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Judgment
Per: SMT. LAKSHMI GURUNG, MEMBER (JUDICIAL)
This Petition has been filed by VSJ International Private Limited (“Petitioner/ Operational Creditor”) to initiate Corporate Insolvency Resolution Process (“CIRP”) against VXL Software Solutions Private Limited (“Respondent/Corporate Debtor”) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) for the alleged default on part of the Respondent in repayment of debt of Rs. 1,20,00,000/- from 10.07.2023.
Brief Facts:
The Petitioner issued a Purchase order No. VSN/IND/12/004 dated 25.03.2022 for 400 Thin clients (chips/devices used by servers) at Rs. 20,500/- each. The total amount with GST was Rs. 96,76,000/- (Total 82,00,000 + IGST 14,76,000). The purchase order’s payment terms stated that the Petitioner would make 50% advance payment once the Respondent raised the invoice.
The Proforma Invoices on the Petitioner towards advance payment are as follows:
| S.N. | Date of Proforma Invoices | Proforma Invoice No. | Qty no. | Amount in (Rs.) | Total Amount (including GST) (Rs.) |
|---|---|---|---|---|---|
| 1 | 25.03.2022 | 045/2021-22 | 245 | 50,22,500 | 59,26,550 |
| 2 | 24.02.2023 | 034/2022-23 | 40 | 10,00,000 | 11,80,000 |
| 3 | 04.05.2023 | 008/2023-24 | 25 | 10,00,000 | 58,28,000 |
| 4 | 05.05.2023 | 009/2023-24 | 250 | 50,00,000 | 11,80,000 |
| 5 | 26.06.2023 | 014/2023-24 | 100 | 30,00,000 | 35,40,000 |
| Total | 660 | 1,50,22,500 | 1,76,54,550 | ||
The Petitioner paid Rs. 50,00,000/- on 25.03.2022 as an advance against the order. Further the Petitioner vide letter dated 28.04.2022 cancelled the Purchase Order no. VSN/IND/12/004 dated 25.03.2022 and requested the Respondent for a refund of the advance amount of Rs. 50,00,000/-. The Respondent paid a refund of Rs. 30,00,000/- on 08.06.2022.
It is submitted that, on the Respondent's reassurance, the Petitioner placed further orders of Thin clients and paid advance for its commercial exigencies. As the Petitioner did not receive the goods/ services, he cancelled the orders. The Petitioner sought a refund of the advance amount of Rs. 1,20,00,000/- from the Respondent, as an Operational Debt. The Bank Statement of Petitioner as on 01.03.2022-31.03.2022 is annexed to the Petition. The Petitioner paid and received the following amounts from the Respondent:
| DATE | DEBIT | CREDIT | BALANCE |
|---|---|---|---|
| 25.03.2022 | 50,00,000 | 50,00,000 | |
| 08.06.2022 | (30,00,000) | 20,00,000 | |
| 02.03.2023 | 10,00,000 | 30,00,000 | |
| 12.05.2023 | 10,00,000 | 40,00,000 | |
| 11.05.2023 | 50,00,000 | 90,00,000 | |
| 03.07.2023 | 30,00,000 | 1,20,00,000 | |
| TOTAL | 1,50,00,000 | (30,00,000) | 1,20,00,000 |
The Petitioner has issued a Demand Notice dated 16.05.2024 under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and called upon the Respondent to pay the sum of Rs. 1,20,00,000/-. The said demand notice was delivered to the Respondent on 22.05.2024.
The Petitioner did not receive any reply from the Respondent against the above-mentioned demand notice issued by him.
Reply by the Corporate Debtor:
The Respondent in its affidavit in reply dated 06.12.2024 stated that the petition is false, frivolous and made with the intention to harass the Corporate Debtor.
It is submitted that the Petition is driven by mala fide intentions to recover dues rather than rehabilitate the Respondent as is evidenced by the Unreasonable and Onerous Conditions imposed on the Respondent which demonstrate malice and bad faith in Petitioner’s approach to recovering the debt.
The Petitioner’s goal is to initiate CIRP and liquidation to seize Corporate Debtor’s assets.
It is also submitted that due to external economic conditions, the Corporate Debtor’s business have been impacted.
The Respondent has requested this Tribunal to refer the present matter to mediation to resolve disputes, as an effective settlement through mediation would preserve the Corporate Debtor's operational continuity and maximize value for all stakeholders, including the Petitioner.
FINDINGS
We have heard the Ld. Counsels for the Petitioner and the Respondent and perused the record.
It is the case of the Petitioner that it had paid advance amount of Rs. 1,50,00,000/- towards supply of Thin clients for server.
The Petitioner vide letter dated 28.04.2022 cancelled the Purchase Order dated 25.03.2022. As the Petitioner did not receive the goods, he requested a refund of the advance amount from the Respondent. Consequently, the Petitioner issued a Demand Notice on 16.05.2024, but the Respondent did not respond.
At this timeline, we may refer to the definition of Operational debt as per Section 5 (21) as follows:
“Section 5(21): “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment 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;”
In the present case, the claim pertains to the refund of an advance payment made by the Petitioner in relation to the supply of goods/services under the Sale of Goods Act, 1930, and the Contract Act, 1872.
The Supreme Court in the matter of M/s Consolidated Construction Consortium Limited v. M/s Hitro Energy Solutions Private Limited, Civil Appeal No. 2839 of 2020 dated 04.02.2022 held that-
“47 Having established that the appellant is an operational creditor, we must now analyze whether the debt owed to the appellant can actually be realized from the respondent. In the present case, it is uncontested that the appellant entered into a contract with the Proprietary Concern and continued communications with them till the very end, finally sending its notice under Section 8(1) of the IBC to the respondent. ***
60 In the present case, CMRL issued the cheque of Rs. 50,00,000 to the Proprietary Concern on 7 November 2013. However, at that time, it was issued as an advance payment for the purchase order of the appellant. It was only on 2 January 2014 that CMRL terminated its project with the appellant, and it was after this that the Proprietary Concern encashed the cheque. Subsequently, correspondence was exchanged between the appellant and the Proprietary Concern in July 2016 in relation to the re-payment of the amount. Thereafter, a joint meeting was also held on 4 August 2016. ***
62.Therefore, we answer the three issues formulated earlier in the following terms: …
(i)The appellant is an operational creditor under the IBC, since an ‘operational debt’ will include a debt arising from a contract in relation to the supply of goods or services from the corporate debtor;” (Emphasis Provided)
The Supreme Court in the matter of M/s Consolidated Construction Consortium Limited has considered the advance payment for the purchase order as an operational debt. Therefore, the advance payment made by the Petitioner in the present case comes under the definition of operational debt.
The Respondent/Corporate Debtor has not denied the above facts but has admitted to its poor business conditions. Further, the Respondent has requested for mediation. Even if a Corporate Debtor/ Respondent offers for settlement through mediation, an Operational Creditor is not precluded from pressing a Section 9 petition.
Under Section 9(5) of the Code, the scope of the Adjudicating Authority is confined to either admitting or rejecting the application made under sub-section (2). This Tribunal is not a recovery forum and settlement cannot be directed. It can be considered in view of the observations of the Hon'ble Supreme Court in the case of E. S. Krishnamurthy & Ors vs. M/s Bharath Hi Tech Builders Pvt. Ltd. [Civil Appeal No. 3325 of 2020]:
“27.The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5).
The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute. 29. The IBC is a complete code in itself. The Adjudicating Authority and the Appellate Authority are creatures of the statute. Their jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelises and circumscribes the ambit of such jurisdiction. Thus, while the Adjudicating Authority and Appellate Authority can encourage settlements, they cannot direct them by acting as courts of equity.” (Emphasis Provided)
Based on the facts and circumstances of the case, and the discussions above, the present petition is within the limitation period, and there is a debt and default of Rs. 1,20,00,000/-. Since there is no pre-existing dispute in this case, this Tribunal is satisfied that the present petition is maintainable and accordingly, the Company Petition bearing no. 578 of 2024 is admitted and ordered as follows:
ORDER
The above Company Petition No. (IB) 578/ (MB)/2024 is hereby allowed and initiation of Corporate Insolvency Resolution Process (CIRP) is ordered against M/s. VXL Software Solutions Private Limited.
This Bench appoints Ms. Jayanti Lal Jain (jain@headwayip.com), Registration No. IBBI/IPA-001/IP-P01792/2019-20/12845 as the Interim Resolution Professional (IRP) to carry out the functions as per the Insolvency & Bankruptcy Code, 2016.
The Operational Creditor shall deposit an amount of Rs. 5 Lakhs towards the initial CIRP costs by way of a Demand Draft drawn in favour of the Interim Resolution Professional (IRP) appointed herein, immediately upon communication of this Order. The IRP shall spend the above amount towards expenses and not towards fee till his fee is decided by the Committee of Creditors.
There shall be a moratorium under section 14 of the Code prohibiting the following:
the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor.
The supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.
The provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
The order of moratorium shall have effect from the date of pronouncement of this order till the completion of the Corporate Insolvency Resolution Process or until this Bench approves the Resolution Plan under sub-section (1) of section 31 or passes an order for Liquidation of Corporate Debtor under section 33, as the case may be.
The public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code.
During the CIRP period, the management of the corporate debtor will vest in the IRP/RP in terms of section 17 of the Code. The suspended directors and employees of the corporate debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP/RP.
The Registry shall send a copy of this order to the Registrar of Companies, Mumbai, for updating the Master Data of the Corporate Debtor.
The Registry is further directed to communicate this order to the Financial Creditor, the Corporate Debtor and the IRP immediately.
The Registry is also directed to send a copy of this order to the Insolvency and Bankruptcy Board of India (IBBI) for their record.
A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.
The Company Petition No. 578 of 2024 is accordingly admitted.