Petition U/S 9 Of IBC Cannot Be Rejected On Grounds Of Raising Spurious Claim Of Pre-Existing Dispute: NCLAT
Mohd Malik Chauhan
27 Nov 2024 5:55 PM IST
The NCLAT New Delhi bench of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) has held that making belated entries in the books of account to show that goods were misappropriated cannot escape the conclusion that the dispute raised by the corporate debtor was merely a moonshine just to avoid the liability. Brief Facts The present appeal filed under...
The NCLAT New Delhi bench of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) has held that making belated entries in the books of account to show that goods were misappropriated cannot escape the conclusion that the dispute raised by the corporate debtor was merely a moonshine just to avoid the liability.
Brief Facts
The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 06.12.2023 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority.
By the impugned order, the Adjudicating Authority has admitted the Section 9 application filed by the Operational Creditor and admitted the Corporate Debtor into the rigors of Corporate Insolvency Resolution Process (“CIRP” in short). Aggrieved by the impugned order, the present appeal has been filed by the shareholder of the Corporate Debtor.
The Corporate Debtor- Sahara Q Shop Unique Products Range Limited had entered into Service Agreement with Sigma Supply Chain Solutions Pvt. Ltd.-Operational Creditor for the purpose of handling, storage, maintenance, administration, distribution and arrangement of the goods of the Corporate Debtor kept in the warehouses at various locations within the country.
The Operational Creditor sent e-mails to the Corporate Debtor regarding outstanding amounts due and payable by the Corporate Debtor. The Operational Creditor claiming that the outstanding amount remained unpaid issued a Demand Notice on 25.02.2020 under Section 8 of the IBC to the Corporate Debtor demanding payment of Rs 4.02 Cr including interest.
The Corporate Debtor sent a Notice of Dispute on 07.03.2020 denying their liability besides claiming that there were pre-existing disputes between the parties. The Operational Creditor filed a Section 9 application against the Corporate Debtor on 28.12.2021 claiming an amount of Rs 1.75 Cr as due and payable by the Corporate Debtor including interest @18% per annum.
Contentions
The appellant submitted that the pre-existing disputes stem from the Operational Creditor acting in complete contravention of the terms of the Service Agreement much prior to issue of Section 8 demand notice.
Attention was adverted to Clause 4 of the Service Agreement which provided that the ownership of the stocks in the warehouses lied solely and exclusively with the Corporate Debtor and that the Operational Creditor was only a handling/distribution agent of the stock and therefore held the stock in trust on behalf of the Corporate Debtor. However, acting in violation of this clause, the Operational Creditor had denied the access of the warehouse to the Corporate Debtor.
That in the Notice of Dispute dated 07.03.2020, the Corporate Debtor had denied the outstanding amount besides notifying the Operational Creditor about the pre-existing dispute. This notice of dispute has also been acknowledged by the Operational Creditor in their affidavit under Section 9 of the IBC.
Per contra, the respondents submitted that the ground of pre-existing dispute raised by the Corporate Debtor is simply a ruse to escape their liability of paying the debt owed by them to the Operational Creditor.
That the Corporate Debtor had clearly acknowledged their debt in their letter dated 22.04.2015 in which they had requested further time to make payments as they were facing financial difficulty.
It was also mentioned that the Corporate Debtor had raised allegations against them of having misappropriated goods and illegally sold the stocks of the Corporate Debtor as an after-thought only after they received various e-mails from the Operational Creditor calling upon them to pay the outstanding dues.
That Adjudicating Authority had sought explanation from the Corporate Debtor as to how the alleged misappropriation of goods had been dealt in their books of account. The Appellant had submitted two ledger statements and had changed the entry belatedly in the new detailed ledger which clearly indicates that the Corporate Debtor had manipulated their accounts to match the amount of goods that were allegedly misappropriated.
That the Corporate Debtor had made payments to the Operational Creditor till 23.03.2017 which date is after the allegations made by the Corporate Debtor against the Operational Creditor for misappropriation of goods.
Issue Before NCLAT
Whether payment to the Operational Creditor was due and payable by the Corporate Debtor, and if so, whether any default thereto was committed by the Corporate Debtor and whether the said operational debt exceeds the prescribed threshold level and is undisputed debt.
NCLAT's Analysis
The tribunal, at the outset, noted that in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018), the Supreme Court has held that the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:
- Whether there is an “operational debt” as defined exceeding Rs. 1 lakh? (See Section 4 of the Act)
- Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and
- Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any of the aforesaid conditions is lacking, the application would have to be rejected.
The tribunal while dealing with the first test noted that the Adjudicating Authority after noting the admissions made by the Corporate Debtor in a letter dated 22.04.2015 has observed that the same amounts to be a clear acknowledgment of debt of Rs 1.76 cr being due and payable. It is equally pertinent to note that the letter of 22.04.2015 further explains the financial challenges and precarious situation arising out of ongoing litigations faced by the Corporate Debtor which has led to their outstanding dues in the payment of service charges to their vendors despite all their endeavours to pay off these dues in a timely manner.
The tribunal further noted that the email of 07.03.2016 also contains an admission on the part of the Corporate Debtor of the need to clear the dues of the Operational Creditor on priority by resorting to sale of stock lying in the Kolkata warehouse.
Based on the above, it was observed that no error was committed by Adjudicating Authority in coming to the conclusion that in fact there existed debt and default was committed in respect of the debt.
The tribunal while coming to the next issue whether there existed pre-existing dispute between the parties noted that the Adjudicating Authority had ordered on 27.03.2023 to explain how the misappropriation of disputes was handled by the Corporate Debtor in their books of accounts following which the Corporate Debtor had submitted a single page screen shot of a ledger reflecting a ledger entry dated 30.06.2016, the amount of which roughly resembled the alleged misappropriated amount .
Moreover, while this entry was dated June 2016 in the ledger, the Corporate Debtor had claimed the alleged misappropriation to have happened in September 2016 and thus the ledger entry and misappropriation of goods are not directly attributable to each other, the tribunal noted.
It was also noted that while the account reflected in the earlier screen shot was Rs 2,75,91,783.97, the amount reflecting in the new detailed ledger was Rs 2,65,91,783.97 which indicates that the Corporate Debtor had belatedly matched the amount of goods that were allegedly misappropriated.
Having noticed the sequence of events, the tribunal while rejecting the contention of the appellant observed that the Corporate Debtor failed to produce plausible evidence before the Adjudicating Authority to corroborate that there was a pre-existing dispute between the parties with regard to Operational Creditor having misappropriated any goods therefore the ground of disputes raised by the Corporate Debtor deserves to be disregarded being in the nature of a moonshine defence.
The concluded that when the operational debt had already arisen and become due and invoices raised were not specifically disputed, there is nothing on record which detracts from the operational debt having become due and payable.The Adjudicating Authority therefore does not appear to have committed any error in holding that all requisite conditions necessary to trigger CIRP under Section 9 stands fulfilled and that the grounds of pre-existing disputes do not rest on genuine foundations.Accordingly, the present appeal was dismissed.
Case Title: Romi Datta Versus Sigma Supply Chain Solutions Pvt. Ltd and Anr.
Case Reference:Company Appeal (AT) (Insolvency) No. 1652 of 2023
Judgment Date: 26/11/2024
For Appellant : Mr. Sandeep Bajaj, Mr. Devansh Jain, Ms. Vasudha Chadha, Advocates.
For Respondent : Mr. Chinmoy Pradip Sharma, Sr. Advocate with Mr. Bipul Kedia, Mr. Anupam Prakash and Mr. Kumar Anurag, Advocates for R-1. Mr. Akshay Petkar, Mr. Pranav Shah, Mr. Vishesh Kalra, Advocates for R-2 (RP).
