Lomat International NV vs Wearit Global Limited

Rohit Kapoor, Member (Judicial)

This Court convened through video conferencing.

This is a Company Petition filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) by Lomat International NV (Operational Creditor), represented by Mr. Marc Dewaele, Manager of the Operational Creditor, authorised by a Board Resolution dated 13.09.2018, seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against Wearit Global Limited (“Corporate Debtor”).

The Corporate Debtor is a private company limited by shares and incorporated on 03.08.1999 under the Companies Act, 1956, with the Registrar of Companies (RoC), West Bengal, having Corporate Identification Number: U40107WB1999PLC089994. Its registered office is at Crescent Tower, 5th Floor, 229 AJC Bose Road, Kolkata-700020, West Bengal.

The present petition was filed on 21.01.2019, before this Adjudicating Authority on the ground that the Corporate Debtor failed to make payment of a sum of USD 2,933,869.00 (United States Dollars Two Million Hundred Thirty Three Thousand Eight Hundred Nine only) and Euro 8,423.70 (Euro Eight Thousand Hundred Twenty Three and Seventy Cents) equivalent to Rs.21,40,89,201/- (Rupees Twenty-One Crore Forty Lakh Eighty-Nine Thousand Two Hundred and One only) calculated at the rate of 1 USD=Rs.72.7347 and 1 Euro=rs.82.5195, as on 09.11.2018, which is stated to be the date of default.

Submission of the learned Counsel for the Operational Creditor

5.1.The case of the Operational Creditor is that the Corporate Debtor had approached the Operational Creditor to purchase Mono Ethylene Glycol of large quantities. The Operational Creditor sold the said goods to the Corporate Debtor and raised the following invoices:

a. Invoice bearing No. VF/16-000747 dated 03.08.2016 for a sum of Euro 1,045,923.70;

b. Invoice bearing No. VF/16-000998 dated 21.10.2016 fpr a sim of USD 1,388,800.00;

c. Invoice bearing No. VF/17-0000097 dated 30.01.2017 for a sum of USD 1,360,856.00;

d. Invoice bearing No. VF/17-000959 dated 02.11.2017 for a sum of USD 309,213.00

5.2.The Corporate Debtor made part payments totaling to Euro 1,037,500.00 against Invoice No. VF/16-000747 and USD 125,000.00 against Invoice No. VF/16-000998.

5.3.The Corporate Debtor vide its email dated 29.06.2017 stated that a transfer of Euro75,000.00 was made to the Operational Creditor.

5.4.VIDE email dated 12.07.2017, the Corporate Debtor informed the Operational Creditor that the Corporate Debtor is in financial crunch due to several reasons such as implementation of Goods and Services Tax, strike of Textile Mills etc. and proposed to pay the balance amount by way of Letter of Credit of 120 days.

5.5.The Corporate Debtor VIDE email dated 31.07.2017 shared a copy of swift transfer of Euro100,000.00 to the Operational creditor.

5.6.The Operational Creditor sent a Demand Notice dated 21.09.2018 under section 8(1) of the Code, the Demand Notice was delivered on 24.09.2018. The Corporate Debtor replied to the Demand Notice VIDE its letter dated 03.10.2018 wherein the Corporate Debtor raised frivolous disputes for the first time.

5.7.The debts fell due on the following dates:

a. Invoice bearing No. VF/16-000747 dated 03.08.2016 having due date as 11.11.2016 calculated from the date of Bill of Lading No. 04 dated 24.07.2016;

b. Invoice bearing No. VF/16-000998 dated 21.10.2016 having due date as 12.02.2017 calculated from the date of Bill of Lading No. MEG/HAZ-01B dated 20.10.2016;

c. Invoice bearing No. VF/17-0000097 dated 30.01.2017 having due date as 23.04.2017 calculated from the date of Bill of Lading No. SHB/HAZ09/YMS02 dated 28.01.2017;

and

d. Invoice bearing No. VF/17-000959 dated 02.11.2017 having due date as 01.03.2018 calculated from the Bill of Lading No. SHB/HAZ06/YMS18 dated 01.11.2017.

Submissions of the learned Counsel appearing on behalf of the Corporate Debtor

6.1.Learned Counsel on behalf of the Corporate Debtor has raised three defences.

Pre-existing dispute

The Demand Notice dated 21.09.2018 was received by the Corporate Debtor and the Corporate Debtor sent a reply on 03.10.2018 wherein the Corporate Debtor raised the following disputes:

a. the Operational Creditor, Chimtex SA and the Corporate Debtor had entered into a Cyclical Business Agreement. The Operational Creditor acted in breach of the oral cyclical business agreement between the Corporate Debtor, Operational Creditor and Chimtex SA, whereunder, Operational Creditor and Chimtex supplied raw materials for manufacturing yarn by Corporate Debtor with an undertaking to lift bulk of the yarn so produced. The balance yarn was to be sold by Corporate Debtor for profit. Upon reconciliation of statements, if any amount was found payable, the Corporate Debtor was to remit it from the profits earned by it. Corporate Debtor during 2012-2018, imported raw materials worth Rs. 413 crores, whereas the Operational Creditor and its nominees only lifted yarn worth Rs. 130 crores. Breach of agreement by Operational Creditor cannot be made a ground for making a claim for its purported dues;

b. The Operational Creditor vide its e-mail dated July 09, 2018 admitted purchasing yarn from Corporate Debtor on a regular basis, but untruly denied the existence of the agreement between the parties; and

c. Operational Creditor has made a purported claim in excess of Rs. 214 crores on account of principal, allegedly unpaid for about two years. It is inconceivable that a claim for such a substantial amount had never been made prior to issuance of the demand notice. This further demonstrates the oral agreement between the parties based whereon, Operational Creditor did not have any claim. Operational Creditor’s alleged claim in the instant Company Petition is essentially a counter-claim to the prior claim made by the Corporate Debtor. The provisions of the Code have been invoked in terrorem, to arm twist the Corporate Debtor to withdraw its claim

i. Arbitration

a. By an e-mail dated 15.06.2018, the Corporate Debtor made a claim and requested the Operational Creditor to refer the disputes that had arisen between the parties under the oral agreement, to arbitration. The Operational Creditor remained non-responsive to such request, but retaliated by issuing a demand notice on 21.09.2018 under the Code.

b. Section 21 of the Arbitration and Conciliation Act, 1996, provides arbitral proceeding in respect of dispute is deemed to commence from the date on which a request for that dispute to be referred to arbitration is received by the respondent.

c. The e-mail dated 15.06. 2018, INTER ALIA containing a request to refer the disputes to arbitration was received by Operational Creditor on the very same day.

ii. Pendency of suit for specific performance and damages by Corporate Debtor and counter-claim by Operational Creditor before the Alipore Court

a. Since the Operational Creditor did not agree to resolution of dispute through arbitration, Corporate Debtor filed a suit being T.S. No. 1265 of 2018 before the Learned 8th Additional District Civil Judge, (Senior Division) at Alipore for a Decree for specific performance of the oral agreement between the parties and for an enquiry into damages, owing to breaches committed by the Operational Creditor. The suit was filed on 01.12. 2018. The Company Petition was filed on 14.01.2019.

b. The Operational Creditor has filed a counter-claim in the suit on 07.03.2019, to recover its alleged dues. Even injunctive relief has been sought from the Civil Court instead of this Tribunal.

c. Operational Creditor has submitted itself entirely to the jurisdiction of the Civil Court. Operational Creditor cannot on one hand seek adjudication of the claim, and the counter claim from a Civil Court for recovery of its dues and on the other seek initiation of CIRP against the Corporate Debtor before this Adjudicating Authority.

d. This Adjudicating Authority cannot be reduced to a debt collecting forum. Further, adjudication of identical claims by separate forums may result in conflicting views and only one forum should adjudicate the same. The scope of adjudication of a claim and a counter-claim by this Adjudicating Authority is limited even during ongoing CIRP process under section 60(6) of Code. The suit filed by the Corporate Debtor involves intricate questions of fact. Further, to establish an oral agreement, witness action is necessary and evidence requires to be adduced.

e. The claim of Corporate Debtor is against two companies, I.E. the Operational Creditor and Chimtex. The transaction between the parties cannot be segregated and Chimtex cannot be made a party to this proceeding.

iii. The claim of the Operational Creditor is denied by the Corporate Debtor (paragraph 7 of reply)

Rejoinder to the reply of the Corporate Debtor

a. There was no such agreement entered into between the Operational Creditor, Chimtex SA and the Corporate Debtor. The cyclical arrangement is an afterthought of the Corporate Debtor. Since, there was no agreement, there arises no scope for arbitration.

b. On the merits, the Corporate Debtor in its email dated 15.6.2018 has for the first time taken a stand of the above imaginary cyclical arrangement. The Operational Creditor has immediately VIDE its reply emails dated 21.06.2018 and 09.07.2018 has clearly denied the existence or subsistence of any such understanding or agreement or arrangement.

c. The learned Counsel asserts that filing of the suit was merely to create a prior dispute as will be evident from the fact that the Corporate Debtor after receipt of the statutory notice on 24.09.2018 filed a suit against the Operational Creditor on 01.12.2018 to create a plea of prior dispute and to take advantage of the same. The Corporate Debtor did not appear for consecutive dates from middle of 2019 till 2020. The said civil proceedings were dismissed on 12.01.2021. Thus, as on date there is no suit.

d. The learned Counsel asserted that even if the suit was not dismissed, the same could not have been taken as a prior dispute since it is a settled principle of law that the dispute should be prior to the statutory notice. He placed reliance on the judgment passed by the Hon’ble Supreme Court in the matter of Mobilox Innovations Pvt Ltd v Kirusa Software (P) Ltd [(2018) 1 SCC 353 and the Hon’ble NCLAT in Ahluwalia Contracts (India) Ltd v Raheja Developers Ltd.

Analysis and Findings

Heard the learned Counsel for the Operational Creditor and the Corporate Debtor and perused the record.

The Corporate Debtor has taken plea of pre-existing dispute as there is:-

a. Request for Arbitration by the Corporate Debtor; and

b. Filing of a Civil Suit by the Corporate Debtor against the Operational Creditor.

From the documents before us we do not find there was any ‘Cyclical Business Agreement’ between the parties. We also do not find any arbitration agreement between the parties to refer the alleged dispute to arbitration.

Merely a request for arbitration sent by a person to another and specifically not agreed to by the other person cannot constitute an Arbitration Agreement.

Though there was a request for the arbitration by the Corporate Debtor, but the same was categorically declined by the Operational Creditor.

It is also very clear that Civil Suit for specific performance valued at Rs.1Crore was filed subsequent to issuance of notice under section 8 of Insolvency and Bankruptcy Code, 2016. There was no mention of this Civil Suit in the reply of the Corporate Debtor. Further, apart from this, on perusal of the plaint filed in the Affidavit in Reply by the Corporate Debtor, no date has been given as to when the said plaint had been verified, but at page 33 of the Affidavit in Reply (internal page 22 of the plaint), gives the list of documents that have been relied on by the plaintiff and the documents annexed by the plaintiff. The Corporate Debtor in its plaint has relied on a notice dated 26.11.2018.

Suffice it to say that the plea of the Corporate Debtor, there was/is a “pre-existing” dispute between the parties, sought to be raised on the basis of its pleadings and documents annexed, when tested on the basis of the law laid down as by the Hon’ble Supreme Court in Mobilox Innovations supra.

The Hon’ble NCLAT in Amit Wadhwani v. Global Advertisers, 2021 SCC OnLine NCLAT 325 held that a spurious dispute cannot come in the way of a section 9 petition. We find that there was/is no pre-existing dispute within the meaning of Section 8(2)(a) of the Insolvency and Bankruptcy Code.

We find that there was a demand duly raised and there is a debt due and the Corporate Debtor is in default for not clearing its dues to the Operational Creditor. To substantiate the dues, the Operational Creditor has placed on record the invoices raised to the Corporate Debtor.

The present petition filed by the Operational Creditor is complete in all respects as required by law. The petition establishes that the Corporate Debtor is in default of a debt due and payable and that the default is more than the minimum amount stipulated under section 4(1) of the Code, I.E., Rupees one lakh, at the relevant time.

It is, accordingly, hereby ordered as follows:-

a. The application bearing CP (IB) No. 100/KB/2019 filed by Lomat International NV, the Operational Creditor, under section 9 of the Code read with rule 4(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating CIRP against Wearit Global Limited, the Corporate Debtor, is admitted.

b. There shall be a moratorium under section 14 of the IBC.

c. The moratorium shall have effect from the date of this order till the completion of the CIRP or until this Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 of the IBC or passes an order for liquidation of Corporate Debtor under section 33 of the IBC, as the case may be.

d. Public announcement of the CIRP shall be made immediately as specified under section 13 of the Code read with regulation 6 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

e. Ms. Rachna Jhunjhunwala, registration number IBBI/IPA001/IP-P00389/2017-18/10707, email: jsa.jhunjhunwala@gmail.com, is hereby appointed as Interim Resolution Professional (IRP) of the Corporate Debtor to carry out the functions as per the Code subject to submission of a valid Authorisation of Assignment in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016. The fee payable to IRP or, as the case may be, the RP shall be compliant with such Regulations, Circulars and Directions as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IRP shall carry out his functions as contemplated by sections 15, 17, 18, 19, 20 and 21 of the Code.

f. During the CIRP period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of section 17 of the IBC. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within one week from the date of receipt of this Order, in default of which coercive steps will follow.

g. The IRP/RP shall submit to this Adjudicating Authority periodical reports with regard to the progress of the CIRP in respect of the Corporate Debtor.

h. The Operational Creditor shall deposit a sum of 5,00,000/- (Rupees Five Lakh only) with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to approval by the Committee of Creditors (CoC).

i. In terms of section 7(5)(a) of the Code, Court Officer of this Court is hereby directed to communicate this Order to the Operational Creditor, the Corporate Debtor and the IRP by Speed Post, email and WhatsApp immediately, and in any case, not later than two days from the date of this Order.

j. Additionally, the Operational Creditor shall serve a copy of this Order on the IRP and on the Registrar of Companies, West Bengal, Kolkata by all available means for updating the Master Data of the Corporate Debtor. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.

CP (IB) No. 100/KB/2019 to come up on 25.05.2022 for filing the periodical report.

A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.