Magnum Steels Ltd. vs Collage Group Infrastructure Pvt. Ltd.

Dr. Deepti Mukesh, J

The Present Application is filed under section 9 of Insolvency and Bankruptcy Code, 2016 (for brevity ‘IBC, 2016’) read with Rule 6 of the

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) by Magnum Steels Ltd, (for brevity

‘Applicant’) through its authorized representative Mr. Ishwar Chand Jindal vide board resolution dated 21st May 2018 with a prayer to initiate

the Corporate Insolvency process against Collage Group Infrastructure Pvt. Ltd. (for brevity ‘Corporate Debtor’).

The Applicant is a limited company incorporated bearing CIN U27109DL1991PLC042681 and having its registered office at Essel House, A10,

Asaf Ali Road New Delhi, PIN 110002.

The Corporate Debtor is a private limited company, incorporated under the provisions of Companies Act, 1956 on 26.02.2007 bearing CIN

1145200DL2007PTC159749 and having its registered office at 56-58, community Center, East of Kailash, New Delhi PIN 110065.

The Applicant submits that as per understanding with the corporate debtor, the applicant had supplied steel material/TMT Bar from time to time for

their project at Kanpur of corporate debtor and the supply was completed on 05.08.2015 for the total value of Rs.91,82,888/- (Rupees Ninety One

Lakhs, Eighty Two Thousands, Eight Hundred and Eighty Eight). After sale and supply of the steel to the corporate debtor, applicant raised invoices

totaling of Rs 91,82,988/- from 10.03.2015 to 05.08.2015. A copy of the statement showing materials sold by the applicant and the amount due from

the corporate debtor is enclosed. It is stated that the applicant maintained a running account in its ledger of the corporate debtor.

It is submitted that after various repeated requests and reminders to the corporate debtor and its directors, the payment was not coming through

hence the applicant sent a legal notice dated 02.01.2019 for an amount of Rs 91,82,988/- which is the claim amount in the application to which the

corporate debtor had replied through on 19.01.2018 raising dispute with respect to said debt. Copies of the legal notice dated 02.01.2018 and the reply

of legal notice by the corporate debtor dated 19.01.2018 are annexed.

The Applicant issued demand notice dated 07.06.2018 under the provisions of Section 8 of the Insolvency and Bankruptcy Code, 2016 in Form 3 as

prescribed under in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 demanding total amount from the Corporate

Debtor of Rs 91,82,988/- (Rupees Ninety One Lakhs Eighty Two Thousand Nine Hundred And Eighty Eight Only) and interest of Rs 62,44,432/-

(Rupees Sixty Two Lakhs, Forty Four Thousand Four Hundred And Thirty Two) @24% p.a. totaling to Rs 154,27,420/-.

The corporate debtor had duly replied to the said notice on 19.06.2018 raising dispute and also mentioning that nothing is due and payable. The

corporate had referred to stand taken by it in its reply dated 19.01.2018 while replying the previous legal notice and further asserted that there is a

dispute with respect to payability of debt, which is existing much prior to the issuance of section 8 demand notice to the corporate debtor.

The Applicant has filed present Application on 05.09.2018 under section 9 of BC, 2016 and served the copy of this application through speed post

which Has been duly delivered to the corporate debtor as per the tracking report.

The Corporate Debtor has replied to the application and has contended that in reply to the said legal notice, the corporate debtor had sent

communication dated 19.01.2018 whereby it was clearly and expressly stated that the supply of steel was delayed by the applicant, thereby causing

losses to the corporate debtor and delaying the construction of the project of the corporate debtor. It is further submitted that in 2017, the corporate

debtor had received summons issued under section 131 (Power regarding discovery, production of evidence, etc) of the Income Tax Act, 1961 from

the assistant commissioner of income tax as the applicant had failed to clear its liability. The income tax department had raised demands on persons

who the applicant had claimed were its debtors including corporate debtor. The income tax department proceeded to issue notices under section

226(3) (Other modes of recovery) of the Income Tax Act, 1961 to the debtors of the applicant calling upon the to pay the income tax department

sums due. Copies of the said notices dated 24.01.2018 and 21.09.2019 issued on corporate debtor on behalf of the applicant by income tax department

are duly annexed.

The Applicant has filed its rejoinder controverting the averments made in the reply and has denied all the averments made by the corporate debtor.

Heard both the sides and perused the documents on record, the reply dated 19.01.2018 sent by the corporate debtor, brings on record a dispute

raised and existed between the parties prior to the issuance of the section 8 demand notice. There is thus force in the contention of the corporate

debtor and it can be concluded that a dispute does truly exist between the parties in terms of section 5(6)(b) in the present case, which may or may

not ultimately succeed but requires trial/investigation. Though this is not the forum to examine and adjudicate as to which portion of the claims or

counter claims are admissible. Tribunal will not examine the merits of the dispute other than to see if there is in fact exist a 'real dispute' having some

substance.

Hon'ble Supreme Court in the case of ""Mobilox Innovative Private Limited vs. Kirusa Software Private Limited"" in civil appeal number 9405 of

2017 vide order dated 21.09.2017 has held that:

“Therefore, all 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 exist in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to

reject the application. In the present case the respondent has raised dispute with sufficient particulars. Besides the case records reveal that

there was existence of dispute much prior to the issuance of notice under section 8 of the code. The claim of the dispute suggest the need of

elaborate investigation. The moment there is existence of such a pre-existence dispute, the corporate debtor gets out of the clutches of the

codeâ€​.

In view of the aforesaid facts, a conclusion can be drawn that there is ‘Pre-existence dispute’ which was raised by the corporate debtor

prior to the notice served under section 8 of I & B Code. It is a fit case to reject the application under section 9 of the I & B Code.

In absence scenario, the present application is hereby dismissed. A copy of the order shall be communicated to the Applicant and the Corporate

Debtor by the Registry. In addition, a copy of the order shall also be forwarded to IBBI for its records. A copy of this order be also sent to the ROC

for updating the Master Data. ROC shall send compliance report to the Registrar, NCLT.