Counfreedise vs Timex India Group Limited

Pradeep R. Sethi, Member (T)

The present application under Section 9 of the Insolvency & Bankruptcy Code, 2016 Code read with Rule 6 of the Insolvency & Bankruptcy Code

(Application to Adjudicating Authority) Rules, 2016 (Rules) is filed by Counfreedise (for brevity ‘Applicant’) for initiating Corporate Insolvency

Resolution Process against Timex India Group Limited (for brevity ‘Respondent’). The application is signed by Shri Abhinandan Authorised

Signatory. The letter of authorization in favour of Shri Abhinandan. M is given by the partners of the firm M/s. Counfreedise (Annexure A-2 of the

application).

The master data of the respondent (CIN_L33301DL1988PLC033434) is at annexure A-1 of the application and shows the registered address as

106-107, Amba Deep, 14, Kasturba Gandhi Marg, New Delhi-110001. Therefore, the jurisdiction lies with this Bench of the Tribunal.

In part IV of the application the amount of the debt is stated to be Rs 12,73,235/- along with 18% interest from the due date till the date of payment.

The applicant is stated to be a partnership firm engaged in the business of lawful procurement of lifestyle products viz. belts, wallets, sunglasses,

fashionable jewelleries, watches etc. either directly from the manufacturing/marketing company or through their authorised distributors, and thereafter

selling the same online. It is submitted that the applicant procured Timex Watches from the respondent from time to time for selling online and that the

applicant and the respondent had an arrangement wherein it was agreed between the parties that the applicant shall be entitled to a discount of 10% +

4% on MRP of the products purchased directly from the respondent, against which credit notes were issued by the respondent on a quarterly basis.

It is submitted that the statement of account of the applicant for the period 01.04.2015 to 31.03.2016 clearly reflected various credit notes that are

honored/issued by the respondent on quarterly basis and that the closing balance for financial year 2015-16 (credit of rupees 8,85,139 being amount

due and payable by the applicant to the respondent) was confirmed to the auditor of the respondent as asked for by the respondent vide letter dated

27.04.2016.

It is stated that in the Financial year 2016-17, purchase of goods from the respondents was made only till 30.05.2016 and that there is outstanding

amount due from the respondent as on 31.03.2017of Rs. 12,73,235/-. It is submitted that the outstanding amount includes the amount of credit notes, as

per the 10% + 4% margin arrangement between the parties, to the tune of Rs. 10,61,623/- and debit note raised by the applicant against the return of

watches Rs. 1,45,977/-.

It is stated that demand notice dated 04.10.2017 was sent in Form 3 under Section 8 of the Code demanding from the respondent the outstanding

amount of Rs. 12,37,225/- along with interest at 18% and that the respondent submitted reply dated 14.10.2017 not denying the transaction between

the parties and rather make evasive contentions denying to make payment to the applicant. It is stated that the applicant vide communication dated

02.11.2017, confronted the respondent with the falsity of the response dated 14.10.2017 and that thereafter, the respondent further sent its response

dated 22.11.2017making irrelevant contentions on the pretext of suit filed by respondent alleging selling of fabricated watches of Timex Make and

alleged contempt proceedings. The date from which the debt fell due is stated to be 31.3.2017.

In Part III of the application, particulars of proposed Interim Resolution Profession have not been given.

Vide order dated 10.01.2018 notice of the petition was directed to be issued and the learned counsel for the respondent has accepted the notice.

The reply was filed by Diary No. 641 dated 06.02.2018 denying and refusing to pay in to the demand of alleged operational debt of Rs. 12,73,235/-. It

is stated that there is no contractual agreement and or acknowledgement whether express or implied to pay the alleged debts and that the demand

notice dated 04.10.2017 itself and present petition is a counter blast to legitimate civil suit for seeking injunction file by respondent against the applicant

before the District Judge, Patiala House Court, New Delhi. It is alleged that the applicant has been caught red handed selling counterfeit Timex

Watches on the e-commerce website www.amazon.in and in the aforesaid suit, vide order dated 22.02.2017, the applicant is restrained from dealing

and selling Timex Watches/watch straps/ bands and parts thereof and the injunction is continuing in its full effect. It is further submitted that the

applicant did not allow the local Commissioner to carry out the Court’s order and impeded and frustrated execution of local commission and

contempt of court proceedings instituted in this connection are pending adjudication before the Division Bench of the Hon’ble High Court of Delhi.

It is stated that in the demand notice the applicant illegally tried to fasten liability upon the respondent purportedly claiming some arrangements

between them and NVR Marketing. Two different sets of the ledger account are stated to be sent to the respondent regional office at Bangalore and

Corporate office at Noida. It is stated that the applicant is liable to pay 4,80,615/-to the respondent and alternatively if the applicant has any monetary

claim to recover from the respondents, he should have filed a regular suit before the Civil Court. It is stated that the present petition is not maintainable

as the applicant is not an operational creditor and there is no operational debt because applicant has not supplied any goods to the respondents or

provided any services.

It is submitted that the applicant is relying upon alleged arrangement between the parties whereby the respondents issued credit notes to the

applicant in consonance with discount of 10% + 4% on MRP, whereas there is no document, record to substantiate the same filed with this application

and further the applicant themselves in their reply to the notice of the dispute alleged arrangement of a 12% of ATU and 2%CD and even the working

mails and respondent’s letters filed by the applicant point out and support this trend.

The rejoinder was filed by the Diary No. 1005 dated 23.02.2018. it is submitted that there was never any independent arrangement of the applicant

with NVR Marketing and rather, it was under instructions of the respondents itself that some time goods were supplied to the applicant through NVR

Marketing and that in any case, the instant operational debt arises on account of transactions between the applicant and the respondent, which were

transacted many times earlier also and in relation to the same the respondent duly acknowledged its obligations to pay back the agreed percentage of

discount to the applicant. It is submitted while the respondents duly issued credit notes in favour of the applicant in relation to earlier transactions, it

dishonestly withheld issuing the same in relation to the present transactions whereby the operational debt has arisen. It is stated that the operational

debt was duly communicated to the respondent at the time of it’s becoming due and there is no contemporaneous document/correspondence

where by the respondent had in any manner disputed its obligations to make payment of the said operational debt and that the alleged claim of Rs.

4,80,615/- against the applicant is not only as a counter-blast, but rather as a afterthought.

CA No. 50/2019 was filed by the respondent for dismissal of the application on the ground that the applicant had sent the Demand notice under

section 8 of the Code at the corporate and the branch office of the respondent and not at the registered office of the respondent as reflected on the

website of MCA portal. Vide order dated 18.03.2019, it was held that the Demand notice under Section 8 of the Code can be served at the registered

office/corporate office and the application was dismissed.

By CA 87/2018 (Diary No. 7398 dated 05.10.2018), the applicant sought to bring on record entry wise clarification of each and every transaction

reflecting in the ledger filed by the applicant as annexure A-7 of the application being the ledger account maintained by the applicant with respect to

transactions with the respondent for the period 01.04.2016 till 31.03.2017. Further, a tabular representation as to each transaction in the relevant

quarter with page/transaction number of the same entries reflecting in the statement filed by the respondent giving rise to the credit notes of Rs.

8,73,929/-was also sought to be filed. It was stated that the instant application is to bring on record certain additional documents to provide clarity as to

certain relevant transactions, the need of which arose on 27.08.2018 wherein the Hon’ble Tribunal sought for the same, while the applicant was

arguing the present matter.

The reply on behalf of the respondent was filed by Diary No. 9016 dated 16.11.2018 stating that perusal of the order dated 27.08.2018 would

reveal that Hon’ble Tribunal never sought any such clarity and that the applicant is introducing new facts by way of the present application. It is

submitted that entries 80 & 82 of Annexure-1 were never pleaded in the application under Section 9 of the Code or demanded in the Demand notice

by the applicant.

We have carefully considered the submissions of both the parties. We find that the Annexure A-1 of CA No. 87/2018 is a tabular representation

of the ledger account already filed as Annexure A-7 of the application. The explanation given in respect of the individual entries would fall for

consideration during the present proceedings. Annexure A-2 seeks to give the details of the invoices on the basis of which the credit notes of Rs.

8,73,929/- reflect in the ledger filed by the applicant. Therefore, CA No. 87/2018 is being taken on record.

During the course of the arguments, the learned Senior counsel for the respondent relied on the order dated 22.04.2019 of Hon’ble National

Company Law Appellate Tribunal in Company Appeal (AT) (Ins) No. 223/2019 Roma Infrastructure India Private Limited Vs. A. S. Iron & Steel (I)

Private Limited. It was pleaded that it was held by the Hon’ble National Company Law Appellate Tribunal that admittedly the appellant/Roma

Infrastructures India Private Limited has not supplied the goods nor provided any services to the respondent-A. S. Iron & Steel (I) Private Limited

and it had advanced payment of Rs. 74,32,326/-to the respondent for supply of goods and the payment cannot be treated to be an ‘Operational

Debt’. It has been pleaded that a similar view is taken in order dated 30.11.2018 of the Hon’ble National Company Law Tribunal, Mumbai

Bench in CP-21/I&BP/NCLT/MAH/2018 Tata Chemicals Limited Vs. Raj Process Equipments and Systems Private Limited. It was pleaded that the

claim made in the present application cannot be treated as an operational debt and the application under Section 9 was not maintainable.

In response thereof, the learned counsel for the applicant has pleaded that the instant case is distinguishable since it involves discount and not

advance payment. It is pleaded that ‘Operational Debt’ has to be given a wider meaning. Reference was made to Page No. 13 of the reply to

the application under Section 9 of the Code diary No. 641 dated 06.02.2018) and it was submitted that the respondent had accepted that there was

annual tie up (ATU) scheme in which the respondent offered discount up to 12% on Unit cost price (UCP) or maximum retail price (MRP) and the

respondent had also a cash discount scheme giving up to 2% as incentive in the form of credit note to the concerned purchaser. Reference was made

to Page No. 148 of Diary No. 3863 dated 11.06.2018 filed by the respondent and to the averment made therein that the applicant kept on purchasing

watches from opposite party/dealers distributors until February 2017 and therefore denial of discount on the ground that there were no purchases by

the applicant after 30.05.2016 was not justified. It was pleaded that the purchases were made from the Corporate Debtor or the authorised agents and

the payment was made only to the Corporate Debtor.

The learned senior counsel for the Corporate Debtor pleaded that the operational creditor must be the supplier of goods or services and if there

was a reversal of roles, it could not be an operational creditor. It was pleaded that the plea of discount and incentive required evidence and therefore

could not be the subject-matter of proceedings under the Code. It was submitted that only one calendar year 2015 was completed and credit notes

were given for that year. It was pleaded that one credit note issued for January to March 2016 was reversed since no purchases were made after

30.05.2016. It was pleaded that the first dispute therefore is whether the trade discount is payable on calendar year or financial year basis. The

second dispute is stated to be whether the credit note is to be on all purchases whether from the Corporate Debtor or Authorised Dealers. It was

submitted that the copy of account of the applicant in the books of the respondent for the period 01.01.2016 to 18.01.2018 (Page No. 64 of Diary No.

641 dated 06.02.2018) would show that there are no sales of authorised agents recorded in the books of the respondent and the credit notes were

issued only in respect of the sales made by the respondent.

In rejoinder, the learned counsel for the applicant relied on the order dated 21.09.2018 of the Hon’ble National Company Law Appellate

Tribunal in Company Appeal (AT) (Insolvency) No. 582/2018 in the matter of Overseas Infrastructure Alliance (India) Pvt. Ltd. Vs. Kay Bouvet

Engineering Limited. It was pleaded that it was held there in that advance of 10% of the contract value to the sub-contractor as advance payment

was a claim in respect of provision of goods or services bringing him within the definition of ‘Operational Creditor’. It was pleaded that there

was no pre-existing dispute and that the reply to the demand notice did not make any reference to any such pre-existing dispute. It was stated that for

the calendar year 2014 discount was given and received by the applicant. It was submitted that as regards the discount of Rs. 5,98,319/-, the same

was reversed on a much later date of 18.01.2018.

We have carefully considered the submissions of the learned counsel for the applicant and the learned senior counsel for the respondent and also

perused the record. The present application is filed under Section 9 of the Code and such application can only be filed by an Operational Creditor.

Operational Creditor and Operational Debt are defined in Section 5(20) and 5(21) as follows:

(20) “operational creditor†means a person to whom an operational debt is owed and includes any person to whom such debt has been

legally assigned or transferred.

21) “operational debtâ€​ means a claim in respect of the provision of goods or services including employment or a debt in respect of the 1

[payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any

local authority.

The first issue arising for determination therefore is whether the applicant is an Operational Creditor. Admittedly, the applicant is procuring Timex

Watches from the respondent from time to time for selling online i.e. the provision of goods is being made by the respondent for which payment is to

be made by the applicant. The applicant’s claim is that there is outstanding amount due from the respondent as on 31.03.2017 of Rs. 12,73,235/-

including amount of credit notes of Rs. 10,61,623/- and debit note raised by the applicant against the return of watches of Rs. 1,45,977/-.

The learned senior counsel for the respondent has relied on the order of the Hon’ble Company Appellate Tribunal, New Delhi in Roma

Infrastructures India Private Limited (supra). It is pleaded that advance payment for supply of goods cannot be treated to be an operational debt. The

learned counsel for the applicant has relied on the order of the Hon’ble National Company Law Appellate Tribunal in Overseas Infrastructure

Alliance (India) Private Limited (supra) in which it was held that the advance of 10% of the contract value to the respondent-sub-contractor as

advance payment was a claim in respect of provision of goods or services bringing the appellant within the definition of Operational Creditor.

The learned senior counsel for the respondent has argued that the order dated 21.12.2018 in Overseas Infrastructure Alliance (India) Private

Limited (supra) is passed by a Two Members Bench. It is submitted that the order dated 22.04.2019 in Roma Infrastructures India Private Limited

(supra) is passed by a Three Member Bench and therefore, the latter order be followed by the Tribunal.

We may add that we have observed above that the applicant’s submission is that the amount due from the respondent as on 31.03.2017

includes outstanding in respect of credit notes and return of watches. The credit notes would go to reduce the purchase price of the Timex Watches

by the applicant. Therefore, the claim of Operational Debt in respect of credit notes cannot be said to be a claim in respect of provision of goods, since

the goods are already received and only their purchase price would get reduced by the credit notes, if any. Similarly, the debit note raised by the

applicant is in respect of the return of watches. The purchases are therefore sought to be returned by the applicant. There is no provision of goods

involved in the purchase return.

We therefore hold that the applicant has not proved that an operational debt is owed to it and that it is an operational creditor. Therefore, the

application under Section 9 of the Code filed for initiating CIRP against Timex India Group Limited is rejected. In view of this finding, the compliance

of the other requirements of Section 9 of the Code are not being further examined.

In result thereof, the application under Section 9 of the Code is rejected.

In view of the above discussion the present application is hereby dismissed. No order as to costs. A copy of the order shall be forwarded to IBBI

for its records.