Visun Services LLP vs YibealTradex Private Limited

Per: Balraj Joshi, Member (Technical)

The Court congregated through a hybrid mode.

Heard the Learned Counsels for both parties at length.

This petition has been preferred by Visun Services LLP, hereinafter referred to as “Applicant”/ “Operational Creditor” against YibealTradex Private Limited, hereinafter referred to as “Respondent”/ “Corporate Debtor” under Section 9 of the Insolvency and Bankruptcy Code, 2016, for brevity “I&B Code”/ “Code” seeking to commence the Corporate Insolvency Resolution Process, for brevity “CIR Procees” in respect of the Corporate Debtor herein. The Corporate Debtor had conceptualised the idea of physical and virtual stores for sale and purchaee of the products and for that purpose has developed an integrated software application and technology plantform that will provide a complete marketplace for products to an individual or a busnes entity and is being operated under the brand name of HyperXchange in the Franchisee Agreement at page no. 23 of the Petition.

The total amount claimed to be in default is Rs. 3,67,03,813/- calculated till July 15, 2022. The date from which such debt fell due was claimed as on May 03, 2022.

The applicant entered into a franchisee agreement with the respondent on May 03, 2021, whereby the applicant was engaged as a non-exclusive franchisee for the sale, resale, marketing and distribution of the products of the respondent on e-commerce marketplaces such as Flipkart, Amazon, Ingram and HX Kart within India.

That, as per the agreement dated 03.05.2021, the applicant is entitled to a monthly commission at the rate of 21% per annum on the purchase price of the goods. Further, it was agreed upon that the respondent would buy back the goods from the applicant at the rate of 21% markup on the cost price on which the goods were to be sold on Flipkart, in case the goods were not sold within 60 days.

The applicant transferred a sum of Rs. 90 Lakh for purchasing goods to be listed and sold on Flipkart in May 2021.

The Director of the respondent company spoke to the applicant and requested for a short-term funding to meet its targets for the Big Billion Days Sale and Diwali Sale in the months of October-November 2021. The applicant provided an additional amount of Rs. 2 Crore as a short-term arrangement till December 31, 2021.

The respondent had suggested a plan on March 15 and 30, 2022, to pay back the money owed to the applicant to the tune of Rs. 1.7 Crore.

The Statutory notice of demand under Section 8 of the I&B Code was issued by the applicant demanding the outstanding dues on July 19, 2022, and the reply to the demand notice denying and disputing the amount claimed was received by the applicant on August 03, 2022.

The Learned Counsel, Mr. Rishav Banerjee, appearing on behalf of the applicant would submit that the Corporate Debtor has failed to make payment of the 21% of commission on the sold goods and buy back the unsold goods along with a 21% mark up, cumulating to the tune of Rs. 3,67,03,813/- calculated till July 15, 2022.

He took us to the Franchise Agreement dated 03.05.2021, annexed at pages 23-38 as Annexure “F” to the application. Clause7.3.4 of the said Franchise Agreement, envisages thaton termination of this Agreement, HyperXchange will buy back unsold Products from Visun at a 21% markup on Visun’s cost price for such Products. It is pertinent to mention that HyperXchange is the other name for the Corporate debtor.

Further, it is contended that out of 5800 odd units purchased, 1000 units were returned by Flipkart and 3000 units were sent back for refurbishment directly without being sold. Approximately, 70% of the goods purchased by the applicant from the respondent were found to be damaged and not fit for sale. In terms of the understanding between the parties, the goods returned from Flipkart were required to be refurbished and re-listed within 7 days. However, the 1000-odd units returned from Flipkart from October 06, 2021, to January 2022, were only sent for refurbishment at the end of January 2022.

It is averred that the stock returnedwas lying unattended for four months without any action being taken by the respondent company and a stock of 3000 units was not opened and checked and directly sent for refurbishment out of which 70% received were found as damaged, which is a breach of the terms of the agreement dated 03.05.2021.

Further, it is asserted that the respondent has acknowledged an amount of Rs. 1.7 Crore is due and payable to the applicant by proposing a repayment plan of that amount through an email dated 15.03.2022 and 30.03.2022, annexed at Pages 61-62 to the application.

The Learned Counsel for the respondentsubmits that the Corporate Debtor is a fully compliant and financially healthy company.

Further, the Learned Counsel for the respondent took us to Clause 15 of the Franchise Agreement dated 03.05.2021, which providesthat all the disputes arising from the said agreement were to be resolved through Arbitration.

Further, he has drawn our attention to Clause 7.3 of the Franchise Agreement dated 03.05.2021, which caters to that on termination of this Agreement, HyperXchange will buy back unsold Products from Visun at a 21% markup on Visun’s cost price for such Product (Clause 7.3.4). However, termination clause of the said Franchise Agreement dated 03.05.2021, has never been invoked by the applicant. Thus, the applicant is barred from claiming the alleged default amount.

Further, it is contended that there was an unseen procedural delay in onboarding Visunas a Franchisee of Yibealin the e-commerce portal before the festive session of 2021. Such delay was attributable to factors such as the non-availability of the warehouse, storage facility etc. and thus, vide letter dated 01.09.2021, annexed at page 18 to the Reply Affidavit, the respondentallowed to use a warehouse at Tollyguange.

That, duringthe festive rush, and to generate greater traction of the business and scale of sales for the respondent as well as the applicant, Flipkart provided a gadget directlysourced to the applicant which had not worked properly. The respondent has raised the issues with Flipkart and asking for reimbursement of losses caused to them.

Further, it is claimed that sans considering the business practicalities as aforesaid or trying to reconcile the accounts and inventory position, the applicant resorted to seeking legal demands for recovery of their business investments which were not in line with the franchise agreement. The applicant never heeded the requirement of seeking clarity on the financials and stock positions or any staggered payment plan offered by the respondent.

Further, it is claimed that the business transactions could not bear the desired results and expected returns due to market conditions. Customer demands and interplay of the omnichannel platform and none of the instances cited by the applicant is attributable to dishonesty or deliberate failure on the part of the corporate debtor.

It is further submitted that no debt can be ascertained during the subsistence of the franchise agreement. The Agreement is alive and subsisting till inventory remains unsold and no mutual agreement has been reached as to whether the entire inventory is to be sold or purchased back by the Yibeal at the pre-determined price.

That, all the allegations and/or disputes raised by the Respondent arean afterthought and not a single correspondence addressed by the Respondent prior to the receipt of Statutory Notice of Demand dated 19.07.2022.

That, without prejudice to the rights and contentions of the Operational Creditor, even if it is considered that the Franchise Agreement is still continuing, therein an admitted debt to the tune of Rs. 1.7 Crore by the Corporate Debtor in their email dated March 30, 2022.

We note that the instant application has been preferred byOperational Creditor on account of Corporate Debtor’s failure to make the payment of the 21% of committed commissions on the sold goods and buy back the unsold goods along with a 21% markup, cumulating to the tune of Rs. 3,67,03,813/-.

In admitting a Petition under Section 9 ,The Operational Creditor is required to establish that there was an Operational debt, in the payment of which the Corporate Debtor has defaulted then the petition must be admitted provided there is no dispute raised by the Corporate Debtor which should be raised before the Demand notice under Section 8 is sent and received by the Corporate Debtor.

We fall back upon the famous judgement in case of Innoventive Industries Ltd. Vs. ICICI Bank ,reported in (2018) 1 SCC 407: MANU/SC/1063/2017, where the Hon’ble Apex court has inter-alia explained as follows :

(Emphasisi Added)

From the submissions made by the parties , we note that the demand notice was served upon the respondents on 19^th July 2022, which has been duly replied by the Corporate Debtor on August 4, 2022, outlining some disputes on the reconciliation of the inventory and payments made thus far. We also note that an affidavit under Section 9(b) has also been filed by the Petitioner on 4 Feb 2023, wherein it has been affirmed that there were no Pre-existing disputes and also that it has been raised as an afterthought by the Corporate Debtor. On 4^th September 2023, the Corporate Debtor has filed a supplementary affidavit to the reply filed by it, wherein it has been averred that inadvertently by way of an oversight , an email dated April 3 2022 written by the Operational Creditor was not annexed to the reply of the Corporate Debtor . The said email by the Operational Creditor was in response to the email dated 30^th March 2023 by the Corporate Debtor . Both these e-mails are extracted below :

Without going into the nitty gritty of the conditions and specific performance of the contract , it is clear from the emails that the Corporate Debtor has accepted the debt to the tune of 1.7 Cr for which it had also offered a repayment plan. Thus the debt above the threshold is established. Further in the email dated April 3 2022, the time granted by the Corporate Debtor was 7 days for paying the debt, which has obviously not been done , prompting the Operational Creditor to institute the current proceedings. The assertion by the Corporate Debtor that since the Franchise agreement has not been terminated is no reason for not paying back the committed commission (21%) to the Operational Creditor as per Annexure A of the said Franchisee agreement. The very condition that the goods which are not sold which have been showcased on the Flipkart platform for 60 days, would be bought back by the Corporate Debtor with 21 % mark up clearly establishes the nature of the agreement and subsequent transactions, which interalia meant that the amount of money advanced by the Operational Creditor was to be adjusted by the Corporate Debtor based on the services provided by the Operational Creditor by selling the same being an authorised franchisee of the Corporate Debtor. Thus the debt is an operational debt.

The Corporate Debtor has also tried to raise an issue of Pre-existing dispute by way of the e-mails reproduced above. In this context, we draw support from the judgment of Apex Court in the matter of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311 : 2017 SCC OnLine SC 1154 at page 403

However it is seen from various emails attached with the pleadings which do not show the existence of dispute that could be assigned due to a lack of fulfilment of the obligations by the Operational Creditor and as such it is clear that Corporate Debtor has tried to raise a bogey of dispute , when none exists. On the contrary , it is the Operational Creditor who has complained of defective goods being supplied by the Corporate Debtor, some of which were returned to them directly by Flipkart.

Thus we conclude that there is an Operational debt existing which has a value above the threshold specified in Section 4 of the Code and which has not been paid in terms of the agreement. The Section 8 notice has been duly served and replied to by the Corporate Debtor. Affidavit under Section 9(b) has also been annexed. There is no pre-existing dispute as discerned from various emails attached in the pleadings.

In light of the aforementioned facts, circumstances and precedents cited above, this Adjudicating Authority is satisfied that the Corporate Debtor has defaulted in the repayment of its debt due to the Operational Creditor and as such the instant petition ought to be admitted.

It is, accordingly, hereby ordered as follows:-

Additionally, the Operational Creditor shall serve a copy of this Order on the IRP and on the Registrar of Companies, West Bengal, Kolkata by all available means for updating the Master Data of the Corporate Debtor. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.

The Registry of this Adjudicating Authority shall serve a copy of this Order upon the Insolvency and Bankruptcy Board of India (IBBI) for their record and also upon the Registrar of Companies (ROC), to whom the company(ies) are registered with, by all available means. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.

CP (IB) No. 298/KB/2022to come up on 12^th July 2024.for filing the progress report.

A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.