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Judgment
[Per: Arun Baroka, Member (Technical)]
The present Appeal is being filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, (the "Code") against the order dated 18.10.2023 ("Impugned Order") passed by the Hon'ble National Company Law Tribunal, New Delhi) in CP (IB) No. 615/ND/2020.
Heard the Counsel for the Appellant. None had appeared on behalf of the Respondent. We have also perused the material placed on record. Basis the oral arguments and also material placed on record, our analysis is as below.
Appellant/OC claims that it was the C & F Agent of the CD since 18.03.2019, wherein, the CD was in the business of manufacturing LED TVs for which an Agreement was executed dated 19.03.2019. The said C & F came to an end on 02.08.2019 vide email, on the request of the CD as the product of the CD was not selling due to low quality, no brand name and high pricing than its competitors. The said email dated also acknowledged the due amounts payable by the CD i.e. Rs.215115/- towards expenses/rent etc. and Rs.21 lakhs security deposit. Consequently, thereafter, the CD lifted all its goods from the godown of the OC through its own logistics. No objection/intimation regarding any damage etc. to the stocks was raised all throughout till the time of filing reply to the notice/s in the instant case. There is also a stipulation at covenant no. 36 of the agreement regarding intimation of any damage etc. to be done within 15 days from receipt of stocks and the account was to be settled within 45 days thereafter.
Appellant further contends that the agreement stipulated the following heads, for which the instant Application for Operational Debt has been filed:-
“Security: That the C & F agent was to make an initial investment of Rs.51 lacs as security deposit, which was reduced to Rs.21 lacs, which fact stands proved as no demand has ever been raised till the time of filing reply in the instant Application. OC paid the said Rs.21 lacs as security with CD.
Commission: OC was to get fixed monthly margin of 1.5% on their investment value. Further, as soon as sales crossed amount invested by OC, OC was to get 1.5% monthly margin once Branch achieved monthly business turn-over.
Lease amount: CD was to pay Rs.56,000/- for 3500 sq.ft. godown for storage of the abovesaid stock.
Salary of one person: The CD was to pay Rs.20,000/- p.m. to OC as one account person salary.”
The fact of the CD having to pay the abovesaid amounts was admitted vide email dated 02.08.2019 i.e. at the time of closing the said C & F agency. Accordingly, it was already admitted by the CD to pay back Rs.2,15,115/- plus Rs. 21,00,000/-. The appellant had raised invoices seeking the payment. With no response from the CD, the OC sent notice u/s 8 of the Code. The OC received notice from the CD raising frivolous, baseless and supported dispute has also received reply to the said notice sent by the OC. Vide the said demand notice and reply the CD started raising frivolous, baseless and unsupported dispute regarding the stock having been received by it to be damaged. The said dispute was raised for the first time in the reply to the said notice and no intimation was ever raised earlier. Appellant claims that the objection being without any substance can have no effect to the maintainability of the instant application in view of law laid down by Hon’ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs Kirusa Software Pvt. Ltd. (2018 (1) SCC 353. Further the same view point has been upheld and followed by the Hon’ble Supreme Court as latest as on 10.12.2025 in M/s Saraswati Wire and Cable Industries Vs Mohammad Moinuddin Khan & Ors. in Civil Appeal no. 12261 of 2024. The Hon’ble Supreme Court has been pleased to set-aside the Order of the Hon’ble NCLAT which held that the dispute therein was pre-existing and accordingly dismissed the Application of the Appellant. The Hon’ble Supreme Court while setting aside the said Order has held that the dispute should be actually in existence and supported and not just be an alibi raised in order to evade the procedure of IBC. The said alleged dispute should be a bonafide one and not a moonshine. The same should have substance and not be a mere bluster. The Operative part of the judgment is reproduced as under:-
“15.This being the factual scenario, we may now note the settled legal position on the issue. In Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353, this Court held that the adjudicating authority dealing with an application filed under Section 9 of the IBC is required to determine whether there is an operational debt; whether evidence has been furnished to show that the said debt was due and payable but had not been paid; and whether there was any dispute in existence between the parties or any suit or arbitration was pending in relation to such dispute on the date of receipt of the demand notice of the unpaid operational debt. It was further observed that it would be important to separate the grain from the chaff and to reject a spurious defence which was mere bluster and that, while doing so, the Court did not need to be satisfied that the defence was even likely to succeed. It was clarified that, at that stage, the Court would not examine the merits of the dispute in toto and as long as the dispute truly existed in fact and was not spurious, hypothetical or illusory, the adjudicating authority would be entitled to reject the application.
18.xxx. It was noted that this is for the reason that, keeping in perspective the scope of the proceedings under the IBC and there being a timeline for the consideration to be made by the adjudicating authority, the process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. Therefore, per this Court, the adjudicating authority must advert to the contentions put forth on the application filed under Section 7 of the IBC, examine the material placed before it by the financial creditor and record satisfaction as to whether there is default or not and, while doing so, the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default.
19.Applying this legal standard to the case on hand we have no hesitation in holding that the defence of pre-existing disputes sought to be put forth by the CD was mere moonshine and had no credible basis or foundation. There was no dispute worth the name existing as on the date of issuance of the demand notice by the firm warranting the withholding of the operational debt due and payable by the CD. The attempt to project such pre-existing disputes was mere bluster and did not have the effect of non-suiting the firm.”
Accordingly, in the instant case the CD has never raised any dispute as has been raised for the first time in the Demand notice dated 25.11.2019. There was a mandatory period of 15 days to raise any dispute as per agreement. The inventory was picked up by the own Company Vehicle only, which is eminent from a perusal of the Annexure A-3. They duly inspected the goods whereafter only they lifted them up. Accordingly, there was no supporting evidence/substance to support the alleged version of the CD that the products were damaged. Furthermore, even if that might have been the scene the same could have also been brought forth within the stipulated mandatory time period of 15 days to raise any claim of damage. Nothing of the sort has been ever intimated to the OC. Further, it was orally agreed between the parties that the security amount would be reduced to Rs.21.00 Lacs as there was low market demand in Punjab for the product at the time, which security amount was dutifully paid by the OC. Thereafter, never has the CD ever called for the alleged due amount, which also proves the fact that the same is also an afterthought to add in order to support the alibi of a pre-existing dispute. Accordingly, it is submitted that the said alibi of a pre-existing dispute is only a move by the CD to raise a hypothetical, unbased and unsupported story of the existence of a pre-existing dispute. The CD has categorically admitted the said amounts being due and payable by them vide email dated 02.08.2019.
With respect to the issue of maintainability the Appellant claims that the instant application is maintainable as the amounts claimed are ‘Operational debt’ as per laws laid down by various Courts/Tribunals as the Commission for the business transacted during the currency of C & F to the tune of Rs. 2,22,221/- is due till the filing of application as also the rent to the tune of Rs.3,30,300/- is due till filing of application. Furthermore, rent has been held by the Hon’ble National Company Law Appellate Tribunal, New Delhi to be an ‘operational debt’ as defined in the Code at Section 5(21). In Smartworks Coworking Spaces Pvt. Ltd. Vs Turbot Hq India Pvt. Ltd., cited at 2023 SCC Online NCLAT 234. The Hon’ble NCLAT as latest as on 23.05.2023 has held that lease/license fee was covered within the meaning of ‘Operational debt’. Salary to the tune of Rs. 40,000/- is also due, though the same has not been raised in the instant application and also the Security to the tune of Rs.21,00,000/-. The instant application has been filed on 24.02.2020, i.e. before the increase in the Pecuniary Jurisdiction owing to Covid-19, henceforth, the pecuniary jurisdiction of the matter is to the tune of Rs.1.00 Lacs, as per which the matter squarely falls within the ambit of IB Code.
We note that the Appellant – T.J. Communication Pvt. Ltd. was a distributor and C&F Agent of Respondent – Corporate Debtor M/s Bajaj Appliances Ltd. Appellant was the C&F Agency for the Respondent and stored LED TVs of the Respondent from 18.03.2019 to 02.08.2019 for Punjab Circle. This C&F Agency was terminated on 02.08.2019. The Appellant claims outstanding payment of Rs. 215,115/- towards rent and 21,00,000/- as security plus interest charges totalling a balance of Rs.25,34,285/-. The Appellant claims that it had made numerous request to the Respondent to release the due payment but the respondent did not release any payment.
The Appellant had sent a demand notice dated 27.11.2019, which was later on revised to 02.12.2019 under Rule 5 of the Insolvency and Bankruptcy Code, 2016 and later on due to some calculation errors a fresh demand notice was sent.
Appellant claims that prior to the issue of demand notice the Respondent had sent a legal demand notice which is dated 25.11.2019. The Respondent in its legal demand notice had raised various issues, which are noted at page 81 to 82 para 7 to 11 of the APB, which is noted as below:
“7.That you, the addressee was supposed to make investment of Rs. 51,00,000/- (Rupees Fifty One Lacs Only) as per Agreement dated 18-03-2019 out failed to pay the remaining amount of Rs. 30,00,000/- (Rupees Thirty Lacs Only) to my client. That on behalf of this commitment of investment, my client make a big structure i.e. Rs. 56000/- per month rent for 3500 square feet godown as well as Electricity bills of that godown and employment of sales team as well along (Rupees Twenty One Lacs Only). Because of all these steps, the company faced a huge loss in the area assigned to you.
8.That alter having so many email, telephonic calls and reminders. you, the addressee not improve the business for my client, for which my client has suffered a huge loss and having no option at last my client terminated your C & F agency in September 2019.
9.That after termination of the C & F agency you, the addressee returned the goods/articles of my client and when the same were returned to my client and after inspection it was discovered that the goods were badly handled and due to which they got damaged. Hence, my client suffered a huge loss and sent a notice / information regarding the damaged condition of the goods to you. the addressee vide courier dated 11.10.2019, and also informed to you, the addressee that the responsibility of the damaged goods/ articles is of you, the addressee.
10.That after receiving the said notice/ information, you, the addressee, contacted my client and after discussion the account between you, the addressee and my client claimed Rs. 8,03,499/-from you and the same was settled for a sum of Rs.7,06,000/-(Rupees Seven Lacs Only) is being due and payable by you, the addressee to my client, and the same amount be adjusted in the surety amount i.e. of Rs. 21,00,000/- (Rupees Twenty One Lacs Only) and same was to be confirmed from your side afier discussion from your Branch Team. That till date no confirmation or information was conveyed from your side regarding the same.
11.That as per the conversation between my client and you, the addressee you must sent a confirmation regarding the settlement of the said amount, so that my client can start further proceedings from their side to pay the balance amount as per procedure discussed between both i.e. my client and you, the addressee. I, hereby call upon you, the addressee to sent a confirmation regarding the settlement of the said amount, within a period of 15 days from the date of receipt of this legal notice, failing which it will be presumed that you have accepted the statement and conditions of the notice.”
The impugned order has clearly noted this communication and concluded that there is sufficient evidence on record to show pre-existing dispute between the parties prior to the issuance of the demand notice dated 27.11.219 – 02.12.2019. Basis the communication on record, Adjudicating Authority has come to the conclusion that the Section 9 Application cannot be admitted. On the contrary Appellant claimed that this was a frivolous pre-existing dispute as there is an admission via emails of the outstanding dues. The emails have been extracted by the Adjudicating Authority at para 19. Basis these emails at and para 20, page 36 of the APB, the Adjudicating Authority has found:
“20.A wholesome perusal of the e-mail Correspondence dated 02.08.2019, 03.08.2019, 30.08.2019, 04.09.2019, gives an impression to this Adjudicating Authority that some negotiations were going on between the parties consequent to the termination of the C& F Agreement and therefore, the said e-mail correspondence cannot be considered as an acknowledgement of debt on the part of the Corporate Debtor.”
Perusal of the email and also the implications of the emails does not indicate that this is an acknowledgement of the debt. The email alongwith the subsequent demand notice indicates existence of pre-existing dispute. During the oral arguments the Appellant also claimed that an information was leaked from his office and Respondent took advantage of that and issued a demand notice. This court is not to look into the issues relating to the existence and the reasons of dispute.
We observe that Section 9(5)(ii)(d) provides that Adjudicating Authority shall reject the Application under Section 9, if notice of dispute has been received by the Operational Creditor or if there is a record of dispute in the information utility. In this case, we find a legal notice has been issued raising various disputes. We further find that the disputes raised are not moonshine or frivolous disputes which have been created to avoid admission of Section 9 Application. And for the above noted reasons, the judgements of the Hon’ble Supreme Court in Mobilox Innovations Pvt. (supra) and M/s Saraswati Wire and Cable Industries Vs Mohammad Moinuddin Khan (supra) cited by the Appellant will not help his case.
Thus, we find that there is a pre-existing dispute between the Appellant initiated against the Respondent. We do not find any infirmity in the order of Adjudicating Authority and we find it has rightly rejected Section 9 Application.
Order
Accordingly, we do not find merit in the appeal filed by the Appellant. Accordingly, we dismiss the Appeal. All IAs are also disposed of. No orders as to costs.