Rudston Products (Int) Limited vs D'Oceanic Dolphin Apparels Private Limited

Abni Ranjan Kumar Sinha, J

The present petition is filed under Section 9 of Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016 by the Petitioner, i.e. "Rudston Products (Int) Limited" for initiation of Corporate Insolvency Resolution Process against the Respondent "D'Oceanic Dolphin Apparels Private Limited".

The petitioner is engaged in the business of import, export and whole sale of picked pelts and wet salted hides and skins.

The Corporate Debtor is engaged in the business of producing and selling leather items.

An International Contract No. 6 - Hides & Skins was made and executed between the Petitioner and Corporate Debtor on 07.11.2016 for shipment of 15.236 quantities of United Kingdom (UK) wetsalted sheepskins (hereinafter referred to as the "Skins") from Felixstowe Port in UK to Tughlakabad port on India.

With respect to the Contract entered between the petitioner and corporate debtor, the petitioner on 13.01.2017 issued a commercial Invoice No. RUD 16 to the Corporate Debtor, for selling and shipping 15,236 quantities of UK Skins at an agreed amount of GBP 0.80/- which amounts to GBP 12,188.80/- amounting to INR 11,32,369/- along with a packing list enumerating the description of the Skins and the certificate of origin from Greater Manchester Chamber of Commerce.

Thereafter, on 20.01.2017, the Skins were shipped on board from Felicstowe Port in UK to the place of delivery i.e. Tughlakabad port in India, pursuant to which a Bill of Lading for ocean transport Or multimodal transport was issued by the carrier Maersk Line on 24.02.2017 to the Corporate Debtor for shipment of the Skins in 2 containers containing 48 pallets.

The Skins shipped by the petitioner were duly received by the Corporate Debtor, and no objection or any claim was raised or notified by the Corporate Debtor to the Petitioner within a stipulated time period of 3 days of the receipt of Skins.

The Contract mentioning the letter of credit, payable 120 days i.e. 4 months after collection ("Due Date") for the Skins shipped to the Corporate Debtor was to expire on 13.05.2017 (calculated from the time the Skins were invoiced to the Corporate Debtor i.e. 13.01.2017). Various reminder emails were issued by the Petitioner to the Corporate Debtor stating that the payment of invoice is due for payment. It was averred by the petitioner that the email was acknowledged and assured by the Corporate Debtor, that the payment of the Invoice will be made within a week, as agreed vide email dated 10.05.2017.

Another email reminder dated 14.06.2017 was sent by the Petitioner wherein the Corporate Sector acknowledging the receipt of Skins vide its email dated 15.06.2017 stated that the Skins received have been already entered in the system of the Corporate Debtor, ensuring that the payment for the Skins shall be made to the Petitioner soon and also issued an apology for delay in clearing the outstanding payment of the Petitioner.

The Petitioner made averment that the Corporate Debtor has not raised any objection with respect to the Skins received by it and entered in its system.

It was ensured on behalf of the Corporate Debtor vide email dated 18.07.2017 that payment shall be made as the leather has finally started moving.

The Petitioner stated that the Corporate Debtor vide email dated 11.09.2017 stated that it has till date cleared about 80,000 skins (first 15 containers out of 29 received) and 100 percent damage is about 12%, which is mostly in shorn lamb and sheep skins. Inspite of acknowledging the aforesaid, the Corporate Debtor on no basis questioned the Skins received by it, which were damaged in the course of tanning process and without any conclusive proof listed the alleged losses suffered by the Corporate Debtor, thereby requesting the petitioner to compensate it for such alleged losses suffered by it.

He further stated that the petitioner vide email dated 21.11.2018 offered the Corporate Debtor that the Petitioner shall accept payment of GBP 6,188.80/- and balance of GBP 6,000/- payable at GBP 1,000/- per month over the next 6 months. However, the Corporate debtor instead of agreeing to the generous offer of the Petitioner to accept the pending amount as part payment after a major delay of more than a year, ignored the same and informed the petitioner that the Skins will be shipped back to the petitioner with payment of the additional costs of such shipment and wet blue cleaning charges undergone by the Corporate debtor for his own business requirements.

A demand notice dated 05.02.2019 was issued by the petitioner demanding payment in respect of unpaid operational debt to the tune of GBP 12,188.80 amounting to INR 13,63,681/- to the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 which was received by the Corporate debtor on 08.02.2019.

The Corporate Debtor vide its reply to the demand notice dated 18.02.2019 admitted that the two containers bought by the Corporate Debtor reached India around March, 2017 and raising the objection that the petitioner had sent sub-standard and very low quality skins and out of the Total skins sent by the petitioner around 12% of the skins were completely damaged and the same came to the knowledge of the corporate debtor after tanning of the skins and the said fact was communicated to the petitioner vide email dated 11.09.2017. It was stated by the corporate debtor in its reply to the demand notice dated 18.02.2019 that the fact that 12% of the skins were damaged has been admitted by the petitioner in its email dated 14.09.2017 and also agreed to compensate the corporate debtor for the losses borne by the corporate debtor in some other business dealing and also the corporate debtor sent the skins for dying and found that around 30-35% of the skins have damaged surface. Thus out of the total skins sent by the petitioner around 40-45% skins were damaged and the same was communicated to the petitioner vide emails dated 02.11.2018, 21.11.2018 and 22.11.2018.

It is stated by the petitioner that after a period of more than 6 months had elapsed, the Corporate Debtor raised the issue for the first time on 11.09.2017 with respect to the Skins received from the petitioner on account of handling, clearing and tanning of the Skins for the purposes of its own business requirement.

The total outstanding amount with interest claimed is INR 14,61,097/- which includes INR 11,32,369/- principal amount and INR 3,28,728/- interest amount. The date of default is continuing in nature. The unpaid invoice dated 13.01.2017 became due on 13.05.2017.

We have heard the Learned Counsel appearing for the Petitioner and perused the averment made in the application and the documents enclosed with the application.

Learned Counsel appearing for the Petitioner submitted that in pursuance of the agreement entering between the parties, the Petitioner has raised the commercial invoice but no payment was received. Then he delivered the demand notice upon the respondent and the respondent then sent the reply.

He further submitted that by sending the reply to the demand notice, Respondent has raised the issue for the first time on 11th September 2017 i.e. after the laps of more than six (06) months of the delivery of the goods and on the basis of that respondent claimed that there is a dispute regarding the amount claimed by the Petitioner. He further submitted that since that dispute is raised after six (06) months of the delivery of the goods, therefore, it could not be taken into consideration.

He further submitted that under such circumstances a notice may be issued upon the respondent.

Now in the light of the submission raised on behalf of the Petitioner, we have gone through the averments made in the application as well as documents enclosed by the Petitioner and we find, the Petitioner at page 29, para-4 column-2 of the application claimed Rs. 14,61,097/- only as defaulted amount and he further claimed that the date of default is continuing in nature and it became due on 13th May, 2017. We further find, the Petitioner has also claimed that he delivered the demand notice on 8th February 2019 and he received reply which is dated 18th February 2019. We further find, in course of argument, the applicant has not raised any issue on the point of reply of demand notice, rather in course of argument, learned Counsel appeared for the applicant admits that he received the reply to the demand notice which the applicant enclosed at page 98 of the application. The only issue raised by the applicant is, that the dispute regarding the quality of the goods is raised after the six (06) months of the delivery of the goods which was not maintainable, therefore, at this juncture we would like to refer Section 8 and Section 9 of the IBC, 2016 and the same are quoted below: -

"Section -8.

(1) An operational creditor may, on the in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in subsection (1) bring to the notice of the operational creditor--

(a) existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;

(b) the payment of unpaid operational debt--

(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Explanation.--For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred.

Section-9

(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

(2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shall, along with the application furnish--

(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;

(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt l[by the corporate debtor, if available;

(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and

(e) any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.

(4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order--

(i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,--

(a) the application made under sub-section (2) is complete;

(b) there is no [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.

(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if--

(a) the application made under sub-section (2) is incomplete;

(b) there has been [payment] of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or

(e) any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section".

From the perusal of the aforesaid provision we find that on the occurrence of a default, Operational Creditor may deliver a demand notice of unpaid operational debt or copy of invoice demanding payment of the amount involved in the default to the Corporate Debtor in the manner prescribed under the Rule and after receiving the notice, in view of Section 8 (2) of the IBC, 2016, the Corporate Debtor within 10 days of the receipt of demand notice or the copy of invoice mentioned in sub-section 1 of Section 8 of the IBC, 2016 bringing to the notice of the Operational Creditor: -

(1) existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;

(2) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor to show that operational debt has been paid.

On the basis of aforesaid provisions, we may say that after receiving of demand notice two options are available to the Corporate Debtor, one is, show that there is existence of dispute raised by him prior to the receipt of the demand notice or the payment has already been made prior to the receipt of the demand notice, and if either of the two options is not fulfilled by the Corporate Debtor only then after the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment under Section 8(1) of IBC, 2016, the Operational Creditor may file an application before the adjudicating authority for initiation of Corporate Insolvency Resolution Proceeding.

In the light of that provisions, when we shall consider the case in hand then we find, here in the case in hand, after the receipt of the demand notice, the Corporate Debtor within the period prescribed under Section 8 (2) raised an existence of dispute and also enclosed the correspondence made through the email between the two parties and claimed that the quality of the material supplied by the Operational Creditor were not good, rather 30 to 40 percent of the skins sent by the Operational Creditor were in damaged condition and in support of that, the Corporate Debtor has also sent photographs of the material, which were supplied by the Operational Creditor and which the Operational Creditor has enclosed from page 105 to 109.

At this juncture, we have gone through the email enclosed with the reply to the demand notice, which the applicant annexed at page 102 and we find, vide email dated 11th September 2017, the Corporate Debtor informed the Operational Creditor that the skins supplied by them are in damaged condition and reply to that email is also sent by Operational Creditor, which is at page 110 of the application.

We further find that there are other emails exchanged between the parties from page 111 to 113 and all these emails show that since 11th September 2017 to 22 November 2018, there are several exchanges of email between the two in which the issue regarding the damage of the skins and return of the materials with transportation cost etc. are claimed by the Corporate Debtor.

We further find all these emails exchanged between the parties regarding the quality of the good are made prior to the delivery of the demand notice, as we have already referred in the aforementioned-para that the demand notice was delivered on 8 February 2019, whereas the dispute was raised by the Corporate Debtor prior to that which would be evident from the email dated 11th September 2017 at page 102 of the application.

In view of the aforesaid discussions, we are of the considered view that before the receipt of the demand notice the Corporate Debtor has raised the dispute regarding the quality of the goods and the photographs and the emails enclosed with the reply to the demand notice show that there is an existence of dispute prior to the receipt to the demand notice.

At this juncture, we would again like to refer Section 9 of the IBC, 2016 which gives right to an Operational Creditor to file an application for initiating a CIRP against the Corporate Debtor, if the Operational Creditor does not receive payment from the Corporate Debtor or no notice of the dispute under sub-section 2 of Section 8 is raised. Here in the case, the dispute under sub-section 2 of Section 8 has already been raised by the Corporate Debtor, prior to the delivery of demand notice, therefore, we are of the considered view that the present application to initiate a proceeding under Section 9 of IBC is not maintainable.

Accordingly, we have no option but to reject the prayer of the applicant to issue notice against the respondent for initiation of proceeding under Section 9 of the IBC, 2016.

Accordingly, we hereby dismiss the application at this stage itself on the ground that a dispute under Section 8(2) of the IBC, 2016 has already been raised by the Corporate Debtor.