of cotton that in case, the buyer lifts the cotton bales without any payment, then the seller, like the Applicant herein, would become entitled to interest @1.4% per month or 16.8% p.a. from the due date till the payment is received.

The CA No.606/2018 filed by the Applicant was allowed vide this Adjudicating Authority Order dated 06.12.2023, whereby it was held that the Applicant is entitled to receive Rs.6,95,24,683/- against the material supplied to the Corporate Debtor. Once the Applicant has been held entitled to the main amount of the goods supplied, then it is a settled principle of law that he would also be entitled to the interest, which would have been accrued on such amount. The Liquidator cannot enrich himself at the cost of the suppliers, who have duly supplied material and hence are entitled for the due interest. The interest accrued on such amount cannot be used by the Liquidator for any other purpose except to pay the applicant herein.

There was an unprecedented delay in the payment for the goods supplied and there is no provision, which prohibits the Applicant from claiming interest on such amount, which was held to be admittedly paid by the Liquidator to the Applicant. The reliance has been placed on the Order passed by the Hon'ble Supreme Court in the case of South Eastern Coalfields Limited vs. State of MP and Others , the relevant extract of which is reproduced herein below:

The Applicant also being a trader has been paying interest to its creditors i.e. Kotak Mahindra Bank and Axis Bank with @ 9% and 9.25% respectively per annum compounded monthly (copy of sanction/ renewal letters of these banks are annexed as Annexure A-2 of the rejoinder).

The interest has been paid previously by the Liquidator to the Applicant on delayed payments, which is quite unequivocal from the invoice dated 31.03.2018 (copy attached as Annexure A-3 of the rejoinder) and Form 26AS under Section 203AA of the Income Tax Act, 1961 (annexed with the Application as Annexure A-5). Therefore, the Liquidator is bound by the acts of the Corporate Debtor.

The Liquidator in his reply has heavily relied upon the undertaking dated 08.12.2023 executed by the Applicant in full and final satisfaction of his dues. The Applicant is a Sole Proprietorship Firm registered in the name of Mr. Vijay Kumar, who is the only person authorized to sign and execute any document with regard to the firm. The manager namely Kushagar Garg, who signed the undertaking, was only authorized to file the CA No.606/2018 before this Tribunal by a Special Power of Attorney executed by the Proprietor of the Firm in his name, which expired on the day, when the final order dated 06.12.2023 was passed by this Tribunal, therefore, had no right and authorization to sign and execute any such undertaking on behalf of the firm after expiration of such special power of attorney. Therefore, the undertaking dated 08.12.2023 does not hold any value in the eyes of law and is not a valid document.

Further, the Applicant was under financial duress at the time, when the undertaking was executed by the manager of the Applicant, because the pending dues of the Applicant were getting cleared after a prolonged time, hence, the Applicant did not even consider the consequences of such undertaking executed by its manager. The reliance has also been placed on the Judgement of the Hon'ble Supreme Court in the case of M/s Associated Construction Versus Pawanhans Helicopters Pvt. Ltd. In appeal (Civil) 3376-3377 of 2008 dated 07.05.2008.

As per order dated 28.03.2024 issued by GST Authorities (copy annexed as Annexure A-4 of the rejoinder), it is noticed in para 3 that accounts of Applicant were subject to GST Audit from July, 2017 to March, 2021 under Section 65 of CGST Act, 2017.

The aforesaid order after verification of records of aforesaid period concluded tax liability of Rs.2,90,514/-, which pertains to the period, when Applicant made supplies to Corporate Director as CIRP commencement date is 29.09.2017 and liquidation order was passed on 08.08.2018 and supplies were made till 2019 and the aforesaid GST Audit is from July, 2017 to March, 2021.

Further, perusal of the show cause notice 30.07.2024 reflects in para 2.1 that Applicant/trading firm allegedly arranged cotton bales through various ginners in cash and then supplied to Corporate Director, which is end user and availed ITC on the strength of purchasers, of which allegedly GST was not paid at any stage. Therefore, Applicant received corresponding show cause notice dated 26.07.2024 (copy annexed as Annexure A-5 of the rejoinder), for which the reply has already been (copy annexed as Annexure A-6 of the rejoinder). It is clarified that all sales are on the basis of supporting documentary record and which can be examined by the authorities.

It is only a show cause and there cannot be presumption of infirmity in absence of any order and consequently, it has no relevance to the claim of Applicant regarding interest on delayed payments.

Even otherwise, the GST Show Cause Notice at Pg 230- 231 reflects foundational factual incorrectness because GST has presumed Rs.6,33,11,113/- to have been received from July, 2017 to November 2018 from Corporate Director, whereas as per record, amount received during this period was more than Rs.20 crore.

Even otherwise, Liquidator has already got audit conducted and the report of such audit has been approved by all Financial Creditors and no objection has been raised to the said report till now. Even as per Liquidator, the report is correct and Liquidator by relying upon GST Show cause notice is self-contradicting his own act, which is impermissible, because it is not the case of Liquidator that payments made by Corporate Debtor are not as per law.

Further Liquidator has not placed any single document on record to show that it has replied to the contentions raised in the instant Show Cause Notice.

The Liquidator by retaining the amount, earned interest by keeping this amount in the FDR and it is unreasonable that Liquidator earned interest on the amount, which belonged to the Applicant as per section 61 of Sale of Goods Act, 1930. If Liquidator earned interest admittedly on the amount which belonged to the Applicant, it cannot retain that amount, because if timely payment would have made, Applicant would have earned interest on that payment.

With regard to undertaking, the Applicant had no other option but to agree to the force of Liquidator. The moment the undertaking was given, cheque was provided on 08.12.2023 which happens to be Friday and 09.12.2023 happened to be 2^nd Saturday therefore cheque could be realised only by 11.12.2023-12.12.2023 and immediately thereafter on 19.12.2023, the Appeal before Hon'ble Appellate Tribunal was filed. It is therefore clear from the conduct of the Applicant that Immediately after receipt of the amount, which apparently was obtained under protest, appeal was filed. Sequence of events clearly show that applicant never wanted to give up his right to claim interest, which was stated for in the undertaking, but had that undertaking not been given, amount would not have been released and under coercion and financial duress such undertaking was given. Moreover, Order dated 06.12.2023 never required liquidator to obtain undertaking with respect to Applicant giving up right of interest, which he is claiming since 2019.

There is neither provision in the law nor such precedent that the goods supplied by Applicant during CIRP/ liquidation is like an “interim finance” and thus interest is payable on the same for delayed payment.

Indian Cotton Association Ltd., Bathinda is only a private body in Bathinda and doesn't set any practice/ procedure and there is also no precedent shown. Also, it is neither a legislation making body under any law, nor recognized by IBBI or has any mention in IBC. Thus, reliance cannot be placed by the Applicant upon the letter of the above Association to claim interest.

The applicant is incurring interest on the loans availed by him, has no relation to the claim of Interest by the Applicant and there is neither such provision in the law nor such precedent supporting Applicant's contention

At the time of receiving money, the Applicant gave an undertaking of Mr. Kushagar Garg, who is the son of Mr. Vijay Kumar (proprietor of Applicant) and had always represented the Applicant before different forums and CA No.429/2018, CA No.466/2018, CA No.739/ 2019 and I.A. No.968/2022 were all filed by him. Moreover, Mr. Kushagar Garg is also shown as signatory and guarantor for all the loan facilities of Applicant. The Applicant is not denying the fact that the said undertaking was given by Mr. Kushagar Garg, but to refute and back-out from the undertaking given by Applicant, the Applicant is now taking a different stand that he was not authorized.

Before examining this issue, It will be apposite to reproduce the undertaking given by the Applicant:

After perusing the undertaking, we consider it appropriate to examine the relevant part of this Tribunal Order dated 06.12.2023, based on which the Liquidator has stated to have taken the above undertaking, which reads as below:

It is observed from the Order dated 06.12.2023 that it never required the Liquidator to obtain undertaking with respect to the Applicant giving up right of interest, which he is claiming since 2019.

It is contended by the Applicant that upon disposal of CA No. 606/2018, Mr. Kushagar Garg had become functus officio and he was not authorised to issue the undertaking and hence, the undertaking cannot be recognized as a valid undertaking.

It is not in dispute that Mr. Kushagar Garg was the Authorised Signatory in CA No.606/2018, which was disposed of vide this Tribunal Order dated 06.12.2023 and the undertaking dated 08.12.2023 was given by Mr. Kushagar Garg, authorized signatory pursuant to the paragraph 15 of above Order of 06.12.2023.

Thus, the undertaking was a consequence of the order dated 06.12.2023 passed in CA No.606/2018, in which Mr. Kushagar Garg was the authorized signatory. The said authorization was not withdrawn before the undertaking was given by him to the Liquidator. Hence, the Applicants are estopped from disclaiming the undertaking dated 08.12.2023.

Further, Mr. Vijay Kumar, who had granted the Special Power of Attorney is father of Mr. Kushagar Garg. The Applicants has also not placed on record anything to show as to whether any civil or criminal proceedings have been initiated by Mr. Vijay Kumar against his son Mr. Kushagar Garg for the furnishing of undertaking allegedly “without authorization”.

Further, the present Application has also been filed through Mr. Kushagar Garg s/o Mr. Vijay Kumar based on a Special Power of Attorney granted by Mr. Vijay Kumar to his son, Mr. Kushagar Garg. However, the Rejoinder has been filed by Mr. Vijay Kumar.

In view of the above, we hold that the Applicants cannot deny that the undertaking dated 08.12.2023 given by his son Mr. Kushagar Garg is not a valid undertaking and the Applicant is bound by the undertaking.

It has been stated by the Applicant that after this Adjudicating Authority Order dated 06.12.2023, when the Applicant approached the Liquidator for release of payment, he insisted that without furnishing undertaking prepared by him, he will not release the payment. This undertaking was taken from all other suppliers.

It is also stated by the Applicant that if Applicant would not have given this undertaking and had challenged, it would have taken another substantial time for release of payment and which period applicant would have further suffered losses due to pending payment of interest to the banks.

Thus, the Applicant had no other option, but to agree to the force of Liquidator. We also observe that immediately after giving the undertaking and realisation of the cheque on 11/12.12.2023, the Appeal before Hon’ble Appellate Tribunal was filed on 19.12.2023.

Although, from the above sequence of events, it appears that the undertaking was given under coercion and financial duress, however on careful perusal of the wording of undertaking given by Mr. Kushagar Garg, it is apparent that it was neither under coercion nor under financial duress. And if the undertaking was given under coercion or financial duress, then it could have been given under protest or without prejudice to the right of appeal, when appeal before Hon’ble NCLAT is stated to be filed immediately after receiving the payment.

Therefore, we are of the considered view that the Applicant is estopped from claiming the interest after furnishing the undertaking dated 08.12.2023.

It is noted that the Applicant had supplied cotton to the Corporate Debtor, but Applicant had not annexed the invoices, which could depict that any interest on delay payment clause exists between the parties.

Further, there is no existence of any separate Agreement between the parties, as per which the Applicant was allowed to claim interest.

In this context, we refer to the Judgment dated 27.07.2018 in Pavan Enterprises Vs Gammon India Ltd. Company in Appeal (AT) (Insolvency) No. 148 of 2018, wherein the Hon'ble NCLAT held that -

The Applicant has also relied upon a clarificatory circular issued by the Indian Cotton Association Limited for the year 2018-2019, which is reproduced below:

It is noted that the above circular neither contains the number and date nor has the signature of the person issuing it. Further, the Applicant has failed to show the authority of the above Association to set any practice/ procedure and also the precedent in this regard more particularly, if it is a legislation making body under any law, or recognized by IBBI or has any mention in IBC. Thus, we are not inclined to accept the above circular submitted by the Applicant’s in support of his claim for the interest.

We are also not inclined to accept the contentions of the Applicant that the goods supplied during CIRP/ liquidation is like an “interim finance” & thus interest is payable on the same for delayed payment and the Applicant is incurring interest on the loans availed by him, as there is neither such provision in the law nor Applicant has supported his contention regarding such precedent.

In view of the above, we are of the considered view that the Applicant is not entitled to the interest on the delayed payment.