Digital Waves International Pvt. Ltd vs Aria Brew And Dine Private Limited

Rajeswara Rao Vittanala, J

C.P (IB) No. 399/BB/2019 is filed by M/s. Digital Waves International Pvt Ltd (hereinafter referred to as 'Petitioner/ Operational Creditor) U/s 9 of the IBC, 2016, R/w Rule 6 of the I&B (Application to Adjudicating Authority) Rules, 2016, by inter alia seeking to initiate Corporate Insolvency Resolution Process (CIRP) in respect of M/s. Aria Brew and Dine Private Limited, on the ground, that it has committed default for total amount of Rs. 1,98,19,710.49/- (Rupees One Crore Ninety Eight Lakhs Nineteen Thousand Seven Hundred and Ten and Forty Nine Paisa Only).

Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows:

(1) M/s. Digital Waves International Pvt Ltd (Petitioner/ Operational Creditor) bearing the CIN: U30007KA2003 PTC032994 and having its Registered Office situated at No. 58/1, 13th Cross, Margosa Road, Mallweshwaram, Bengaluru 560003. The Company is engaged in business of imports, exports, trading in all kinds of computers, computer peripheral and various commodities.

(2) M/s. Aria Brew and Dina Private Limited (Respondent/ Corporate Debtor) was incorporated on 04.06.2015 having CIN: U55101KA2015PTC080679 and having its registered Office situated at No. 40/1 Century Corbel Commercial 2nd Floor, Sahakaranagar Main Road, Sahakaranagar Bengaluru 560092. Its Nominal Share Capital is Rs. 11,00,00,000/- and Paid-up Share Capital is Rs. 11,00,00,000/-. The Respondent Company is engaged in the business of hospitality services and run a micro-breweiy/restaurant 'Druid Garden'.

(3) It is stated that the Respondent Company entered into several High Sea Sale Agreements with Applicant on different occasions in the year 2016 for supply of materials for the brewery cum restaurant "Druid Garden" owned by Respondent which was imported by Applicant form overseas, bases on the requirements of Respondent. Supplies were duly made by the Applicant and the total value of invoices raised amounts to Rs. 4,27,09,336/-. As against the aforesaid invoices raised, a sum of Rs. 3,30,00,000/- was already paid towards part payment of principal alone. However, a sum of Rs. 97,09,336/- towards principal amount and huge interest for Rs. 1,26,10,374.49/-is claimed at the rate of 21.27% interest per annum. It is further stated that on 02.07.2019, a sum of Rs. 25,00,000/- was paid by the Respondent to the Applicant towards interest alone, further acknowledging its liability to the Applicant. Hence, the Respondent is liable to be the Applicant a sum of Rs. 1,01,10,374.49/- towards interest at 21.27% alone as of August 2019.

(4) It is stated that the Respondent vide letter dated 11.01.2019 acknowledged the debt of Rs. 2,16,11,111/- due towards the Applicant and undertook to clear its liability by May 2020 and issued post-dated cheques, which became payable in the months of January 2019 to August 2019. However, cheque been dishonoured by the Respondent leading to initiate appropriate legal proceedings against the Respondents, before the Hon'ble Chief Metropolitan Magistrate at Bengaluru, which are pending adjudication.

(5) It is stated that the Applicant then sent a Demand Notice (Form 3) dated 13.05.2019 to the Respondent calling upon the Respondent to repay the outstanding amount due within 10 days from the date of receipt of the said notice, but there has been no reply from the Respondent, despite receipt of the notice. The Respondent till date has not cleared the aforesaid amount due to the Applicant. The Respondent has also not denied or disputed the services that were rendered by the Applicant to them, which shows that the Respondent was completely satisfied with the services rendered to them by the applicant. Hence the present Petition seeking to initiate CIRP against the Respondent.

The Respondent has filed the statement of Objection dated 30.01.2020 and Memo of Factual Matrix dated 17.02.2020 by- inter alia contending as follows:

(1) It is submitted that the Respondent had been put to multiple hardships by the claims made by the Applicant herein. The Respondent here intends to put light on the fact that the amount claimed by the Applicant is exorbitant and they lack substance. Further, it is submitted herein that the amount claimed to be due including the principal and interest is about Rs. 1.98 Crores which is not true and is fallacious. The Applicant had paid an amount of Rs. 1.18 Crores till date. The balance amount is only about multiple cheques for an amount of Rs. 97 lakhs.

(2) It is alleged that the Applicant had not disclosed all the series of transactions which have bearing on the case. The Applicant also had withdrawn the cases filed under Section 138 of the Negotiable instruments Act, 1881 upon the issuance of such cheques/Demand Drafts, the details of the said withdrawals of the cases is submitted herewith. The following is the table establishing the fact of repayment and the balance payment to be made:

Particulars

Amount paid (In Rs. )

CC 22389/19

15,00,000

CC 22390/19

15,00,000

CC 26656/19

15,00,000

PCR 15570/19

15,72,116

CC 17686/19

12,87,777

CC 18200/19

15,00,000

RTGS dated 24.01.2019

2,00,000

RTGS dated 08.02.2019

3,40,000

Cheque bearing No. 689412 dated 30.06.2019

5,00,000

Cheque bearing No. 689413 dated 30.06.2019

5,00,000

Cheque bearing No. 689414

5,00,000

dated 30.06.2019

Cheque bearing No. 689410

5,00,000

dated 31.05.2019

Cheque bearing No. 689409

5,00,000

dated 31.05.2019

Total Repayment Made

1,18,99,893 (including principal and interest)

Balance Amount Payable

97,11,218 (including principal and interest)

The Applicant has already initiated to recover such balance amount through the cases filed under Section 138 of the Negotiable Instruments Act, 1881 and the same is sub-judice.

(3) It is stated that the aforesaid payments are done with respect to the claim of the Applicant, which is the subject matter of the Application. The following are the details of the cheques by virtue of which the Applicant is making the recovery from the Corporate Debtor through the aforesaid legal forum:

Particulars

Amount paid (In Rs. )

Status of the Case

Annexure

Axis Bank Cheque No.

12,87,777

Withdrawn

Copies of

689344 dated 03.04.2019

vide memo

order and

Axis Bank Cheque No.

dated

withdrawal

707785 dated 03.04.2019 Axis Bank Cheque No. 689336 dated 03.04.2019 Axis Bank Cheque No. 707793 dated 03.04.2019

20.11.2019

memos enclosed

Axis Bank Cheque No.

15,00,000

Withdrawn

Copies of

689405 dated 31.03.2019

vide memo

order and

Axis Bank Cheque No.

dated

withdrawal

689404 dated 31.03.2019 Axis Bank Cheque No. 689403 dated 31.03.2019

29.01.2020

memos enclosed

Axis Bank Cheque No.

15,00,000

Withdrawn

Copies of

689391 dated 31.01.2019

vide memo

order and

Axis Bank Cheque No.

dated

withdrawal

689399 dated 31.01.2019 Axis Bank Cheque No. 689398 dated 31.01.2019

17.12.2019

memos enclosed

Axis Bank Cheque No.

15,00,000

Withdrawn

Copies of

689400 dated 31.01.2019

vide memo

order and

Axis Bank Cheque No.

dated

withdrawal

689401 dated 31.01.2019 Axis Bank Cheque No. 689402 dated 31.01.2019

29.01.2020

memos enclosed

Axis Bank Cheque No.

15,72,116

Withdrawn

Copies of

707796 dated 29.06.2019

vide memo

order and

Axis Bank Cheque No.

dated

withdrawal

689345 dated 03.07.2019 Axis Bank Cheque No. 707786 dated 03.07.2019 Axis Bank Cheque No. 689337 dated 03.07.2019

29.01.2020

memos enclosed

Axis Bank Cheque No.

15,00,000

Withdrawn

Copies of

689406 dated 30.04.2019

vide memo

order and

Axis Bank Cheque No.

dated

withdrawal

689407 dated 30.04.2019 Axis Bank Cheque No. 689408 dated 30.04.2019

29.01.2020

memos enclosed

(4) It is submitted that the Respondent made payments on behalf of two entities i.e. the Respondent Company i.e. M/s. Aria Brew and Dine Private Limited and M/s. Bodysculpt Health Club Private Limited owing to the fact that both the entities are controlled by same individuals and have a common management. Also the Respondent also made payments to the associate Company of the Applicant owing to the fact that the management of the said companies is the same. Further the amount of Rs. 40,00,000 for which cheques have been already- issued the dates of which are detailed below:

Particulars

Amount Paid (In Rs. )

Axis Bank Cheque No. 614518 dated 28.02.2020

10,00,000

Axis Bank Cheque No.

10,00,000

614519 dated 31.03.2020

Axis Bank Cheque No.

10,00,000

614520 dated 30.04.2020

Axis Bank Cheque No.

10,00,000

614521 dated 31.05.2020

Total

40,00,000

The above cheques will be honoured by the Respondent, on presenting the same on the above mentioned dates. Further the balance payment of Rs. 57,11,218/- will be paid as per the dates agreed upon between the Applicant and the Corporate Debtor. There is no element of interest specified in any of the terms and conditions appended to the services provided by the Applicant to the Respondent.

(5) It is also submitted that the Applicant is trying to put up pressure on the Corporate Debtor by invoking the provisions of Section 9 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor is a going concern and not an Insolvent Company. The Corporate Debtor interest will be adversely affected if the present Application is admitted. The Petitioner cannot utilise the provisions of the Code for recovery purposes. The Company has approximately 170 employees and the Company is flourishing in its business activities. The Tribunal may be please to consider the financial status, strength and substratum of the Company, in overall context.

It is stated that at some times, there is every possibility for any Company to have a cash crunch. It may be also, possible, at times the temporary cash crisis despite high sale and heavy turnover and, therefore, in such a situation, such delay in payment would not constitute a ground empowering the court to initiate the insolvency proceedings. The Applicant cannot be oblivious of the fact that the Corporate Debtor is an ongoing concern having regular business and employment of employees, initiation of Insolvency Proceedings would adversely affect the functioning of the Corporate Debtor. Insolvency Proceedings under the Insolvency and Bankruptcy Code, 2016 and the rules there under cannot be adopted as recourse to recovery of debt.

(6) Therefore, the Adjudicating Authority is urged to dismiss the Petition.

Heard Shri Kanni Selvakarsan, learned Counsel for the Petitioner and Shri Hari Babu Thota, learned PCS for the Respondent, through Video Conference. We have carefully perused the pleadings of the Parties, and the extant provisions of the Code, the Rules made there under, and the law on the issue.

Shri Kanni Selvakarsan, learned Counsel for the Petitioner, while reiterating various contentions, as briefly stated supra, has further submitted that the Debt and Default in question are admittedly not in dispute, as part- payment of total invoice was also paid. The Respondent is mixing facts of two cases filed by the Petitioner against two entities being managed by the same management. The Respondent still liable to pay amount in question. Therefore, initiating CIRP is only remedy available for the Petitioner and thus urged the Adjudicating Authority to initiate CIRP as prayed for.

Shri Hari Babu Thota, learned PCS for the Respondent, on the other hand, by once again reiterating averments made in the statement of objections, as briefly stated supra, has farther submitted that the Respondent has already paid part payment and for the remaining in question, they have issued cheques, and against dishonour of cheques, the Petitioner has already initiated proceedings U/s 138 of N.I. Act, which is sub- judice. And the amount claimed by the Petitioner is same in both the said criminal proceedings and in the instant proceedings. Therefore, the Petitioner is resorting to multiple proceedings with an intention to recover for the same amount twice, which is nothing but abusing the provisions of Code. And this Adjudicating Authority cannot be used as recovery forum. He has also filed Addl. Submissions dated 26.06.2020 by interalia saying that the Respondent made payments on behalf of two entities viz., M/s. Body sculpt Healthclub Pvt Ltd( the respondent herein & M/s. Aria Brew and Bine Private Limited(CP(IB) No. 399/BB/2019) owing to the fact that both the entitled are controlled by same individuals and have common management. And the Respondent also made payment to the associate Company of the Petitioner/Applicant owing to the fact that the management of Petitioners/Applicant Companies are also same. The present economic adverse situation prevailing in the Country due to outbreak of Novel Cornna Virus may be also be taken into consideration as it has devastating financial effect on the Companies. Therefore, he has urged the Adjudicating Authority to dismiss the Petition in the interest of justice.

The Govt. of India by taking into consideration of present economic scenario due to epidemic, has taken several mitigating steps to save the Companies from going into CIRP and then Liquidation. Accordingly, the Govt of India, so far as provisions of Code is concerned, has increased threshold to initiate CIRP proceedings from the existing Rs. One lakhs to Rs. one Crores. Similarly, provisions of Sections 7, 9 and 10 of Code, are suspended temporarily. The Central Government has vide Notification No. S.O. 1205(E) : [F.N0.30/9/2020-INSOLVENCY], dated 24-3-2020, specified one crore rupees as the minimum amount of default. It is relevant to note that Section 4 refers to Part II of the the Insolvency and Bankruptcy Code, 2016which covers from Section 4 to Section 77. Therefore, Part II is not applicable in the instant case as the amount of default is less than one crore rupees. Moreover, Section 9(5) is under Part II which is not applicable as on this date, implying that the provision on admitting the application does not apply today. Further, Section 9(6) of the Code specifically provides that corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of Section 9. Though every amendment of Rule/Act, would normally will have prospective effect, nevertheless, the Adjudicating Authority is under legal responsibility to keep the above developments in mind, while deciding question of admission of a case. Since the issue involved in the instant is the question of admission and not dealing with admitted case, we have to keep in mind the above situation and changes made to the provisions of Code so as to balance the interest of all stake holders.

As detailed supra, cause of action arise in the instant case basing on High Sea Sale Agreements executed on various dates viz., 30.5.2016, 10.06.2016, 29.06.2016, 02.07.2016, 15.07.2016 etc., and the invoices starting from 10th June, 2016 onwards (from Page 41 to 51) as enclosed to the Petition. One of important terms mentioned in the said Invoices is that Title of Goods remains with the Seller until receipt of payment in full. Advance if any, will be forfeited and sale will be cancelled, if the Payment is not received timely. So title of goods remains with the Petitioner to ensure payment in full with a right to forfeit advance paid. However, the Petitioner is stated to have bargained with the Respondents and thus it got a letter dated 11th January, 2019 from the Respondent by settling the issue and also issued post-dated cheques as detailed in the letter. By perusing copies of said Agreements and Invoices, it do not give indication for payment of interest except the above condition. However, the Petitioner is claiming huge interest for Rs. 1,19,04,772.77/-, apart from principal amount as stated supra. The Petitioner, after receiving part amount, has also initiated several criminal proceedings and while the matter is sub-judice, the Petitioner, chose to issue Demand Notice dated 13th May, 2019 under Rule 5 of I&B (AAA) Rules, 2016 by demanding to pay the outstanding due.

The facts and circumstances of the case as detailed supra, has clearly established that the Petitioner is using the provisions of Code with main object to recover the alleged due rather than to seek to initiate CIRP on justified grounds. It is also relevant to point out here that role of Operational Creditor, who filed case U/s. 9 of the Code, will be nominal during the process of CIRP, and it is dominated by Financial Creditors. Therefore, the settled principle of law that provisions of Code cannot be invoked to recover alleged/disputed due, would be more applicable to the Operational Creditors rather than Financial Creditors, who filed cases U/s. 7 of Code. Therefore, it is to be held that the Petitioner has invoked the provisions of Code with an intention to recover alleged due rather than to justify its case to initiate CIRP in terms of object of the Code. It is also relevant to point out here that legal principle of double jeopardy would also applicant to the instant case, as the Petitioner has admittedly invoked provisions of N.I Act for dishonour of cheques issued by the Respondent, which is sub-judice. The Adjudicating Authority cannot enter into above disputed issues, in summary proceedings as contemplated under provisions of Code.

It is settled position of law that the provisions of Code cannot be invoked for recovery of outstanding alleged amount(s). The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, (2018) 1 SCC 353 has inter alia, held that IBC, 2016 is not intended to be substitute to a recovery forum. In another latest judgment rendered in Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd., (CA No. 9597 of 2018) dated 23rd October, 2018, (2018) 147 CLA 112 (SC) Supreme Court of India, it is inter alia held that existence of undisputed debt is sine qua non of initiating CIRP. As per para 34 of judgment, it is stated that Adjudicating Authority,- while examining an application filed under Section 9 of the Code, will have to determine:

a) Whether there is an 'operational debt' as defined exceeding Rs. 1 Lakh?

b) Whether documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid?

c) Whether there is existence of dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before receipt of demand notice of the unpaid operational debt in relation to such dispute?

d) If any one of aforesaid conditions is lacking, the application would have to be rejected.

For the aforesaid reasons and circumstances of the case, we are of the considered opinion that the instant Company Petition is filed with an intention to recover the alleged outstanding amount rather than to seek initiation of CIRP in respect of the Corporate Debtor, which is against the object of the Code. The Petitioner cannot be permitted to bargain for settlement of alleged dues, in a case filed under Section 9 of Code and it is for the Parties to settle those issues between them. Therefore, the instant Petition is not maintainable under the provisions of Code.

In the result, C.P.(IB) No. 399/BB/2019 is hereby dismissed as not maintainable. However, this order will not come in the way of Parties to settle their disputes, and the Petitioner is also at liberty to invoke any other remedy available under any other law, which includes to prosecute the case already filed under N.I Act. No order as to costs.