M/s Tata International Ltd vs M/s Trident Sugars Ltd

Orders pronounced. Recorded vide separate sheets. In the result, the Company Petition is rejected.

IA.No.1028/2022, since Company Petition itself is rejected, no orders are required in this Application. Accordingly, IA is disposed of.

IA.No.20/2023, is taken on record and accordingly IA stands disposed of.

This Company Petition is filed under Section 9 of IBC read with Rule 6 of Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules, 2016, by M/s Tata International Limited/operational Creditor (OC) against M/s. Trident Sugars Limited/ Corporate debtor claiming a sum of Rs. 21,67,10,677/-(Twenty One Crores, Sixty Seven Lakhs only) as on 31.10.2021. The operational Creditor seeks admission of this petition, initiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon.

The averments in brief as made in the application are:

a. It is averred that the corporate debtor had approached the operational creditor and offered to supply sugar produced from the crop of 2019-20. Thereafter both parties had entered into a Trade agreement on 30.09.2019. With regard to this operational creditor had agreed to pay an advance of Rs.15,00,00,000/- to the corporate debtor with a commitment to perform the entire contract on or before 31.03.2020.

b. However, corporate debtor breached the contract and did not supply the sugar at all, as per the terms of the trade agreement. Subsequently an addendum was executed to the said Trade Agreement which was signed on 14.04.2020. The agreement was extended till 30.11.2020. Based on the agreement the corporate debtor agreed to pay the Operational Creditor an interest @30% p.a on a monthly basis per month i.e Rs.37,50,000/-+ GST within 5 working days from the end of every month failing which operational creditor will charge a penal interest of Rs. 36% on the outstanding amount for that month.

c. Accordingly, Credit notes were also raised by corporate debtor in favour of the operational creditor for a total amount of Rs.6,66,98,631/- for the period 11.10.2019 to 31.03.2021.

d. Though the operational creditor has made several requests, payments have not been received. Thus, operational creditor issued demand notice in Form 3 on 15.11.2021 claiming the outstanding amount of Rs.21,67,10,677/-( Principal of Rs.14,95,57,500/- and interest of Rs.6,71,53,177/-) which was received by corporate debtor on 16.11.2021.

e. It is averred that though notice has been delivered operational creditor has not received any payment or notice of dispute regarding the pending amount from the corporate debtor. Further it is stated that in pursuance of the sale agreement Mr.R N Ramnath, one of the Directors of the Corporate debtor, had executed a guarantee agreement dated 30.09.2019 with the Applicant wherein he agreed to pay the Applicant, in case the corporate debtor fails in making payment under the sale agreement.

f. Thus, this Application is filed for initiating the CIRP against the corporate debtor M/s.Trident Sugars Limited, U/S.9 of IBC, 2016.

The averments as made Reply in brief are:

a. Corporate debtor denied the averments made by the operational creditor. It is stated that the application is not maintainable due to the following reasons:

b. It is averred that notice has not been received/ nor delivered to the respondent since the Corporate debtor office was closed due to pandemic Covid-19(2^nd phase). Even the notice by way of mail was not received. It is averred that email was available with the Applicant in the Trade Advance Agreement and could have easily been served during the Covid Pandemic. Further stated that the first mail was received from the Applicant on 16.07.2022.

c. It is further averred that some of the facts has not been disclosed by the Applicant i.e

d. It is averred that the Applicant has not disclosed the facts

e. Further corporate debtor has stated that it is non-operational debt. It is averred that the amounts which are under the settlement agreement do not fall under the category of operational creditor as per the ruling of Hon’ble NCLT New Delhi in the matter of Ahuliwalia Contracts India Ltd Vs Logix Infratech Pvt Ltd. It is submitted that the amount which has paid in advance for supply of sugar and not for the specified purposes envisaged in 5(2) &5(21) of IBC.

f. It is averred that the clause for arbitration both in the trade agreement dated 30.09.2019 vide Clause No.25 and in the MOU vide Clause no.09. The respondent stated that he has issued notice regarding the dispute vide email dated 01.06.2022 and further vide letter dated 23.06.2022. Notice under Section 21 of the Arbitration and Conciliation Act has been sent to appoint Arbitrator for deciding the dispute between the parties.

g. Thus, corporate debtor has submitted that the present application is liable to be dismissed as the Applicant has not disclosed all the information and data relating to the case as on date of filing this Application.

Both sides filed written submissions reiterating their contentions. The Petitioner relied on the following rulings;

The respondent relied on the following case law.

Therefore, in the light of the above facts and circumstances, points that arise for consideration in this matter are:

Whether the demand notice dated 15.11.2021 claimed to have been served by Petitioner on the Respondent demanding payment of the operational debt said to have been defaulted on 31/03/2020 by the respondent, is not enforceable under law and on facts of this case? if so, whether the company petition is maintainable?

Whether the demand notice dated15.11.2021 by Petitioner to the Respondent demanding payment of the operational debt is not served in such form and manner prescribed under the IB Code?

Whether the dispute raised by the respondent can be described as ‘a pre-existing dispute’ as explained in the decision in Mobilox Innovations Private Limited v. Kirusa Software Private Limited? If so, whether the Petition is maintainable?

^7. We have heard Shri Y. Suryanarayana, Ld. Counsel for the Petitioner and Shri P. Sri Raghuram, Ld. Senior Counsel for the Corporate Debtor, perused the record, written submissions and the case law.

Whether the demand notice dated 15.11.2021 claimed to have been served by Petitioner on the Respondent demanding payment of the operational debt said to have been defaulted on 31/03/2020 by the respondent, is not enforceable under law and on facts of this case? if so, whether the company petition is maintainable?

Shri. Y Suryanarayana Ld. Counsel for the petitioner would contend before us, that both parties herein had entered into a Trade agreement on 30.09.2019 for supply of sugar, whereunder the Petitioner/ operational creditor had agreed to pay an advance of Rs.15,00,00,000/- to the respondent/ corporate debtor with a commitment to perform the entire contract of supply of sugar to the petitioner of a quantity of 20,000 Mts on or before 31.03.2020.

According to the Ld. Counsel the respondent/ corporate debtor breached the contract and did not supply the sugar as per the terms of the trade agreement and subsequently an addendum was executed to the said Trade Agreement which was signed on 14.04.2020 and the same was later extended till 30.11.2020 where under the corporate debtor agreed to pay the Petitioner/ operational creditor an interest @30% p.a on a monthly basis per month i.e Rs.37,50,000/-+ GST within 5 working days from the end of every month failing which operational creditor will charge a penal interest of Rs. 36% on the outstanding amount for that month. Ld. Counsel further submits that; accordingly, credit notes were raised for a total amount of Rs.6,66,98,631/- for the period 11.10.2019 to 31.03.2021 however, no payments have not been received. Hence the Petitioner/operational creditor on 15.11.2021 issued the demand notice in Form 3 claiming an outstanding amount of Rs.21,67,10,677/-( Principal of Rs.14,95,57,500/- and interest of Rs.6,71,53,177/-) for which though has been served on the corporate debtor on 16.11.2021 the petitioner/operational creditor has not received any payment or notice of dispute regarding the pending amount from the corporate debtor. Hence the present proceedings have been initiated. Relying on the rejoinder filed , Ld. Counsel strongly refuted the contentions of the respondent that the demand not has not been served on the respondent in the manner prescribed under rules hence there is no service of demand notice on the respondent , besides the other contentions of the respondent, namely, that the petitioner intentionally supressed the MOU dated18.02.2022, entered by the petitioner with the respondent post issuance of the demand notice dated 15.11.2021whereunder the payment has been rescheduled and that there is a pre-existing dispute between the parties in terms of sub rule 2 of Section 8 of the IB Code.

Sri. P. Sri Raghuram, Ld. Sr. Counsel for the respondent/corporate debtor while refuting the afore stated submission of the Ld. Counsel for the Petitioner, at the very outset, submitted that present petition is liable to be dismissed as the Applicant has supressed the following material information despite being in knowledge of the same at the time of filing this company petition.

- Supply of sugar amounting to Rs.7,04,61,825/- after the due date of the notice.

- The MOU signed by the Applicant on 18.02.2022, i.e. post issuance of the demand notice dated 15/11/2021 and prior to filing of the present company petition where under payment schedule has been revised and to commence from February 2022.

-Supply of 3000 MTs of Sugar, besides further quantity of 2074 MTs of Sugar as per the Trade Advance agreement.

-Failure in honouring the commitment to extend the loan on Mortgage, the Applicant has further negotiated and entered into an agreement, MOU in settlement of the delays and dues under the Trade Advance Agreement on the 18.02.2022.

Ld. Sr. Counsel further submitted that, the petition is not maintainable as the demand notice dated 15/11/2021 has not been received or delivered to the respondent, since the Corporate debtor office was closed due to Covid-19(2^nd phase) pandemic by the date of alleged delivery. Ld. Sr. Counsel further submitted that even assuming that the demand notice dated 15/1//2021 has been duly served yet the date of default alleged in the said notice stood whipped of consequent to the entering into the MOU dated 18.02.2022 where by a fresh repayment schedule has been agreed as below by the parties, hence default if any can be on or after February 2022 and the present petition having been filed on the basis of the demand notice issued on 15/11/2021 is not sustainable consequently the petition is liable to be dismissed as not maintainable.

Before we proceed to decide the point above, we feel it useful to refer to sections 8 & 9 of IB Code, which are as below.

It is trite law to say that service of demand notice in the form and the manner as prescribed under the Code, and the rules made thereunder is the sine qua non, for initiation of corporate insolvency resolution process against the corporate debtor by any operational creditor. As per the Explanation, provided in Section 8 of the IB Code, a “demand notice” means a notice served by an operational creditor to the corporate debtor demanding [payment] of the operational debt in respect of which the default has occurred.

In terms of section 9(5) (ii) (c) of IB Code, the Adjudicating Authority shall reject the application and communicate such decision to the operational creditor and the corporate debtor, if –

Therefore, in the light of the law and the factual matrix of this case as narrated above, we now proceed to decide this point.

A perusal of the company petitions which was filed on 16/07/2022 discloses that the date of default of the subject operational debt has been mentioned by the petitioner as 31/03/2020. Under the demand notice dated 15/11/2021 the petitioner claimed an amount of Rs. 21,67,10,677 being the total sum due with interest as on 31.03.2021. Admittedly, on 18.02.2022 the parties herein have entered into an MOU, whereunder the dues payable by the respondent under the Trade Advance Agreement have been rescheduled as below.

That apart, the said MOU also provides for creation of equitable mortgage over certain immovable properties of the corporate debtor in favour of the petitioner as security for release of a sum of Rs.9 crores by the petitioner of which Rs.4.5 crores to be adjusted towards the outstanding dues under the Trade Agreement dated 30.09.2023.

Indisputably, despite receipt of some payments and also supplies post 31/03/2020 (the alleged date of default) the petitioner choose not to mention the said MOU dated 18.02.2022 in the present company petition. But for the mention of entering into the MOU dated 18.02.2022 by the respondent in its counter, the fact of execution of the said MOU would not have seen the light of the day in this proceeding. Though, the Ld. Counsel for the petitioner, by filing a rejoinder endeavoured to plead that non-mention of entering into the MOU is not intentional and there is no intentional suppression of facts by the petitioner, having regard gravity of the consequences of admitting a respondent into CIRP in a petition filed either under section 7 or 9 of IB Code, besides considering the impact that the above MOU it may make on the present proceedings, we are not inclined to accept the above submission of the Ld. Counsel for the petitioner since suppression of material information which is in the knowledge of the petitioner is ex facie, clear and unambiguous. Thus, petitioner’s approach is unclean.

Here we usefully refer to the ruling of Hon’ble Supreme court of India, in re, Ramjas Foundation & Ors., supra, wherein it was held that;

Moreover, the purpose of rejoinder being only to explain/ clarify the correctness of the fact pleaded with respect to the new pleas raised by the other party in its pleadings but not to bring to light the facts which are already been in the knowledge of the party but the party failed to plead the said facts.

Therefore, it as clear as crystal, that consequent upon entering into the undisputed MOU dated 18/02/2022, whereunder the repayment of dues under the Trade Agreement dated 30.09.2023 have been rescheduled, the date of default relied on for the purpose of the present proceeds is factually incorrect and a deliberate factual mis quote by the petitioner. As already stated, supra, as per the Explanation, provided in Section 8 of the IB Code, a “demand notice” means a notice served by an operational creditor to the corporate debtor demanding [payment] of the operational debt in respect of which the default has occurred. In the case on hand the demand notice dated 15/11/2021 admittedly was in respect of the default claimed to have occurred on 31/03/2020 which default indisputably whipped of consequent upon the petitioner and the respondent entering into the MOU date 18/02/2022, supra, whereunder the first rescheduled payment to commence from February 2022. The demand notice dated 15/11/2020 being prior to February 2022, and as there is no pleading as to the date of default if any, ‘in presente’ or post entering of the MOU, supra, the purported default dated 15/11/2022 cannot be treated as the date of occurrence of default for the purpose of the notice demanding [payment] of the operational debt in terms of the explanation provided to section 8 of the IB Code. Therefore, the present initiation of Corporate Insolvency Resolution Process against the respondent by the petitioner is nothing but a shear abuse of IB Code, violative of Section 9(5) (ii) ( C) of IB Code, besides an exercise of chasing of payment or building pressure for releasing the payment. Hon’ble Supreme Court in Civil Appeal No.9597 of 2018, in Transmission Corporation of Andhra Pradesh limited Vs. Equipment Conductors and Cables Limited” vide para 15 has held that;

The point is answered accordingly.

Whether the demand notice dated 15.11.2021 by Petitioner to the Respondent demanding payment of the operational debt is served in such form and manner prescribed under the IB Code?

In the light of our finding on point one supra, discussion and finding whatsoever on this point is in significant on the outcome of this petition and therefore academic. Nevertheless, we proceed to discuss the same as the respondent not only denied service of demand notice but also contended that the even if service of notice is assumed, yet the same was not done in the manner provided under the code and rules the compliance of which is mandatory. We, therefore, for the purpose of effectively answering this Point, refer & rely on the Rule 5 of The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, which is as below;

According to the Ld. Counsel for the petitioner the demand notice dated 15/11/2021, has been served on the respondent on 16.11.2021 as per the postal track report and the said service is as per the form and manner prescribed under rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 rules. A copy of postal track report also has been filed.

However, the Ld. Sr. Counsel’s submissions on the service of demand notice is twofold. Firstly, Ld. Sr. Counsel contends that, service on the security guard deployed at the corporate debtor’s office during Covid 2019 pandemic is not a proper service in terms of mandatory rule 5 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, herein after referred to as ‘rules’ for short . Nextly, it is contended that since the petitioner is relying on the postal track report, which is not ‘acknowledgement due’ as manded under sub rule 2 (a) of Rule 5, the service if any is invalid.

On the issue of reliance on the postal track report, we rely on the ruling of Hon’ble High Court of Telangana in T Surva Satish vs The State Of Telangana And Another CRIMINAL PETITION No.2461 OF 2020 Decided on 9 November, 2020, wherein it was held that;

Thus, reliance on postal track record for the purpose of drawing a presumption in terms of section 27 of the General Clause Act, as to delivery of the demand notice dated 15//11/2021 at the office of the respondent can be drawn.

For better appreciation of this contention, we usefully refer to, sub-section (1) of section 8 of IB Code specifically says that, “an operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed”. Rule 5(2) (a) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 Rules, which prescribes the form and the manner of service of demand notice, states that

Hon’ble Co-ordinate Bench in the matter of ‘Ven Infra Projects Vs Srichaitanya Chloridest Pvt Ltd’, relying on the ruling of Hon’ble NCLAT in Company Appeal(AT) (Insolvency) No.39 of 2017 between Uttam Galva Steels Vs. DF Deutsche Forfait AG and Ors. held that :- before filing an application under Section 9 of Insolvency & Bankruptcy Code, 2016 the requirements under Section 8 of Insolvency & Bankruptcy Code, 2016 are required to be fulfilled. Section 8 of IBC, 2016 is extracted hereunder:

Reliance in this regard also can be placed on the well-recognized rule founded in Taylor vs Taylor I.L.R. [1960] 2 All. 488, which says that, if a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. (Emphasis is ours) The principle behind the rule is that if this were not so, the statutory provision might as well not have been enacted.

In the above legal frame, the factual aspects relating to the service of demand notice on the respondent when examined it is clear that the petitioner failed in placing any record before us to show that the demand notice that was claimed to have been sent to the respondent by speed post was, with ‘acknowledgement due”. Therefore, noncompliance of sub rule 2 (a) of rule 5, supra, glaringly stares at the petitioner. In so far as the email is concerned the receipt of which also has been denied by the respondent, in the absence of any proof of delivery of the said email on the director of the respondent it is not safe to conclude that the same has been delivered on the whole time director of the corporate debtor.

The point is answered accordingly.

Whether the dispute raised by the respondent can be described as ‘a pre-existing dispute’ as explained in the decision in Mobilox Innovations Private Limited v. Kirusa Software Private Limited? If so, whether the petition is maintainable?

Here it may be stated that for the purpose of raising the plea of existence of a pre-existing dispute, failure to reply to the demand not is not a bar in view of the ruling in “Neeraj Jain Vs. Cloud walker Streaming Technologies Private Limited” (Company Appeal (AT) Ins. No. 1354 of 2019) decided on 24th February, 2020 in paragraph 50, wherein it was held that,

However, in the light of our finding on points 1 & 2 above, we are of the view that it would be an exercise in futile to deal with this issue. We, therefore, leave this plea open, and refrain ourselves from entering in to a finding whether or not the dispute raised by the Respondent in its counter is a ‘pre-existing’ dispute.

The point is answered accordingly.

(i) Ld. Sr. Counsel also submitted that as the corporate debtor has filed an Application before this Tribunal for referring this matter to Arbitration as per the terms of MOU, the company petition is not maintainable. According to the Ld. Sr. Counsel the computation table at page no.49 is not correct. Ld. Sr. Counsel further submitted that the debt claimed being the amount payable under the settlement agreement is a non-operational debt, hence do not fall under the category of operational debt. In support of this plea Ld. Sr. Counsel relied on the ruling of Hon’ble NCLT New Delhi, in the matter of Ahuliwalia Contracts India Ltd Vs Logix Infratech Pvt Ltd, wherein it was held that,

Therefore, in the light of our discussion on points1,2&3 above, considering the submissions made by the Ld. Counsels for both sides, and the case law relied upon, we have no hesitation in holding that the Company Petition is not maintainable either under law or on facts and the same is liable to be rejected. We therefore, accordingly reject this petition. However, without costs.

In the result this company petition is hereby rejected, however without costs.