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Judgment
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
The present appeal has been filed by the Appellant- ‘Mahavir Singhal – Proprietor of M/s. Standard Impex’, under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 18.06.2020 as corrected on 23.06.2020 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal), New Delhi Bench –V in CP(IB) No. 1622/ND/2019. The clerical correction on 23.06.2020 has been made by the Adjudicating Authority only in respect of Sl No. in CP(IB).
While passing the impugned order dated 18.06.2020 in CP(IB) No. 1622/ND/2019 at paragraphs 24 to 26, the Adjudicating Authority had observed the followings:
“24.Mere plain reading of the above provision shows that the “dispute” includes a suit or arbitration proceedings relating to the existence of the amount of debt, or the quality of goods or service or the breach of a representation or warranty. Here in the case in hand, the Corporate Debtor has raised a dispute regarding the quality of goods, which is one of the dispute u/s 5(6) of the IBC and in support of that they have placed reliance upon two letters which are Company Appeal (AT) (Ins) No. 898 of 2021 enclosed at page Nos. 19& 21of the reply, in which it is specifically mentioned that Corporate Debtor has raised a question relating to quality of goods supplied by the Operational Creditor on 09.10.2015 and also sent a reminder on 16.10.2015 in which it is alleged that the Operational Creditor is not responding to their quality complaint. As we have already stated in the aforementioned para that although the Corporate Debtor has enclosed the documents in its reply to show that they have raised a dispute prior to issuance of Demand Notice and despite several opportunities given to the Operational Creditor to file the rejoinder but no rejoinder has been filed by the Operational Creditor, therefore, there is no other document filed on behalf of the Operational Creditor to show that the dispute raised by the CD in the year 2015 was resolved. Hence, we are of the considered view that the contention of the Corporate Debtor that they raised the dispute regarding the quality of goods is correct and liable to the accepted. As we have already stated that the last date of invoice is 05.10.2015 and soon thereafter, the dispute relating to quality was raised by the Corporate Debtor. Company Appeal (AT) (Ins) No. 898 of 2021
25.Under such circumstances, we have no option but to hold that the Corporate Debtor had raised a dispute regarding the quality of goods and Operational Creditor had failed to convince us that the same dispute was resolved, therefore, we are of the view that the Operational Creditor has falsely sworn an affidavit under section 9(3)(b) that no notice was given by the Corporate Debtor relating to the payment of the unpaid operational debt, therefore, in view of the Section 9(5)(ii)(d), if the notice of dispute has been raised by the Corporate Debtor or there is record of dispute in the information utility, in that case the Adjudicating Authority has no option but to reject the application of the Operational Creditor.
26.Accordingly, it is therefore, ORDERED that the present application is not maintainable and same is dismissed.”
The Appellant is the ‘Proprietor’ of ‘M/s. Standard Impex’, a ‘sole proprietorship firm’, engaged in the business of trading various goods such as Resin, Plastic, and Granules etc. The Appellant is the ‘Operational Creditor’ (OC). The Respondent No.1 is the Private Limited Company engaged in the business of ‘trading and distribution’ of Plastics and Chemicals, it is the Company Appeal (AT) (Ins) No. 898 of 2021 Corporate Debtor (CD). The OC used to supply various goods to CD based on negotiationed price, quality and quantity of goods used to be supplied to the CD by OC. They were having a running account.. As it looks from the ledger (appearing page 99 & 100 of the Appeal Paper Book -Annexure A3) goods were supplied between July 2015 to October, 2015 while payment has been received from September, 2015 to June, 2017. The unpaid invoices relate to ‘Financial Year 2015-16’.
The OC has sent the ‘Demand Notice’ on 27.02.2019 (appearing at page 107-109 of the Appeal Paper Book) while the reply to the demand notice has been issued by the CD to OC on 08.03.2019 (page 110-112 of the Appeal paper book). The demand notice is asking for payment of outstanding debt amounting to Rs.59,83,712/-. The CD has raised the issue of dispute in the reply to the demand notice. It is the case of the OC that an amount of Rs.59,83,712/- is still outstanding as on 31.03.2019. The OC/Appellant has also stated that a sum of Rs.1,49,83,718/- was outstanding in favour of the Appellant as on 31.03.2017 from CD &CD confirmed the same and even CD after October, 2015 has made part payment of Rs.3,46,75,000/- towards its outstanding liabilities. All this constitutes a further admission of the Appellant’s Operational Debt. The so-called dispute as per the Appellant raised by CD is a manufactured dispute of two communications dated 09.10.2015 & 16.10.2015 raising an alleged dispute regarding the quality of Company Appeal (AT) (Ins) No. 898 of 2021 goods supplied by the Appellant/OC. It was also alleged by the OC that an inspection of the damage goods called by the so-called deficiency in the goods, was yet to be carried out and there is no averment about seeking replacement of goods from the Appellant. This reflects made up documents as per the Appellant. The OC/Appellant has provided the CD’s ‘Ledger Accounts’ in its ‘Book of Accounts’ (at page 199 & 200 of the Appeal Paper Book) reflecting as on 19.06.2017 of a due amount of Rs.59,83,712.50.
While the Respondents have submitted that the Code is not intended to be a ‘recovery forum’ and this is a settled law. They have also stated that it is further a settled law that whenever there is an existence of dispute the provisions of the Code cannot be invoked in case of ‘Operational Debt’. The Respondents have also stated that they have continuously informed the Appellant about the poor quality of goods delivered by them which is evident from mixing of ‘Calcium’ ‘Carbonates’ and ‘Granules’ in the supplies and issued letter dated 09.10.2015 followed by another letter dated 16.10.2015 for making a joint inspection at the customer place to make an assessment of damage caused by the poor quality of goods supplied by the OC/Appellant. The Respondents have also raised its market reputation getting down because of the poor quality of goods supplied by the Appellant/OC. They have also raised that the invoices (appearing at page 41 and page 68 of the Appeal paper book) are invoices which are issued under ‘Rule 11’ of the ‘Central Excise Company Appeal (AT) (Ins) No. 898 of 2021 Rule 2002’ to remove goods from factory or warehouse and are not invoiced which are issued to the CD by the OC/Appellant. As per the ‘Ledger Account’ (at page 100 appeal paper book) of the OC in the books of the CD is of 05.10.2015 while he has filed the petition before Adjudicating Authority on 28.06.2019. Hence, as per the Respondent No.1 this falls within the domain of the Limitation Act and to be outrightly rejected as the Application has been filed after three years of the last supply. The Appellant has failed to inspect the goods in spite of two letters dated 09.10.2015 and 16.10.2015 issued by the CD to OC. The Appellant has not yet lifted the material nor has inspected the material so far. Once we raised a dispute then naturally it cannot be covered under the Code. The CD has also stated that the courier receipt of October, 2015 letters are genuine and not fabricated and also written off the amount as the same were disputed and not payable to OC. They have also cited the Hon’ble Supreme Court Judgment of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd in Civil Appeal No.9405 of 2017. It was also stated by the CD that they have stoped placing orders on the OC.
We have heard Ld. counsels for both the parties and have analyzed the information provided by them and the relevant provisions of the Code and are having the following observations:
a. As far as question of Limitation is concerned, it is very much clear that though the last invoice was raised on 05.10.2015 but the last payment Company Appeal (AT) (Ins) No. 898 of 2021 having been made on 19.06.2017 and there is a running account admittedly towards its outstanding to the Appellant. It would extend the period of limitations as per provision of the Limitation Act. As the Appeal has been filed on 24.06.2019 which is within three years from the last transactions of June 2017.
b. The case of initiation of CIRP is governed by provisions of Section 8 & 9 of the Code which are reproduced below for clarity:
Section 8: Insolvency resolution by operational creditor.
(1)An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or 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.
(2)The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—
(a)existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
(b)the [payment] of unpaid operational debt— Company Appeal (AT) (Ins) No. 898 of 2021
(i)by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
(ii)by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.
Explanation.—For the purposes of this section, 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.
Section 9 - Application for initiation of corporate insolvency resolution process by operational creditor.
(1)After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under subsection (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2)The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
(3)The operational creditor shall, along with the application furnish—
(a)a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;
(b)an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
(c)a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt [by the corporate debtor, if available;]
(d)a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and
(e)any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.]
(4)An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5)
The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—
(i)admit the application and communicate such decision to the operational creditor and the corporate debtor if,—
(a)the application made under sub-section (2) is complete;
(b)there is no [payment] of the unpaid operational debt;
(c)the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;
(d)no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and
(e)there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.
(ii)reject the application and communicate such decision to the operational creditor and the corporate debtor, if—
(a)the application made under sub-section (2) is incomplete;
(b)there has been [payment] of the unpaid operational debt;
(c)the creditor has not delivered the invoice or notice for payment to the corporate debtor;
(d)notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or
(e)any disciplinary proceeding is pending against any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.
(6)The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section.”
c. The above provisions of the Code clearly provides for the requirements of following three criteria’s before admission of a petition under Section 9 of the Code for initiation of CIRP by OC (i) the ‘Debt’ must be due and payable in law (ii)there must be occurrence of default & (iii) the ‘Debt’ must be undisputed.
d. What we are observing in the present case that the OC has issued a demand notice of unpaid operational debt to the CD in the requisite format but the CD/Respondent No.1 has raised a dispute which apparently could not be answered by the OC as the OC has neither done the inspection so far nor has taken back the goods so supplied. The OC has factually failed to communicate that there is no existence of dispute.
e. The Hon’ble Supreme Court has already amplified the role of the Adjudicating Authority on the question of consideration of dispute in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd, AIR 2017 SC 4532 at para 40:
“All 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…. 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.”
f. Further the proceeding under the Code is not for chasing payments, the Hon’ble Supreme Court in Civil Appeal No.9597 of 2018, “Transmission Corporation of Andhra Pradesh limited Vs. Equipment Conductors and Cables Limited” vide para 15 has already held that IBC is not intended to be a substitute to a recovery forum and also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked.
g. In view of the above stated position fact and law, we are unable to disagree with the Adjudicating Authority and uphold the view of the Adjudicating Authority. No order as to costs.