Shitla Papers Pvt. Ltd vs Superior Industrial Enterprises Ltd

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 Applicant/operational creditor, i.e. "Shitla Papers Pvt. Ltd." for initiation of Corporate Insolvency Resolution Process against the Respondent/Corporate Debtor Company "Superior Industrial Enterprises Ltd.".

The Operational Creditor is engaged and dealing in the supply of all kinds of paper for packaging & other packaging Materials and mainly operates in the business of supply of Kraft Paper, Semi-Kraft, Duplex Paper, Paper Boards & Stitching Wires.

The Corporate Debtor is a public limited company and started the manufacturing of corrugated boxes in 2009 & is one of the leading manufacturer of corrugated boxes in India.

Brief facts of the case are as follows:

i. From June, 2017, the Operational Creditor had entered into a business relation with the Corporate Debtor.

ii. The Operational Creditor in view of the purchase order supplied the ordered goods, material, paper material etc. as and whenever required by the corporate debtor from June 2017 till June 2018.

iii. The corporate debtor started placing orders for the supply of Kraft papers, after settling upon terms and conditions and further negotiations upon the rates, qualities and brands.

iv. In accordance with the terms and conditions as stated in various invoices issued by the operational creditor, 30 to 60 days credit period was generally allowed to the operational creditor to clear all the existing dues towards the invoices issued on different intervals of time.

v. After settling upon the terms and conditions of the transactions, it was agreed and decided that the interest @2% p.m. on delayed period after due date will be charged and also penal interest @2% p.m. will be charged extra after 30 days of due date and Rs. 500/-will be charged extra in case of dishonour of cheque. Also, any complaints regarding quality or quantity of goods will be made in writing within 2 days of receipt of goods, material.

vi. On 24.07.2018, the corporate debtor had placed a purchase order having purchase confirmation order No. 246, which was further revised upon negotiations and then the revised purchase confirmation was issued vide revised PO. which was confirmed by the Operational Creditor through Sale confirmation order No. 246.

vii. E-way bill dated 15.08.2018 was issued against the transaction by the GOI in respect of the goods supplied at the site of the Corporate Debtor.

viii. On 23.08.2018, the corporate debtor placed two orders vide purchase confirmation No. 227 and purchase confirmation No. 296 and the same was confirmed by the operational creditor vide sale confirmation order No. 227 and 296.

ix. E-way bill dated 28.08.2018 was issued against the transaction by the GOI in respect of the goods supplied at the site of the Corporate Debtor.

x. On 29.08.2018, the Corporate debtor placed an order vide purchase confirmation No. 295 and 296 and the same were confirmed by the operational creditor vide sale confirmation order No. 295 and 296.

xi. The operational creditor issued an invoice No. 274 having an outstanding amount of Rs. 3,88.111/-xii. Most of the orders were supplied from Garg Duplex & Paper Mills Pvt. Ltd. as per requirement and demand of the Corporate debtor.

xiii. E-way bill dated 03.09.2018 was issued against the transaction by the GOI in respect of the goods supplied at the site of the Corporate Debtor.

xiv. The Operational creditor had issued invoice dated 04.09.2018 vide invoice No. 017 and invoice No. 024 having an outstanding amount of Rs. 4,16.429/- and Rs. 3.94.999/-.

xv. Several email communications from 17.08.2018 till 01.01.2019 were exchanged between operational creditor and corporate debtor confirming the operational transactions.

xvi. The operational creditor send reminder via email dated 18.01.2019 to the corporate debtor for the payment of outstanding dues.

xvii. The total outstanding amount against the unclear bills/invoices as stated in the reminder stood at Rs. 20,64,091/-. The corporate debtor made a part payment on 22.01.2019 of an amount of Rs. 4,27,405/- in lieu of the pending invoices/bills.

xviii. The corporate debtor acknowledged the amount of Rs. 16,36,686/- was outstanding vide an email dated 31.01.2019 sent to the operational creditor in respect of the clearance of the dues related to their business transactions.

xix. The last payment received by operational creditor from the corporate debtor in respect of pending invoices was on 26.02.2019.

xx. After making the part payments out of the total outstanding bill amount, as on 26.02.2019 by the corporate debtor, a principal amount of Rs. 8,04,540/- is still outstanding till 30.05.2019 along with interest and penalties accrued on payments made beyond due of Rs. 6.28.134/- along with pendent-lite future interest @24% p.a. as per terms and conditions mentioned on invoices.

xxi. The total amount of Rs. 14,32,674/- is due as on 31.03.2019 inclusive of interest and penalties at an applicable rate and pendent-lite future interest, thereof remains due thereon as an outstanding liquidated liability is on the corporate debtor.

xxii. Demand Notice dated 18.06.2019 was sent to the Corporate Debtor by the Operational creditor demanding the payment of the outstanding amount.

xxiii. The Corporate Debtor sent a reply to demand notice dated 01.07.2019 to the operational creditor in which reference to the letter dated 10.05.2019 was given by the Corporate debtor, which states that the quality control department has detected that supplied paper quality is less than 130 to 140 GSM and rejected the said materials on the ground that the said materials does not qualify the standard of paper quality of 180 GSM and in the month of June 2018, the Corporate debtor's Company Director Mr. Kamal Aggarwal has called Mr. Sanjeev Kumar Mittal (employee of Operational Creditor) and apprised him about the paper quality, however, on repeated requests, the corporate debtor agreed to utilize the said materials for certain clients, subject to standard demurrage of 30% of the total invoice amount i.e. Rs. 2,48,952/- from the principal amount.

We have heard the Ld. Counsels for both the parties and perused the averments made in the application and we find that no reply has been filed by the Corporate Debtor. From the perusal of the records, we find that matter was adjourned on several dates on the ground of settlement and also for filing the reply but it appears from the order dated 29.01.2020, respondent was directed to file his reply, subject to payment of cost of Rs. 10.000/- to be deposited in the Prime Minister's Relief Fund and we further find that respondent has neither deposited the cost nor file the reply then vide order dated 04.02.2020, his right to file reply was closed and we further find that in the course of hearing on 05.02.2020, Ld. Counsel for respondent had come with a cheque of Rs. 8,04,540/- but Ld. Counsel for petitioner pointed out that validity of cheque deposited by the corporate debtor has already been expired and we further find that thereafter, Corporate Debtor on 18.02.2020 had deposited the demand draft of Rs. 8,04,540/- before the Registrar, NCLT and the case was adjourned to 03.03.2020 and on 03.03.2020 matter was heard and both the parties were directed to file written submissions. In the background of these facts, we would like to consider the submissions of parties.

We have heard the Ld. Counsel for petitioner as well as Corporate Debtor and perused the averment made in the application as well as documents enclosed by the parties.

Ld. Counsel appearing for Operational Creditor has raised all the facts mentioned in the application and he further submitted that there is a default of payment of Rs. 8,04,540/- as a principal amount and along with interest of Rs. 6,28,134/- as on 31.03.2019.

He further submitted that during the Financial Year 2016-17 and particularly from June-July 2017 to 26.02.2019, the Operational Creditor had supplied the ordered materials, goods to the Corporate Debtor under their acknowledgment and thereafter the Corporate Debtor utilized the same in its business activities without any objection or dissatisfaction for long tenure. He further submitted that after supplying the materials the Operational Creditor had issued various invoices/bills to the Corporate Debtor and Corporate Debtor had also made part payments against the invoices/bills and he further submitted that last payment of Rs. 3,94,999/- was made on 26.02.2019 and hence the debt fell due on 26.02.2019, therefore, the present application is well within the period of limitation. He further submitted that there is default of principal amount as well as interest. He further submitted that invoices clearly stipulates that in case the amount shown in the invoice is not cleared or remains unpaid upon presentation of the invoice, an interest @ 2 per cent per month on the outstanding amount shall be levied. He further submitted that mandatory demand notice under Section 8(1) of the IBC had duly served upon the Corporate Debtor. He further submitted that in reply to the demand notice, Corporate Debtor had admitted that he had utilized the materials and also admit the principal amount. He further submitted that no notice of dispute has been ever issued regarding unpaid operational debt by the Corporate Debtor and he also placed reliance upon the decision of Hon'ble Delhi High Court in CS(OS) 1849/2015 decided on 30.05.2017 in the case of Vatech Global Co. Ltd. Vs. Unicorn Denmart Ltd. & Ors. and also the decision of Mumbai Bench, NCLT in CP No. 45/I & BP/NCLT/MAH/2017 decided on 10.04.2017 in the case of M/s. DF Deutsche Forfait AG and Anr. Vs. M/s. Uttam Galva Steel Ltd. and he further submitted that in view of that decisions, the petitioner is entitled to claim the interest along with the principal amount.

On the other hand, Ld. Counsel for Corporate Debtor submitted that of course, he has not filed the reply but after sending the reply to the demand notice, Corporate Debtor raised the dispute in para 6 of the reply. He further submitted that he raised the quality dispute and specifically mentioned that quality control department has detected that the supplied paper quality is less than 130 to 140 GSM and rejected on the ground that the said materials does not qualify the standard of paper quality of 180 GSM. He further submitted that he has also mentioned in the reply to the demand notice that in the month of July, 2018, the Corporate Debtor company Director Mr. Kamal Aggarwal had given a call to Mr. Sanjeev Kumar and apprised about the paper quality and however, on the request, they agreed to utilized the same subject to standard demurrage of 30 % of the total invoice amount i.e. Rs. 2,48,9552/- from the principal amount. He further submitted that he has already deposited the demand draft of Rs. 8.04.540/- before the Registrar, NCLT and in view of Section 5(21) of the IBC like financial debt, operational debt does not include the interest, therefore, petitioner is not entitled to get the interest and Operational Creditor cannot claim the interest as a defaulted amount.

Now, in the light of the submissions raised on behalf of parties, we have again gone through the averments made in the application as well as documents enclosed with the application as well as written submissions filed on behalf of operational creditor and we find that it is admitted fact that the Corporate Debtor has not filed the reply to the application filed by the Operational Creditor but Corporate Debtor sent the reply to the demand notice, which Operational Creditor has enclosed at page 74 of the paper book and we have gone through the reply to the demand notice and we find that it is specifically mentioned in para 6 of the reply to the demand notice that quality control department has detected that the supplied paper quality is less than 130 to 140 GSM and rejected on the ground that the said materials does not qualify the standard of paper quality of 180 GSM.

In the light of the aforesaid reply, we have gone through the averments made in the application and we find that nowhere, the petitioner has explained or revert to the submissions made in para 6 of the reply to the demand notice rather petitioner is silent on this point and we find that this matter has discussed with the Operational Creditor by the Company Director of Corporate Debtor in the month of June. 2018 and it was decided that demurrage of 30% of the total invoice amount i.e. Rs. 2,48.952/- from the principal amount but Operational Creditor no-where in the main application mentioned about this fact that when the dispute regarding the quality of goods raised by the Corporate Debtor then it was agreed to deduct 30 per cent of the total invoice amount i.e. Rs. 2,48,952/-, therefore, we are of the considered view that although no reply has been filed by the Corporate Debtor but in reply to the demand notice. Corporate Debtor has raised the issue of quality of goods.

Now, we shall consider the submission of the Corporate Debtor that he has already deposited the demand draft of Rs. 8,04,540/- before the Registrar, NCLT of the principal amount and under Section 9 of the IBC, a person cannot add interest amount as defaulted amount.

In the light of that submissions, we would like to consider the definition of Operational Debt i.e. Section 5(21) of IBC as well as Financial Debt i.e. Section 5(8) of the IBC and the same is quoted below:-

(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes-

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

2[Explanation. -For the purposes of this sub-clause,-

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and

(ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;

(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the 6[payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

Mere plain reading of the provisions show that there is difference between the Financial Debt and Operational Debt. Operational Debt means a claim in respect of the provisions of goods or services including employment or a debt in respect of the dues arising under any law for the time being in force comes under the definition of operational debt whereas the Financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes and the other conditions mentioned at Section 5(8)(a to i).

Now it is the settled principle of law that National Company Law Tribunal is not recovery court rather when a default occurred financial creditor or operational creditor may file an application for initiating corporate insolvency resolution process and word default is defined U/S 3(12) of the IBC and same is quoted below: -

"default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be" and debt is defined U/S 3(11) of the IBC and same is quoted below:--

"debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt"

If we shall read all the four definition together then we find, in order to trigger Section 7 IBC default means not only debt rather it includes the interest also, whereas in order to trigger Section 9 IBC default means debt only, like financial debt in the definition of operational debt interest is not included. Therefore, in view of Section 3(12)IBC so far operational debt as defined in Section 5(21) IBC is concerned default means a debt which is defined in Section 3(11) IBC and not the interest like financial debt.

At this juncture, we would also like to refer the arguments advanced on behalf of Operational Creditor, who placed reliance upon the decision of Hon'ble Delhi High Court in CS(OS) 1849/2015 decided on 30.05.2017 in the case of Vatech Global Co. Ltd. Vs. Unicorn Denmart Ltd. & Ors. and also the decision of Mumbai Bench, NCLT in CP No. 45/1 & BP/NCLT/MAH/2017 decided on 10.04.2017 in the case of M/s. DF Deutsche Forfait AG and Anr. Vs. M/s. Uttam Galva Steel Ltd. and we find that so far the decision of Hon'ble Delhi High Court in CS(OS) 1849/2015 decided on 30.05.2017 in the case of Vatech Global Co. Ltd. Vs. Unicorn Denmart Ltd. & Ors. is concerned in that decision Section 5(21) of the IBC was not discussed, therefore, in our considered view, the facts of Hon'ble Delhi High Court decision is different from the facts of the case in hand, that would not help to Operational Creditor to substantiate its claim and so far the decision of Mumbai Bench, NCLT in CP No. 45/1 & BP/NCLT/MAH/2017 decided on 10.04.2017 in the case of M/s. DF Deutsche Forfait AG and Anr. Vs. M/s. Uttam Galva Steel Ltd. is concerned. We have carefully gone through that decision and we find that in para 76, of the order, the matter was discussed by the NCLT, Mumbai Bench and it is mentioned in that order that when we see the basis difference to financial debt and operational debt, it is clear the financial debt is money borrowed to repay on future date along with interest, here the money is lent for value addition to the money as agreed between the parties, whereas operational debt is normally based on an agreement to pay the goods or services. We further find thereafter, Mumbai Bench mentioned that it does not mean that interest cannot be claimed in the times to come, it is a normal practice that trade payables are payments deferred for a fixed time, if the party fails to repay within the fixed time, then interest will be claimed over operational debt as well, the same happened over here as well. The Corporate Debtor himself said in the written submissions that there is email dated April 10, 2014 from the Corporate Debtor in respect of payment of interest, since collaterals are Bills of exchange, even otherwise also, basing on collaterals entitled to interest at the rate of 18 per cent u/s 80 of the Negotiable Instruments Act. The difference in these two transactions is one given to get interest over the money; second transaction happens in business operations, in both the cases money is involved, as days go by after transaction, the time value of money will be there. For that reason, it is nowhere said that the operational creditor is barred from claiming interest.

Mere plain reading of that decision shows that NCLT, Mumbai Bench agreed that in the definition of Operational debt word interest is not mentioned whereas in the definition of financial debt word interest is mentioned and he further goes to say that even if it is not mentioned in operational debt then a person can claim the interest.

At this juncture, we would like to refer the decision of Hon'ble Supreme Court in the case of Natha Devi Vs. Radha Rani Gupta 2005 (2) SCC 271 in which Hon'ble Supreme Court in para 14 of the Judgment held that:-

"it is equally well settled that in interpreting a statute, effort should be made to give effect to each and every word used by the legislature. The courts always presume that (he legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. A construction which attributes redundancy to the legislature will not be accepted except for compelling reasons such as obvious drafting errors."

When we shall consider the decision of Hon'ble Mumbai Bench. NCLT in the light of aforesaid decision, then we find that NCLT, Mumbai Bench is not referred the decision of Hon'ble Supreme Court in the case of Natha Devi Vs. Radha Rani Gupta 2005 (2) SCC 271 at the time of discussing the difference between the Financial Debt and Operational Debt and also not considered the intention of legislature while passing the order.

As we have already referred the decision of Hon'ble Supreme Court in which Hon'ble Supreme Court held that courts always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. A construction which attributes redundancy to the legislature will not be accepted except for compelling reasons such as obvious drafting errors."

In the light of that decision when we shall consider the decision of NCLT Mumbai Bench and the case in hand then We are of the considered view that there is no drafting error in section 5(21). while defining the Operational debt rather the legislature clearly omit the word interest in the definition of operational debt for the purpose of default in order to trigger Section 9 IBC. If it had been the intention of legislature to add interest in the debt, then like definition of financial debt, it must be described in the definition of operational debt but it is omitted, therefore, it had never been the intention of legislature to include interest in the definition of operational debt. Hence, in view of aforesaid discussions, we are of the considered view that we can always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect.

For the reason discussed above and in view of decision of Hon'ble Supreme Court in the case of Natha Devi Vs. Radha Rani Gupta 2005 (2) SCC 271, we have no option but to hold that like definition of financial debt given in Section 5(8) of the IBC, word interest is not included in Section 5(21) of IBC i.e. in the definition of operational debt therefore, while calculating the default for the non-payment of debt in case of operational debt only the principal amount can be treated as a defaulted amount and not the interest amount.

At this juncture, we would like to refer the arguments advanced on behalf of Corporate Debtor, in course of hearing ld. Counsel for the Corporate debtor submitted that the Corporate Debtor has already deposited the demand draft of Rs. 8,04,540/- before the Registrar, NCLT and in support of that an affidavit of compliance has also been filed on behalf of Corporate Debtor which would be evident from the order dated 18.02.2020, therefore, on the date of passing of the order, we find that principal amount of Rs. 8,04,540/-has already been paid/deposited by the Corporate Debtor before Registrar. NCLT, therefore, today in our considered view there is no default of operational debt. Since, there is no default of operational debt, therefore, we are unable to accept the contention of the Operational Creditor to initiate CIRP against the Corporate Debtor.

Hence, we find and hold since Corporate Debtor has already deposited the principal amount of Rs. 8,04,540/- before Registrar, NCLT, therefore, in view of Section 3(12) of the IBC. there is no default of debt and if there is no default of operational debt then Section 9 of the IBC cannot be triggered.

Accordingly, we have no option but to reject the prayer of the Operational Creditor to initiate the CIRP against the Corporate debtor, hence, main application stands DISMISSED.

However, petitioner is at liberty to recover the interest in accordance with the provisions of law by filing appropriate suit before the competent Court and the Operational Creditor is at liberty to collect the demand draft of Rs. 8,04,540/- from Registrar, NCLT.