National Company Law Appellate Tribunal
Soham Polymers Private Limited vs Flocksur India Private Limited on 14 February, 2022
Author: Ashok Bhushan
Bench: Ashok Bhushan
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Insolvency) No. 924 of 2021
IN THE MATTER OF:
Soham Polymers Pvt. Ltd. ...Appellant
Versus
Flocksur India Pvt. Ltd. ...Respondent
Present:
For Appellant: Mr. G. P. Madaan, Mr. Aditya Madaan and Mr.
Aishwarya Adlakha, Advocates.
For Respondent: Mr. Anupam Lal Das, Sr. Advocate with Mr. Sinha
Shrey Nikhilesh and Mr. Nayan Dubey, Advocates.
ORDER
(Virtual Mode) 14.02.2022: Heard learned counsel for the Appellant as well as learned counsel for the Respondent. This Appeal has been filed against the order dated 01.04.2021 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench VI by which application filed by the Appellant under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'Code') has been rejected.
2. The Appellant had supplied goods to the Corporate Debtor. The present dispute is regarding only four invoices dated 09.01.2018, 16.04.2018, 24.05.2018 and 22.10.2018. According to the invoices the payment was to be made within 60 days after the delivery. After supply of the aforesaid goods when payment was not made, several reminders were sent by the Appellant and thereafter there has been WhatsApp chat between the parties regarding payment, details of which has been brought on the record by the Appellant before this Tribunal as well as before the Adjudicating Authority. Notice under Section 8 was issued on 05.08.2019. Reply to the notice was issued on -2- 31.08.2019 and thereafter an application under Section 9 was filed on 11.11.2019 to which Reply was also filed. The Adjudicating Authority after hearing the parties by order dated 01.04.2021 has rejected the application under Section 9 on the ground that there was pre-existing dispute between the parties. Challenging the order passed by the Adjudicating Authority, this Appeal has been filed.
3. Shri Aditya Madaan, learned counsel for the Appellant contends that the dispute which was sought to be raised by the Corporate Debtor was spurious, hypothetical and illusionary and there is no material to support the existence of any dispute. He further submits that the Adjudicating Authority committed error in holding that the said dispute was dispute within the meaning of Section 9 and rejected the application. It is submitted that the Adjudicating Authority itself in para 6 has noticed the judgment of the Hon'ble Supreme Court in the matter of "Mobilox Innovative Pvt. Ltd. vs. Kirusa Software Pvt. Ltd." and has quoted the relevant portion of the judgment where it was clearly laid down that so long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority is to reject the application. It is submitted that for the first time after the issue of invoices email was sent by the Corporate Debtor on 20.05.2019, where the dispute of deficiency in quality of goods was raised prior to that there was several WhatsApp chat where the Respondent - Corporate Debtor has not raised any issue of deficiency in quality of goods and have not pointed out any such dispute in the communication. It was when through WhatsApp Chat the Appellant communicated that if payments are not received they are compelled Company Appeal (AT) (Insolvency) No. 924 of 2021 -3- to approach NCLT, as referred in WhatsApp Chat dated 17.03.2019, then on 20.05.2019 for the first time dispute was raised.
4. Learned counsel for the Respondent refuted the submissions made by learned counsel for the Appellant and contended that there is dispute between the parties which was duly communicated on 20.05.2019 which was prior to receipt of notice under Section 8. Hence, the Adjudicating Authority has rightly rejected the application under Section 9. It is further submitted by Mr. Anupam Lal Das, learned counsel for the Respondent that due to deficiency in the quality of goods the Corporate Debtor has to issue Credit Notes to its buyers on 01.08.2019, 26.07.2018, 28.07.2018 and 14.05.2018 which have been brought on record alongwith the Reply. He submits that issuance of aforesaid credit notes clearly proves deficiency in quality of goods. Hence, Section 9 application was rightly rejected.
5. We have considered submissions of learned counsel for the parties and perused the record. Law on the subject is well settled and has been clearly laid down by Hon'ble Supreme Court in the matter of "Mobilox Innovative Pvt. Ltd. vs. Kirusa Software Pvt. Ltd.", Civil Appeal No. 9405 of 2017. In para 40 of the judgment following has been stated:-
"Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is Company Appeal (AT) (Insolvency) No. 924 of 2021 -4- important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."
6. The Adjudicating Authority has only to look into as to whether the dispute which is sought to be raised by the Corporate Debtor truly exists in fact and it is not spurious, hypothetical or illusory. On the material which has been brought on record we have only to find out as to whether there was any dispute actually in fact exists in between the parties prior to issuance of Section 8 notice or the dispute sought to be raised by the Respondent is only an illusory dispute.
7. The last of the four invoices was the invoice issued on 22.10.2018 and there are communications between the parties regarding non-payment. The Appellant has brought on the record WhatsApp chat between the parties on 01.11.2018 whereby Corporate Debtor was informed that they have not made payments nor responded to the calls. There are 34 communications between the Appellant and the Corporate Debtor before email dated 20.05.2019 was sent by the Corporate Debtor. It is useful to notice only few of them to know Company Appeal (AT) (Insolvency) No. 924 of 2021 -5- the actual happening which took place between the parties. On 13.03.2019 following was the message sent by the Appellant:
"I have no alternative but file a case against you in NCLT. Today is the last call from me afterwards we will meet in court."
8. The immediate reply of the said message was sent by the Corporate Debtor on 13.03.2019 itself, which is to the following effect:
"Modekji factory is closed due to pollution I am running to Chandigarh and Haryana pollution board we have made them payments and factory will start this weekend, please bare with me I have full plans to run the factory and in mind you as our binder partner. Also expected to transfer around 10-12 Lakh to you for buying binder. Please bare with me for little bit longer. Thanks for your patience and trust."
9. There have been several other messages sent by the Appellant. On 14.05.2019 Appellant wrote:
"Today's call was last. If I don't get payment within a week I am going to take legal action."
10. It was after the said communication, on 20.05.2019, following email was sent:-
Company Appeal (AT) (Insolvency) No. 924 of 2021 -6- "Sir, As you are aware, we have been doing business with one another for the past many years and so far you have always supplied us with Flock Binder as required by us as per our standards and quality. In the recent time you have supplied us with Flock Binder and have raised a bill of Rs. 38 Lacs approx. (Oct 18 -Rs.12.98 Lacs, Mary 2018-12.12 Lacs and April 2018-12.74 Lacs) against the goods supplied by you. Further you supplied us goods which was accepted by us, it was further agreed that payment will be made only when the goods are found to meet the standards as required by us.
That several batches of fabrics were produced using the goods supplied by you and were further supplied in the market by us which were returned by further purchasers, who complained that the produced fabrics were below standard and aren't marketable because of which, we have incurred huge damages along with the bad reputation inflicted on our goodwill in the market. Also, all huge quantity of material supplied by us in the market has been returned due to your sub-standard of Company Appeal (AT) (Insolvency) No. 924 of 2021 -7- material supplied by you and is lying idle at our warehouse.
Hence, you are kindly requested to collect the finished goods/stock lying at our warehouse which has been returned on account of your substandard material and deduct the pending payment if any for the substandard material supplied by you. Kindly make the adjustments in your books accordingly. Hoping for a prospering business ahead. Regards."
11. The email which was sent on 20.05.2019 was also replied by the Appellant on 22.05.2019 which has been brought on record at Annexure A/18. It is useful to notice its paragraphs 4 and 7, which are to the following effect:
"4. It comes as an even bigger surprise that when we were sending you reminders for payments not even once did you talk about product quality concerns & nor did you raise any of these concerns when you were promising us payments over the phone whenever we contacted you for the same. And now, after receiving a REMINDER for the 34th time have you actually voiced concerns regarding quality which is not only vague but completely unacceptable & simply unreasonable & it is Company Appeal (AT) (Insolvency) No. 924 of 2021 -8- nothing but trying to find a way to further delay & default on our payments.
7. Also, we would like to point out that we have What's app & SMS records from almost 2 years where you have promised us payments, which obviously have not come on time & the only thing we have received is different reasons or points to delay the said payment. Not even once in those conversations have you talked about inferior quality, or the above-mentioned claimed terms even once. So, it's evident that there were no such terms, nor any such quality issues & this mail has been written only when we said that we will now approach the courts for a redressal against our valid dues."
12. From the correspondence which took place between the parties it is noticed that before 20.05.2019 there is no iota of evidence at any point that Corporate Debtor informed about deficiency in goods or lack of quality. It has been emphasised by learned counsel for the Respondent that Credit Notes dated 01.08.2019, 26.07.2018, 28.07.2018 and 14.05.2018 were issued to the Buyers which have been brought on record alongwith the reply at page 33 to
38. According to the Respondent Credit Notes were issued to the buyers due to bad quality of goods which were supplied by the Appellant. It is noted that there is no communication to support that Credit Notes were issued due to bad quality of goods supplied by the Appellants to the Corporate Debtor. If Company Appeal (AT) (Insolvency) No. 924 of 2021 -9- the Credit Notes were issued due to bad quality of materials supplied by Appellant, there was no reason for the Corporate Debtor not to raise quality concerns from 01.08.2018 till 20.05.2019. No correlation between the quality of goods and Credit Notes have been established that the Credit Notes have been issued due to bad quality of goods supplied by the Appellant.
13. We are of the view that in proceeding under Section 9, the Court has to satisfied that dispute truly exists in fact and is not spurious, hypothetical or illusory.
14. The present is a case where we are satisfied that there is no dispute, in fact, prior to issuance of Section 8 notice. Appellant sent various communications to the Corporate Debtor for payments and stated that it will be compelled to go to NCLT for his claim, after which the Respondent first time on 20.05.2019 informed that there is deficiency in the goods supplied. There has been no communication regarding quality of goods after delivery of goods by invoices dated 09.01.2018, 16.04.2018, 24.05.2018 and 22.10.2018 and after more than six months' period the Respondent sent communication regarding deficiency in quality of goods. The submission of counsel of the Respondent that they informed the Appellant on 20.05.2019 about bad quality of goods and asked to take away their goods, does not inspire any confidence. If there was any deficiency in the quality of goods, Respondent ought to have brought it to the notice of the Appellant immediately after receipt of the goods, the email dated 20.05.2019 was sent when Appellant informed about taking legal remedy.
Company Appeal (AT) (Insolvency) No. 924 of 2021 -10-
15. We are, thus, fully satisfied that present is a case where Corporate Debtor is trying to raise illusory dispute and in fact no dispute existed. The Corporate Debtor cannot be allowed to raise bogy of disputes to save it from its liabilities and the debt under Section 9. We, thus, are satisfied that the Adjudicating Authority committed error in rejecting Section 9 application on the ground of dispute. In result, we set aside order dated 01.04.2021. Let the Adjudicating Authority pass order for admission of the Application under Section 9 after four weeks from today. In the meantime, it shall be open for the parties to enter into settlement, if any. Subject to above, the Appeal is allowed.
[Justice Ashok Bhushan] Chairperson [Dr. Ashok Kumar Mishra] Member (Technical) Archana/nn Company Appeal (AT) (Insolvency) No. 924 of 2021