M/s Swastik Armaan Steels Pvt. Ltd. vs M/s Food And Biotech Engineers India Pvt. Ltd.

“3.

If you dispute the existence or amount of unpaid operational debt (in default) please provide the undersigned, within ten days of the receipt of this letter, of the pendency of the suit or arbitration proceedings in relation to such dispute filed before the receipt of this letter/notice.

4.

If you believe that the debt has been repaid before the receipt of this letter, please demonstrate such repayment by sending to us, within ten days of receipt of this letter, the following: - (a) An attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (b) An attested copy of any record that M/s Swastik Armaan Steels Private Limited has received the payment.”

“Please be informed that we have no dues in our book of accounts in the name of Swastik Armaan Steels Pvt. Ltd. Rather an amount of Rs. 76,42,883.39 is receivable from Swastik Armaan Steels Pvt. Ltd.in our books. Copy of Ledger is being attached for your necessary review…”

“…further, an amount of Rs.6,06,92,270 is rightfully withheld by the respondent on pretext of inferior quality goods supplied to respondent. The said amount has been withheld by the respondent only after when the payments amounting to Rs.6,06,92,270 was withheld by various buyers stating the goods supplied by respondent company is made of inferior quality raw material.”

“12.

b) That upon careful scrutiny of the documents provided to me for the assessment of the ledgers it can be observed that all transactions (including the payments and sales transactions) up to the date 30.06.2022 are correctly mentioned by the Corporate Debtor in their ledger. d)That the Corporate Debtor has failed to provide reasonable explanations for setting off the amount due towards the Operational Creditor with the amount due from its customers as well as Swastik Armaan Proteins. g) That total wrongful adjustments of Rs. 8,51,92,270.00 (Rupees Eight Crores Fifty-One Lakhs Ninety-Two Thousand Two Hundred and Seventy only) have been made by the Corporate Debtor. i) That a balance of Rs. 7,75,49,386.61 (Rupees Seven Crores Seventy-Five Lakhs Forty-Nine Thousand Three Hundred Eighty-Six and Sixty-One paisa) is due from the Corporate Debtor towards the Operational Creditor.

c)

That on 14.09.2022, the respondent company through its director, filed a complaint against the Managing Director of the Operational Creditor before the Economic Offence Wing under Office of Superintendent of Police, Palwal, Haryana. Thereafter, the Director of the respondent company has also given their statement before Economic Offence Wing on 28.09.2022, wherein it was stated that Mr. Vikas Aggarwal, managing director of the operational creditor have opened a fake firm with the name and style of FOOD & BIOTECH with malafide intentions against the respondent company. It is also mentioned in the said statement that the operational creditor has not withdrawn the cases filed under section 138 of Negotiable Instrument Act, 1881 even after receiving the payments against said security cheques. Further, it was stated that Mr. Vikas Aggarwal has been involved in similar kinds of activities with various other entities and same nature of complaint have been filed earlier against him.

d)

On the other hand, the Operational Creditor has also supplied inferior quality of goods which have caused a huge loss to the reputation and business of the respondent. The Respondent have also been informed by their numerous buyers that the quality of the products was inferior and some needs replacement as well. Various buyers of the respondent have also withheld the huge payments on pretext of the same as the products made out of the raw material supplied by the operational creditor could not even complete the warranty period and issued debit notes/letters in regards to same.

e)

That in the month of May 2019, 29 cheques mentioned in the present petition was issued to the operational creditor as security for the pending payments. Thereafter, the operational creditor presented the cheques suddenly without intimating the respondent and the said cheques were dishonored. Subsequently, the operational creditor filed a case under section 138, 141 and, 142 of the Negotiable Instrument Act, 1881 before Faridabad District Court, Faridabad. That the said proceedings are still pending, whereas the amount for which the security cheques were issued has been paid by the respondent entirely between the period November 2019 to May 2022. Further in this regard, the respondent sent letters informing the same to the operational Creditor and requesting to withdraw the cases filed under section 138, 141 and 142 of the Negotiable Instrument Act, 1881 as the amount has been paid by the respondent.

f)

That, in terms of the order dated 24.01.2023, Mr. Vijay Kumar Gupta, Chartered Accountant, was appointed as a Court Commissioner by this Adjudicating Authority for reconciliation of Ledger account for the financial year 2022-2023 of Operational Creditor and Corporate Debtor and directed to submit a report as to Whether the Corporate Debtor has paid/remitted the amount of invoices and payments included in Section 8(l) notice. The Corporate Debtor expressly denies the findings of the Court appointed Commissioner. It is also evident that the Court commissioner has not considered the submission/clarification given by the Corporate Debtor in true spirit. Further, it has been observed that the Court Commissioner has come to the conclusion that Rs.7,75,49,386 is due from Corporate Debtor whereas in this present application under Section 9 of IBC 2016, the Operational Creditor is demanding Rs.7,97,36,990 from Corporate Debtor. The Court Commissioner in his report have not mentioned anything in this context. So, mere silence of the court commissioner regarding the said difference of Rs. 21,87,604 in his report has created a logical doubt on intent of the Court Commissioner.

g)

It is submitted that the intent behind the direction to submit the report was as to Whether the Corporate Debtor has paid/remitted the amount of invoices and payments included in Section 8(1) notice whereas the Court Commissioner has nowhere concluded expressly that the invoices mentioned in demand notice was unpaid rather just gave the conclusion that Rs.7,75,49,386 is to be paid but not mentioned Whether the debt is due on account of invoices mentioned in demand notice or not.

h)

The Court Commissioner while following his assumptions failed to consider that the all the 53 invoices pertains to financial year 2018-19 and the opening balance of the financial year 2022-23 carried forward from previous financial year is Rs.3,54,88,966 only and Rs.8,37,26,158 out of Rs. 11,92,15,124 were transferred from deferred account to main account which makes it evident that the invoices generated in financial year 2018-19 by the operational creditor was already paid except the amount of Rs. 3,54,88,966 which is ultimately adjusted from the payment of Rs.3,79,40,000 by the Corporate Debtor in this present financial year till 31.05.2022.

i)

The Court Commissioner failed to acknowledge the fact that the opening balance of financial year 2022-23 carried forward from previous financial year was Rs.3,54,88,966 only. The amount of Rs. 8,37,26,158 transferred from deferred account to main account on 07.04.2022 is a retention amount which Corporate Debtor used to keep as a security against material supplied by the operational creditor and is adjusted as per the status of the project. It is also pertinent to mention here that on an average a project gets completed in 12 to 15 months. In addition to that, 12 months’ warranty is also provided by Corporate Debtor. Therefore, Corporate Debtor closes the account after expiry of Installation and warranty period i.e. 24 to 27 months.

j)

In present scenario, clients of Corporate Debtor debited operational losses to Corporate Debtor on account of inferior quality material used in manufacturing of project which was obviously supplied by operational creditor. Therefore, in accordance with the mutually agreed terms, the Corporate Debtor rightfully adjusted amount transferred from the deferred account in main account against the inferior quality material supplied and payment withheld by our clients, which was ultimately the purpose of retaining some amount as deferred to safeguard the Corporate Debtor where low quality material supplied by operational creditor. The Court Commissioner has considered opening balance carried from previous financial year and balance transferred from deferred account as opening balance which is wrong.

k)

It is submitted that the invoices mentioned in the demand notice has been paid by the Corporate Debtor entirely and all the payments towards the said invoices is made through banking channels before filing of this present application under section 9 of Insolvency and Bankruptcy Code, 2016. The proof of payments of invoices are also placed on record in Annexure R8 and Annexure R9 of the reply of the Corporate Debtor.

l)

Further after giving sufficient clarification in regards to payment made to Swastik Armaan Proteins amounting to Rs.2,45,00,000 against the debt on the direction of the director of Swatik Armaan Steels Pvt Ltd. who is also a proprietor in Swastik Armaan Proteins, the Court Commissioner has concluded that the said payment does not relate to this current matter which is wrong. How the Court Commissioner came to the conclusion that the said payment does not relate to current matter without any firm basis is highly questionable. Further, it was also brought to the notice of Court Commissioner that Corporate Debtor did not have a single transaction with M/s Swastik Armaan Proteins which makes it clear that the sum of Rs.2,45,00,000 was paid by Corporate Debtor to the M/s Swastik Armaan Proteins on direction of Director of M/s Swatik Armaan Steel Pvt. Ltd. who is also the Proprietor in M/s Swastik Armaan Proteins, in order to discharge the liability towards the Operational Creditor. The payments have also been made through banking channel and the same is annexed as Annexure R9 of the reply of Corporate Debtor.

m)

That the Court Commissioner’s conclusion regarding the debit notes is also questionable as during the meeting, the representatives of Corporate Debtor have submitted and clarified that Issuance of debit notes in regards to inferior quality material is a normal practice in course of business with operational creditor and the Corporate Debtor have also issued various debit notes in previous financial years and the same has been recorded in the books of accounts of operational creditor as deferred payment. No objection has been raised by the Operational Creditor then. When the same practice of issuance of debit notes in regards to rejected material have been followed in normal course of business with operational creditor then how the issuance of debit notes in this present financial year looks highly suspicious. The Corporate Debtor has placed on record Annexure R13 in the reply to support this present contention. It is also pertinent to mention herein that the debit notes does not relate to the period 2018-19 and invoices issued in the said period rather it is related to lumsum/deferred withheld as a security in regards to running business amount.

n)

The Corporate Debtor also reiterates that the director of operational creditor is using a web of companies including Fake firm in the name of Food & Biotech to manipulate the books of accounts by entering bogus transactions as mentioned in above paragraph. So, in the interest of justice, it is necessary to verify the ledger account of operational creditor along with web of companies, before coming to any conclusion. Therefore, the Corporate Debtor have apprehensions that the books of accounts maintained by operational creditor are fictitious and the operational creditor have intentionally not annexed its ledger account before this Adjudicating Authority.

Analysis & Findings

“A claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority”.

“an application under Section 9 of the Code is not maintainable and ought to be rejected on there being a "pre-existing dispute". The Supreme Court had held that 'so long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Adjudicating Authority has to reject the application”.

“It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.”

“It is not clear as to why the ‘corporate debtor’ issued cheques if there was no ‘debt’

“(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.”

(e)

The IB Code 2016 also prohibits Suspension or termination of any license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concessions, clearances or a similar grant or right during the moratorium period.”