The Wesman Engineering Co Pvt. Ltd. vs Favourite Fabtech Pvt. Ltd.

[Per: Mr. Prasanta Kumar Mohanty, Member (T)]

The present petition has been preferred by the Operational Creditor, The Wesman Engineering Co Private Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016 (herein after referred to as a "Code") seeking for initiation of Corporate Insolvency Resolution Process ("CIRP" in Short) in respect of the Corporate Debtor Company namely, Favourite Fabtech Private Limited.

The Petitioner/Operational Creditor is a registered company under the provisions of Companies Act, 1956 with a Company Identification Number (CIN) - U29292WB1951PTC019898. The registered office of the Petitioner is situated at Wesman Centre, 8 Mayfair Road, Kolkata-700019. The present Petition is filed through Authorised Person Shri Anup Khan, having address at Wesman Centre, 8 May fair Road, Kolkata - 700019.

The Respondent/Corporate Debtor, namely Favourite Fabtech Private Limited was incorporated on 13.07.2011 with CIN: U29100GJ2011PTC066371. The authorised capital of the company is INR.1,70,00,000.00 (Rupees One Crore Seventy Lakhs Only) and the paid-up capital is INR.1,00,000.00 (Rupees One Lakh Only). The registered office of the Corporate Debtor Company is situated at: G/714, Lodhika GIDC Metoda Rajkot, Gujarat - 360021, India. The main objects for which the Corporate Debtor was incorporated is to carry out business of manufacturing and suppling of CI Casting, SG Iron Casting, Pump Casting, Pressure Pump Casting, Gear Box Casting, etc.

The present petition has been preferred by the Operational Creditor, The Wesman Engineering Company Private Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as a "Code") seeking for initiation of Corporate Insolvency Resolution Process ("CIRP" in Short) against the Corporate Debtor Company namely, Favourite Fabtech Private Limited. It is submitted by the Petitioner that the Respondent/Corporate Debtor is indebted to the Petitioner for INR.31,08,515.00 (Rupees Thirty One Lakhs Eight Thousand Five Hundred and Fifteen Only) i.e. Principal Amount INR.10,55,844.00 + Interest Amount INR.20,52,671.00 outstanding as on 31.05.2016 which it admittedly owes to the Operational Creditor. That the Operational Creditor is Private Limited Company engaged into the business of manufacturing of furnaces, ibs and burners. That Corporate Debtor was interested in purchasing equipment's for no bake sand plant and therefore contacted the Operational Creditor and placed purchase order for equipment's for no bake sand plant.

It is submitted that the Corporate Debtor issued a purchase order dated 05.06.2012 bearing No.103 to the Operational Creditor for supply of equipment's for making "No Bake Sand Plant". Pursuant thereto, the said confirmation order dated 29.06.2012 was issued by the Operational Creditor. As per the purchase order as well as order confirmation it was decided that “10% payment is to be made after 8 months from the date of successful commissioning against submission of performance Bank Guarantee worth 10% of order value valid for a period of 2 years”. Accordingly, the equipment’s were supplied to the Corporate Debtor, invoices were issued and several trial runs were carried out before commissioning. Thereafter, upon commissioning the Corporate Debtor had signed several commissioning certificates wherein the Corporate Debtor had accepted that the equipment’s supplied were running to its satisfaction. Therefore, it is evident that, there were no issues with the quality of the equipment’s supplied, and that there were no problems in commissioning of the same as was acknowledged by the Corporate Debtor.

It is submitted that thereafter, the Operational Creditor had supplied goods to the Corporate Debtor through Raj Transport Agency for which consignment notes were raised from time to time. Pursuant thereto, the Operational Company issued various invoices from 12.11.2012 to 02.05.2013. The goods supplied were duly packed, delivered and commissioned by the Operational Creditor for which Commissioning Certificated dated 26.08.2013 and 13.09.2013 were issued evidencing that the equipment's are running satisfactory. The goods supplied by the Operational Creditor were consumed by the Corporate Debtor and no dispute or issues with regard to quantity, quality or technical specification of the material supplied by the Operational Creditor was ever raised by the Corporate Debtor.

It is stated that as per the agreed terms the Corporate Debtor is required to make the payment to the Operational Creditor as raised by the Operational Creditor and for which running account is maintained in the books of accounts of the Operational Creditor. According to the books of account, the total outstanding dues are to the tune of INR.31,08,515.00 out of which the outstanding principal amount of INR.10,55,844.00 whereas the balance amount is towards interest. The Operational Creditor had reminded the Corporate Debtor vide e-mail dated 18.05.2016 to make payment of INR.10,55,844.00 which is the principal amount. However, the Corporate Debtor has evidently failed to make payment in respect of goods supplied to the Corporate Debtor from time to time by the Operational Creditor and the Corporate Debtor has conveniently ignored reminders of the Operational Creditor and also not paid outstanding amount.

The Applicant has submitted the copy of the Proceedings of the Meeting dated 31.05.2016 held between the Applicant and the Respondent which confirms that the amount is due to the Applicant. Both the Applicant and the Respondent agreed that the plant was on running condition. Now slat conveyor is working properly in load. New design slats are carrying moulds and it has been found OK. As per the earlier discussion Favourite Fabtech is committed to release the pending payment within three days. This Minutes of Meeting dated 31.05.2016 has been signed by Mr. Somnath Halder from the Wesman Engineering Co. Pvt. Ltd. (OC) side and Mr. Vikramje Raijada from the Favourite Fabtech Pvt. Ltd. (CD) side.

It is stated that the Corporate Debtor was not making payment towards balance outstanding dues, the Operational Creditor issued letters dated 21.12.2016 and 18.10.2017 requesting the Corporate Debtor to release the outstanding dues of the Operational Creditor. Despite requesting and following up for so long, the Operational Creditor was constrained to issue a notice dated 05.02.2018 under the Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Even upon receiving the notice, the Corporate Debtor had not even replied or provided any repayment schedule.

It is stated that inspite of serving letters, e-mail communications and notice, the Corporate Debtor had failed to repay its dues. It is pertinent to note that the Corporate Debtor is liable to pay and was under an obligation to pay the amount claimed in each invoice. The non-payment of debt by the Corporate Debtor, having become due and payable, amounts to “default” within the ambit of Section 3(12) of the Insolvency and Bankruptcy Code, 2016.

It is stated that it is clear that the Corporate Debtor has committed “default” in payment of the unpaid operational debt within the meaning of Section 3(12) of the Code. Moreover, the Corporate Debtor has not shown “existence of dispute, if any” in terms of Sub- section (2) of Section 8 of the Insolvency and Bankruptcy Code, 2016.

It is stated that the Corporate Debtor is liable to pay the Operational Creditor an unpaid operational debt of INR.31,08,515.00 inclusive of interest. Even otherwise, the Corporate Debtor has lost its substratum and is not in a stable position to clear its debts and liabilities and it is just, fair and equitable that Insolvency Resolution Process be initiated against the Corporate Debtor.

In response to the present I.B. Petition filed by the Petitioner, the Respondent has filed its reply on 23.01.2019 as:

It is further submitted that the 10% payment has to be done within three months after successfully commissioning of the machine. However, it is not functioning successfully, the question of payment does not arise.

It is further submitted that the petitioner is misleading the Tribunal by making wrong statement under affidavit that the principal outstanding amount with INR.31,08,515.00 while on the contrary respondent has rightfully withheld only 10% of the amount which is INR.10,55,844.00 only as the machinery supplied is not functioning as per the promise at the time of placing the order.

It is stated that the minutes signed by the Petitioner and the Respondent jointly stated Slat conveyor is working properly. However, the entire machinery is not functioning as promised by the Petitioner.

In light of the abovementioned facts and circumstance the Applicant's Prayer before this Adjudicating Authority is to Cause public announcement of the initiation of Corporate Insolvency Resolution Process and call for the submission of claims in accordance with Clause (b) of Sub-section (1) of Section 13 read with Section 14 of the Insolvency and Bankruptcy Code, 2016 to be dismissed and be pleased to pass any further order in the interest of justice.

Now, the Petition is filed on 10.09.2018 under the Section 9 of the Insolvency and Bankruptcy Code, 2016 for the unpaid Operational Debt due of INR.31,08,515.00

The case was taken up by this Adjudicating Authority on 28.09.2018. The matter was heard on 28.09.2018, 05.11.2018, 05.12.2018, 23.01.2019, 27.02.2019, 29.04.2019, 18.07.2019, 20.08.2019, 17.09.2019, 16.10.2019 & 19.11.2019. Arguments of the counsels of the Operational Creditor and Respondent were heard.

The matter was finally heard on 19.11.2019. During the arguments, the Learned Counsel for the Operational Creditor has submitted that the Petition may be admitted and an Interim Resolution Professional appointed in accordance with the provisions of the Section 16 of the Insolvency and Bankruptcy Code, 2016. Further, it is submitted that the Corporate Insolvency Resolution Process be initiated as per Section 9 of the Insolvency and Bankruptcy Code, 2016 and the moratorium period may also be declared.

Further, the Operational Creditor has not suggested any name of an Interim Resolution Professional ("IRP" for short). If, this I.B. Petition is admitted, an IRP needs to be appointed.

19.

The Application has been filed on 10.09.2018 for operational debt due and defaulted of INR.31,08,515.00 (Rupees Thirty One Lakhs Eight Thousand Five Hundred Fifteen Only) i.e. Principal of INR.10,55,844.00 and Interest at (24%) for INR.20,52,671.00. 19.2 The Applicant has submitted the copy of the Proceedings of the Meeting dated 31.05.2016 held between the Applicant and the Respondent which confirms that the amount is due to the Applicant. Both the Applicant and the Respondent agreed that the plant was on running condition. Now slat conveyor is working properly in load. New design slats are carrying moulds and it has been found OK. As per the earlier discussion Favourite Fabtech is committed to release the pending payment within three days. This Minutes of Meeting dated 31.05.2016 has been signed by Mr. Somnath Halder from the Wesman Engineering Co. Pvt. Ltd. (OC) side and Mr. Vikramje Raijada from the Favourite Fabtech Pvt. Ltd. (CD) side.

Date of first default is 04.06.2016 i.e. after the final agreement on 31.05.2016. 19.4 There is no interest provision in the Invoice enclosed. 19.5 The Respondent did not pay INR.10,55,844.00 i.e. (10%) of the Invoice value but the Respondent agreed on 31.05.2016 to pay the said amount within 3 days. The Corporate Debtor did not pay. Hence, the default has started from 04.06.2016. 19.6 The Applicant has claimed interest @24% from the beginning for INR.20,52,671.00 which is not tenable in the absence of any contract between them. The Petitioner may claim interest from 04.06.2016 when the final Agreement was concluded between two parties on 31.05.2016. Since, interest rate is not mentioned anywhere, in that case applicant's Bank MCLR rate from 04.06.2016 may be claimed by the Operational Creditor. 19.7 Application is filed within the limitation period as the date of default is 04.06.2016, whereas this petition under Section 9 of IBC is filed on 10/09/2018. Which is within 3 years of default.

No pre-existing dispute before the filing of this application is observed. Defence taken by the Respondent about Pre-existing dispute is moon-shine in nature as the Respondent itself has signed the agreement on 31.05.2016 that machinery is working. It is OK and they will pay dues within 3 days from 31.05.2016.

Considering the material, papers filed by the Petitioner on record arguments from the both counsels and the facts mentioned in the Para No. 19, 19.1, 19.2, 19.3, 19.4, 19.5, 19.6, 19.7 & 19.8 this Adjudicating Authority is satisfied that,

Hence, the present IB petition is admitted on 17.03.2020 with the following directions:

As per the provisions of Section 13 and 14 of the I.B. Code on the date of commencement of insolvency, this adjudicating authority hereby declares moratorium for prohibiting all of the following, namely: -

I.(a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal arbitration panel or other authority.

The Petitioner/Operational Creditor has not suggested the name of any Interim Resolution Professional in the present Petition. Though it is not mandatory on the part of the Applicant to propose an Interim Resolution Professional when the application is filed under Section 9 of the IBC, 2016, but in that case, the Adjudicating Authority shall appoint an Insolvency Professional from the panel prepared by the IBBI and meant for this Bench on admission of the application. But if it is observed that when an Operational Creditor does not suggest the name of any Interim Resolution Professional and the Interim Resolution Professional is appointed by the Adjudicating Authority from the panel of Insolvency and Bankruptcy Board of India available for NCLT, Ahmedabad, the dispute is arising for payment of Interim Resolution Professional fees, paper publication costs etc., in the first month of the Corporate Insolvency Resolution Process. This is more, when Financial Creditor or other Operational Creditor is not there, CoC is not formed and the Operational Creditor is not able to bear the CIRP expenses.

Hence, this Adjudicating Authority hereby appoints Shri Malhar Rashmikant Mehta having Insolvency Professional Registration No. IBBI/IPA-001/IP-P01032/2017-2018/11686, having Email-Id: malhar_mehta@hotmail.com Address: 404, W1, Opp. Lane PRL Colony, Inside Lane of Newyork Timber Mart, Opp. PSP Projects Corporate House, Off Iscon Ambli Road, Ahmedabad, Gujarat - 380058, an Interim Resolution Professional.

The IRP is advised to file declaration disclosure statement within two days with this Registry.

The Interim Resolution Professional is further directed to make public announcement of moratorium in respect of Corporate Debtor Company soon after receipt of an authenticated copy of this order and to act further as per the order/direction issued by this Adjudicating Authority and to follow the provisions Section 13 and 14 and relevant provisions of the Insolvency and Bankruptcy Code. The Interim Resolution Professional shall perform all his functions contemplated, inter-alia, in Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the 'Code', Rules and Regulations. It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other persons associated with the management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day-to-day affairs of the 'Corporate Debtor'. In case there is any violation, the Interim Resolution Professional would be at liberty to make appropriate application to this Tribunal with a prayer for passing an appropriate order. The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the 'Corporate Debtor' as a part of its obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.

An authentic copy of this order to be communicated by this Registry to the Operational Creditor, Corporate Debtor, as well as to the Interim Resolution Professional and the Registrar of Companies by Speed Post/Registered Post at the earliest.

Hence, this CP(IB) No.465/9/NCLT/AHM/2018 is admitted on 17.03.2020 with the above Observations and Directions.