Karnataka High Court
M/S Wipro Ltd vs M/S Biomatiques Identification on 5 September, 2024
Author: M.G.S. Kamal
Bench: M.G.S. Kamal
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NC: 2024:KHC:36388
WP No.51156 of 2019
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF SEPTEMBER, 2024
BEFORE
THE HON'BLE MR. JUSTICE M.G.S. KAMAL
WRIT PETITION NO.51156 OF 2019 (GM-RES)
BETWEEN:
M/S. WIPRO LTD
A COMPANY REGISTERED UNDER THE
COMPANIES ACT 1956
HAVING ITS REGISTERED OFFICE
AT DODDAKANELLI
SARJAPURA ROAD
BENGALURU-560 035
Digitally REP. BY ITS AUTHORIZED SIGNATORY
signed by
SUMA B N MISS. ARPITHA R.
Location: High ...PETITIONER
Court of
Karnataka (BY SRI. MANMOHAN P.N. ADV.,)
AND:
1. M/S. BIOMATIQUES IDENTIFICATION
SOLUTIONS PRIVATE LTD.
HAVING ITS REGISTERED OFFICE AT
FIRST FLOOR, RISHI HOUSE
B/H SBI MAIN ROAD
PIPOLOD, SURATH
GUJARAT, INDIA.
2. THE NATIONAL COMPANY
LAW TRIBUNAL BENGALURU
BANGALORE BENCH, BANGALORE
RAHEJA TOWERS, M.G. ROAD
BENGALURU-560001
REP. BY REGISTRAR.
...RESPONDENTS
(BY SRI. CHANDAN G.K. ADV., AND
SRI. PRAVEEN K.B. ADV., FOR R1)
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WP No.51156 of 2019
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO ISSUE
WRIT OF PROHIBITION AND PROHIBIT THE NATIONAL
COMPANY LAW TRIBUNAL, BENGALURU BENCH FROM
CONTINUING THE PROCEEDINGS PENDING BEFORE IT
(PRODUCED AS ANNEXURE-H AND R) OF IN THE ALTERNATIVE.
QUASH THE ENTIRE PROCEEDINGS PENDING BEFORE THE
NATIONAL COMPANY LAW TRIBUNAL BENGALURU BENCH
(PRODUCED AS ANNEXURE-R & ETC.
THIS PETITION, COMING ON FOR ORDERS, THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE M.G.S. KAMAL
ORAL ORDER
Petitioner is before this Court seeking following reliefs:
a) Issue writ of prohibition and prohibit the National Company Law Tribunal, Bengaluru Bench from continuing the proceedings pending before it in CP (IB) No.210/BB/2019 (produced as Annexure-H and R) or in the alternative.
b) Issue writ of certiorari and quash the entire proceedings in CP (IB) No.210/BB/2019 pending before the National Company Law Tribunal, Bengaluru Bench (produced as Annexure-R) and.
c) Issue writ of certiorari and quash the order dated 12.07.2019 passed in CP (IB) No.210/BB/2019 by the National Company Law Tribunal, Bengaluru Bench (produced as Annexure-J) and.
d) Issue writ of certiorari and quash the order dated 15.10.2019 passed on I.A.No.531/2019 in CP (IB) No.210/BB/2019 passed by the National Company Law Tribunal, Bengaluru Bench (produced as Annexure-R) and.-3-
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e) Pass any order of consequential relief or any other appropriate order or direction as this Hon'ble Court deems fit in the facts and circumstances of the case in the ends of justice and equity.
2. Brief facts of the case leading up to filing of the present petition as narrated in the writ petition are as under:
(a) Petitioner is a Multi-National Company engaged in the business of Software Development and Services. Andhra Pradesh Technology Services Ltd., (APTS), which is a Government of Andhra Pradesh undertaking, had issued tender notification dated 20.08.2015 for procurement of Irish Biometric Devices ("Devices") for various departments of Government of Andhra Pradesh. The said tender was awarded to the petitioner - M/S.WIPRO LTD., vide purchase order dated 22.09.2015 for Society for Elimination of Rural Poverty ("SERP") and purchase order dated 14.09.2015 for Civil Supplies Department, Government of Andhra Pradesh. In furtherance of the said notification, petitioner entered -4- NC: 2024:KHC:36388 WP No.51156 of 2019 into contract with respondent No.1 vide purchase order Nos.6000020650 and 6000020771. In terms of which the respondent No.1 was required to supply Iris Scanners to APTS and the petitioner was required to make payment to the respondent No.1 only upon the receipt and acceptance of the items/products supplied by the respondent No.1 to APTS. The said purchase order specifically provided that the payment would be made to the respondent No.1 on back-to-back basis. In other words, on petitioner receiving the payments from APTS and respondent No.1 as per the payment milestone mentioned in the said purchase orders. Thereby, in the letters dated 20.08.2015 and 21.09.2015, respondent No.1 had agreed to the terms that the payment would be made on back-to-back basis including delivery, payment conditions etc.
(b) That on 05.01.2016 APTS had issued a show-
cause notice pointing out, inter alia, certain quantity -5- NC: 2024:KHC:36388 WP No.51156 of 2019 of the Devices supplied by the respondent No.1 were defective. Consequently, APTS vide order dated 07.04.2016 had partially cancelled the purchase order issued by it in respect of Kurnool, Ananthpuram, Nellore and Prakasam Districts. APTS had further called upon the petitioner to take back all the Devices supplied to these four districts and the amounts paid for the said Devices were ordered to be recovered from the petitioner. It is pointed out that the said letter of APTS also indicated that the explanation offered by the respondent No.1 for supply of defective Devices was not satisfactory. Following the said letter, the Commissioner of Civil Supplies, Government of Andhra Pradesh, vide letter dated 03.06.2017 had instructed APTS not to release the payments till the defective Devices were replaced.
(c) Thus, when things stood thus, respondent issued demand notice under Section 8 of the Insolvency and -6- NC: 2024:KHC:36388 WP No.51156 of 2019 Bankruptcy Code, 2016 (for short, 'Code'), claiming that the petitioner being an operational creditor had failed to pay a sum of Rs.3,87,62,309.79 along with interest at 19.5% aggregating in all Rs.6,36,28,125.79. Petitioner by its reply dated 01.04.2019 had clarified that the terms of the purchase orders clearly mention that the payments would be made back-to-back and since the petitioner had not received the balance payment from APTS as the Devices supplied by the respondent No.1 were defective, the end customers had cancelled the orders in respect of four districts. Thus, it was contended that there was a bonafide dispute regarding the claim made by the respondent.
(d) However, despite the said reply, respondent proceeded to file petition under Section 9 of the Code which was registered before the National Company Law Tribunal (NCLT) in No.CP(IB)No.210/BB/2019. Petitioner, on learning about the same, appeared -7- NC: 2024:KHC:36388 WP No.51156 of 2019 before the respondent No.2-NCLT on 12.07.2019 and requested the Tribunal to grant time to file its reply. However, without considering the said request, respondent No.2-NCLT proceeded to pass order dated 12.07.2019 on the premise of there being a prima-facie case and the dispute that was raised by the petitioner was feeble and untenable and without any substance.
(e) Thereafter, petitioner filed vakalath though its counsel and filed an application seeking recall of the order dated 12.07.2019 in as much as the same had been passed without affording opportunity to the petitioner and same was in violation of principles of natural justice. A detailed statement of objections was also filed. A rejoinder to said statement of objections was also filed by the respondent admitting the nature of the contract to be back-to-back basis. In addition, petitioner also filed applications under Sections 65 and 76 of the Code alleging suppression -8- NC: 2024:KHC:36388 WP No.51156 of 2019 of material facts by the respondent No.1 regarding termination of contract by the APTS, to which the respondent No.1 filed objections. However, by order dated 15.10.2019 respondent No.2-NCLT rejected the application filed by the petitioner seeking recall of the order dated 12.07.2019 opining that the said order was only an expression of prima-facie view subject to the averments/contentions raised by the respondent and consequently, dismissed the application for recall as the same was misconceived and posted the matter for admission on 13.11.2019 and thereafter on 29.11.2019. Aggrieved by the aforesaid events resulting in the aforesaid orders dated 12.07.2019 and 15.10.2019 passed by the Respondent No.2-NCLT, petitioner is before this Court seeking the reliefs extracted hereinabove.
3. Sri.P.N.Manmohan, learned counsel for the petitioner, taking through the documents annexed to the petition, submits that;
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(a) there was a bonafide dispute existed even before the demand was made by the respondent No.1 for the payment of amount and filing of petition before the Respondent No.2-NCLT. In that he submits that the nature of contract admittedly being a back-to-back contract was interdependent and contingent one. Existence of dispute therefore has to be viewed taking holistic view of the facts and circumstances.
(b) In that he submits that admittedly, APTS has sought to partially cancel the contract that was awarded to the petitioner on the allegation of defective supply of Devices by the respondent No.1. This factum of dispute is within the knowledge of the respondent No.1 who has even addressed the communication directly to the APTS. Thus, learned counsel points out that the dispute that is existing amongst the parties to the contract, has to be viewed in the peculiar nature of the contract.
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(c) He submits Respondent No.2-NCLT has erred in opining at the first instance even without hearing the petitioner that the dispute raised by the petitioner was feeble, untenable and without substance. It is his submission that even before providing an opportunity to the petitioner if the Respondent No.2- NCLT has taken this view, the same would be a case of pre-determination causing extreme hardship and prejudice to the petitioner running contrary to very scheme, object and purpose of the Code.
(d) Learned counsel for the petitioner refers to the judgment of the Apex Court in the case of MOBILOX INNOVATIONS PRIVATE LIMITED VS. KIRUSA SOFTWARE PRIVATE LIMITED reported in (2018) 1 SCC 353 to buttress his submission that the entire process initiated by the respondent No.1 is to coerce the petitioner to make the payment despite there being an existence of a bonafide dispute and the same cannot be permitted and that Respondent
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NC: 2024:KHC:36388 WP No.51156 of 2019 No.2- NCLT not having appreciated this aspect of the matter, has proceeded to pass the order which is completely without jurisdiction.
(e) He also submits that the contract between the petitioner and the respondent No.1 provides for an arbitration clause of the dispute inter-se and in the light of existence of arbitration contract, it is best left to the parties to adjudicate the dispute in the forum chosen by them instead initiating the proceedings under the Code without any substance therein. Hence, he submits that Respondent No.2- NCLT has no jurisdiction to proceed with the matter. Hence, seeks for allowing of the petition.
4. Sri.Chandan G.K., learned counsel appearing on behalf of respondent No.1, on instructions, submit that the proceedings initiated by the respondent No.1 is well within the provisions of the Code. As there was no dispute between the petitioner and the respondent No.1,
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NC: 2024:KHC:36388 WP No.51156 of 2019 respondent No.1 had no other option but to have recourse under the provisions of the Code and has rightly done so. He further submits that the Respondent No.2- NCLT has merely expressed its view and has not passed any order. Therefore, interference at this juncture is uncalled for. Hence, seeks for dismissal of the petition.
5. Heard. Perused the records.
6. Before adverting to the contentions urged it is necessary to note that the petitioner in this writ petition has sought for issuance of writ of prohibition prohibiting the National Company Law Tribunal-respondent No.2 from continuing the proceedings pending before it in C.P.(IB)No.210/BB/2019 and for quash of entire proceedings and the orders dated 12.07.2019 and 15.10.2019. Such prayers are essentially on the premise that when the petitioner is neither insolvent nor bankrupt and when it is a profit making entity, the provisions of the Code, cannot be invoked as a weapon to threaten the petitioner with initiation of proceedings thereunder for
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NC: 2024:KHC:36388 WP No.51156 of 2019 recovery of money. The Respondent No.2- NCLT therefore has no jurisdiction to invoke the provisions of the Code and to proceed further in the matter.
7. Learned counsel heavily relies upon the paragraphs 32, 33, 34, 38, 42 to 44, 51 and 56 of the judgment of the Apex Court in the case of MOBILOX INNOVATIONS PRIVATE LIMITED (supra) which are as under;
"32. In the passage of the Bills which ultimately became the Code, various important changes have taken place. The original definition of "dispute" has now become an inclusive definition, the words "bona fide" before "suit or arbitration proceedings" being deleted. In Section 8(1), the words "through an information utility, wherever applicable, or by registered post or courier or by any electronic communication" have been deleted. Likewise, in Section 8(2), the period of "at least 60 days ... through an information utility or by registered post or courier or by any electronic communication" has also been deleted. In Section 9(5), the absence of a proviso similar to the proviso occurring in Section 7(5) was also rectified. Further, the time periods of 2 and 3 days were uniformly substituted, as has been seen above, by 7 days, so that a sufficiently long period is given to do the needful.
33. xxxx It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility [Section 9(5)(ii)(d)]. Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected [Section 9(5)(ii)(e)].
34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:
(i) Whether there is an "operational debt" as defined exceeding Rs 1 lakh? (See Section 4 of the Act)
(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And
(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration
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NC: 2024:KHC:36388 WP No.51156 of 2019 proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.
38. It is, thus, clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in the prescribed form. The corporate debtor is then given a period of 10 days from the receipt of the demand notice or copy of the invoice to bring to the notice of the operational creditor the existence of a dispute, if any. We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which "the existence of a dispute" alone is mentioned. Even otherwise, 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 before triggering of the insolvency process, 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 up to 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 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.
42. This being the case, is it not open to the adjudicating authority to then go into whether a dispute does or does not exist?
43. It is important to notice that Section 255 read with the Eleventh Schedule of the Code has amended Section 271 of the Companies Act, 2013 so that a company being unable to pay its debts is no longer a ground for winding up a company. The old law contained in Madhusudan [Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd., (1971) 3 SCC 632 : (1972) 2 SCR 201] has, therefore, disappeared with the disappearance of this ground in Section 271 of the Companies Act.
44. We have already noticed that in the first Insolvency and Bankruptcy Bill, 2015 that was annexed to the Bankruptcy Law Reforms Committee Report, Section 5(4) defined "dispute" as meaning a "bona fide suit or arbitration proceedings...". In its present avatar,
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NC: 2024:KHC:36388 WP No.51156 of 2019 Section 5(6) excludes the expression "bona fide" which is of significance. Therefore, it is difficult to import the expression "bona fide" into Section 8(2)(a) in order to judge whether a dispute exists or not.
51. 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)(i)(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.
56. Going by the aforesaid test of "existence of a dispute", it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defence is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterising the defence as vague, got up and motivated to evade liability."
8. While there cannot be any dispute with regard to the aforesaid proposition of law, in the light of the reliefs sought and the grounds supplied for the such reliefs in the writ petition, what needs to be addressed is whether Respondent No.2- NCLT has jurisdiction to adjudicate upon the dispute between the parties to this petition involving the contentions as urged.
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9. In the order dated 12.07.1990 produced at Annexure-J the respondent No.2-NCLT has held as under;
"In the light of above circumstances of the case, we are of the prima facie view that the dispute raised by the respondent is feeble and untenable and same is without any substance. However, before taking up admission of the case we are inclined to give liberty to the respondent to file their statement of objection as requested by learned counsel for the respondent".
10. Further in the order dated 15.7.1990 produced at Annexure -R the respondent No.2-NCLT has held as under;
"The Adjudicating Authority vide order dated 12.07.1990 has only expressed prima facie view subject to further averments/contentions to be made by the respondents. Since the respondents has already filed to the main company petition, they can argue the case finally by placing their contentions. The application is misconceived and thus liable to be dismissed."
11. It is also necessary to note that Section 7 of the Code, enables a financial creditor to file an application for initiating corporate insolvency resolution process against a corporate debtor before the respondent No.2-NCLT when a default has occurred in respect of a financial debt. Section 9 providing for an application for initiation of corporate insolvency resolution, contemplate that after expiry of a
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NC: 2024:KHC:36388 WP No.51156 of 2019 period of 10 days from the date of delivery of notice or invoice demanding payment under sub-section (1) of Section 8 if the operational creditor did not receive the payment from the corporate debtor or did not receive notice of dispute under sub-section (2) of Section 8 only then the operational creditor would get right to file application before Adjudicating Authority. Sub-section (5) of Section 9 contemplates even if such an application is filed, the Adjudicating Authority shall within 14 days of receipt of application, by an order reject the application and the communicate of said decision to the operational creditor if the notice of dispute has been received by the operational creditor.
12. Appropriate at this juncture to refer to sub- Section (5) of Section 60 of the Code, 2016 which lays down the scope and ambit of the jurisdiction of the respondent No.2-NCLT which reads as under;
''(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of--
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(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.''
13. Thus, the reading of the aforesaid provision would indicate that respondent No.2-NCLT is vested with jurisdiction and authority to hear any applications or proceedings brought by or against the corporate person or corporate debtor and any claim, defense or disputes notwithstanding anything contrary to any other law from the time being course.
14. In the light of the law enunciated by the Apex Court in the case of MOBILOX INNOVATIONS PRIVATE LIMITED (supra) and the provisions of the Code extracted hereinabove what emerges for the purpose of this petition is whether the respondent No.2- NCLT could have proceeded the proceedings initiated by the respondent No.1?.
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15. In view of sub-Section (5) of Section 60 which provides jurisdiction to the respondent No.2-NCLT to deal with all questions relating to the proceedings initiated under the provisions as noted above. As such, the contentions that it has no jurisdiction to deal with the matter cannot be accepted. Further, in view of the orders dated 12.07.2019 and 15.10.2019 passed by the respondent No.2-NCLT as extracted hereinabove it is clear that respondent No.2-NCLT is yet to look into the requirement of Section 9 of the Code.
16. Though, learned counsel for the petitioner strenuously pointed out to the various correspondences ensued between the petitioner and the respondent No.1 as well as the correspondence ensued between the APTS, petitioner and the respondent No.1, and the terms of the contract, to point out the existence of the dispute which is required to be appreciated for the purpose of the Code, and also the arbitration agreement/clause provided under the contract to contend the exclusion of the jurisdiction of
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NC: 2024:KHC:36388 WP No.51156 of 2019 respondent No.2-NCLT, this Court is of the view that even as opined by the respondent No.2-NCLT in its order dated 15.10.2019 it has only expressed its prima-facie view while passing the earlier order dated 12.07.2019 and has kept the matter open to be heard on said contentions.
17. Since this Court has found that petitioner has not made out case for issuance of writ of prohibition as above, and since the respondent No.2-NCLT is yet to take a view on the dispute raised by the petitioner, without expressing any view on the merits and demerits of the submissions made by the learned counsel for the petitioner, this Court deem it appropriate to relegate the matter to respondent No.2-NCLT, which shall, before proceeding further into the matter, provide sufficient opportunity of being heard to the petitioner with regard to the nature and fabric of the dispute being canvassed by the petitioner for rejection of the claim of the respondent No.1 under the Code and pass appropriate order thereon.
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18. Accordingly the following:
ORDER i. Petition is disposed of.
ii. Parties are relegated to the respondent No.2-NCLT who after affording sufficient opportunity to the parties concerned, shall first adjudicate upon the contention raised by the petitioner with regard to existence of the dispute taking into consideration the terms of the contract and the communications that were exchanged between the parties, which are relied upon by the petitioner and shall also examine the maintainability of the petition in the light of arbitration clause entered into between the parties.
iii. Petitioner and the respondent No.1 are at liberty to furnish such additional material for the consideration of the respondent No.2-NCLT, if required and if so advised.
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NC: 2024:KHC:36388 WP No.51156 of 2019 iv. Respondent No.2-NCLT shall undertake this exercise and pass appropriate orders in accordance with law as directed hereinabove as expeditiously as possible.
Sd/-
(M.G.S. KAMAL) JUDGE BSR, List No.: 1 Sl No.: 8