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Judgment
ORDER
PER: MAHENDRA KHANDELWAL, MEMBER (JUDICIAL)
The instant application is filed by , M/s Neelkanth Trading Company through its Partner Mr. Sukhbir Singh (hereinafter referred as ‘Applicant’/ ‘Operational Creditor’) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘the CODE/IBC’) read with rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) with a prayer to initiate Corporate Insolvency Resolution Process (“CIRP”) against M/s Sankalpshakti Enterprises Private Limited (hereinafter referred as ‘Respondent/Corporate Debtor’) for failing to make the payment of Operational Debtor amounting Rs. 1,00,45,600/- (Rupees One Crore, Forty-Five Thousand, Six Hundred only).
The Respondent Company “M/s Sankalpshakti Enterprises Private Limited” was incorporated under the provisions of the Companies Act, 2013 having its registered office situated at S-354, Greater Kailash-I, Opp. M Block Market, Delhi-110048. Since the registered office of the Respondent/Corporate Debtor is in New Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor.
Averments of the Applicants:
Briefly stated the facts of the present case as averred by the applicant are that the Neelkanth Trading Company (Operational Creditor) and M/s Sankalpshakti Enterprises Pvt. Ltd. (Corporate Debtor) entered into a business arrangement dated 16.04.2022, wherein the Operational Creditor supplied dairy product "cream" to the Corporate Debtor on three occasions- 15.04.2023, 21.04.2023 and 26.04.2023. The Operational Creditor supplied the products as required and performed all its obligations under the said business arrangement and accordingly, raised invoices against the said supplies. Out of the total invoices raised till date, a sum of Rs. 1,00,45,600/- is outstanding as on respective dates of invoices being 15.04.2023, 21.04.2023 and 26.04.2023.
Applicant further submitted that, despite numerous requests and reminders from the Operational Creditor, the Corporate Debtor has failed to make payments of the outstanding amount towards the above invoices. Constrained by the non-payment of dues by the Corporate Debtor, the Operational Creditor sent Demand Notice in Form-3 dated 22.01.2024 under Section 8 of the Code to the Corporate Debtor. Applicant submitted that upon the Demand notice dated 22.01.2024 the Corporate Debtor sent its reply dated on 07.02.2024, wherein the Corporate Debtor has not denied the default and neither raised any pre-existing dispute with respect to the said default.
Reply of the Respondent/Corporate Debtor:
On the other hand, the respondent through his reply submitted that all averments, statements, submissions, grounds, contentions or allegations made by the Applicant are baseless, misconceived and false, and hence, are denied in entirety.
Respondent submitted that the Corporate Debtor has provided multiple dates of alleged default, which makes it evident that there is no specific date mentioned on which the alleged debt has become due and payable. Respondent further submitted that the invoices so attached with the present petition are silent on the "terms of payment" and that no specific time or period has been provided in the said invoices. Respondent submitted that there was no agreed upon time between the Petitioner and the Respondent within which the said invoices so raised were to be cleared on part of the Respondent.
The Respondent submitted that Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, establishes that an Operational Creditor is mandated to serve the Corporate Debtor with either a Demand Notice in Form 3 or a copy of the invoice accompanied by a notice in Form 4. However, the Operational Creditor issued a Demand Notice along with invoices under Form 3, which contravenes the aforesaid statutory provision
Respondent further submitted that the Corporate Debtor replied to the demand notice issued by the Applicant herein, wherein it was submitted by the Corporate Debtor that it is willing to settle the reconciled debt amount with the Applicant and sought additional time to comply with the same. Respondent submitted that the very purpose of the Code is to secure Financial Interests of a creditor when a Corporate Debtor is "unable" to pay its "undisputed" debts to its creditor.
Respondent submitted that the debt as alleged by the Applicant never became due as the goods supplied by the Applicant were not up to the expected quality as was agreed. Further, the goods were supplied with huge delay and were never delivered to the Respondent within the stipulated time period, which has caused the Respondent Company huge financial and operational losses or constraints. Thus, no debt is due or payable to the Applicant.
Analysis and Findings
We have heard Ld. Counsels for the applicant as well as the Ld. Counsel for the Respondent and perused the averments made in the application, duly authorized counter affidavit and rejoinder filed by the Respondent. The relevant documents annexed with the submissions have also been examined.
It is noted that there was a business relationship between the Applicant/Operational Creditor and the Respondent/Corporate Debtor. As per the Business Service Agreement dated 16.04.2022 executed between the parties, the Operational Creditor has supplied dairy product "cream" to the Corporate Debtor on three occasions- 15.04.2023, 21.04.2023 and 26.04.2023. Various invoices were raised. The default amount stated by the Applicant/Operational Creditor is Rs. 1,00,45,600/- for which a demand notice under section 8 of the Code was send by the Applicant/Operational Creditor to the Respondent/Corporate Debtor on 22.01.2024. The proof of service is also placed on record.
Upon perusal of Annexure A-5 (pages 23–25) of the Application, we observed that the Operational Creditor raised unpaid invoices dated 15.04.2023, 21.04.2023, and 26.04.2023 for dairy products supplied under a business arrangement dated 16.04.2022 to the Corporate Debtor, which was not disputed by the Respondent. Section 5(21) of the IBC defines operational debt as a claim in respect of goods supplied or services rendered. In the present case, the applicant has demonstrated the existence of such debt. The Respondent has failed to provide evidence of payment, thereby establishing the occurrence of a default as required under Section 3(12) of the IBC.
The Respondent claims there were issues regarding the quality of goods supplied and delivery delays. However, there is no record evidence showing that these issues were raised before the demand notice was issued. The Supreme Court in Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors & Cables Ltd. (2019) 12 SCC 697, held that disputes must be raised before the demand notice to be considered pre-existing. In the absence of contemporaneous records or communications highlighting any such concerns, the defense of a pre-existing dispute appears to be an afterthought and is not sustainable.
We have considered the submission of the Corporate Debtor wherein the Corporate debtor has raised the issue of defect in the demand notice. The Corporate Debtor has referred to text of Form 3 read with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. It is the contention of the Corporate Debtor that the demand notice should either be in Form- 3 (if it relate to demand) or in Form- 4 (if it is with invoices). He further submitted that demand notice in Form 3, invoice are not to be annexed. We have considered the submission made by the Corporate Debtor and also perused the Section 8 Demand Notice sent by Operational Creditor to Corporate Debtor, the Demand notice has been sent in form 3.
In Serial no. 7 below paragraph 2 of Form 3, a list of documents can be attached with the demand notice in order to proof the existence of operation debt and the amounting default. In the present case, the Operational Creditor in Section 8 Notice has enclosed certain documents including the invoices to proof the existence of operational debt and the amount of default. There is nothing wrong in annexing the invoices.
Furthermore, the NCLAT in Neeraj Jain v. Cloudwalker Streaming Technologies Pvt. Ltd., (2020) 112 CLA 249 (NCLAT) held that a demand notice in Form 3 is valid even when invoices exist. The purpose of the demand notice is to inform the debtor of the outstanding debt and provide an opportunity to dispute it. Since the respondent acknowledged receipt and responded to the notice, any technical defect in the format does not render the notice invalid under IBC.
Therefore the contention of the Corporate Debtor is found to be misconceived. Moreover in reply to that demand notice the Corporate Debtor has not raised this issue
The Respondent, in its reply dated 07.02.2024 against the Demand Notice dated 22.01.2024, expressed willingness to settle the outstanding amount and requested additional time for reconciliation. The Supreme Court in K. Kishan v. M/s Vijay Nirman Company Pvt. Ltd., (2018) 17 SCC 662 held that an offer to negotiate or settle does not constitute a valid dispute under IBC. An acknowledgment of debt further strengthens the case for admission under Section 9. Since the respondent has neither disputed the debt nor provided proof of payment, the offer to settle reaffirms the existence of a default. The Relevant portion of the Reply dated 07.02.2024 extract as below:
In view of the above discussed facts, we come to conclusion that the nature of debt is a “Operational Debt” as defined under section 5 (21) of the Code and the amount of outstanding Operational Debt is above the pecuniary threshold limit of Rs.1 Crore as envisaged under Section 4 of the Code, 2016. It has also been established that there is a “Default” as defined under section 3 (12) of the Code on the part of the Corporate Debtor. Therefore, the two essential qualifications, i.e., existence of “debt” and “default”, for admission of a petition under section 9 of the Code, 2016 have been met in this case.
The Hon’ble Supreme Court in Mobilox Innovations Private Limited Vs Kirusa Software Private Limited [Civil Appeal No. 9405 of 2017 para 34, wherein the Hon’ble Supreme Court laid down what the Adjudicating Authority has to examine in an Application under Section 9.
“34.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. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the Application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.”
The Applicant has complied with all procedural mandates under Section 9(5)(i)(a)-(e) of the IBC, including proof of debt, delivery of goods, issuance of a valid Demand Notice, and confirmation of default. The Respondent’s defenses lack legal and factual substantiation, as outlined in the Mobilox test (Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., 2017), which requires only a prima facie examination of default and absence of disputes.
The Hon’ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2018) emphasized that the Adjudicating Authority must admit a petition if the debt and default are established, and no credible dispute exists.
Having regard to the conspectus of facts of the present case and the judgements cited (supra), this Adjudicating Authority is of the considered view that the corporate debtor is in default of payment of the outstanding operational debt owed to the applicant and the mandatory requirements as prescribed under Section 9(5) of the Code, 2016 are satisfied. Therefore, the present company application (C.P. No. (IB)-723/(ND)/2024) stands admitted and the CIRP is hereby initiated against M/s Sankalpshakti Enterprises Private Limited.
The applicant in Part -III of the application has proposed the name of IRP, accordingly, this bench appoints Mr. Arunava Sikdar, as the Insolvency Resolution Professional (“IPR”) of the corporate debtor. The registration number of the IRP being IBBI/IPA-001/IP-P00022/2016-2017/10047 and email id – [email protected]. The IRP above named is appointed subject to the condition that no disciplinary proceedings are pending against him. The specific consent in Form 2 of Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rule, 2016 is attached with the application. The AFA validity of the IRP valid upto 31.12.2025.
We direct the applicant to deposit a sum of Rs. 2 lacs with the Interim Resolution Professional, namely Mr. Arunava Sikdar to meet out the expense to perform the functions assigned to him in accordance with regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within one week from the date of receipt of this order by the Operational Creditor. The amount however shall be subject to adjustment by the Committee of Creditors, as accounted for by Interim Resolution Professional, and shall be paid back to the Operational Creditor.
We also declare moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14 (1) (a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:
“(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.”
It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government and the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14 (3) (b) of the Code.
The Interim Resolution Professional shall perform all his functions contemplated, inter-alia, by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the Code, Rules and Regulations.
It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under section 19 of the IBC to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day-to-day affairs of the ‘Corporate Debtor’.
A copy of the order shall be communicated to the applicant, Corporate Debtor and IRP above named, by the Registry. In addition, a copy of the order shall also be forwarded to IBBI for its records. Applicant is also directed to provide a copy of the complete paper book to the IRP. A copy of this order is also sent to the ROC for updating the Master Data. ROC shall send compliance report to the Registrar, NCLT.
Let the copy of this order be served to the parties.