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Judgment
[Per: Ajai Das Mehrotra, Member (Technical)]
The present appeal has been filed by the Appellant against the order dated 05.12.2023 of NCLT, New Delhi (Court-II) in Company Petition No. (IB)-181/(ND)/2023 wherein the petition under Section 9 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’) was rejected.
The brief facts of this case as narrated in the order of Ld. NCLT are as under:
Shashi Beriwal & Company Pvt. Ltd. (hereinafter referred to as ‘Operational Creditor’ or ‘OC’) had filed the petition under Section 9 against the Laxmi Foils Pvt. Ltd. (hereinafter referred to as ‘Corporate Debtor’ or ‘CD’).
ii) The Operational Creditor has entered into an agreement with the Respondent, Corporate Debtor on 01.04.2021 in terms of which the Operational Creditor was to introduce the customers to the Corporate Debtor for the sale of latter’s material on commission basis.
iii) The Corporate Debtor had agreed to pay commission @ 3% on the total invoice value. The Operational Creditor has raised the following invoices against the Corporate Debtor:
| Invoice No. | Date | Amount |
| 120 | 10.01.2022 | Rs. 67,34,901/- |
| 121 | 20.01.2022 | Rs. 39,06,297/- |
| 122 | 28.01.2022 | Rs. 28,51,929/- |
| 128 | 07.02.2022 | Rs. 39,33,517/- |
| Total | Rs. 1,74,26,644/- | |
iv) As the Corporate Debtor failed to make the payment of amount of Rs. 1,66,88,228/- excluding GST to the Operational Creditor, the Operational Creditor issued demand notice dated 02.08.2022. v) The Operational Creditor had communicated outstanding payment vide email dated 24.02.2022 and 24.04.2022 which were admitted by the Corporate Debtor by issuing letter dated 25.02.2022.
vi) On failure of Corporate Debtor to make payment, the Operational Creditor served demand notice dated 02.08.2022 on the Corporate Debtor.
vii) The Corporate Debtor replied to the demand notice vide letter dated 18.08.2022. The copy of reply of Corporate Debtor is placed at page 123 to 135 of the Appeal Paper Book (APB). In its reply, the Corporate Debtor had mentioned as under:
The management of Laxmi Foils has changed;
Erstwhile management had colluded and conspired with the Operational Creditor and had deliberately and intentionally planned the alleged debt to extract more money from the Corporate Debtor.
viii) Under the share purchase agreement dated 03.02.2022, the current management i.e. Omat Business Pvt. Ltd. (OBPL) took over the Corporate Debtor, thereby making it a wholly owned subsidiary of OBPL. The Corporate Debtor contended that the erstwhile management and Operational Creditor had concocted the demand to extract money from the Corporate Debtor.
The Ld. NCLT, vide the impugned order, rejected the petition under Section 9 of the IBC as under:
“8.We have heard the counsels for the parties and perused the record. As can be seen from the contents of the petition itself, before Demand Notice dated 02.08.2022 could be served by the Operational Creditor upon the Respondent, the Corporate Debtor had raised the dispute regarding the service rendered by Operational Creditor to the Corporate Debtor by writing letter dated 06.07.2022. In the said communication, the Corporate Debtor had specifically alleged that the Operational Creditor failed to provide the details of discussion regarding the service allegedly rendered by it and the discussion to provide such services. In terms of the letter, the Corporate Debtor had disputed the claim of the Operational Creditor for the principal amount. As can be seen from Section 5(6) of the IBC, 2016, the dispute includes the one related to the existence of the amount of debt. In the present case, the Corporate Debtor had disputed the existence of debt on the ground that the Operational Creditor never substantiated its alleged claims by providing the details of discussion that might have taken place at the relevant time between the Operational Creditor and the Corporate Debtor. The Notice dated 06.07.2022 reads thus: -
9.Indubitably, the aforementioned Notice has been relied upon by the Operational Creditor himself and has been enclosed as Annexure-8 to the petition. The Operational Creditor has also not placed on record any agreement/ understanding, in terms of which the commission @ 3% on the total invoice value payable to him. Page 29-32 of the Petition are the invoices raised by the Operational Creditor with reference to certain goods supplied at Uttarakhand. In the invoice he has not mentioned even the details of the customers, who were introduced by him to CD. The invoices should essentially contain such details. The Operational Creditor could also not place on record the details of the customers and the manner and circumstances in which he could persuade them to purchase goods from the Corporate Debtor. In para 4 of the reply, the Corporate Debtor could specifically aver that there is no privity of contract in existence between the Corporate Debtor and Operational Creditor and no amount as sought by the Operational Creditor is payable by the Corporate Debtor to the Operational Creditor. Para 4 of the reply reads thus: -
“4.Further, the present application has been preferred by the Operational Creditor only with an intent to extort money from the Corporate Debtor under the garb of the Insolvency and Bankruptcy Code, 2016. There is no privity of contract in existence between the Corporate Debtor and the Operational Creditor and as such, no amount as sought by the Operational Creditor are payable by the Corporate Debtor to the Operational Creditor.”
10.Regarding the letter dated 25.02.2022 (Annexure A-6), the Corporate Debtor has alleged that the letter is signed by Mr. Rajesh Jain, the part of erstwhile management, who had colluded with the Operational Creditor to strong arm it to extort money.
11.Without going deep into the facts, we are of the view that as before issuance of Demand Notice by Operational Creditor to the Corporate Debtor, the Corporate Debtor had raised a dispute regarding the existence of amount of debt, the present petition is hit by Section 9(5)(ii)(d) of IBC, 2016. As can be seen from the judgment of Hon’ble Supreme Court in Mobilox Innovation (P) Ltd. vs. Kirusa Software (P) Ltd. [(2018) 1 SCC 353], while examining the issue of the pre-existing dispute, all that the Adjudicating Authority is to see, whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal arguments or an assertion of facts unsupported by the evidence. In the present case, apparently, the amount of debt alleged by the Operational Creditor is not supported by any details. Even, the invoices do not contain the details of customers introduced by the Operational Creditors and the specification and quantities of the goods the customer bought on his persuasion. No specific agreement regarding the service allegedly rendered by the Applicant could be placed on record. There being sufficient material on record to indicate the pre-existing dispute, regarding which the Corporate Debtor had written a letter to Petitioner on 06.07.2022 itself, we are not inclined to order commencement of CIRP qua the CD. The Petition is devoid of merits and is accordingly rejected.”
In his oral and written submissions, the Appellant submitted as under:
The Appellant was incorporated in 1995 and one of the main objects was to carry on business as dealers of aluminium castings.
ii) On 01.04.2021, the Appellant entered into understanding /arrangement with the Corporate Debtor under which it was agreed that they will introduce buyers/customers to the Corporate Debtor for sale-purchase of goods. Pursuant to this oral agreement, the Appellant raised four Invoices for commission @ 3%.
iii) It is the submission of the Appellant that raising of Invoices is for reducing the oral agreement between the parties to writing containing essential terms and conditions and thereby a written contract is created, as held in Bharat Forge Ltd. v. Onil Gulati, reported in 121 (2005) DLT357.
iv) The Invoices contained the terms, amount and description of parties etc. and form a complete contract. The Corporate Debtor’s earlier management had informed the purchasers/new management about the Appellant’s outstanding claims.
The provisional balance sheet of Corporate Debtor was prepared in which the said debt was reflected. The Appellant also commented on the credentials of the Corporate Debtor’s present management stating that there are criminal and civil cases against key managerial persons of the new management.
vi) The Appellant also filed I.A. No. 332 of 2026 wherein it filed copy of its GST returns in support of its contentions. These GST returns were not filed before the Ld. NCLT. The Respondent had also deducted TDS against the Appellant’s PAN which is evidence of debtor-creditor relationship.
vii) The Ld. NCLT overlooked above facts and has erred in rejecting the petition filed under Section 9 of the IBC, 2016.
In his oral and written submissions, the Respondent submitted as under:
The Respondent is presently wholly-owned subsidiary of Omat Business Pvt. Ltd. A share purchase agreement dated 03.02.2022 was signed between OMAT, the Respondent company and the erstwhile promoters/directors of the Respondent company by which the shareholding and management was transferred to OMAT.
ii) The petition under Section 7 of IBC was filed by the erstwhile management against the Respondent in CP (IB) No. 742 of 2022 which was dismissed by the Ld. NCLT vide order dated 05.07.2023 which was subsequently affirmed by this Tribunal in Company Appeal (AT) (Ins.) No. 1474 of 2023 vide judgment dated 03.01.2024.
iii) The petition under Section 9 of IBC filed before the Ld. NCLT was based only on four Invoices dated 10.01.2022, 20.01.2022, 28.01.2022 and 07.02.2022. A unilateral ledger and a letter dated 25.02.2022 of an erstwhile director Mr. Rajesh Jain had also been relied upon.
iv) The takeover of the Respondent company by the new management was subsequent to memorandum of understanding dated 25.11.2021 which culminated with the takeover of the Respondent company by the new management in February, 2022 and all the Invoices raised are between 10.01.2022 to 07.02.2022 when the Respondent company was under acquisition by the new management. There is no Invoice either before 10.01.2022 or after 07.02.2022. There is no written contract or contemporaneous correspondence evidencing any oral or written agreement for the alleged services.
The Appellant is registered under HSN 2201 (bottled water, etc.) and not under HSN 996111 (commission-based wholesale trade services) used in the impugned Invoices. Similar identical commission invoices and Section 8 notice have been received by other sister concerns of the new management.
vi) The invoices did not mention name of the customer, order, quality or quantity of the underlying transaction and the Respondent company’s ledger and financials show no such acknowledgment or liability. The alleged GST returns of the payments were not placed before the Ld. NCLT and need not be accepted.
vii) The Learned Counsel relied upon the following judgments in his support:
Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. [(2018) 1 SCC 353];
Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors and Cables Ltd. [(2019) 12 SCC 697];
K. Kishan v. Vijay Nirman Co. (P) Ltd. [(2018) 17 SCC 662] and
Swiss Ribbons (P) Ltd. v. Union of India [(2019) 4 SCC 17].
viii) The Ld. NCLT has recorded clear findings regarding absence of privity of contract, absence of details of services rendered and the existence of pre-existing dispute and has rightly rejected the application under Section 9 of IBC.
We have heard the Ld. Counsels for the Appellant and the Respondent and have perused the records.
We note that there was a change in ownership/management of the Corporate Debtor subsequent to MOU dated 25.11.2021 and share purchase agreement dated 03.02.2022. We further note that invoices for services on which commission is sought were raised between the period 10.01.2022 to 07.02.2022 coinciding with the acquisition window. We also note that invoices, which are placed at page 100 to 103 of the APB are stereo-type, in fact the first three invoices, though dated 10.01.2022, 10 days later 20.01.2022 and 8 days later 28.01.2022, are serially numbered as invoices No. 120, 121 and 122. None of the invoice gives details of the customers or the details of the goods purchased by them from the Corporate Debtor. We also note that the notice under Section 8 was issued on 02.08.2022 which was replied to by the Corporate Debtor on 18.08.2022. However, much prior to issuance of the said notice, the Corporate Debtor under the new management had issued notice dated 06.07.2022 to the Operational Creditor informing them that though the erstwhile promoters have informed about the claim of the Operational Creditor of Rs. 1,66,88,228/- to be outstanding from the company, it stands unsubstantiated. The copy of this notice is available at page 113 of the APB where the Corporate Debtor had informed the Operational Creditor that there is no detail regarding discussion with the Operational Creditor, the name and address/designation of the company or its employees with whom Operational Creditor interacted, type and nature of work/services which were undertaken, goods supplied, the invoices, acknowledgments, project reports etc. regarding goods supplied, evidence regarding delivery of goods and services, etc. This information was sought by the Corporate Debtor from the Operational Creditor. The Operational Creditor had replied vide letter dated 21.07.2022, again relying upon the invoices, but had failed to provide any of the information asked for. Even in the hearing before the Ld. NCLT and before this Tribunal, no evidence/ details regarding the identities of the parties who had purchased from the Corporate Debtor, the quality and quantity of goods purchased, the proof of delivery etc. have been furnished, especially in the teeth of allegations made by the Corporate Debtor that the entire invoices/transactions had been concocted to extract money from the new management.
In response to notice under Section 8, the Corporate Debtor in its reply dated 18.08.2022, has reiterated that there is no privity of contract and there is no agreement, and no evidence regarding services rendered and that despite notice dated 06.07.2022, the Operational creditor has not shared any details asked for. The Corporate Debtor had claimed that entire alleged dealing is sham, bogus, manipulated and imaginary and that there is no evidence regarding the services rendered. From the correspondence exchanged prior to issue of notice under Section 8, it is clear that there is dispute between the Corporate Debtor and the Operational Creditor regarding truthfulness of Operational Creditor’s claim.
As per provisions of sub-section 5(ii)(d) of Section 9, application under Section 9 is not admissible where there is a notice of dispute. The Hon’ble Supreme Court in the case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. [(2018) 1 SCC 353] has held as under:
51.It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that 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.”
(Emphasis supplied)
In the case of Rajratan Babulal Agarwal v. Solartex India (P) Ltd., reported in (2023) 1 SCC 115, the Hon’ble Supreme Court has held as under:
“74.Again, following what this Court held in Mobilox, we do not have to go to the extent of finding that the second respondent is likely to succeed. Still further, finding guidance from Mobilox, the examination of the merits need not transcend the limited extent which we have undertaken which is to find that the case of the second respondent is not to be brushed aside as spurious, hypothetical or illusory. We cannot find that the dispute as projected by the appellant on behalf of the second respondent does not exist. In the teeth of the e-mails which we have adverted to, and the inference sought to be drawn in particular as also the lab reports produced, no doubt, from the second respondent's labs, we cannot also find that the case of the corporate debtor is wholly unsupported by evidence. As to the acceptability of these materials and the weight to be attached to them, needless to say, we have not pronounced on the same.
75.When we speak about evidence, we must not overlook the law laid down in Mobilox that the court need not be satisfied that the defence is likely to succeed. The standard, in other words, with reference to which a case of a pre-existing dispute under IBC must be employed cannot be equated with even the principle of preponderance of probability which guides a civil court at the stage of finally decreeing a suit. Once this subtle distinction is not overlooked, we would think that NCLAT has clearly erred in finding that there was no dispute within the meaning of the IBC.”
(Emphasis supplied)
In the case of Sabarmati Gas Ltd. v. Shah Alloys Ltd., reported in (2023) 3 SCC 229, the Hon’ble Supreme Court has held as under:
“56.In the contextual situation it is only apposite to be remindful of the observation in Mobilox Innovations that in doing the act of separating the grain from chaff the Court need not to be satisfied that the defence is likely to succeed. It is enough that a dispute exists between the parties and in other words, what is to be seen is whether there was a plausible contention requiring investigation for the purpose of adjudication. Taking note of the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, we do not find any reason to disagree with the concurrent findings of the Tribunals that there existed a “pre-existing dispute” between the parties before the receipt of demand notice under Section 8 IBC. In other words, the dismissal of the application under Section 9 IBC on the ground of “pre-existing dispute” cannot be held to be patently illegal or perverse. We also do not find any reason, in the facts and circumstances, to hold that the case set up by the respondent was a patently feeble legal argument. At any rate, we are not inclined to brush aside the case of the respondent as spurious.
57.We may hasten to add here that we shall not be understood to have held that the dispute set by the respondent regarding the dues is ultimately to be upheld. Certainly, when the expression “pre-existing dispute” is used it will only indicate the existence of a dispute prior to the receipt of a demand notice under Section 8 IBC, and the correctness or its truthfulness is a matter of evidence. In short, the respondent has succeeded in raising a dispute describable as “pre-existing dispute”. In that view of the matter once we find that the Tribunals have rightfully held that there existed a “pre-existing dispute” between the parties there cannot be an order of remand of the matter to the Tribunal for reconsideration of Section 9 application under IBC.”
(Emphasis supplied)
In the present case, a genuine dispute has been raised regarding the veracity of claim of the Operational Creditor. This dispute has been raised by the Corporate Debtor prior to the issue of notice under Section 8 and is not spurious defence or a mere bluster. As per the guideline provided by the Hon’ble Supreme Court in the above cited judgments, this Tribunal does not need to be satisfied that the Corporate Debtor is likely to succeed or give a finding on the merits of the dispute. Since there was a pre-existing dispute raised prior to the issue of notice under Section 8 of IBC, 2016, the Ld. NCLT has rightly rejected the application of the Operational Creditor. We find no reason to interfere in the order of the Ld. NCLT. Accordingly, the appeal is dismissed. Pending application(s), if any, are also closed. No order as to cost.