Neo Seamless Tubes Limited vs KLT Automotive And Tubular Product Limited

ORDER

Submissions made by the Operational Creditor by the way of Petition:

"Sub-Issue of C-Form for the period 2010-11

Dear Sir,

This has reference to the above subject matter we are sending you herewith the C-Forms for the above-mentioned period. The details of the same are as under:

Sr. No.	Invoice No.	Invoice Date	Value (in Rupees)	C-Forms
1.	2	09.09.2010	11,31,017/-	780961
2.	6	16.10.2010	10,94,608/-	780976
3.	10	31.10.2010	11,76,567/-	780976
		Total	34,02,192/-

Please find the same in order & acknowledge the receipt of the same…”

Submissions by the Corporate Debtor by the way of Affidavit in Reply:

“5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts ---

(1)

All petitions relating to winding up under clause (e) of Section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7,8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code:

Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under section 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate.”

"29.

At the outset, this Tribunal points out that it is the plea of the Appellant that the alleged Demand Notice dated 25.09.2017 of the First Respondent was sent to an address 'C-2098, Oberoi Gardens Estate, Off Saki Vihar Road, Chandivali, Andheri East, Mumbai-4000072' and the same was not the registered address of the 'Corporate Debtor' as per the master data of the 'Corporate Debtor'/Second Respondent on MCA website. Continuing further, the clear-cut stand of the Appellant is that the registered office of the address as per MCA website is 'A-3027, Oberoi Garden Estate, Saki Vihar Road, Chandivali, Andheri East, Mumbai-400072 and the same is the registered office of the 'Corporate Debtor' since January, 2016 as form INC 22. In effect, the contention of the Appellant is that the Demand Notice was knowingly addressed to the wrong address of the 'Corporate Debtor /Second Respondent by the First Respondent/Petitioner.

30.

The Appellant takes a plea that the First Respondent in its reply before this Tribunal in Appeal at page 12 had inter alia averred that a Demand Notice dated 25.09.2017 u/s 8(1) of the I&B' Code was sent to the second Respondent at his registered address but the same was returned unserved on account of Debtor's company changing its registered address and hence, there is a violation of mandatory provision of section 8 of the code i.e., serving of a 'Demand Notice' being a pre-requisite for filing of an application under 9 of the 'I&B' Code. In short, the submission made on behalf of the Appellant is that no 'Demand Notice' u/s 8 of the 'I&B' Code was served on the Second Respondent/Corporate Debtor before filing of the petition.

31.

The contra stand of the First Respondent is that in compliance with Rule 5 of the Companies (transfer of pending proceedings, Rules, 2016) though a fresh 'Demand Notice was not essentially required to be served in Form 3/Form 4 because of the fact that in the records transferred from the Hon'ble Bombay High Court to the 'National Company Law Tribunal', statutory notice u/s 433 of the Companies Act was part of the record so transferred, yet a 'Demand Notice' dated 25.09.2017 as per Section 8(1) of the 'I&B' Code was sent to the 'Corporate Debtor/second Respondent at its registered address but the same got returned as 'unserved' on account of the debtor's company changing its registered address without complying the procedure mandated under the Companies Act, 2013.

Apart from this, the First Respondent has come out with the plea that the Demand Notice was appended with the rejoinder and was duly served upon the second Respondent along with the rejoinder and the same is on the record of the 'National Company Law Tribunal’, Mumbai."

"55.

Although, a plea is taken on behalf of the first Respondent that a fresh Demand Notice was not essentially required to be served in Form-3/Form-4 in compliance with Rule 5 of the Companies (Transfer of pending proceedings) Rules, 2016, this Tribunal is of view that the said plea cannot be acceded to in view of Rule 5 of the Companies (transfer of pending proceedings) Rules, 2016"

"60.

In view of the fact that in the instant case Section 8 notice under 'I&B' Code was not served upon the Second Respondent/Corporate Debtor and admittedly the same got returned as mentioned Supra, this Tribunal comes to a consequent conclusion that the impugned order dated 01.01.2020 passed by the Adjudicating Authority in CP (IB) No. 749/MB/C-IV/2017 in admitting the petition is not legally tenable and the same is accordingly set aside by this Tribunal to secure the ends of justice. As a logical corollary, this Tribunal declares illegal the order passed by the 'Adjudicating Authority' in appointing the Interim Resolution Professional, declaring moratorium and all other orders passed by the 'Adjudicating Authority' pursuant to the impugned order and action, if any, taken by the "Interim Resolution Professional” (including the advertisement, if any, published in the newspaper calling for applications and all such orders) and that the petition/application filed by the First Respondent is dismissed as abated. The Adjudicating Authority is required to close the CIRP proceeding. The Second Respondent/Company is released from all the rigour of Law and is allowed to function independently through its Board of Directors with immediate effect. The Adjudicating Authority will fix the fee of 'Interim Resolution Professional' and the 'Expenses' incurred and that the Appellant will pay the fees of the said Resolution Professional for the period functioned."

"7.

Learned counsel for the Appellant submitted that no notice under sub-section (1) of Section 8 was issued in Form-3 or 4 prior to treating the application as under Section 9 of the 'I&B Code' or before the admission. The application was also not filed in the proper format i.e. Form 5, as required under Section 9 of the 1&B Code' read with Rule 6 of the Adjudicating Authority Rules, 2016 in terms of which details of record of default etc. were required to be provided.

8.

The aforesaid stand taken by the Appellant has not been disputed by the Respondent, as he failed to appear."

17.

Admittedly, no notice was issued under sub-section (1) of Section 8 of the ‘I&B Code'. In terms with Rule 5, other informations were also not placed before the Adjudicating Authority.

18.

The Respondent having failed to provide all the details as required under Form-5 as noticed above, the application under sections 433 and 434 of the Companies Act, 1956 cannot be treated to be an application under section 9 of the 'I&B Code' in terms of Rule 5 of Transfer Rules, 2016. In such circumstances, in view of proviso to Rule 5 of the Transfer Rules, the application under Sections 433 and 434 of the Companies Act, 1956 stands abated."

"7.1.

We have considered the submissions made by the Petitioner. We have also perused the Petition filed before Hon'ble High Court and subsequently filed Form -5 as per the Code.

7.2.

Before we proceed to consider the merits of the case, it is necessary to examine the compliance of pre-condition before submission of any petition under the insolvency code. With regard to the question of issuance of Notice raised by the Debtor, we have perused the Notice sent by the Operational Creditor U/s. 434 of the Companies Act, 1956 and also the R.P.A.D. slip to that effect and we are of the opinion that, the Notice U/s. 434 of the Companies Act, 1956 is duly received by the Debtor.

7.3.

As regards the question of issuance of Demand Notice U/s. 8 of the Code it is admitted fact that, the Operational Creditor has not issued the Demand Notice U/s. 8 of the Code after transfer of Winding-up Petition from the Hon'ble High Court as against the Debtor.

7.4.

Accordingly, we have perused the decision of Hon'ble NCLAT in Era Engineering Ltd. v. Prideco Commercial Projects Pvt. Ltd. (Company Appeal) (AT) (Ins) 31/2017 wherein it is held as follows:

"8.

Admittedly, no notice was issued by Operational Creditor under section 8 of the I& B Code, 2016. Demand notice by Creditor stipulated under Rule 5 in Form 3 has not been served. Therefore, in absence of any expiry period of tenure of 10 days there was no question of preferring an application under section 9 of 1& B Code, 2016."

7.5.

Similarly, the Hon'ble NCLAT set aside the order of NCLT Chennai Bench in the matter of MSP Paper Mill Pvt. Ltd. v. Arjun Chemicals Pvt. Ltd. [Company Appeal (AT) (INSOLVENCY) No. 155 of 2017] following the lines of Sabari Inn Pvt. Ltd. v. Ramesh Associates Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 117 of 2017 on similar facts stating that:

"In the present case as notice under sub-section (1) of Section 8 of I&B Code has not been issued by the Respondent (operational creditor), we hold that the application preferred by the Respondent was incomplete. In these circumstances, we have no other option but to set aside the impugned order dated 28th July, 2017 passed by the National Company Law Tribunal, Chennai Bench, Chennai and declare that the application preferred by the Respondent under section 433 of the Companies Act, 1956 stands abated".

7.6.

Hence, in the light of above judgement we are of the opinion that this matter also deserves Rejection in absence of issuance of Demand Notice Us. 8 of the Code.

7.7.

Accordingly, this Petition/Application under S. 9 of the Code is Rejected as the defect in this Petition/Application is not a curable defect and time cannot be granted as per the Proviso of S. 9(5) of the Code which provides 7 days' Notice for Removal of defect. Nevertheless, the said defect makes the very Petition/Application as incomplete that too a ground for rejection under the Code. Needless to mention that, the Operational Creditor can issue a Fresh Demand Notice as per the Provisions of the Code and thereafter can approach this Tribunal again to seek appropriate reliefs."

"The learned Advocate appearing for the petitioner heavily relies upon a division bench judgment of the Andhra Pradesh High Court in case of Electro Flame Ltd., Hyderabad v. Mittal Iron Foundry Pvt. Ltd., reported in AIR 1988 Andhra Pradesh 203 to contend that submission of 'C' Form is one of the key element to admit the existence of jural relationship between the debtor and creditor. It is further submitted that the Company, in fact, acknowledges the transaction and its liability to pay and issued the 'C' Form to the petitioning creditor. It is lastly submitted that Section 18 of the Limitation Act can be pressed as the Company acknowledges its liability as well as the debt and the limitation would reckon from the date of the issuance of the 'C' Form."

"3.

As noted above, the appellant-company did furnish sales tax declaration form regarding the self-same sale transaction between the parties. Does it not mean and imply that there has been an intention on the part of the appellant company to admit the existence of a jural relationship between the parties such as that of debtor and creditor in regard to the debt in question-in our view, the answer cannot but be in the affirmative. As such, the plea of limitation in the contextual facts, on the basis of the law laid down by the Supreme Court, as noted above, cannot be sustained."

"The plea of limitation is one of the defence available to the other side which is well recognized in law. Section 18 can be pressed when there is a valid acknowledgment of the subsisting liability and not the past liability. The words used in the acknowledgment must sufficiently indicate the circumstances of the jural relationship as that of her debtor and creditor and there must be a manifest intention to admit such jural relationship. The object behind the issuance of the Sales Tax Declaration Form is to avail of the reduce rate of sales tax. The Declaration Form does not require to contain the statements relating to the payments already made or to be made but can at best be a best piece of evidence relating to the contract of sale and the goods being sold and delivered at a price agreed upon. The letter which contains the Declaration Form does not indicate the acknowledgment of the liability as well as the admission of the existence of a jural relationship. There is no express intention of the Company to acknowledge the liability in a letter containing the Declaration Form. Therefore, the issuance of the Sales Tax Declaration Form does not constitute the acknowledgment of the subsisting liability and/or establishes the jural relationship of a debtor and a creditor.

Submissions made by the Operational Creditor as Rebuttal of the Defences:

Rebuttal submissions on the issue of limitation:

"6... The plea of limitation by itself without scrutiny of facts cannot be termed to be a defence, far less a bona fide defence, so as to resist an application for winding up. It is a duty incumbent on the person contending and availing of such a plea to satisfy the judicial conscience of the Court as regards the substance of it upon proper assessment of the facts of the matter under consideration and in the event facts turned otherwise, question of drawing sustenance there-from does not and cannot arise. The defence must be a bona fide defence and not sham, illusory or moon-shine."

“2… This submission of C-form, in our view is a significant element in itself inasmuch as the same admit of the existence of a jural relationship between the parties. In this context, the observations of the Supreme Court in the case of S.F.Mazda v Durga Prasad, ought to be noted. The Supreme Court in no uncertain terms has observed that though a plea of acknowledgment ought to relate to a present subsisting liability but an exact nature or specific corrector of the said liability may not be indicated in words and in the event the words used indicate the existence of jural relationship between the parties such as that of debtor and creditor and the statement is made with the intention to admit such jural relationship, question of the claim being barred does not arise. The Supreme Court went on to observe that the intention to admit jural relationship can also be inferred by implication from the nature of the admission and need not be expressed in words and if the statement is fairly clear, then, and, in that event intention to admit jural relationship may be implied from the same.

3.

As noted above, the appellant -Company did furnish sales-tax declaration form regarding the self-same sale transaction between the parties. Does it not mean and imply that there has been an intention on the part of the appellant-Company to admit the existence of a jural relationship between the parties such as that of debtor and creditor in regard to the debt in question-in our view, the answer cannot but be in the affirmative. As such, the plea of limitation in the contextual facts, on the basis of the law laid down by the Supreme Court, as noted above, cannot be sustained."

"6.

It is thus clear that acknowledgment as prescribed by Section 19 merely renews debt; it does not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated in words. Words used in the acknowledge judgment must, however, indicate the existence of jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning, Broadly stated that is the effect of the relevant provisions contained in Section 19, and there is really no substantial difference between the parties as to the true legal position in this matter."

"111.

As per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has

"125.

Section 18 of the Limitation Act speaks of an Acknowledgment in writing of signed by the party against whom such property or right is claimed. Even if the writing containing the acknowledgment is undated, evidence might be given of the time when it was signed. The explanation clarifies that an acknowledgment may be sufficient even though it is accompanied by refusal to pay, deliver, perform or permit to enjoy or is coupled with claim to set off, or is addressed to a person other than a person entitled to the property or right. Signed' is to be construed to mean signed personally or by an authorised agent."

Findings:

“5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts ---

(1)

All petitions relating to winding up under clause (e) of Section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7,8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code:

Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under section 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate.”