M/S Umendra Exports Pvt. Ltd. vs M/S Yks Designs Pvt. Ltd.

Hemant Kumar Sarangi, Member (T)

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 M/s Umendra Exports Pvt. Ltd. (for

brevity ‘Applicant’), through its director, Mr.Sumit D. Rajani, with a prayer to initiate the Corporate Insolvency Resolution Process (CIRP),

against M/s YKS Designs Pvt. Ltd. (for brevity ‘Respondent’).

The Applicant, Operational Creditor namely, M/s Umendra Exports Private Limited is a company, incorporated on 04.08.1995, under the provisions

of Companies Act, 1956, with CIN No. U74899DL1995PTC071444, having its registered office at 1102, Devika Tower 6, Nehru Place, New Delhi-

110019.

The Respondent, Corporate Debtor, namely M/s YKS Designs Private Limited is a company incorporated on 02.09.2014, under the provisions of

Companies Act, 2013, with CIN No. U74140DL2014PTC271102, having its registered office at H-44, Ground Floor, Laxmi Nagar, East Delhi-

110092.

The Authorised Share Capital of the respondent company is Rs. 1,00,000/- and Paid Up Share Capital of the company is Rs. 1,00,000/-as per

Master Data of the company.

It is the case of the applicant, that it approached the Respondent company, for rendering services in respect of setting-up a ‘stall for display of

the products of applicant at the exhibition to be held at Frankfurt, Germany, i.e., ‘Ambiente Exhibition, 2019’ and as such the respondent agreed

for providing the said services to the applicant and issued a Purchase Invoice/ Offer Letter dated 21.01.2019, to set-up a stall at the Ambiente

Exhibition, 2019, displaying the products of the applicant, for a total contract value of Rs.3,24,892/-(Rupees Three Lakhs Twenty Four Thousand Eight

Hundred and Ninety Two). The applicant accepted the offer of the respondent as stated in the offer letter dated 21.01.2019, vide email dated

23.01.2019 and made a payment through NEFT for an amount of 70% of the contract value, i.e., Rs.2,27,424/- (Rupees Two Lakhs Twenty Seven

Thousand Four Hundred and Twenty Four), on 23.01.2019, from the Yes Bank Ltd. bank account, which is reflected in the account statement of the

applicant as well.

The applicant states that in pursuance of the above transaction, the respondent, despite there being no provision for sub-contracting the services,

vide email dated 03.02.2019, informed the applicant, that the services to be rendered in terms of the Offer Letter, had been sub-contracted to one of

the associates M/s Prolack SP, and the respondent was facing serious issues with the said associate in respect of the services and that the possession

of the stall could not be taken as on the said date. The applicant on 07.02.2019 became aware of the fact that no further steps/ actions had been

undertaken by the respondent in respect of installation of the said stall of the applicant, inter-alia, being submissions of the forms with the Ambiente

Exhibition association by 06.02.2019, and taking over the possession of the stall by the applicant. Therefore, left with no option the applicant

commenced the installation of the stall on its own accord and as such vide email dated 07.02.2019, terminated the contract/ canceled the contract, i.e.,

the offer letter dated 21.01.2019.

The applicant further states that, the respondent failed to render service in respect of installation of the stall for display of products of the applicant,

in terms of the offer letter dated 21.01.2019 and also failed to return the money of the applicant. As a result of this a sum of Rs.2,27,424/- (Rupees

Two Lakhs Twenty Seven Thousand Four Hundred and Twenty Four), fell due and payable by the respondent to the applicant. On failure to pay the

outstanding dues by the Respondent, the applicant sent a demand notice dated 19.03.2019, under Section 8 of the Insolvency and Bankruptcy Code,

2016 to the respondent asking them to make the entire outstanding payments of Rs.2,31,789/-(Rupees Two Lakhs Thirty One Thousand Seven

Hundred and Eighty Nine),which includes Rs.4,374/- (Rupees Four Thousand Three Hundred and Seventy Four), as interest at the rate of 18% per

annum, within 10 days from receipt of the notice, failing which the applicant shall initiate the Corporate Insolvency Resolution process against the

Respondent.

The applicant has annexed postal receipts and copy of email showing service of section 8 notice to the respondent at its registered email id recorded

on the MCA master data.

Despite the demand notice sent under Section 8 of the Code, the Respondent has failed to pay the amount demanded and has neither raised any

notice of dispute nor replied to the said notice, hence this application, seeking to unfold the process of CIRP.

The applicant has stated that total debt due and payable is Rs.2,31,789/- (Rupees Two Lakhs Thirty One Thousand Seven Hundred and Eighty

Nine), inclusive of interest at the rate of 18% per annum.

Hence, the application under section 9 of the IBC, 2016 was filed by the applicant to initiate CIRP. The applicant has also filed affidavit of service

wherein he states that service has also been done through email on the email Id available on the MCA Master Data of the respondent on 14.06.2019.

After the service of said notice the respondents have caused appearance in the matter and have filed their reply, in its reply to the present section

9 application, the respondents states that there is no default on the part of respondent as alleged by the applicant. As per the respondent, the terms and

conditions as enumerated in the aforementioned invoice dated 21.01.2019 clearly stated that “if exhibition gets cancelled, client withdraws or due to

any reason show gets cancelled, advance will not be refundedâ€. It is pertinent to mention that here the corporate debtor received the email dated

06.02.2019 from the applicant herein stating that “please treat these stall order at Ambiente 2019 as cancelled because got delayed from your

sideâ€. Indeed, no such delay was caused and the contract was within its time period, further, it was nowhere decided between the parties that the

time period was to be followed in its strictness and hence, time was not the essence of the contract in the present case.

The applicant has filed an affidavit under Section 9(3)(b) stating that no notice of dispute from Corporate Debtor is received.

The applicant has attached the copy of Bank statements and the certificate certifying the transfer of Rs.2,72,224/- to the account of respondent,

issued by Yes Bank Ltd. in compliance with the requirement of Section 9(3)(C) of the IBC 2016.

The registered office of respondent is situated in New Delhi and therefore this Tribunal has jurisdiction to entertain and try this application.

On perusal of the record, it has been observed that the current application involves a substantial question of law, i.e., whether the said transaction

between the Operational Creditor and the Corporate Debtor would qualify to be an “Operational Debt†and can the applicant pursue the current

course of action under Section 9 of the I & B Code, 2016. In order to ascertain the said question of law the following sections of the I & B Code,

2016 are extracted for reference:-

“3(11)- ‘debt’- means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and

operational debtâ€​

3(12)- ‘default’- means non payment of debt when whole or any part or instalment of the amount of debt has become due and payable

and is not paid by the debtor or the corporate debtor, as the case may be;

5(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;

5(21)- ‘operational debt’ means a claim in respect of provision of goods or services including employment or a debt in respect of the

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;â€​

As per the facts of the given case it has been observed that the Applicant contacted the respondent for setting up the stall at ‘Ambiente Exhibition ,

2019’ at Frankfurt (Germany) and the respondents agreed to do the same. In pursuance of the said arrangement the respondent issued a

Purchase Invoice dated 21.01.2019 for a total value of Rs.3,24,892/- (Rupees Three Lakhs Twenty Four Thousand Eight Hundred Ninety Two), in

furtherance of the issuance of Purchase Invoice the applicant made a payment of Rs.2,27,424/- (Rupees Two Lakhs Twenty Seven Thousand Four

Hundred Twenty Four). The respondents sub-contracted the work of setting up of stall and other formalities to a third party namely, M/s Prolack SP,

However, It is by the respondents own admission that on 03.02.2019 it informed the applicant that M/s Prolack SP could not be contacted at the

moment and they do not have updates of the progress being made, and the possession of stall is still not with them. Hence, applicant, after considering

the update from the respondent, terminated the arrangement on 07.02.2019.

After giving due consideration to the above facts, this Bench is of the view that if we consider the definition of “operational creditor†and

“operational debt†as evident from the definitions cited above, we find that no operational debt has been owed by the respondent to the applicant,

nor any such operational debt has been legally assigned or transferred to the applicant, Which would make him an “Operational Creditor†and

would enable him, to approach this tribunal under Section 9 of the I & B Code, 2016.

From the facts of the case it is observed that an advance of a sum has been made by the applicant to the respondent for performance of a

particular service and upon breach of such arrangement, the applicant seeks recovery of such advance due to lack of performance by the respondent.

Therefore, the applicant here does not qualify as an “operational creditor†and neither does this debt qualify as an “operational debtâ€.

However, we are not expressing any views with regards to the debt due. The applicant is free to pursue any other remedy under any law applicable to

his case.

On similar issue the Hon’ble NCLAT in the matter of M/s Roma Infrastructure India Pvt. Ltd. Vs. M/s A.S. Iron & Steel (I) Pvt. Ltd.

Company Appeal (AT) (Ins) No. 223 of 2019 has already held as follows;

“4. Admittedly, Appellant â€" Roma Infrastructures India Pvt. Ltd. has not supplied the goods nor provided any services to Respondent-

A.S. Iron & Steel (I) Pvt. Ltd. It advanced payment of Rs. 74,32,326/- to Respondent for supply of goods. In view of the aforesaid fact, the

payment cannot be treated to be an ‘Operational Debt’ and the application under Section 9 filed by theAppellant was not

maintainable. Accordingly, no relief can be grantedâ€​

It has also been observed that the applicant has not approached this tribunal with clean hands, the records of the applicant clearly show that the

applicant had, on its own accord, terminated the said contract vide its email dated 06.02.2019, the copy of the said email has been annexed by the

respondent in its reply to the present application and as per the Purchase Invoice/ Offer Letter dated 21.01.2019 which has been mutually accepted by

both the parties the terms and conditions clearly states that “If exhibition gets canceled, client withdraws or due to any reason show gets canceled

advance will not be refundedâ€, (emphasis supplied) Hence considering the submissions of both the parties and the documents placed on record. This

bench is of the view that the case of applicant is not maintainable.

Hence, the present application is dismissed.

Copy of order be supplied to parties.