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Judgment
PER: P.S.N. PRASAD, HON’BLE MEMBER (JUDICIAL) & DR. BINOD KUMAR SINHA, HON’BLE MEMBER (TECHNICAL)
This is an Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by M/s OM Stampings Pvt. Ltd. (‘Operational Creditor’) duly authorized by its Board for initiation of Corporate Insolvency Resolution Process (‘CIRP’) against M/s Nelco Electricals Pvt. Ltd. (‘Corporate Debtor’).
M/s OM Stampings Pvt. Ltd. (Operational Creditor) is a Company registered under the Companies Act, 1956 [CIN-U31300DL2008PTC177975] having its registered office at F-16, Kavinagar, Sector-17, Industrial area, Ghaziabad, U.P. M/s Nelco Electricals Private Limited (Corporate Debtor) is a company registered under the Companies Act, 1956 [CIN- U74899DL1995PTC065532], having its registered office at Plot No.10, Sainik Enclave Masudabad, Opp. Metro Pillar No.83, Najafgarh Road, Delhi-110043. The Corporate Debtor has Authorized Share Capital of Rs. 2000000/-(Rupees Twenty Lacs) and Paid-Up Share Capital of Rs 1895200/- (Rupees Eighteen Lacs Ninety-Five Thousand Two Hundred).
The present Application was filed on 11.06.2022 before this Adjudicating Authority by Mr. Namit Gulati, the Authorised Representative of the Operational Creditor, duly authorized to initiate Corporate Insolvency Resolution Process (“CIRP”) proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“Code’).The total amount due as on 16.02.2022 is claimed to be Rs 1,04,42,260.71/- (Rupees One Crore Forty-Four Lakhs Two Thousand Two Hundred and Sixty and Paisa Seventy-One Only). The date of default is not expressly mentioned in Part IV of the petition, However, it is mentioned in the Demand Notice, that the debt fell due on the dates when the invoices were issued.
Submissions by the Ld. Counsel appearing on behalf of the Operational Creditor.
The Operational Creditor herein is a Company incorporated under the Companies Act, 1956 in the year 2008 and since then is engaged in the business of supply of iron sheet /metal sheets etc. and other metal products.
That the Corporate Debtor herein, is a Company incorporated under Companies Act, 1956 in the year 1995, and towards its business requirements with regard to the products/ home appliances manufactured and supplied thereby, approached the Operational Creditor herein for delivery of stamping and casting products as well as iron /metal sheet, metal cover as required by the Corporate Debtor for the manufacturing and marketing of its products/ home appliances and the Operational Creditor herein had been supplying the aforesaid products to the Corporate Debtor since Financial Year 2015-16.
The Operational Creditor along with the supply of goods as a part of its business dealings with the Respondent Company used to issue GST invoices simultaneously with the supply of the goods in favour of the Respondent Corporate Debtor inter-alia for the transactions in the FY 2019-20, FY-2020-21 and FY-2021-22. The Operational Creditor all through has been maintaining a running account of the Corporate Debtor and each and every payment received by it has been duly recorded in the ledger thereof. That on 20.11.2021, the Operational Creditor wrote an email to the Corporate Debtor confirming the balance payable by it with an attachment of the ledger statement in support thereof for the amounts payable on the relevant date.
That since 19.10.2020 to 31.03.2022, in acknowledgement of its liabilities towards the supplies already made by the Operational Creditor in the past, part payments under tranches were made by the Corporate Debtor to the Operational Creditor for a total amount of Rs. 93,55,000/- against the supplies already made to it, but still leaving substantial balance, which have been adjusted under the running account following FIFO system. However, since the Operational Creditor and the Corporate Debtor have been dealing in the past as well, after adjustment of all the amounts received by the Operational Creditor including amounts towards sales return etc., an amount of Rs.1,04,42,260.71/- {Rs. One Crore Four Lakhs Forty-Two Thousand Two Hundred Sixty and Paise Seventy-One} remained due and payable towards the Operational Creditor to be paid by the Corporate Debtor to the Operational Creditor as on 16.02.2022.
That an email dated 24.04.2022 was sent to the Corporate Debtor by the Operational Creditor calling it upon to make payment of the aforementioned amount. That since the Corporate Debtor was required to pay the amounts towards the supply of the goods by the Operational Creditor and as the said goods were neither ever returned nor any defect or deficiency in the said regard were raised by the Corporate Debtor at any given point, therefore, the Corporate Debtor was contractually obliged to make payment of the aforementioned amount; needless to state that since the amount of Rs.1,04,42,260.71/- {Rs. One Crore Four Lakhs Forty-Two Thousand Two Hundred Sixty and Paise Seventy-One} towards the supply of the goods was not paid, thereby qualifying the same to be an Operational Debt under Section 5(21) of the Code, not only the same constitutes a Claim under Section 3(6) of the Code but also default was committed as per the provisions of Section 3(12) of the Code.
That the Operational Creditor on 23.05.2022 issued Statutory Demand Notice as required under Section-8 of IBC, 2016 to the Corporate Debtor apprising the Corporate Debtor of the default of the abovementioned amount on its part and further demanding payment in terms thereof within the period of 10 days from the receipt of the said notice. Further, a moonshine defense as to pre-existing dispute as regards transaction concerned was averred by the Corporate Debtor in its Reply dated 31.05.2022 to the Demand Notice issued by the Operational Creditor under the provisions of IBC.
As the Corporate Debtor despite the receipt of abovementioned notice did neither pay the aforementioned amount nor brought to the notice of the Operational Creditor existence of any genuine dispute as envisaged under Section 8(2)(a) and 8(2)(b) of IBC, therefore, the Operational Creditor on account of the default committed by the Corporate Debtor in payment of its operational debt preferred the present application under Section 9 of the Code before this Adjudicating Authority.
Therefore, the Ld. Counsel for the Operational Creditor submitted that the Operational Creditor is entitled to the amount due and payable by the Corporate Debtor and hence, the instant application is filed before this Adjudicating Authority for initiating a Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016.
Submission by the Learned Counsel appearing on behalf of the Corporate Debtor
It is submitted on behalf of the Corporate Debtor that the present Petition is not maintainable Under Section 10A of the IBC, 2016. Section 10A of the IBC provides that no insolvency proceeding can ever be instituted against any entity whatsoever for the default caused/committed during the period between 25.03.2020 to 24.03.2021. As almost 50% of the invoices are raised during the period between 25.03.2020 to 24.03.2021 against which an application for initiation for CIRP cannot be filed in view of bar provided under Section 10A of the Code, the instant Application is not maintainable. If we exclude these invoices, the value of claim will be much below threshold limit of Rs. 1 crore. Furthermore, the Respondent is placing reliance on the Judgement of Hon’ble National Company Law Appellate Tribunal, Principal Bench, New Delhi in Company Appeal (AT) (Ins) No. 448 of 2022 pronounced on 02.08.2022 in which it was held that Invoices raised between 25.03.2020 to 24.03.2021 are not considered for the purpose of threshold limit of Rs. 1 crore as barred by Section 10A of IBC, 2016.
That the Operational Creditor has received Rs. 5,48,900/- from Respondent on 26.09.2020 by cash which is acknowledged by Director of Operational Creditor Mr. Deepak Gulati through WhatsApp message. This cash receipt has not been recorded by the Operational Creditor in its books of account/ledger account enclosed and hence not disclosed the true fact before this Adjudicating Authority. The Whatsapp Chat with the Director of Operational Creditor and Respondent is placed on record. It is contended that because of this concealment of fact, the petition is liable to be dismissed.
That the Respondent had arranged to make payment of Rs. 17,50,000/- to Operational Creditor through M/s Electra Electricals Pvt. Ltd. on behalf of Respondent. This amount has also not been posted by the petitioner in its books of account and concealed the true facts before this Adjudicating Authority. The Company M/s Electra Electricals Pvt. Ltd. is a company belonging to same family group and is managed by Mr. Nitesh Gupta, brother of Mr. Monish Gupta, Director of Respondent Company. At the request of Respondent/Corporate Debtor, this payment is made by M/s Electra Electricals Pvt. Ltd to petitioner Company which is evident from copy of letter of M/s Electra Electricals Pvt. Ltd. The Director of the Corporate Debtor was aware in respect to every payment made by M/s Electra Electricals Pvt. Ltd. to the Operational Creditor and every time copy of the cheque were exchanged with the Director of the Corporate Debtor. This type of arrangement is made in the industry wherever there is financial crisis and Corporate Debtor is a party to every payment made to the Operational Creditor.
It is submitted that there is a dispute with respect to value of the goods supplied by the Operational Creditor as in several invoices issued by the Operational Creditor there is rate variation and operational creditor has charged extra value against agreed prices. The extra amount charged on account of rate variation is Rs.4,27,873/- and after deducting this amount, the value of invoices for which petition is filed comes below threshold limit specified for filing of petition under Section 9 of the IBC and hence not maintainable and is liable to be dismissed on ground of maintainability.
It is submitted that there is a dispute with respect to quality of the goods supplied by the Operational Creditor for which Respondent informed the petitioner several times over phone and in some cases by WhatsApp chat. The Respondent has also faced a similar dispute issue with respect to same goods from the purchaser to whom respondent has supplied goods. That respondent has returned such defective material received from operational creditor through delivery challan by rickshaw as per normal trend prevailing in the industry. The respondent requested the petitioner to reconcile the details of returned materials in order to calculate the value of actual purchases made by respondent from petitioner but the petitioner never bothered to reconcile the same. When respondent noticed the intention of the petitioner, respondent then issued GST invoice for return of defective materials received from petitioner. Details of defective material returned to petitioner through delivery challan is placed on record.
It is further submitted that there is a dispute with respect to quantity of the goods supplied by the Operational Creditors as quantity of goods supplied by operational creditor as mentioned in the invoice is double the load bearing capacity of the transport vehicles claimed to be used for transporting the same to the Corporate Debtor. Therefore, the quantity of goods claimed to be supplied by the Operational Creditor through these transport vehicles could never have been supplied at any cost. In light of the above mentioned observations, it is submitted that the present Petition is not maintainable and is liable to be dismissed.
Analysis & Findings
We have heard the Learned Counsels for the Operational Creditor and the Corporate Debtor, and further perused the averments made in the petition, reply filed by the Corporate Debtor, rejoinder filed by the Operational Creditor and written submissions presented by both parties. Since the registered office of the respondent Corporate Debtor is in Delhi, this Tribunal is having territorial jurisdiction as the Adjudicating Authority in relation to prayer for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of The Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor. Further, the present petition is filed within the period of limitation.
It transpires that the ‘Operational Creditor’ had sent a demand notice dated 16.05.2022 to the ‘Corporate Debtor’ under Section 8 of The Insolvency and Bankruptcy Code, 2016 for payment of outstanding dues worth Rs. 1,04,42,260.71/-/- (Rupees One Crore Forty-Four Lakhs Two Thousand Two Hundred and Sixty and Paisa Seventy-One Only). Therefore, the present petition meets the pecuniary threshold limit of Rs. 1 Crore, in terms of Section 4 of the Code. The Applicant has tabulated a total of 87 invoices included in its claim as mentioned in Part IV of the Application.
However, on the perusal of the invoices containing claims in respect of outstanding amount for the Financial Years 2020-21 and 2021-22 as claimed by the Operational Creditor, it is observed that out of the total no. of invoices for the above said period (i.e. 87), the default in respect of 45 invoices included therein has occurred during the excluded period as mentioned under Section 10A of the Code, i.e., from 25.03.2020 to 24.03.2021. Section 10A of the Code reads as follows:
“10A. Notwithstanding anything contained in Sections 7,9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.” The present Application has been filed on the basis of ‘debt’ and ‘default’, part of which has occurred during the period in which initiation of CIRP process is suspended, i.e., the period mentioned under Section 10A of the Code. The details of invoices which were raised during the excluded period as covered under Section 10A are extracted below:
It is evident from the above details that these invoices were raised during the period between 25.03.2020 to 24.03.2021, which is the excluded period as mentioned in Section 10A of IBC. Moreover, the Operational Creditor has itself stated in the demand notice that the amounts under the composite debt of Rs. 1,04,42,260.71/-(Rupees One Crore Forty-Four Lakhs Two Thousand Two Hundred and Sixty and Paisa Seventy-One Only) fell due on the respective dates when the invoices were issued by the Operational Creditor to the Corporate Debtor and pursuant to which goods were supplied. Therefore, the ‘Date of Default’ in respect of these 45 invoices shall also fall within the excluded period under Section 10A of the Code. The total claim in respect of these invoices raised during the period excluded under Section 10A comes to the tune of Rs. 55,12,322/-, and if this amount is deducted from the total debt due as claimed in Part-IV of the Form 5, the net default amount as claimed in the petition would get reduced to Rs. 49,29,937/- only, which will fall short of the prescribed pecuniary threshold limit of Rs. 1,00,00,000/- as mentioned under Section 4 of the IBC, 2016.
In the Judgement of Hon’ble National Company Law Appellate Tribunal, Principal Bench, New Delhi in Company Appeal (AT) (Ins) No. 448 of 2022 pronounced on 02.08.2022, it was held that Invoices raised between 25.03.2020 to 24.03.2021 are not to be considered for the purpose of threshold limit of Rs. 1 crore as barred by Section 10A of IBC, 2016. The relevant portions of this judgment are extracted below for ready reference:
“It is noted that on 4th March, 2020 OC has sent an email under heading 'Sub-Letter of Demand for clearing overdue outstanding' whereby, OC has demanded total amount overdue of Rs. 88, 90,740/-. In the same email OC has written that inspite of several emails, letters and visits to collect over dues they are unsuccessful and this email is their last effort failing which they will take further action including legal remedies. Subsequently, Form-3 as demand notice was issued on 10th April, 2020 claiming outstanding dues of Rs. 1,08,12,591/-. In one of the columns for mentioning date of default, it was indicated that 'dates on which default occurred is mentioned in the statement of defaults' however, same was not evident clearly from the record. In same the demand notice reference has been given on email dated 04.03.2020 (Supra) demanding clearing of all dues outstanding. As discussed above, this email mentions amount of only Rs. 88,90,740/-. It has been brought out that two invoices i.e. Invoice No. BZ-109 dated 1st April, 2020 amounting to Rs. 7,02,100/- and Invoice No. BZ-110 dated 4th April, 2020 amounting to Rs. 4,36,600/- have been issued without any seal and signature. Admittedly, these two invoices dated 1st April & 4th April, 2020 have been issued after 25th March, 2020. Hence, these two invoices will be barred by Section 10A of IBC.
In view of different sets of claimed amount, we feel that prima- facie exclusion of two invoices discussed above from demand notice amount of Rs. 1,08,12,591/-the debt due amount will fall short of threshold limit of Rs. 1 crore after excluding two invoices Company Appeal (AT) (Ins) No. 448 of 2022 17 of 20 dated 01.04.2020 amounting to Rs. 7,02,100/- and invoice dated 04.04.2020 amounting to Rs. 4,36,600/-. As such the petition itself was not maintainable before the Adjudicating Authority”
Further, it is the petitioner who has to see whether any invoices are attracting Section 10A period or not at the time of issuance of Section 8(1) notice and consider to issue notice excluding the invoices relating to the excluded period. Including invoices covered under Section 10-A period automatically invalidates notice under Section 8 as the purpose of notice is to afford an opportunity to the Corporate Debtor to consider the payment of unpaid operational debt. It is up to the petitioner to claim the correct and admissible default amount in light of the provisions of law in force. We further observe that in the case of any default amount as claimed before us, if the part-default occurred during the period excluded to initiate CIRP against the Corporate Debtor, then the whole of the claim shall be liable to be discarded. This principle has been laid down by the Hon’ble NCLAT in M/s. Next Education India Private Limited V. M/s. K12 Techno Services Private Limited, Company Appeal (AT) (Insolvency) No. 98 of 2019, wherein, the Hon’ble NCLAT has held that the Tribunal cannot confine to one or other invoice if the Applicant has relied on all the invoices to arrive at the default amount. The relevant extracts of this judgment are as under:
“21.As can be seen from Section 8, reproduced above, the moment there is an occurrence of a default, copy of an invoice demanding payment of the amount involved in the default is to be delivered by way of a Demand Notice to the ‘Operational Creditor’. Form III gives the details of the invoices. In the instant case, the ‘Operational Creditor’ has given the details of invoices from (pages 399 to 406 of Volume II) and has also crystallized the amount at Rs. 2,39,85,521.35/-, which is unpaid from 2011. Therefore, the argument of the Learned Counsel for the ‘Operational Creditor’ that the period should be confined only from 2015 to 2017 cannot be sustained. The Tribunal cannot confine to one or other invoice if the Applicant has relied on all the invoices to arrive at the amount of Rs. 2,39,85,521.35/- in the Demand Notice under Section 8. We are of the view that the Tribunal does not have Jurisdiction in these Insolvency Proceedings to cut-short the invoices which would cause recurring dates of cause of action as it is not a suit for recovery.”
In the light of the abovementioned principle laid down by the Hon’ble NCLAT, we are of the considered view that since the Demand notice as well as the instant Application is based on the invoices that were raised during the period excluded under Section 10A, the instant petition is liable to be dismissed.
It is, accordingly, hereby ordered that the application bearing CP (IB) No. 504/ND/2022 filed by, M/s Om Stampings Pvt. Ltd., (Operational Creditor), under section 9 of the Code read with rule 6(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating CIRP against M/s Nelco Electricals Pvt. Ltd. (Corporate Debtor), is not maintainable and therefore stands dismissed without costs. The petitioner can prosecute his claims before the courts/other legal forums, as per the law.
A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.