Micra Systems Private Limited vs Masters India Private Limited

Abni Ranjan Kumar Sinha, J

The present application is filed on behalf of the Petitioner/Operational Creditor under Section 9 of the IBC, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, praying therein to initiate CIRP against the Respondent/Corporate Debtor.

The facts of the case, in short is that in the month of October 2016 the Operational Creditor was approached by the Corporate Debtor for development of GST Portal and presentation of same to GSTN for grant of license as GSP. It is submitted that the Operational Creditor helped the Corporate Debtor to qualify as first batch "GSP". Subsequently the Operational Creditor started building the solutions which continued till November 2017 when the Operational Creditor has to pre-force discontinue on account of non-payment of pending bills and breach of trust by the Corporate Debtor.

It is submitted by the Operational Creditor that work was started as job work basis which was Rs. 1,00,000/- per month. The payment schedule continued to be same till the discontinuation of work with Corporate Debtor and in fact it made regular payments till June 2017 and thereafter in parts, in terms of the said agreement and the Corporate Debtor never objected or changed the same.

It is further submitted that the Operational Creditor insisted upon the Corporate Debtor to execute an agreement so that mutually agreed terms and conditions of work could be properly defined and marked. It is submitted that after verbal discussions with the Corporate Debtor, the Operational Creditor vide email dated 13.08.2017 sent proposed terms and conditions from its side and also invited opinion of the Corporate Debtor on the works of sources but Corporate Debtor did not respond to the same.

Further, the Corporate Debtor sent a draft of Contract for GST compliance software development vide email dated 05.10.2017. It is pertinent to mention herein that the agreement was to be effective from 30.10.2017. It is submitted that in the sub clause 2.2 of the clause 2 under the heading "Price" of the said proposed agreement categorically states "Previous payments were 1,00,000/- per man month taxes will apply till the contract has been signed. The Operational Creditor was largely agreeable to the terms and conditions stated therein but suggested certain changes viz. back dating etc. on the same day i.e. 05.10.2017 through email to which the Corporate Debtor had not esponded till date and never came forwarded for execution of agreement. The Operational creditor has also inter-alia asked the Corporate Debtor for payment of earlier dues before execution of the agreement. Further in the said agreement in sub clause 3.2.2 of clause 2 under the heading "Ownership" states " Till the time payments are not cleared contractor have rights to refuse to access of code, the documents against buyer requests.

The Operational Creditor as mutually agreed, submitted monthly invoices along with names of sources deployed in the said month to the Corporate Debtor and the Corporate Debtor never till date disputed any of the invoices. Further, the Corporate Debtor till June 2017 made full payment of the invoice amount, but since July 2017 instead of making full payment of the Invoice amount started making partial payments of the invoice amount for work done. The Corporate Debtor kept on making partial payment of the outstanding amount till October 2017 and thereafter has not make payment of the outstanding amount of Rs. 88,37,700/- till date despite repeated request.

Further, on or around 15 August 2017, the Corporate Debtor had started making non specific and evasive complaints amount time line of development of software and solutions. The Operational Creditor addressed all the grievances of the Corporate Debtor through various mails dated 15.08.2017. Since then the Corporate Debtor did not raise the said issue again. It is submitted that since the Operational Creditor had sensed the mala fide intent of the Corporate Debtor, therefore, vide email dated 03.11.2017 submitted a detailed project report explaining each and every query/complaint. It is stated that the Corporate Debtor has admitted the project report entirely.

It is submitted that since the Corporate Debtor was not making payment of outstanding amount the Operational Creditor had to stop the work and withdraw all its support. The Operational Creditor vide email 03.11.2017 and 07.11.2017 communicated the detail of outstanding amount once again demanded the outstanding amount to which the Corporate Debtor responded vide email of same date and sought amicable settlement but there was no commitment with regard to payment. In the said email the Corporate Debtor neither disputed the amount nor gave any schedule for payment. It is stated that the Operational Creditor once again vide email dated 09.11.2017 asked the Corporate Debtor for payment of outstanding and also brought issue of poaching of employees by the Corporate Debtor. However no response was ever received from the Corporate Debtor. It is further stated that outstanding amount against the Corporate Debtor is an undisputed amount.

The Corporate Debtor instead of making payment of the admitted outstanding amount, sent a legal notice dated 25.04.2018 to the Operational Creditor but in the said legal notice also there was no denial of liability by the Corporate Debtor.

Further, since the Corporate Debtor failed to make the payment of outstanding from October 2017 onwards., therefore, upon default of making payment for the outstanding amount despite repeated efforts, the Operational Creditor served a demand notice dated 22.05.2019 in accordance with Section 8 of the IBC 2016 along with the invoices in accordance with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 at its registered office on 27.05.2019.

The Corporate Debtor has sent a reply dated 06.06.2019 evasively and perfunctorily denying all claims.

In response to the summons, the Corporate Debtor appeared and filed the reply. By filing the reply, the Corporate Debtor claimed that the present application is not maintainable; there is no personal debt due from the Corporate Debtor.

Further, the Corporate Debtor had sent the legal notice dated 14th March, 2018 and 25th April, 2018, almost one year prior to the issuance of the demand notice under Section 8 of the Code. The Operational Creditor had not sent any reply to that legal notices. By sending the reply to the demand notice, the Corporate Debtor has raised the disputes which require further investigation. Since, there is a pre-existing dispute, so the present application is not maintainable.

Further, the Operational Creditor has not rendered the service to the Corporate Debtor to the satisfaction of the Corporate Debtor/Corporate Debtor's clients. The client had never delivered the saleable software till now for which he is claiming the amount under the said invoices.

Further, all the invoices raised by the Operational Creditor were for the discharge of liability of salary of employees/resources who were hired on behalf of the Corporate Debtor for the development of the Corporate Debtor's software. That till date no salary chart, no bank statement has been filled/supplied by the Operational Creditor.

Further, there is no default of payment on the part of the Corporate Debtor. Rather, the Corporate Debtor used to pay full payment to the person hire for the purpose of Corporate Debtor by the Operational Creditor till last date of working.

Further, the Operational Creditor has enclosed the tempered documents in the form of agreement and the conditions of which were never agreed by the Corporate Debtor.

Further, the Corporate Debtor has never acknowledged any changes in the document dated 05.10.2017 and the same was tempered by the Operational Creditor fraudulently and annexed that document with the application. Further, by sending the legal notice dated 14th March, 2018 and 25th April, 2018, the Corporate Debtor has raised the pre-existing disputes and also demanded the refund or reimburse the excess payment made by the Corporate Debtor to the Operational Creditor.

The Operational Creditor filed the rejoinder to the reply filed on behalf of the Corporate Debtor. The facts of the rejoinder, in short, is that the Corporate Debtor had agreed to pay Rs. 01 lakh per month per person and actually paid the same regularly till June 2017 and in part till October 2017 and during that period, Corporate Debtor has not raised any dispute. The Operational Creditor vide email dated 13th August, 2017, formerly, asked the Corporate Debtor for execution of an agreement and also sent certain terms and conditions but no response was received by the Corporate Debtor, thereafter, by email dated 15th August, 2017, the Operational Creditor insisted the Corporate Debtor to sign the agreement and again sent proposed terms and conditions for incorporation in the agreement. The Corporate Debtor though consented for sending draft of agreement but did not do anything in this regard. Rather sent an email pointing out some cooked up and concocted grievances.

Further on 5th October, 2017, the Corporate Debtor sent a draft of agreement vide email dated 5th October 2017 but the said draft was defective as it did not have the remuneration clause and also clause containing the effect of non-payment of the remuneration was not given in that agreement.

Further, on the request of the Operational Creditor. The Corporate Debtor sent the fresh email dated 9th October 2017 by which he sent the draft of agreement in word file, asking the application to add its terms and conditions and the Operational Creditor vide email dated 11th October 2019 sent the draft of the agreement, which the Operational Creditor filed along with the application and the Operational Creditor also admits this fact that the Corporate Debtor did not sign the agreement but never disputed the terms and conditions added by the Operational Creditor.

Further, vide email dated 15th August, 2017, the Corporate Debtor made an unsuccessful attempt to put the onus of some non-existent and concocted issues on the Operational Creditor.

Further, there were several correspondences in between the Operational Creditor and Corporate Debtor through the emails on the terms and conditions of the agreement.

In response to the contention of the Corporate Debtor that there was non-delivery of software, non-functionality of software, quality of employees, payment mode to employee, charge of excess amount etc., Operational Creditor submitted that Corporate Debtor has not claimed of making payment in advance since payment was being made on the basis of invoices which naturally could not have been raised without work is done and delivery to the satisfaction of the Corporate Debtor.

By filing rejoinder, the Operational Creditor submitted that the preliminary objection raised by the Corporate Debtor is wrong. The Operational Creditor also enclosed the email communication made in between the parties.

We have heard the Learned Counsel appearing for the parties and perused the averment made in the application as well as the documents enclosed with the application reply and rejoinder.

Learned Counsel appeared for the Operational Creditor, in course of his argument, raised all the facts mentioned in the application. He further, submitted that the Operational Creditor continued working for the Corporate Debtor till 3rd November, 2017 and the Operational Creditor due to non-payment of outstanding amount of Rs. 88,37,700/- despite repeated demand stopped working on the project of Corporate Debtor. He further submitted that the Operational Creditor formerly asked the Corporate Debtor for execution of an agreement and also sent certain terms and conditions on its behalf to which no response was received and that has never been signed by the Corporate Debtor. He further submitted that the contention of the Corporate Debtor that there was non-delivery of software, non-functionality of software, quality of employees, payment mode to employee, charge of excess amount etc. is false and never been raised by Corporate Debtor earlier. Rather, the Corporate Debtor was going on to make the payment. He further submitted that the two undated notices after about six months of breaking the business relations, however, now claimed to be dated 14th March, 2018 and 25th April, 2018 are nothing but the concocted submissions without having a truth.

He further submitted that the Corporate Debtor has filed list of loss of client with intent to create an impression that those clients were lost due to the Operational Creditor but truth is entirely contrary to the submission made therein.

He further submitted that it is apparent from the reading of emails dated 26.07.2017, 28.07.2017, 30.07.2017 and 03.08.2017 which Corporate Debtor annexed at page 42, 43, 44 and 46 of reply had created such a situation where the even survival for the Operational Creditor had become difficult. He further submitted that the disputes raised by the Corporate Debtor is false.

On the other hand, Learned Counsel appeared for the Corporate Debtor, in course of his argument raised all the facts mentioned in the reply and also refer the letter dated 14th March 2018 and 25th April, 2018 which the Corporate Debtor enclosed along with the reply prior to the issuance of the demand notice and by placing reliance upon that the Learned Counsel appearing for the Corporate Debtor claimed that there is pre-existing dispute which cannot be decided under the IBC, 2016, rather, it requires a complete trial.

He further submitted that, in fact, the payment has been made in excess by the Corporate Debtor to the Operational Creditor without delivery of software. The Operational Creditor charged at higher rate at Rs. 01 lakh per resource but paid at lower rate against the understanding which the Corporate Debtor enclosed in his reply at page 50 and 51 which shows the Operational Creditor paid Rs. 10,000/- and other lesser amount to the employee but charged Rs. 01 lakh from Corporate Debtor. He further submitted that the Operational Creditor has not filed the statutory affidavit as requires under Section 9(3)(b).

He further submitted that the Corporate Debtor's case is totally covered under the law defined by the Hon'ble Supreme Court in the matter of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited in which the Hon'ble Apex Court held that if there is pre-existing disputes then the application is liable to be rejected. He further submitted that neither there is an operational debt due nor there is default in payment of the debt. He further submitted that the Operational Creditor has enclosed tempered document and the Corporate Debtor never agreed for anything which is not proposed by him under the said agreement sent by the Corporate Debtor and that has also been admitted by the Operational Creditor that the said agreement has never been signed by the Corporate Debtor. He further submitted that although no software is delivered till today but the Corporate Debtor has paid a huge amount of Rs. 1,40,57,310/-

Now, in the light of the submissions raised on behalf of the parties, we have gone through the averments made in the application, reply and rejoinder as well as documents enclosed with the application and we find, it is the admitted case of the parties that the agreement which Operational Creditor has enclosed with the application has never been signed by the parties. It is also admitted case that the draft agreement which was sent by the Corporate Debtor was changed by the Operational Creditor and which was never been signed by the Corporate Debtor.

Therefore, on the basis of aforesaid admitted facts, it can be said that there is no agreement in between the parties because the proposal which was made by the Corporate Debtor was according to the case of Operational Creditor was modified but the same was not accepted by the Corporate Debtor. Therefore, on the basis of that, it can be said that the agreement which the Operational Creditor annexed is no agreement in the eye of law.

Now coming to the provision of Section 8 and 9 of the IBC, 2016 under which the present application is filed on behalf of the Operational Creditor. Before considering the submissions made on behalf of the parties, we would like to refer Section 8 and 9 of the IBC and the same are quoted below: -

"Section: 8. Insolvency resolution by operational creditor

(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor -

(a) Existence of a dispute, l[if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;

(b) The [payment] of unpaid operational debt-

(i) By sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or

(ii) By sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Explanation. - For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding 3[payment] operational debt in respect of which the default has occurred."

"Section 9: Application for initiation of corporate insolvency resolution process by operational creditor. -

(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

(2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.

(3) The operational creditor shall, along with the application furnish-

(a) A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;

(b) An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;

(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt/by the corporate debtor, if available;]

2[(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and

(e) Any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.]

(4) An operational creditor initiating a corporate insolvency resolution process under this section may propose a resolution professional to act as an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order-

(i) Admit the application and communicate such decision to the operational creditor and the corporate debtor if, -

(a) The application made under sub-section (2) is complete;

(b) There is no 3[payment] of the unpaid operational debt;

(c) The invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) No notice of dispute has been received by the operational creditor or there is no record, of dispute in the information utility; and

(e) There is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.

(ii) Reject the application and communicate such decision to the operational creditor and the corporate debtor, if-

(a) The application made under sub-section (2) is incomplete;

(b) There has been 1[payment] of the unpaid operational debt;

(c) The creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d) Notice of dispute has been received by the operational creditor or

There is a record of dispute in the information utility; or

(e) Any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section."

Mere plain reading of the aforesaid provisions show that before initiating a proceeding under Section 9, a demand notice is required to be delivered upon the Corporate Debtor and the Corporate Debtor after receipt of the demand notice is required to sent the reply within 10 days from the date of receipt of the demand notice.

Now in the light of that provision, when we shall consider the case in hand then we find, that here in the case in hand, a demand notice was delivered by the Operational Creditor upon the Corporate Debtor and the Corporate Debtor has also sent the reply to the demand notice which the Operational Creditor enclosed at page 160 of the application.

Since the reply to the demand notice has been received by the Operational Creditor, therefore, at this juncture, we would like to go through the reply to the demand notice. We have gone through the reply filed by the Corporate Debtor in response to the demand notice and we find that the Corporate Debtor at internal page of reply to the demand notice, which is at page 161 of the paper book, clearly, mentions that the legal notice through its Advocate on 25th April, 2018 has already been sent to the Operational Creditor and same was duly received by the Operational Creditor but no reply was given.

We further find, the Corporate Debtor also raised the issue of employment of the engagement of the employee and completion of the contract within the agreed period and also admitted that advance payment was made and whenever the status of the project was asked by the Operational Creditor then no proper reply was given by the Operational Creditor.

It is also claimed that the project was not completed within the time and due to that a great financial loss was caused to the Corporate Debtor. It is also claimed that the work was stopped unilaterally by the Operational Creditor without giving prior information to the Corporate Debtor causing loss to the Corporate Debtor and lesser its claim that the excess payment was made and there is no default.

Now, in the light of the averments, when we shall consider the claim of the Corporate Debtor then we find that the Corporate Debtor tried to convince us that there was a pre-existing dispute which the Corporate Debtor raised prior to the receipt of the demand notice by sending the legal notice on 14th March, 2018 and 25th April 2018 which th(sic) Corporate Debtor claimed that no reply had been given by the Operational Creditor till date.

In the light of that factual position, when we shall consider the case of the Operational Creditor then we find, in the reply of the demand notice, it is specifically mentioned that a legal notices were sent to the Operational Creditor by the Corporate Debtor on 14th March 2018 and 25th April, 2018 and also claimed that no reply was given by the Operational Creditor to that notice. Even no averment was made either in the main application filed by the Operational Creditor or in the rejoinder filed by him, in response to the reply filed by the Corporate Debtor. Therefore, we are of the considered view that the Operational Creditor has not reverted the averment made in the legal notice dated 14th March, 2018 and 25th April 2018 and on the basis of that, we find that these two notices were sent by the Corporate Debtor prior to the receiving of the demand notice and by sending these legal notices, the Corporate Debtor raised certain issues even one of the issues is the excess payment was made and there is no due of the outstanding debt, which is payable to the Operational Creditor. we also find that by filing the reply, the Corporate Debtor also raised that the agreement which he sent is modified by the Operational Creditor and that has also been admitted by the Operational Creditor in the rejoinder.

As we have already held that the agreement was not signed by the parties, therefore, on the basis of that it can be said that Operational Creditor also admits that he has changed the terms and conditions of the agreement, on the basis of which, he claimed the amount at the rate of Rs. 1 lakh, which according to the Corporate Debtor was not in the original draft agreement, which the Corporate Debtor sent to the Operational Creditor and that is the reason, the Corporate Debtor raised the disputes regarding the amount claimed by the Operational Creditor, since all these are done by sending the legal notices as well as the exchanging the emails between the two, prior to the delivery of demand notice, therefore, we are of the considered view that there is a pre-existing dispute regarding the terms and conditions of the agreement on the basis of which the Operational Creditor claimed the amount. There is also dispute regarding the engagement of the employee.

Therefore, in view of Section 8(2) of the IBC, 2016, the Corporate Debtor, after receiving the demand notice is required to bring to the notice of the Operational Creditor, the existence of disputes or record of pendency of the suit or arbitration proceedings before the receipt of the notice or produce the document to show that the payment of non-operational debt has been made. In view of that provision of law, when we shall consider the case in hand then we find, admittedly, in the case in hand, the Corporate Debtor has raised the dispute prior to the receipt of the demand notice and the facts which the Corporate Debtor has raised some of the facts has also been admitted by the Operational Creditor that is the agreement is not properly signed by the parties and both the parties are placing reliance on the different draft agreement, which in our considered view can only be decided by the Court of a competent jurisdiction having jurisdiction to decide the issue. Since, while exercising this power under Section 9, this court has very limited jurisdiction as held by the Hon'ble Apex Court in the matter of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited and the relevant portion of the judgment is quoted below: -

"33. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on nonpayment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read, with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). 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 may be........."

"34. 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 demand notice of the unpaid operational debt in relation to such dispute?

If any one 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."

Therefore, if we shall consider the case in hand in the light of the aforesaid decision then we find that in the case in hand also there is a pre-existing dispute between the parties regarding the terms and conditions of the agreements, payments of the salaries, engagement of the employees and other issues. Hence in view of Section 9(5)(2) of IBC, 2016, if notice of disputes has been received by the Operational Creditor or there is a record of disputes in the information utility in that case the adjudicating authority has no option but to reject the application.

Here, in the case in hand, as we have already stated that there is an existence of disputes raised by the Corporate Debtor prior to the issuance of the demand notice, of course, by filing section 9(3) (b), the Operational Creditor claimed that no notice of disputes has been raised by the Corporate Debtor but for the reasons discussed above, we find that the affidavit shown by the Operational Creditor under Section 9(3) (b) is not in consonance with the averment made in the application filed by the Operational Creditor in which he claimed that the Corporate Debtor by filing the reply raised the disputes on the point that the legal notice had already been sent to the Operational Creditor by Corporate Debtor prior to the issuance of the demand notice.

Therefore, we held that the affidavit shown by the deponent under Section 9(3) (b) is not correct, rather it is untrue statement given by the Operational Creditor.

For the reasons discussed above, since there is a pre-existing dispute between the parties, therefore, we have no option but to reject the prayer of the Operational Creditor to initiate proceedings under Section 9 of IBC, 2016.

According, we hereby reject the prayer of the Operational Creditor and the application is DISMISSED.