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Judgment
O R D E R
This Petition has been filed under Section 9 of the Insolvency and Bankruptcy code, 2016 (“IBC”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Mrs Parthiban Uma Sankari, Proprietor of Saitech Systems, (hereinafter referred to as ‘Operational Creditor’) seeking to initiate Corporate Insolvency Resolution Process against KG Denim Limited (hereinafter referred to as ‘Corporate Debtor’).
Part-I of the Petition sets out of the details of the Operational Creditor. It is averred that the M/s Saitech Systems, incorporated on 07.03.2018, is engaged in the business of supply of saw dust which is used as fuel in various industries for the purpose of operating and running boilers and other equipments, which is represented by Parthiban Uma Sankari with its office situated at 25b, Chitra Nagar, Amman Kovil Bus Stop, Saravanampatti, Coimbatore – 641 035.
Part-II of the Petition sets out the details of the Corporate Debtor, KG Denim Limited, with Identification No. L17115TZ1992PLC003798, incorporated on 25.06.1992, with an authorized Share Capital of Rs. 41,00,00,000/- and the Paid-up Share Capital of Rs. 25,63,78,250/- having its registered office at the then Thirumalai, Jadayampalayam(PO), Mettupalayam, Coimbatore – 641 035.
In Part-III of the Petition the Operational Creditor has not proposed any Insolvency Professional to act as a Resolution Professional and therefore, prayed the Tribunal to make a reference to the board for appointment of Interim Resolution professional.
Part-IV of the Petition states that the total outstanding Debt is Rs. 1,12,37,091/- (Rupees One Crore Twelve Lakhs Thirty Seven Thousand and Ninety One Only), out if which Rs. 78,41,414/- (Seventy Eight Lakhs Forty One Thousand Four Hundred and Fourteen Only) payable for materials supplied and Rs. 33,95,677/- (Rupees Thirty Three Lakhs Ninety Five Thousand Six Hundred and Seventy Seven Only) is payable towards the interest at a rate of 16.75% p.a.
Part-V of the Petition describes the particulars of the Operational Debt, documents, records and evidence of the default as below:
Invoices relating to the Purchases reflexing the pending dues pertaining to 314 invoices as attached in Annexure-II (3) and the same are legally enforceable under the provisions of Indian Contract Act, 1872. Details of Bank accounts of the Operational Creditor and details of the last date of receipt of payment from the Corporate Debtor, Copy of Demand Notice sent to the Corporate Debtor along with the Acknowledgement of receipt and postal tracking of the same, attached under Annexure-I. PAN and OST Registration certificate of the Operational Creditor, as attached under Annexure-II (1). Copy of Master Data of the Corporate Debtor as per MCA, as attached under Annexure-I (2) Copy of the MSME certificate of M/& Saitech System, as attached under Annexure-II (3).
Copy of Invoices raised by the Operational Creditor to the Corporate Debtor as attached under Annexure-II (4).
A copy of the GSTR-1 filed by the Operational Creditor as attached under Annexure-II (5).
A copy of the GSTR-3B filed by the Operational Creditor as attached under Annexure-II (6).
Working Computation as attached under Annexure-II (7).
OPERATIONAL CREDITORS SUBMISSIONS:
It is submitted that the total outstanding Debt is Rs. 1,12,37,091/-(Rupees One Crore Twelve Lakhs Thirty Seven Thousand and Ninety One Only), out if which Rs. 78,41,414/- (Seventy Eight Lakhs Forty One Thousand Four Hundred and Fourteen Only) payable for materials supplied and Rs. 33,95,677/- (Rupees Thirty Three Lakhs Ninety Five Thousand Six Hundred and Seventy Seven Only) is payable towards the interest at a rate of 16.75% p.a. as on 18.10.2023.
It was submitted that the OC had delivered the goods in accordance with the terms agreed between the parties and CD has acknowledged the same on various dates as mentioned in the application. It was further submitted that the CD has neither disputed the value of invoices nor the quality of goods. The copy of invoices towards the payments due is enclosed as Annexure-II (4) of the petition.
It was submitted that the OC had sent Demand Notice dated 30.10.2023, which was not acknowledged by the CD. It was delivered to CD along with the letter dated 03.11.2023. The Demand Notice is enclosed as Annexure-I.
The CD has filed a rejoinder dated 15.03.2024, wherein it is submitted that the Respondent has not filed the counter in accordance with law, as the affidavit verifying the counter was signed on 09.02.2024 whereas the counter itself is dated 16.02.2024. It is further pointed out that although the affidavit states that it was affirmed at Chennai, it bears notarization from Coimbatore, thereby rendering the verification defective.
It was submitted by the CD that its present financial position demonstrates its inability to discharge the outstanding liabilities, and therefore the CIRP is warranted for the recovery of legitimate dues. It is further contended that the first default occurred in the year 2020 and the outstanding amounts have remained unpaid since then. This clearly evidences the CD’s inability to settle the dues and contradicts the CD’s allegation that the OC is misusing the IBC as a recovery mechanism.
It is submitted that although the Respondent, vide letter dated 27.09.2023, had undertaken to reconcile the accounts, no steps were subsequently taken either to initiate such reconciliation or to make any payment towards the outstanding balance.
It was submitted that the alleged issue of quality of goods was never raised by the Respondent in any communication prior to the filing of the counter affidavit. It was further contended that such an allegation has been made only at this stage with the sole intention of evading lawful payment obligations to the OC.
It is additionally submitted that the OC is registered as an MSME under the Micro, Small and Medium Enterprises Development Act, 2006. Under Section 15 of the said Act, the supplier is entitled to receive payment within 45 days from the date of invoice, and Section 16 entitles the supplier to interest at the prescribed bank rate in case of delayed payment.
8. RESPONDENT’S SUBMISSIONS:
The Respondent has filed a reply dated 16.02.2024, wherein it has been stated that the Respondent is willing to reconcile the accounts and settle the alleged outstanding dues. The Respondent has accordingly prayed that appropriate orders be passed as this Tribunal may deem fit in the circumstances of the case.
It was submitted by the Corporate Debtor (hereinafter referred to as the “CD”) that it is a company incorporated under the Companies Act, 1956 on 25.06.1993, and is engaged in the business of manufacturing and sale of Fashion Denim, Denim Jeans, Apparel Fabrics, Cotton Sportswear, Bed Linen and related products.
It was submitted that the CD has denied the demand raised by the OC for payment of Rs. 78,41,414/- along with interest @ 16.75%, contending that the mere submission of a large number of invoices, computations and purchase orders does not constitute a valid basis for initiation of proceedings under IBC.
It is submitted that the OC has been supplying sawdust to the CD from December 2018 to November 2021, during which period the CD purchased material worth approximately Rs. 3,00,00,000/-. Payments amounting to Rs. 2,21,00,000/- were duly made, and an additional payment of Rs. 2,02,296/- was remitted on 24.04.2023.
It is further submitted that upon receipt of the demand notice dated 21.09.2023 issued by the OC, the CD responded vide its letter dated 27.09.2023, pointing out discrepancies in the outstanding amount as reflected in its books of accounts and requesting reconciliation. However, no reconciliation exercise was undertaken by the OC thereafter.
It is submitted that the CD contends that the documents filed by the Applicant do not contain the requisite particulars or context necessary for the initiation of insolvency proceedings, and that the Applicant is attempting to misuse the provisions of the IBC as a recovery tool, particularly by imposing an exorbitant rate of interest on the alleged principal amount.
It is further submitted that CD is a well-known textile business, and that the present proceedings have adversely affected its goodwill. It was submitted the CD is a going concern, employing a substantial workforce, and therefore the initiation of CIRP at this stage would disproportionately prejudice the legitimate interests of its employees.
It has further been submitted that the delay in payments, if any, was solely on account of a sudden hike in international prices of yarn and coal and the subsequent economic recession, events which were beyond the control of the CD.
It was further submitted that they have encountered quality-related concerns with the supplies issued by the OC, though it continues to value the business relationship despite such issues.
It was submitted that the CD had orally invited the OC for negotiation and amicable settlement of the alleged dues; however, the OC did not engage in any discussions to resolve the matter.
FINDINGS OF THE TRIBUNAL
We have heard the learned Counsels for both the parties and perused the documents on record.
It is noted that the Petitioner has not provided the date of default. It has provided the multiple invoices from May 2020 to November 2021. The last invoice provided is of dated 17.11.2021. Thus, the date of default is taken as 17.11.2021. This petition has been filed on 29.12.2023. Hence, it can be seen that the said petition is filed within the period of three years from the date of default, which is well within the limitation period.
We have observed that as per the petition, the debt amount is Rs. 1,12,37,091/- (Rupees One Crore Twelve Lakhs Thirty Seven Thousand and Ninety One Only) which is more than the threshold limit of Rs. 1 Crore.
In the present case, there is no document showing that the Respondent at any time disputed the debt or its liability to pay the debt. There is also no document showing that there was deficiency in the quality and quantity of services rendered by the Operational Creditor.
It has been held in the case of Mobilox Innovations Pvt. Ltd. v/s. Kirusa Software Pvt. Ltd., reported in MANU/SC/1196/2017 that if there is a debt and default, and there is no pre-existing dispute the petition filed under Section 9 of IBC has to be admitted. The relevant para of the Judgment is extracted here below;
Para 25 - Therefore, the adjudicating authority, when examining an application Under Section 9 of the Act will have to determine:
(i)Whether there is an "operational debt" as defined exceeding Rs. 1 lakh? (See Section 4 of the Act)
(ii)Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And
(iii)Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected.
Para 40 – ........ 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.
Taking into consideration the facts and circumstances of the case, as well as the position of Law, we are of the view that the petition filed by the Operational Creditor, is to be Admitted under Section 9(5) of the IBC, 2016.
In the present case, the operational creditor has not proposed any IRP name and hence this Tribunal appoints Mr. Sundar Raman having Reg No: IBBI/IPA-001/IP-P-02300/2021-2022/13689, (Email: [email protected]) whose AFA is valid till 31-12-2025 as the “Interim Resolution Professional” (IRP) in respect of the Corporate Debtor. The IRP appointed shall take in this regard such other and further steps as are required under the Code, more specifically in terms of Section 15, 17, 18 of the Code and file the report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Debtor in terms of the provisions of IBC, 2016.
As a consequence of the Petition being admitted in terms of Section 9 (5) of the Code, the moratorium as envisaged under the provisions of Section 14 shall apply in relation to the Corporate Debtor as under:
“(1)Subject to provisions of subsections (2) and (3) on the insolvency commencement date the Adjudicating Authority shall by order declare prohibiting all of the following namely:
a. The institution of suits or continuation of pending suits or proceedings against the respondent 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 respondent 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 respondent 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 respondent.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance 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, shall not be suspended or terminated 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 or a similar grant or right during moratorium period;
(2)The supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
(3)The provisions of sub-section (1) shall not apply to
(a)such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;
(b)a surety in a contract of guarantee to a corporate debtor.
(4)The order of moratorium shall have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process: Provided that where at any time during the Corporate Insolvency Resolution Process period, if the Adjudicating Authority approves the Resolution Plan under sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or Liquidation Order, as the case may be.”
However, during the pendency of the moratorium period in terms of Section 14(2) (2A) and 14(3) as extracted hereunder:
“(2)The supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
(3)The provisions of sub-section (1) shall not apply to
(a)such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;
(b)a surety in a contract of guarantee to a corporate debtor.”
The duration of the period of moratorium shall be as provided in Section 14(4) of the Code and for ready reference reproduced as follows:
“(4)The order of moratorium shall have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process: Provided that where at any time during the Corporate Insolvency Resolution Process period, if the Adjudicating Authority approves the Resolution Plan under sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or Liquidation Order, as the case may be.”
The Operational Creditor is directed to pay a sum of Rs.2,00,000/-(Rupees Two Lakhs only) to the Interim Resolution Professional to meet out the expenses to perform the functions assigned to him in accordance to Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Based on the above terms, the Petition stands admitted in terms of Section 9(5) of IBC, 2016 and the moratorium shall come in to effect as of this date. A copy of the Order shall be communicated to the Operational Creditor as well as to the Corporate Debtor above named by the Registry. In addition, a copy of the Order shall also be forwarded to IBBI for its records. Further, the Interim Resolution Professional above named be also furnished with copy of this Order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.
Accordingly, Company Petition CP (IB) / 222 (CHE) / 2023 is allowed and disposed of.