National Company Law Appellate Tribunal
Explo Media Private Limited vs T & D Hospitality India Llp on 2 November, 2022
Author: Ashok Bhushan
Bench: Ashok Bhushan
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Ins.) No. 416 of 2022
[Arising out of order dated 08.02.2022 passed by the Adjudicating
Authority, National Company Law Tribunal, New Delhi Bench-II in Company
Petition (IB) No. 689/ND/2020]
M/s Shalini Sharma
Ex-Director Explo Media Pvt. Ltd.
W/o Mr. Shri Sunjjoy Daadhicch
R/o 4th Floor - 5116 DLF Phase 4
Gurugram - 122009
Haryana ....Appellant
Versus
1. T & D Hospitality India LLP
Plot No. 1, 3rd Floor,
Balaji House, Ram Kumar Marg,
Motia Khan,
Delhi - 110055. ....Respondent No.1
2. Rakesh Takyar
Resolution Professional
Explo Media Pvt. Ltd.
(Under Insolvency Resolution Process)
UGF-1/15, Near PNB
Tilak Nagar,
Delhi - 110018. .....Respondent No. 2
Present:
For Appellant: Mr. Avadh Kaushik & Mr. Prateek Goyal, Mr. Lakshay
Gangawat, Advocates
For Respondent: Mr. Bharat Arora, Mr. Bharat Arora, Advocates for R-1.
JUDGMENT
Company Appeal (AT) (Ins.) No. 416 of 2022 1 [Per: Barun Mitra, Member (Technical)] The present appeal filed under Section 61 of the Insolvency & Bankruptcy Code, 2016 ('IBC' in short) by the Appellant arises out of order dated 08.02.2022 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi, Bench - II in CP(IB) No. 689/ND/2020. By the impugned order, the Adjudicating Authority admitted the Section 9 application under IBC filed by the Operational Creditor and initiated Corporate Insolvency Resolution Process ('CIRP' in short) against the Corporate Debtor with immediate effect. Aggrieved by this impugned order, the present appeal has been preferred by the Ex-Director of the Corporate Debtor.
2. The brief facts of the case as brought forth by the Learned Counsel for the Appellant is that Explo Media Pvt Ltd., the Corporate Debtor/Appellant had entered into an understanding on 08.04.2019 with T&D Hospitality, India LLP, the Operational Creditor/Respondent No.1 for creative outdoor advertisements where the design and logo was to be given by the Corporate Debtor as per the approvals/instructions given to them by clients and the said advertisement was to be printed by the Operational Creditor/Respondent No.1 using quality fabric, ink and colours. The Corporate Debtor had received an order from Air India Ltd. for printing and supply of disposable Head Rest Covers ("HRC" in short) for two years. The HRC were to carry third party advertisement. Pursuant to this contract, the Corporate Debtor had received an order from a client, Cashur Drive, for supply of HRC with display of "Ease my Trip".
Company Appeal (AT) (Ins.) No. 416 of 2022 2
3. The Learned Counsel for the Appellant has submitted that following the Cashur Drive purchase order received by the Corporate Debtor, on the latter's instructions, the Operational Creditor started supplying the HRC directly to Air India Cargo from August-November, 2019. The Corporate Debtor made substantial payment for this purpose to the Operational Creditor in advance and a total sum of Rs.50,72,800/- was paid by the Corporate Debtor to the Operational Creditor/Respondent No.1 till 18.11.2019. It was therefore argued that the Corporate Debtor never made any default in making the payments to the Operational Creditor/ Respondent No.1 and therefore the Section 9 application on the part of the Operational Creditor is premature.
4. It has been further claimed that the Operational Creditor failed to supply goods of the promised quality and in fit state. During inspections carried out by Cashur Drive, the HRC supplied by the Operational Creditor was found to be defective and the Operational Creditor was accordingly informed regarding supply of damaged, inferior and sub-standard quality of goods by Corporate Debtor. It has also been claimed that the Operational Creditor ignored obligations to supply quality goods. Not only did the Operational Creditor refuse to acknowledge deficiency in services but also refused to join mandatory inspection and in fact after a while discontinued supply. The Operational Creditor had also deliberately not placed on record the letter dated 08.04.2019 until directed by the Adjudicating Authority as they wanted to conceal the fact Company Appeal (AT) (Ins.) No. 416 of 2022 3 that this letter provided for mandatory inspection which was actually not complied by the Respondent No.1. It was strenuously contended that the Operational Creditor served Demand Notice on the Corporate Debtor immediately after they were informed about defective supplies and sub-standard supply of goods. It was also emphatically asserted that the demand notices were not effectively served upon the Corporate Debtor.
5. On the claim amount raised in the demand notice of 15.02.2020 it has been submitted by the Learned Counsel for the Appellant that the amount raised by the Operational Creditor is false and frivolous. Apart from one letter dated 08.04.2019 for supply of these materials, there exists no other legal agreement which was entered into by the two parties for supply of goods. The Adjudicating Authority has failed to appreciate the fact that there was a need to verify and substantiate the claim made by the Operational Creditor as other consignments were based on verbal assurances and arising out of verbal contracts. No bills or invoice for any delivery was ever sent by the Operational Creditor to the Corporate Debtor. The genuineness of the "Airway Bill" which has been relied upon by the Operational Creditor is questionable because the source and origin of such documents are not disclosed. Moreover, the ledger Account furnished by the Operational Creditor is unaudited and, therefore, lacks legal validity.
6. Refuting the above submissions, the Learned Counsel for the Respondent No. 1 contended that the Corporate Debtor with the sole intent of not making Company Appeal (AT) (Ins.) No. 416 of 2022 4 payment of their admitted debt, which had become due for some time, has made these misleading assertions. In terms of the letter dated 08.04.2019, the Corporate Debtor was to make 50% advance payment to the Operational Creditor at the time of placing the order and 50% against the inspection of goods. It was submitted that the Corporate Debtor initially did make the advance payments but after a short while informed the Operational Creditor that they were not in a position to make further advance payments because of shortage of funds. Yet they continued to supply goods without advance payment on good faith. Eventually after lapse of some time, the issue of outstanding payment was raised by the Operational Creditor by sending e-mails and exchanging chat communications. Since no payment was still forthcoming from the Corporate Debtor, the Operational Creditor was constrained to issue notice on 15.02.2020 under Section 8 of IBC. It has been further submitted that the Corporate Debtor did not reply to the Demand Notice nor made any payments which compelled the Operational Creditor/ Respondent No.1 to file the Section 9 petition before the Adjudicating Authority in March 2020.
7. The Learned Counsel for the Respondent No.1 rebutted the charge of deficiency in services vehemently. It was pointed out that HRC were supplied on the demand raised by the Corporate Debtor and that they were checked and inspected by the Corporate Debtor through their representatives before receiving the supplies. It has also been argued that the Corporate Debtor had not raised any objection or grievance with respect to the HRC supplied and that the Company Appeal (AT) (Ins.) No. 416 of 2022 5 Appellant has failed to produce any document or any communication in support of their contention in this regard. That there were no complaints with regard to the quality of goods supplied by them is proven by the fact that the Corporate Debtor had in fact requested the Operational Creditor for supply of HRC for a new project. It has also been pointed out that no complaint was either received from the Air India regarding the supply of HRCs even though the Air India terms and conditions clearly provided that "Air India reserves the right to inspect the goods/items at its discretion before accepting the material. In case of any deviation in quality, is found at the time of supply, then the same will be rejected and should be replaced free of cost." (page-69 of the Appeal Paper Book)
8. On the plea raised by the Appellant regarding ineffective delivery of notice under Section 8 of IBC, the Learned Counsel for the Respondent No.1 stated that the notice had been sent to the Gurgaon Corporate Office, on the e-mail ID of the Corporate Debtor as reflected in the Master Index Data of the Corporate Debtor maintained by the Registrar of Companies as also on the e-mail ID of the Director of the Corporate Debtor.
9. We have duly considered the detailed arguments and submissions advanced by the Learned Counsel for both the parties and perused the records carefully.
Company Appeal (AT) (Ins.) No. 416 of 2022 6
10. The issue for our consideration is whether payment to the Operational Creditor/Respondent No.1 was due from the Corporate Debtor giving rise to an operational debt, and if so, whether a default has been committed by the Corporate Debtor/Appellant in respect of payment of such operational debt having already become due and payable and whether the said operational debt exceeds an amount of Rs. 1 lakh and is an undisputed debt. This examination would be in line with the test which has been laid down by the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) in C.A. No.9405 of 2017 (MANU/SC/1196/2017) (hereinafter referred to as 'Mobilox') for the Adjudicating Authority while examining an application under Section 9, the relevant excerpts of which are as follows:-
"25. 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 proceeding filed before the receipt of the Company Appeal (AT) (Ins.) No. 416 of 2022 7 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. 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."
11. We have perused the "Technical-Commercial Letter for Non-woven Head Rest Cover" exchanged between the Corporate Debtor and the Respondent No.1 on 08.04.2019 which mentions of a supply order for HRC with clear payment terms of 50% as advance against Purchase order and 50% against inspection of goods. There is specific mention of GST certificate as one of the documentary requirements. It is therefore clear that the relationship between the two was that of Corporate Debtor and Operational Creditor with the latter being a supplier of goods. Given that this agreement of 08.04.2019, has been admitted by both parties as the core of their relationship, it is a specious plea taken by the Corporate Debtor that it is a legally inadmissible document and that consignments supplied were based on oral statements. We cannot attach much credibility to the contention of the Corporate Debtor that no bills or invoice for any delivery was ever sent by the Operational Creditor to the Corporate Debtor Company Appeal (AT) (Ins.) No. 416 of 2022 8 in the light of the fact that the Operational Creditor issued invoices from time to time claiming the outstanding amount against the supply of HRC as can be seen at pages 46, 47, 50 of the rejoinder reply of Respondent No. 1.
12. This brings us to the question that if invoices were raised then whether there was an outstanding amount above Rs. one lakh and whether it had become due and payable. We find that the Adjudicating Authority has minutely examined and recorded the reply filed before it by the Corporate Debtor before coming to the conclusion "that the Corporate Debtor has admitted that out of the total sum of Rs. 65,30,168/- only an amount of Rs. 50,72,800/- was paid by the Corporate Debtor and the remaining balance has not been paid as yet." Since the Corporate Debtor on his own has admitted that there was an operational debt due and payable, it is a clinching factor and therefore there arises no ground to disagree with the Adjudicating Authority. There is also ample evidence that the Operational Creditor/Respondent No. 1 has from time to time sent reminders to the Corporate Debtor to clear the outstanding dues by sending e-mails on 04.12.2019, 14.12.2019, 06.01.2020 and 17.01.2020 besides exchanging chat communications in this regard over WhatsApp as placed at pages 46-56 in the written reply filed by the Respondent No. 1. On the other hand, there are no documents which have been put forth by the Corporate Debtor which show that they had denied these dues or that they had indicated any error in the due statement. Rather, the contents of chat messages as exchanged indicate that the Company Appeal (AT) (Ins.) No. 416 of 2022 9 Corporate Debtor sought time to make the payments which is again an implied admission of the debt.
13. Having failed to make the requisite payments, it is noticed that the Operational Creditor sent a notice under Section 8 of IBC to the Corporate Debtor. It has been contested by the Corporate Debtor that the notices were not received as they were not delivered as per prescribed procedure. On this aspect we find that the Adjudicating Authority has dwelled upon the issue of service of Demand Notice in details. Having perused the speed post tracking report, the Adjudicating Authority found that the notice which was sent to the Corporate Office of the Corporate Debtor at Gurgaon was duly delivered. We also find the delivery confirmation report at page-131 of the Appeal Paper Book. The Adjudicating Authority also took note of the fact that the Operational Creditor had sent the Demand Notice on the e-mail ID mentioned in the Master Data of the Corporate Debtor as well as on the e-mail ID of the Director of the Corporate Debtor. After taking note of rules relating to service of Demand Notice, the Adjudicating Authority has rightly found no force in the contention raised by the Corporate Debtor that the Demand Notice was not delivered. Affirming the reasoned findings of the Adjudicating authority, it would be better to reproduce the relevant paragraph of the impugned order hereunder: -
"14. A bare perusal of the Rule 5 of IBBI (Application to Adjudicating Authority Rules, 2016 shows that in terms of Rule 5 sub-Rule-2 Clause (b), the demand notice served to a Company Appeal (AT) (Ins.) No. 416 of 2022 10 whole-time director or designated partner or key managerial personnel will be treated as a valid service. Here, admittedly, Mr. Sunjoy Daadhicch is the Director of the Corporate Debtor, on whose email id the demand notice was delivered, hence the demand notice was served in terms of Rule 5 of IBBI (Application to Adjudicating Authority) Rules, 2016. Apart from that, at this juncture, we would also like to refer to the decision of the Hon'ble NCLAT in CA (AT)(Insolvency) 684/2018 decided on 21st January, 2019. The relevant paragraph of the said judgement is reproduced below:-
"6. In view of aforesaid facts we hold that the Adjudicating Authority erred in rejecting the application under Section 9 on wrong presumption that demand notice is to be served on the Registered Office of the Corporate Debtor and not on Corporate Office (Industrial Area Office herein). It the demand notice under Section 8(1) is served on Corporate Debtor either on its Registered Office or its Corporate Office, it should be treated to be valid service of notice under Section 8 and application under Section 9 on failure of payment, if filed after 10 days, is maintainable."
Company Appeal (AT) (Ins.) No. 416 of 2022 11
15.In terms of the decision referred to Supra, we are of the considered view that since the demand notice was delivered at the corporate office of the Corporate Debtor as well as on the email id of the director, therefore, in terms of Section 8 sub-section (1) of the IBC, 2016, the demand notice was duly delivered. Hence, we find, no force in the contention raised on behalf of the Learned Counsel appearing for the Corporate Debtor that the demand notice was not delivered".
14. We now come down to examine whether there was any pre-existing dispute raised during the stage of notice or whether there was any dispute on the date of filing the application under Section 9 of the IBC. The guiding principles have been laid down by the Mobilox judgment supra and it is relevant to refer to para 24 and 40 of the said Judgment which is detailed as hereunder:
"24............What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre- existing i.e. it must exist before the receipt of the demand notice or invoice, as the case maybe. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the self-same 10 days sent and attested Company Appeal (AT) (Ins.) No. 416 of 2022 12 copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor or send an attested copy of the record that an operational creditor has encashed a cheque or otherwise received payment from the corporate debt [Section 8(2) (b)]. It is only if, after the expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corporate debtor or notice of dispute, that the operational creditor may trigger the insolvency process by filing an application before the adjudicating authority under Sections 9(1) and 9(2)........."
****** ***** *****
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 Company Appeal (AT) (Ins.) No. 416 of 2022 13 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."
15. From material on record it is clear that notice under section 8(1) was sent to the Corporate Debtor by the Operational Creditor. We have not been persuaded by the argument of the Corporate Debtor that the notice was not effectively served upon him for reasons elaborated at paragraph 13 above. It is also an admitted fact that the Corporate Debtor did not reply to the Section 8(1) notice and it follows therefore that the 'existence of dispute' was not raised by the Corporate Debtor at the stage which it was obligated to do under section 8(2) of IBC on receipt of notice under Section 8(1) of the IBC. When no mention of existence of dispute was made by the Corporate Debtor, the statutory scheme of IBC entitled the Operational Creditor to file an application under Section 9 and this is exactly the course of action followed by the Operational Creditor.
Company Appeal (AT) (Ins.) No. 416 of 2022 14
16. At the stage when the Operational Creditor moved an application before the Adjudicating Authority under Section 9, we notice that the Corporate Debtor has tried to protect his interests by raising the issue that the Operational Creditor had supplied sub-standard and defective goods and deliberately did not join mandatory inspection of goods supplied to evade admission of deficiency in services. From the papers on record and submissions made, we find no reasons to disagree with the Adjudicating Authority that the Corporate Debtor has failed to show any correspondence to establish that the Corporate Debtor had ever raised any dispute regarding defective goods prior to the issuance of Demand Notice. Even when the goods were supplied to Air India on the instructions of the Corporate Debtor, Air India before accepting delivery at their site inspected the complete consignment of HRC and noted that they were accepted in apparent good order and condition as clearly indicated in Airways Bill, illustrative examples of which are at pages 172-173 and onwards in the Appeal Paper Book. No evidence to the contrary has been submitted by the Appellant. We also note that the alleged complaint on quality of goods which the Corporate Debtor had received from its client, Cashur Drive, was a correspondence which remained confined between the Corporate Debtor and the client and not shared with the Operational Creditor and, therefore, cannot be viewed as pre-existing dispute raised with the Operational Creditor.
17. It is also noted that there was no standard protocol/arrangement laid down for quality-check inspections. Moreover, the Learned Counsel for the Company Appeal (AT) (Ins.) No. 416 of 2022 15 Appellant while making his submissions on a pointed query, admitted that no written communication was ever sent to the Operational Creditor with regard to joint inspection of the goods supplied. That being so, the issue raised before the Adjudicating Authority against the Operational Creditor that they did not comply to mandatory inspections is more of an after-thought. We also find substance in the argument proffered by the Learned Counsel for the Respondent No.1 that the Corporate Debtor had sought further supply of goods from them vide e-mails dated 02.12.2019 and 22.12.2019, nearly 45 days after supply of last consignment of goods which shows that there were no complaints with respect to the quality of goods supplied. It defies logic that if the complaints raised regarding quality were genuine, why the Corporate Debtor requested the Operational Creditor for supply of HRC for yet another new client/project as can be noted at pages 45 and 52 in the written reply filed by the Respondent No. 1. We find that the Adjudicating Authority in the present case has carefully considered the reply and submissions made by the Corporate Debtor and has correctly come to the conclusion that there is no ground to establish any real and substantial pre-existing dispute which can thwart the admission of section 9 application against the Corporate Debtor.
17. Based on the foregoing discussion, we are of the considered view that all the requisite conditions necessary to trigger the Corporate Insolvency Resolution Process under Section 9 of the IBC stand fulfilled in the present case:
a) Existence of a debt due and its default by the corporate debtor.
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b) Delivery of demand notice of an unpaid and undisputed debt.
c) There is no payment of the unpaid and undisputed debt within the period of 10 days of receipt of demand notice.
d) No real pre-existing dispute is discernible.
17. We find that no error has been committed by the Adjudicating Authority in admitting the application under Section 9 of the IBC and initiating CIRP. We find no merit in this appeal. Appeal is dismissed. No costs.
[Justice Ashok Bhushan] Chairperson [Mr. Barun Mitra] Member [Technical] Place: New Delhi Date: 02.11.2022 Shashi Company Appeal (AT) (Ins.) No. 416 of 2022 17