National Company Law Appellate Tribunal
Indra Marshal Power Private Limited vs Akshaya Irrigation Products Private ... on 22 February, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
Company Appeal (AT) (CH) (INS.) No. 367 of 2022
(Under Section 61 of the Insolvency and Bankruptcy Code, 2016)
(Arising out of the `Order' dated 30.06.2022 in
CP (IB) No. 210/9/HDB/2020, passed by the `Adjudicating Authority',
(`National Company Law Tribunal', Hyderabad Bench, Hyderabad)
In the matter of:
M/s. Indra Marshal Power Private Ltd.
Having its Corporate Office at
13-B, Section A, Industrial Area,
Sanwer Road, Indore,
Madhya Pradesh - 452 015
Through its Authorised Signatory ..... Appellant / Operational Creditor /
Petitioner
v.
M/s. Akshaya Irrigation Products
Private Ltd.
Having its Registered Office at
No. 130 / 1, Phase II, IDA,
Cherlapally, Hyderabad,
Telangana - 500 004
Through its Director ..... Respondent / Corporate Debtor /
Respondent
Present:
For Appellant : Mr. M.L. Lahoty, Advocate
JUDGMENT
(Virtual Mode) Justice M. Venugopal, Member (Judicial):
Comp. App (AT) (CH) (INS.) No. 367 of 2022:
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 1 of 33 Prologue:
Heard the Learned Counsel for the `Appellant / Operational Creditor / Petitioner', in the instant Comp. App (AT) (CH) (INS.) No. 367 of 2022 in CP (IB) No. 210/9/HDB/2020 (On the File of the `Adjudicating Authority', `National Company Law Tribunal', Hyderabad Bench, Hyderabad), and the matter is `Disposed of', at the `Admission' stage, itself.
2. The `Appellant / Operational Creditor / Petitioner has filed the instant Comp. App (AT) (CH) (INS.) No. 367 of 2022, as an `Aggrieved Person', being dissatisfied with the impugned order dated 30.06.2022 in CP (IB) No. 210/9/HDB/2020 (Filed by the `Appellant / Operational Creditor / Petitioner'), passed by the `Adjudicating Authority', (`National Company Law Tribunal', Hyderabad Bench, Hyderabad), in `rejecting' the `Petition', as `not maintainable'.
3. The `Adjudicating Authority', (`National Company Law Tribunal', Hyderabad Bench, Hyderabad) in CP (IB) No. 210/9/HDB/2020, while passing the `impugned order' dated 30.06.2022, inter alia at Paragraphs 15 to 24, had observed the following:
15. ``It is ascertained, beyond doubt, from the above, that the mandatory statutory requirement of issuing a demand notice to the Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 2 of 33 Corporate Debtor, under Section 8 of the Code, 2016, must have been executed by the Operational Creditor, prior to approaching this Tribunal under Section 9 of the Code, 2016. The issuance of a demand notice under the Code, 2016, has not been carried out by the Operational Creditor, thereby putting the entire proceedings in peril.
16. Therefore, in the light of the above analysis, this Application is liable to be dismissed on the ground of the non-issuance of the statutory notice, mandated by Section 8 of the Code, 2016.
17. Another defense of the Corporate Debtor is that there are pre-
existing disputes between parties and therefore, the instant application is not maintainable and is liable to be rejected in terms of Section 9(5)(ii)(d) of the Code, 2016.
18. As recounted above, the Operational Creditor issued a statutory notice, dated 23.03.2016, under Section 434(1)(a) of the Companies Act, 1956, demanding that the Corporate Debtor pay an amount of Rs.2,40,69,233.30/-, along with interest of 18% per annum. The Corporate Debtor replied vide letter dated 12.04.2016, listing the issues that arose with respect to the pumps that were supplied. It was stated that the Operational Creditor had failed to rectify defects that were complained of, by the farmers and further, failed to take back about 700 pump sets that were lying with the Corporate Debtor, for want of replacement. Yet another issued that was flagged was the use of inferior quality parts in the assembling of the pumps, that led to the failure of the pumps. The said correspondence may be adverted to, in order to ascertain pre- existing disputes between the parties.
19. The term ``dispute'' has been inclusively defined in the Code in S.5(6) as under:
``(6) ``dispute'' includes a suit or arbitration proceedings relating to-
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 3 of 33
(a) the existence or the amount of debt;
(b) the quality of goods or service; or
(c) the breach of a representation or warranty;
20. It has been judicially held that for the purposes of deciding maintainability of an application filed under Section 9 of the Code, 2016, it is not necessary or mandatory that a suit or arbitration proceedings must have been filed. The existence of a dispute between parties, as noticed from documents placed before this Tribunal, will be sufficient to render an application under Section 9 as not maintainable.
21. This issue was settled by the Hon'ble Supreme Court, in the case of Mobilox Innovative Pvt. Ltd. v. Kirusa Software Pvt. Ltd. ((2018) 1 SCC 353), wherein it is held as follows:
``The word ``and'' occurring in Section 8(2)(a) must be read as ``or'' keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as ``or''. If read as ``and'' disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitration proceedings and not otherwise. This would lead to great hardship; in that a dispute may arise a few days would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral dispute may exist, there is no time to approach, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an arbitral tribunal or a court for upto three years, such persons would be outside the purview of Section 8(2) leading to bankruptcy proceedings commencing against them. Such an anomaly cannot possibly have been intended by the legislature nor has it so been intended. We have also seen that one of the objects of the Code qua operational debts is Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 4 of 33 to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties.''
22. Further, in the said judgement, the Hon'ble Supreme Court also laid down that this Tribunal is not required to delve deeper into the dispute to decide whether the Corporate Debtor is likely to succeed or not. If there exists a dispute, which is not a spurious one or just a feeble legal argument, the Adjudicating Authority is required to reject the application filed under Section 9 of the Code, 2016:
``Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which required further investigation and that the `dispute' is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is 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 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.''
23. When the facts of the instant case, as discussed above, are considered against the above background, it is observed that there has been no admission of operational debt by the Corporate Debtor. Moreover, the exchange of correspondence between parties indicates the following:
(a) Various letters and representations, sent by the farmers to whom the engines and pump sets were supplied, regarding the malfunctioning of the said pump sets, are attached from Page Nos. 169 to 186 and Page Nos. 201 to Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 5 of 33 205 of the Application. It seems that such complaints requesting redressal had arisen from multiple places in the Krishna, Warangal, Ananthapur, Kurnool, Srikakulam, Vijayanagaram and Karimnagar districts.
(b) Multiple e-mails from Corporate Debtor, addressed to the Operational Creditor, communicating malfunctioning of the pump sets and complaints regarding the service of rectification, attached at Page Nos. 190 to 199 of the Application.
(c) Letters to the Operational Creditor, from the Mandal Agricultural Officer, Seethampet, dated 06.02.2014 and 10.03.2014, regarding the premature failures / trouble with the pump sets supplied, attached at Page Nos. 57 and 58 of the Application.
(d) The report of the DCO, Mahabubnagar, dated 20.11.2018, attached at Page No. 208 of the Application, reads as follows:
``There are 40 no. of engines, 05 nos. are in partial shape in Mahabubnagar godown. These engines are not with complete parts.''
(e) That through letters as mentioned above, the Respondent has elaborated various deficiencies in services and disputes between the parties.
(f) That there already existed disputes relating to the deficiency in the goods supplied by the Petitioner.
24. As discussed above, the Corporate Debtor has raised a dispute with sufficient particulars. Hence, the amount of claim raised by the Petitioner clearly falls within the ambit of a disputed claim. Section 9 (5) (ii) (d) of the Code, 2016, provides that the Adjudicating Authority shall reject the application, if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. This Tribunal has also Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 6 of 33 noted the pre-existence of a dispute between the parties, in terms of the exchange of correspondence, referred to above. The Hon'ble Apex Court has categorically laid down in the Mobilox Judgement that if a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Adjudicating Authority must reject the application. Therefore, in our considered view, the instant Application is not maintainable.'' and `rejected', the main `Company Petition', as `not maintainable', and made an observation that the `Right' of the `Petitioner' (Appellant) before any other Forum, shall not prejudiced, on account of `dismissal' of the instant `Application'.
Appellant's Submissions:
4. Assailing the `Correctness', `Validity', `Propriety' and the `Legality' of the `impugned order' dated 30.06.2022 in CP (IB) No. 210/9/HDB/2020, the Learned Counsel for the `Appellant' submits that the `Adjudicating Authority', (`National Company Law Tribunal', Hyderabad Bench, Hyderabad), had erroneously, on the basis of `Non-
Service' of `Notice', under Section 8 of the I & B Code, 2016, `dismissed', the `Main Petition'. In fact, the `Service of Notice', was not at all a requirement in `Law', as per Section 434 of the Companies Act, 2013, and the `Adjudicating Authority', has committed a serious `error', in rendering a finding that the `absence of Notice', as per Section 8 of the Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 7 of 33 I & B Code, 2106, is a ground for `dismissing' the `Transferred Proceedings'.
5. Advancing his argument, the Learned Counsel for the Appellant / Operational Creditor / Petitioner contends that Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, is applicable only in a case where `Notice', was not `Served', upon the `Respondent'. However, in the instant case, not only a `Notice' was `Served', but, the `Winding up Petition', itself, came quite close to the `conclusion stage', with the pleadings being completed by the respective `Parties'.
6. According to the Appellant / Operational Creditor / Petitioner, the `Appellant', was enabled by means of 5th Proviso to Section 434 (1) (c), as substituted under the I & B Code, 2016, seeking `Transfer of Winding up Petition No. 311 of 2016', to the `Adjudicating Authority', (`National Company Law Tribunal', Hyderabad Bench, Hyderabad).
7. In this connection, on behalf of the Appellant, it is pointed that the Proceedings so transferred are straight-away required to be dealt with an `Application' / `Petition', for `Corporate Insolvency Resolution Process', under the I & B Code, 2016, with a `Mandate', that the `Tribunal', would proceed from the stage, at which. the `Proceedings' are transferred, as it is from the `Hon'ble High Court', without reading any assumed `Statutory Compliance'.
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 8 of 33
8. The stand taken on behalf of the Appellant is that the Hon'ble High Court for the State of Telangana, Hyderabad, on 29.11.2019 in IA No. 1 of 2019 in CP No. 311 of 2016, between M/s. Indra Marshal Power Pvt. Ltd., represented by Authorised Signatory Mr. Ajay Sharma v. M/s. Akshaya Irrigation Products Pvt. Ltd., by the Managing Director Mr. Brahmanandam Tummala, Hyderabad, Andhra Pradesh, had transferred the Company Petition No. 311 of 2016, to the `Adjudicating Authority' (`National Company Law Tribunal', Hyderabad'), for conducting further proceedings. As such, the `impugned order', is liable to be set aside, in the interest of Justice.
9. The Learned Counsel for the Appellant refers to the decision of the Hon'ble Supreme Court of India in Forech (India) Limited v. Reconstruction Company Ltd. (2019) 19 SC Cases, Page 549, wherein, at Paragraphs 9, 17 and 23, it is observed as under:
9. ``On and from 17.08.2018, Section 434 was substituted again. This time, the provision reads as follows:-
"434. Transfer of certain pending proceedings.- (1) On such date as may be notified by the Central Government in this behalf,--
(a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein in this section referred to as the Company Law Board) constituted under sub-section (1) of Section 10-E of the Companies Act, 1956, immediately before such date shall stand transferred Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 9 of 33 to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act;
(b) any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days; and
(c) all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer:
Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government: Provided further that only such proceedings relating to cases other than winding up, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal: Provided also that--
(i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or
(ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts;
shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959:] Provided also Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 10 of 33 that proceedings relating to cases of voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of Section 485 of the Companies Act, 1956 but the company has not been dissolved before the 1st April, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959:
Provided further that any party or parties to any proceedings relating to the winding up of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the Tribunal and the proceedings so transferred shall be dealt with by the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (31 of 2016).
(2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section." (Emphasis supplied.)
17. The resultant position in law is that, as a first step, when the Code was enacted, only winding up petitions, where no notice under Rule 26 of the Companies (Court) Rules was served, were to be transferred to the NCLT and treated as petitions under the Code. However, on a working of the Code, the Government realized that parallel proceedings in the High Courts as well as before the adjudicating authority in the Code would stultify the objective sought to be achieved by the Code, which is to resuscitate the corporate debtors who are in the red. In accordance with this objective, the Rules kept being amended, until finally Section 434 was itself substituted in 2018, in which a proviso was added by which even in winding up petitions where notice has been served Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 11 of 33 and which are pending in the High Courts, any person could apply for transfer of such petitions to the NCLT under the Code, which would then have to be transferred by the High Court to the adjudicating authority and treated as an insolvency petition under the Code. This statutory scheme has been referred to, albeit in the context of Section 20 of the SICA, in our judgment which is contained in Jaipur Metals & Electricals Employees Organization Through General Secretary Mr. Tej Ram Meena vs. Jaipur Metals & Electricals Ltd. Through its Managing Director & Ors., being a judgment by a Division Bench of this Court dated 12.12.2018.
23. Though, we are not interfering with the Appellate Tribunal's order dismissing the appeal, we grant liberty to the appellant before us to apply under the proviso to Section 434 of the Companies Act (added in 2018), to transfer the winding up proceeding pending before the High Court of Delhi to the NCLT, which can then be treated as a proceeding under Section 9 of the Code.''
10. The Learned Counsel for the Appellant projects an argument that the Company Petition No. 311 of 2016, was filed before the Hon'ble High Court, by the `Appellant' on 21.07.2016, among other things, seeking the `Relief' of `Winding up' of the `Respondent / Company', since it had failed to pay its `Admitted Liability' of Rs. 2,40,69,233/- towards 1495 nos of Indra Marshal Diesel Engine Pump Sets (IMDE Pump Sets, supplied between 12.11.2013 to 03.10.2014. Furthermore, the `Respondent / Company', had admitted its `Liability' in an unequivocal manner, in its `Ledger Account'.
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 12 of 33
11. The Learned Counsel for the Appellant, points out that in the `Advocate's Reply' of the `Respondent', dated 12.04.2016, addressed to the Appellant's Advocate for the first time, `Spurious and Frivolous Dispute', relating to the `defects in IMDE Pump sets', was raised after two years of supply of the Pump Sets. Indeed, there was no dispute in regard to the supplies of aforesaid IMDE Pump sets, made by the `Appellant', which amounted to continuing Admission of its `Liability'.
12. Also that the Respondent in the `Additional Counter', filed during Apr'2017, before the Hon'ble High Court had admitted that `1495 Nos of IMDE Pump Sets total costing Rs.2,40,73,058/- were supplied by the Petitioner Company during the period from 12-11-2013 to 03-10-2014.
13. The Learned Counsel for the Appellant, adverts to the fact that the `Appellant', in its `Rejoinder Affidavit', (in Company Petition No. 311 of 2016), before the `Hon'ble High Court', had asserted that the `Respondent / Company', had never informed the `Appellant', in regard to the 700 Pump sets, lying in its `Godown', and the `Dispute', was only `fabricated'.
14. Added further, the `Appellant', had reiterated, before the `Adjudicating Authority' (`Tribunal'), in its `Rejoinder' to `Counter', filed by the `Corporate Debtor' (in Main CP (IB) No. 210/9/HDB/2020) that there were `no emails', addressed by the `Corporate Debtor', in Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 13 of 33 regard to the problems in the Pump Set. That apart, it was indicated that there were only few complaints arising solely due to the improper use of the pumps by Farmers and the `Appellant', successfully had resolved the same.
15. The clear cut stand of the Appellant / Operational Creditor / Petitioner is that, the `Dispute', raised by the `Respondent', after the `Service of Statutory Notice' dated 23.03.2016, is a mere `bluster', and an `averment' / `allegation', unsupported by evidence, which is to be `Rejected', in limine, based on the `ratio', laid down by the Hon'ble Supreme Court of India in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., reported in (2018) 1 SCC 353.
16. The other contention advanced on behalf of the Appellant is that, in as much as the allegation of defects, in Pump Sets, is an afterthought, the instant case on hand, is covered by the decision of the Hon'ble Supreme Court in the matter of Shital Fibers Ltd. v. Indian Acrylics Ltd. (2021) SCC Online SC 281, wherein, it is observed and held that `a Dispute, which is not a `Bona fide' and `Substantial', is `liable' to be `Rejected', in a `Winding up Petition'.
Appellant's Decision:
17. The Learned Counsel for the Appellant, seeks in aid of the Judgment of the Hon'ble Supreme Court in Mobilox Innovations (P) Ltd. Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 14 of 33 v. Kirusa Software Private Ltd. (vide Civil Appeal No. 9405 of 2017 dated 21.09.2017), reported in India Kanoon, wherein, at Paragraph 40, it is observed as under:
40.``It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties.
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 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.''
18. While summing up, the Learned Counsel for the Appellant prays for `allowing' the instant `Appeal', by this `Tribunal', in setting aside the `impugned order' dated 30.06.2022 in CP (IB) No. 210/9/HDB/2020, the `Adjudicating Authority', (`National Company Law Tribunal', Hyderabad Bench).
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 15 of 33 Procedure under Rule 64 of NCLT Rules, 2016 (concerning the matters dealt with by the Erstwhile Company Law Board'):
19. As per Rule 64 of the `National Company Law Tribunal Rules, 2016, the `Tribunal', shall hear the matter from the stage of the `Proceedings' or `Cases', transferred to `Tribunal', it will take into consideration, the regulations of the `Company Law Board', and `Rules', therein.
Rule 64 (3) & 64 (4) of the NCLT Rules, 2016, reads as under:
``(3) It shall be lawful for the Tribunal to dispose of any case transferred to it wherever the Tribunal decides that further continuance of such application or petition transferred before the Tribunal shall be an unnecessary proceeding on account of changes which have taken place in the Act either upon an application filed by either of the parties to the proceedings or suo motu.
(4) A fresh petition or an application may also be filed in Form NCLT 1 corresponding to those provisions of the Act, if both the parties thereto so consent with the approval of the Tribunal while withdrawing the proceedings as already continued before the Company Law Board and serve a copy of the petition on the parties thereto including the Central Government, Regional Director, Registrar of Companies, Official Liquidator or Serious Fraud Investigation Office, as the case may be, as provided in the Act, in the manner as provided under Part III.
Insertion by the I & B Code (Amendment Act, 2018):
20. A new proviso, was inserted to Sub-section (1) of Section 434, by way of Amendment Act 26 of 2018 (with effect from 06-06-2018), which enjoins:
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 16 of 33 ``Provided further, that any Party or Parties to any Proceedings, relating to `Winding up of Companies', pending before any Court, immediately, before the commencement of I & B Code, may file an `Application', for transfer of such Proceedings and the Court may Order by `Transfer', such Proceedings to `Tribunal', and that the `Proceedings', so transferred shall be dealt with by the `Tribunal'.
Rule 64 (7) of NCLT Rules, 2016:
21. The Sub Rule 7 of Rule 64 of the NCLT Rules, 2016, reads as under:
(7) Notwithstanding the above and subject to section 434 of the Act, the Tribunal may prescribe the rules relating to numbering of cases and other procedures to be followed in the case of transfer of such matters, proceedings or cases.
22. It cannot be gainsaid that there is no rule in the `National Company Law Tribunal Rules, 2016', which specifies the `Territorial Jurisdiction' of any `Bench' of the `National Company Law Tribunal', which can be pressed into Service, resting upon the `Cause of Action', as per decision of the Hon'ble Supreme Court in 63 Moons Technologies v. Union of India, reported in (2017) 40 SCC 621.
23. Further, where the `Registered Office' of the `Company', was situated, it is held that the pending proceedings with the `Company Law Board', can be transferred to the respective `Bench' of the `Tribunals'. Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 17 of 33 Glimpse of the I & B Code, 2016:
24. A `Petition' / an `Application', for initiation of `Corporate Insolvency Resolution Process', by an `Operational Creditor', requires `strict proof' of `Debt' and `Default', as per `Judgment' of this `Tribunal' dated 08.05.2019 in RAMCO Systems Limited v. Spicejet Limited vide Comp. APP (AT) (INS) No. 31 of 2018.
25. A disputed question pertaining to `Claims' and `Counter Claims', cannot be determined by an `Adjudicating Authority', in an `Application', under Section 9 of the I & B Code, 2016, as per Judgment of this `Tribunal' dated 19.11.2019 in Deepak Gupta v. Ved Contracts Pvt. Ltd. & Ors. (Vide Comp. App (AT) (INS.) No. 1262 of 2019).
26. To be noted that, existing of a `Pre-existing Dispute', is a bar to an initiation of `Corporate Insolvency Resolution Process', at the instance of an `Operational Creditor', as per Judgment of this `Tribunal', dated 14.05.2019 in `Karpara Project Engineering Pvt. Ltd. v. BGR Energy Systems Limited' (vide Comp. App (AT) (INS.) No. 622 of 2018).
27. An `Application', under Section 9 is `not maintainable', there being a `Pre-Existing Dispute' about providing `proper services', by an `Operational Creditor', as per the Judgment of this `Tribunal' dated 19.11.2019, in Continental Carriers Pvt. Ltd. v. Camson Agri-ventures Pvt. Ltd. (vide Comp. App (AT) (INS) No. 523 of 2019). Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 18 of 33
28. In an `Application', under Section 9 of the `Code', the aspect of merit of `Dispute', cannot be determined by an `Adjudicating Authority'. Also that an `Adjudicating Authority', is not to conduct an `Indepth Enquiry', in respect of the `Allegations', at the time of `determining' an `Application / Petition', filed under the `Code'.
29. It must be borne in mind that an `Adjudicating Authority', is required to examine before `Admitting' or `Rejecting' an `Application', under Section 9 of the I & B Code, 2016, whether the `Dispute', raised by the `Corporate Debtor', qualify as a `Dispute', as defined under Sub- section (6) of Section 5 of the Code.
30. Also that, it is to be seen that the `Notice' of `Dispute', given by an `Operational Creditor', fulfils the conditions, specified in Sub-section (2) of Section 8 of the Code.
31. As long as the `Dispute', truly exists in fact, and it is not `spurious', `illusory' or `hypothetical' one, an `Adjudicating Authority', has to `reject' the `Petition' / `Application'.
Summary Proceedings:
32. An `Adjudicating Authority', is not a `Court of Law', and it does not decide a `Money Claim' or `Suit', in a `Summary Proceedings', as per the `Judgment of this Tribunal', in `Hardeep Singh Sawhney v. Sawhney Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 19 of 33 Builders Pvt. Ltd. dated 18.11.2019 (vide Comp. App (AT) (INS.) No. 1147 of 2019).
33. An `Adjudicating Authority' (`Tribunal'), is not a `Recovery Forum' / `Court of Law'. The precise / exact `Claim Sum', can be determined by an `Interim Resolution Professional' / `Resolution Professional', in a `Corporate Insolvency Resolution Process'. Appraisal:
34. Before the `Adjudicating Authority', (`National Company Law Tribunal', Hyderabad Bench), the `Appellant' / `Operational Creditor' / `Petitioner', in CP (IB) No. 210 / 9 / HDB / 2020 (Filed under Section 9 of the I & B Code, r/w. Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, had averred under Part-IV `Particulars' of `Operational Debt', that the Total Amount of Debt was Rs.2,40,69,233.30 (Rupees Two Crores Forty Lakhs Sixty Nine Thousand Two Hundred and Thirty Three and Paise Thirty only) apart from Interest @ 18% per annum from the date of Respective Invoices and according to the `Appellant' / `Operational Creditor' / `Petitioner', it supplied `Goods' to the `Corporate Debtor', on various dates, which were duly endorsed on the `Lorry Receipts', and further that upon several requests and demands, to the `Corporate Debtor, it failed to pay the same, Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 20 of 33 due to which, the `Operational Creditor', had sent a `Demand Notice' dated 23.03.2016, under Section 434 (1) (a) of the Companies Act, 1956. Later, CP No. 311 of 2016, was filed, before the Hon'ble High Court of Telangana, Hyderabad (for the State of Telangana and State of Andhra Pradesh), for `Winding up Petition', where the `Corporate Debtor', entered its appearance, filed their `Counter', and a `Rejoinder', was filed by the `Operational Creditor', to which, the `Corporate Debtor', has filed its `Reply', in which, the `Corporate Debtor', had admitted that the `Supply', was made by the `Operational Creditor'. But the `Corporate Debtor' took a plea that there were 700 faulty pump sets delivered and the matter was referred to the Mediation Centre, but the same was not proceeded, due to lapse of time, and the matter was referred back to Hon'ble High Court.
35. According to the `Appellant' / `Operational Creditor' / `Petitioner', an `Application', was filed for `Transfer of Winding up Petition', to the `Tribunal', for adjudication of the matter, under I & B Code, 2016. Further, the `Default', took place on numerous occasions, particularly 30 days from the date of each Invoice and the interest was enclosed with the `Notice' annexed.
36. The Respondent / Corporate Debtor in its `Reply', to the main CP (IB) No. 210 / 9 / HDB / 2020, had averred that it time and again sent Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 21 of 33 emails / letters, requesting the `Appellant / Petitioner', to rectify the defects and replace the damaged pump sets as agreed as per Clause 7 and 8 of the `Memorandum of Understanding'. Furthermore, the `Appellant / Petitioner', had supplied all substandard quality goods, which were of cheap quality, made with China parts that fail to start and a premature problem at first case, almost more than 700 pumps were sent back and were lying in Respondent's go-down without being replaced, in spite of they were being under warranty, in view of the same, most of the pumps which were installed had functional defects and beneficiaries who bought them faced lot of problems and affected their irrigation.
37. Moreover, the Appellant / Petitioner, had failed to send a `Technical Support Team', to rectify the same, even after various communications from the `Respondent', through several emails from time to time.
38. Before the `Adjudicating Authority', the `Respondent', had pleaded in its `Counter' that in the absence of any `Debt', due to the `Appellant / Petitioner', by the `Respondent', there exists no `Creditor / Debtor Relationship', between the `Parties'.
39. The Appellant / Petitioner does not qualify as the `Creditor' of the `Respondent / Company'. Further, the `Respondent / Company', is a `Solvent' one and generating `Revenues', with increasing trend and is in a Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 22 of 33 position to meet its current `Liabilities', from time to time, arising in the course of business.
40. According to the Respondent, there is no `Debt' payable to the `Appellant / Petitioner', much less the Sum of Rs.2,40,69,233.30 and further there being no `Debt' due, the failure to repay a `Non-existence Debt', does not arise.
41. The stand of the Respondent (before the Adjudicating Authority) is that the purported Letter dated 04.08.2015, is a `Fabricated' one for the purpose of this case and further the purported `Claims', made by the `Appellant' / `Petitioner', in the main Company Petition, arise from the `Contractual Dispute', and the `Appellant / Petitioner', is seeking a specific performance relief, for which, the `Adjudicatory Forum', is a `Civil Court' / `Arbitrational Tribunal', hence the `Company Petition', is liable to be `dismissed'.
42. Before the `Adjudicating Authority', the `Appellant / Petitioner' in his `Rejoinder', had denied that it supplied any IMDE Pump sets with inferior quality China made parts and further that the Pump sets supplied by the `Appellant / Company', are `ISI' mark, certified by `BIS'. Also that, the `Respondent / Company', had never communicated, informing the `Appellant / Petitioner', about the return of the Pump sets by the Farmers.
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 23 of 33
43. The stand of the Appellant / Petitioner is that, till date, the `Respondent / Company', had never informed it about the 700 Pump sets lying in its `Godown', and the said averment was falsely made, only to generate the fabricated dispute. That apart, the Respondent Company, had failed to set up a defence against its admitted `Liability', which it liable to `Liquidate', by paying Rs.2,40,69,233,30, together with interest at 18% per annum.
44. According to the Appellant / Petitioner / Company, it supplied a total of 3901 Pump sets, out of which, 400 were supplied to the `Respondent / Company' in its earlier name Viz. Haritha Irrigation Pvt. Ltd. and 3501 Pump sets were supplied to the `Respondent', in its present name. In respect of these supplies, the `Respondent / Company', had issued `Purchase Orders', E-way Bill and C-Forms from time to time. There was due of Rs.7,17,081/- from Haritha Irrigation Pvt. Limited against the supply of 400 Pump sets and the same outstanding was shown in the `Account' of the `Respondent / Company'.
45. Also that, in respect of the total outstanding of Rs.5,56,71,661, in respect of the supply of 3501 Pump sets and 35 extra pumps, the `Appellant / Petitioner', had received a payment of Rs.3,10,00,000 (Rs.2,70,00,000 plus Rs.40,000/-).
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 24 of 33
46. Besides this, the `Appellant', had issued `Credit Notes', towards free spares amounting to Rs.5,98,603/-. Resultantly, a Balance of Rs.2,40,73,058/- towards the supply of 1495 Pump sets remain outstanding and due, which is proved through their own `Statement of Accounts'.
47. According to the Appellant, in respect of the supply of Pump sets, payments made by the Respondent, the following Table will indicate the same:
Particulars No of pump Amount in (Rs.)
sets supplied
Supply made from 3501 5,44,90,516/-
20.09.2013 to 10.03.2014
Supply of 35 extra pumps 4,64,064/-
Due transfer from 7,17,081/-
Haritha Irrigation to the
Respondent
Total 5,56,71,661/-
Less
Payment made by the 40,00,000/-
Respondent in October,
2013
Payment made by the 2,70,00,000/-
Respondent from
November, 2013 to
September 2015
Credit Note passed for 5,98,603/-
free spares
Total payment received 3,15,98,603/-
Comp. App (AT) (CH) (INS) No. 367 of 2022
Page 25 of 33
Total amount receivable
from the Respondent 2,40,73,058/-
48. With regard to the averment of the `Respondent / Company', pertaining to the holding up of the Sum of Rs.82,97,608/- by the Department is concerned, according to the `Appellant', the `Respondent', had not produced a single document to support its `Statement', and the cause of such holding. Also that, it is incorrect to state that the `Respondent / Company', had intimated the `Appellant / Petitioner', as to the quality and failure of engine and the `Appellant / Petitioner', denies the same, in a vehement manner.
49. In the instant case on hand, the `Appellant / Petitioner', had preferred IA No. 1 of 2019 in CP No. 311 of 2016 (Before the Hon'ble High Court for the State of Telangana, Hyderabad), seeking to `transfer' the `Company Petition' to `National Company Law Tribunal', Hyderabad Bench, for `Adjudication' and on 29.11.2019, it was observed and ordered as under:
``Heard learned counsel for the petitioner, and the learned counsel for the respondent-Company.
The Hon'ble Supreme Court in Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd1, after referring to the amendments in Companies Act, had held as under:
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 26 of 33 ``It is thus clear that under the scheme of section 20 of section 434 (as amended) and Rule 5 of the 2016 Transfer Rules, all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018. Once this is done, the High Court must transfer such proceedings to NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code.'' In the light of the above, the application is allowed with a direction to the Registry to make over the file to NCLT, Hyderabad Bench, for conducting further proceedings by following due process.''
50. By virtue of the aforesaid Order of the Hon'ble High Court for the State of Telangana in IA No. 1 of 2019 in CP No. 311 of 2016 dated 29.11.2019, the CP No. 311 of 2016, on the file of Hon'ble High Court, was directed to be made over to the file of `National Company Law Tribunal', Hyderabad Bench, for conducting further proceedings, by following due process.
51. From the above, it is crystalline clear that the `Adjudicating Authority' (`National Company Law Tribunal', Hyderabad Bench), ought to have treated the proceedings transferred under Section 434 of the Companies Act, i.e. CP No. 311 of 2016, as an `Insolvency Petition', under Section 9 of the I & B Code, 2016, and should have assigned an `appropriate number'.
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 27 of 33
52. Unfortunately, the `Adjudicating Authority' (`National Company Law Tribunal', Hyderabad Bench), had numbered the `Application / Petition', moved by the `Appellant / Operational Creditor', afresh as `CP (IB) No. 210 / 9 / HDB / 2020' in January 2020. In this connection, this `Tribunal', pertinently points out that at Paragraph 9 of the `impugned order' dated 30.06.2022 in CP (IB) No. 210 / 9 / HDB / 2020, the `Adjudicating Authority', had among other things observed that `..... Therefore, the Petition under Sections 433 and 434 of the Companies Act, 1956, as instituted before the Hon'ble High Court, cannot be treated to be an application under Section 9 of the Code, 2016 in terms of Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016.', and the said observation is an `incorrect' one, especially in the teeth of the `Order of the Hon'ble High Court for the State of Telangana in IA No. 1 of 2019 in CP No. 311 of 2016 dated 29.11.2019, which the `Adjudicating Authority' (`Tribunal'), is to adhere to in `true letter and spirit', without any deviation whatsoever, as opined by this `Tribunal'. Likewise, the observations of the `Adjudicating Authority' (`Tribunal'), in the `impugned order' dated 30.06.2022, at Paragraph 10, `Hence the earlier proceedings, before the `Hon'ble High Court', may not be of much significance in the matter before this `Tribunal'. In any case, even if the matter were considered as transferred from the `Hon'ble High Court', it Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 28 of 33 would `stand' abated, etc., are an `incorrect', `invalid', and `legally untenable' one.
53. It cannot be gainsaid that Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, is applicable, only in respect of a case, where `Notice', was not served on the `Respondent'. As a matter of fact, the instant case on hand, the `Notice', was not only served, but, the `Winding up Petition', came very near to the stage with the completion of pleading by the respective `Parties'. Also that, the `Fifth Proviso to Section 434 (1) (c) as substituted', under the I & B Code, 2016, has permitted the filing of an `Application', by the `Appellant' / `Petitioner' / `Operational Creditor', praying for `transfer' of the `Winding up Petition No. 311 of 2016', to the `Adjudicating Authority' (`National Company Law Tribunal', Hyderabad Bench).
54. It is to be remembered that the proceedings to be transferred in `Law', are required to be dealt with an `Application' / `Petition', for the `Corporate Insolvency Resolution Process', under the I & B Code, 2016, with a mandate that the `Adjudicating Authority' (`NCLT'), will provide from the stage, at which, the `Proceedings' are transferred, as it is from the `Hon'ble High Court'. Viewed in that perspective, this `Tribunal', is of the cocksure opinion that the `Adjudicating Authority' (`Tribunal'), Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 29 of 33 has misdirected itself by making observations at Paragraph 9, while passing the `impugned order' dated 30.06.2022, which are clearly `unsustainable', in the eye of `Law'.
Judicial Discipline:
55. An `Order' of the `Hon'ble High Court', passed in a given case, shall be binding on the `Adjudicating Authority' (`Tribunal'), established under Section 419 (4) of the Companies Act, 2013, exercising `Territorial Jurisdiction'. To put it differently, the `Propriety', `Sobriety' and the `Comity' of `Judicial Discipline', require an `Adjudicating Authority' (`Tribunal'), is to follow the `Order' of the `Hon'ble High Court', in `true letter and spirit', and without any `Deviation', whatsoever. No wonder, an `Order' / `Decision', is an `Authority' for what it actually decides. It is highly `inappropriate' and `impermissible', for an `Adjudicating Authority' (`Tribunal'), not to follow the `Order', passed by the `Hon'ble High Court'.
56. Continuing further, suffice it for this `Tribunal', to make a pertinent mention that in as much as the `Adjudicating Authority' (`National Company Law Tribunal', Court No. II, Hyderabad Bench), had not followed the direction of the Hon'ble High Court dated 29.11.2019 in IA Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 30 of 33 No. 1 of 2019 in CP No. 311 of 2016, between M/s. Indra Marshal Power Pvt. Ltd, Madhya Pradesh v. M/s. Akshaya Irrigation Products Pvt. Ltd. on this score alone, this `Tribunal', sets aside the `impugned order' dated 30.06.2022 in CP (IB) No. 210 / 9 / HDB / 2020 (as it bristles with `Legal Infirmities'), ofcourse, to prevent an `Aberration of Justice', and to promote a `Substantial Cause of Justice'.
57. In view of the fact that this `Tribunal', sitting in `Appeal', has set aside the `impugned order' dated 30.06.2022, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Court No. II, Hyderabad Bench), it is made crystalline clear that the `merits' of the matter between the `Parties', have not been gone into, by this `Tribunal'.
58. Before parting with the case, this `Tribunal' pertinently directs the `Adjudicating Authority', (`National Company Law Tribunal', Court No.2, Hyderabad Bench), to `Number' the `CP No. 311 of 2016' (as ordered by the `Hon'ble High Court for the State of Telangana, Hyderabad', on 29.11.2019 in IA No. 1 of 2019 in CP No. 311 of 2016), to its `File', by `assigning a New Number', and to take it on its `File', and to proceed further, in accordance with `Law'.
Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 31 of 33
59. Further, the `Adjudicating Authority', after taking the `CP No. 311 of 2016' (Ordered to be made over by the Hon'ble High Court for the State of Telangana, Hyderabad, vide Order dated 29.11.2019 in IA No. 1 of 2019 in CP No. 311 of 2016) to the File of the `Adjudicating Authority', number it, by the `Office of the Registry', shall inform the respective `Parties' to the `Proceedings', by issuing `Notice' / `Office Memorandum' (issued by the `Registry'), and to proceed further, by following the `Due Process', and to take it to its logical end, in passing a `reasoned order' in `speaking terms' (ofcourse in a `qualitative' and `quantitative' manner), by adhering to the `Principles of Natural Justice', and permitting the `Parties', to raise all `Factual and Legal Pleas', and meeting out the same, in a `Fair', `Just' and in a `Dispassionate' manner, `Untrammelled' and `Uninfluenced', with any of the `Observations', made by this `Tribunal', in this `Appeal'.
60. Resting upon the `numbering / re-numbering' of CP No. 311 of 2016, from the File of the `Hon'ble High Court' to the File of the `Adjudicating Authority' / `Tribunal', for proceeding further, in accordance with `Law' (keeping in tune with the `Order' of the Hon'ble High Court for the State of Telangana, Hyderabad, dated 29.11.2019 in IA No. 1 of 2019 in CP No. 311 of 2016, the `Tribunal' is to pass Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 32 of 33 `consequent orders' in CP (IB) No. 210 / 9 / HDB / 2020 (Fresh Petition filed by the `Appellant' / `Petitioner' / `Operational Creditor'), by `dismissing', the same.
Disposition:
With the aforesaid observations and directions, the instant Comp.
App (AT) (CH) (INS) No. 367 of 2022, stands `Disposed of'. No costs.
The connected IA Nos. 855 and 856 of 2022 are Closed.
[Justice M. Venugopal] Member (Judicial) [Kanthi Narahari] Member (Technical) 22/02/2023 SR / TM Comp. App (AT) (CH) (INS) No. 367 of 2022 Page 33 of 33