MPT Sweden AB & Anr. vs M/s. Technoweld Alloys (Overseas) Private Limited

[Per: Justice Sharad Kumar Sharma, Member (Judicial)]

These two company appeals are common in nature, wherein the impugned order dated 21.04.2021, passed commonly in both the company appeals in IBA/1434/2019 and IBA/1414/2019 respectively, has been questioned. The resultant effect of the impugned order is that the application preferred by the Appellant under Section 9 of the I & B Code, read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, has been rejected.

Though the bundle of facts in both these appeals may be quite vivid in nature, the question to be answered and adjudicated, as argued by the Ld. Senior Counsel for the Appellant and countered by the counsel for the Respondent, relates to the findings recorded in the impugned order. The scope of consideration is therefore restrictive and limited and does not require venturing into the factual controversy on the merits of the company petitions in detail.

The applications under Section 9 of the I & B Code, 2016, in each of these company appeals were initiated by the Appellant for the purpose of commencing CIRP proceedings against the Respondent for the alleged default in payment of the amounts due, as involved in the two company appeals. The same were considered by the Ld. Tribunal and rejected on the ground that there existed a pre-existing dispute, and therefore, initiation of CIRP proceedings under Section 9 of the I & B Code, 2016, was not warranted.

In Company Appeal (AT) (CH) (Ins) No.204/2021, the challenged order was passed in IBA/1434/2019. The proceedings in IBA/1434/2019 were initiated by the Appellant in the capacity of an Operational Creditor, seeking to commence CIRP proceedings for recovery of a defaulted amount of US $156,800, contending that the said amount had fallen due along with interest at the rate of 10%. It was alleged that the Corporate Debtor (M/s. Technoweld Alloys (Overseas) Private Limited) had defaulted in payment.

In the connected Company Appeal (AT) (CH) (Ins) No.216/2021, the impugned order emanates from IBA/1414/2019. In this case also, the Appellant is an Operational Creditor and sought to initiate CIRP proceedings against the Corporate Debtor (M/s. Technoweld Alloys (Overseas) Private Limited) for recovery of a defaulted amount totaling US $326,725, inclusive of interest at the rate of 10% on the overdue amount.

Factually, in both the company appeals, it is contended that the Operational Creditor was engaged in the supply of High Carbon Ferro Chrome material, as per the terms of the sale confirmation contracts entered between the parties. The contracts contemplated supply of the specified material as detailed in the respective sale confirmation letters, which form the subject matter of consideration in the two company appeals. The details are given below:

It was contended by the Appellant that the material was supplied in accordance with the sale confirmation contracts. The same was accepted by the Respondent, pursuant to which invoices were raised from time to time in terms of the sale conditions. Despite repeated assurances by the Respondent, the amounts expressed in US dollars, which had legitimately fallen due, were not remitted, thereby resulting in default. Consequently, the Appellant sought recovery of the outstanding unpaid invoices by initiating proceedings under Section 9 of the I & B Code, 2016. It was further stated that separate letters of subrogation-cum-assignment were executed in favour of EKN (Operational Creditor-2) and Appellant-2 herein, whereby Operational Creditor–1 / Appellant-1 herein assigned and transferred all its rights in relation to the losses arising from non-payment by the Corporate Debtor, granting full authority to Operational Creditor No.2 to initiate recovery proceedings.

The Operational Creditor / Appellant herein, has submitted that since the Corporate Debtor failed to clear the admitted outstanding liability, a demand notice under Section 8 of the I & B Code, 2016, dated 19.09.2019 (common in both appeals), was issued. Despite receipt of the said notice, the claimed amount was not remitted within the stipulated period, resulting in accrual of debt sought to be recovered through Section 9 proceedings, as detailed in the demand notice.

In response to the notice, the Corporate Debtor contested the proceedings, pleading the existence of a pre-existing dispute in respect of invoices raised after May 2018. It was contended that some of the supplied material did not pertain to the transactions in question, and that no shipment documents evidencing actual dispatch were produced. It was also alleged that there was variance in quantity and chemical composition beyond permissible tolerance limits. The Corporate Debtor further relied upon debit notes dated 15.04.2019 amounting to Rs.61,30,913.73/- towards detention and CFS charges (in IBA/1434/2019), and similar debit notes for detention and demurrage charges for the period 17.12.2018 to 26.12.2018 (in IBA/1414/2019), to contend that the demand notice dated 19.09.2019 was hit by a pre-existing dispute.

The Ld. Tribunal, after hearing both parties and considering the judgment in Mobilox Innovations Private Limited vs Kirusa Software Private Limited (2017 SCC Online SC 353), observed that there exists a dispute between the parties, and the said dispute is still in existence, the dispute is genuine and not serious, and therefore the application under Section 9 of the I & B Code, 2016 is dismissed.

The primary contention of the Ld. Counsel for the Appellant is that the finding regarding pre-existing dispute was not founded upon consideration of the Appellant’s pleadings and written submissions before the Ld. Adjudicating Authority. It was argued that the impugned order is perverse, having been passed without due consideration of the material placed on record, which justified initiation of Section 9 proceedings based on apparent default by the Corporate Debtor.

Similar contentions were raised in the connected appeal, wherein it was argued that the pleadings and written submissions filed by the Appellant were neither considered nor adjudicated upon by the Ld. Tribunal. The Appellant therefore contended that the impugned orders suffer from non-application of mind, lack of reasoning, and failure to consider rival submissions, warranting interference under Section 61 of the I & B Code, 2016. This contention was not satisfactorily countered by the Respondent.

Conversely, the Ld. Senior Counsel for the Respondent contended that the company petition itself was not maintainable as it was filed jointly by two Operational Creditors, relying upon the judgment in Uttam Galva Steels Limited vs Df Deutsche Forfait Ag & Another (2017 SCC Online NCLAT 212), particularly paragraphs 21 and 22 thereof.

The Appellant objected to this plea, contending that no such objection regarding maintainability was raised before the Ld. Tribunal, either in the objections or written submissions. It was argued that the objection was an afterthought and could not be permitted at the appellate stage, particularly when the Respondent had contested the matter on merits.

The Ld. Senior Counsel for the Appellant further submitted that since no such plea was raised earlier, the Respondent could not be allowed to challenge maintainability at this stage. However, this issue was not pressed for adjudication, as the primary challenge was to the finding of pre-existing dispute.

It was argued that the Ld. Tribunal recorded a vague finding while relying upon Mobilox Innovations Private Limited (supra), without analysing pleadings or evidence, rendering the judgment unsustainable due to non-application of mind.

Upon consideration of rival submissions, it is evident that despite sufficient material placed by the Appellant to demonstrate absence of a pre-existing dispute at the stage of initiation of proceedings under section 9 of the Code, the Ld. Tribunal rejected the application without proper analysis or reasoning.

Judicial propriety requires that rejection of proceedings must be supported by logical reasoning and application of mind. The impugned orders reflect none. As no reasons were assigned for concluding that there was existence of a pre-existing dispute, the impugned orders cannot be sustained and are hereby quashed. The company appeals are allowed. All pending interlocutory applications stand closed.

The company petitions are remitted back to the Ld. Adjudicating Authority for a fresh decision on merits, based on the pleadings already on record, without being influenced by any of the observations, which has been made by this Appellate Tribunal, which is exclusively because of the argument extended by the Counsel for the Parties.