Murlimanohar Ravi vs Customer Xps Software Pvt. Ltd

Rajeswara Rao Vittanala, J

C.P.(IB) No. 139/BB/2020 is filed by Mr. Murali Manohar Ravi(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 Customer XPs Software Private Limited, on the ground that it has committed default for total amount of Rs. 13,26,340/-(Rupees Thirteen Lakh Twenty Six Thousand Three Hundred Forty Only) including default interest as of 31.01.2019.

Brief facts of the case, as mentioned in the Company Petition, are as follows:

(1) Customer XPs Software Private Limited (Respondent/Corporate Debtor), is incorporated on 29.12.2006 with CIN: U72200KA2006PTC041328, having its Registered Office at #113/IB, 1st Floor, SRIT House, ITPL Main Road, Kundalahalli, Bengaluru - 560 037.

(2) The Operational Creditor provides mentoring and consultancy services to the Corporate Debtor on regular basis. The total amount debt due is Rs. 13,26,340/- as on 31.01.2019.The Corporate debtor approaches the Operational Creditor seeking his expertise in providing mentoring and consultancy services for the Corporate Debtor Company. On request of the Corporate Debtor, the Operational Creditor agreed on an arrangement where, the Operational Creditor's services were retained by the Corporate Debtor. Monthly invoices were to be issued by the Operational Creditor, which would be paid by the Corporate Debtor.

(3) As on 12.07.2016, an email was received from Rivi Varghese, the CEO of the Corporate Debtor, furnishing the terms of the engagement:

• Amount of SGD 9999.

• 33% each in 3 tranches for 3 months

• Each, on or before 30,60,90 days

• Engagement - advising the Company's CEO on marketing and business development partnerships

The aforesaid email refers to 3 month however the relationship extended for 9 month since the Corporate Debtor was satisfied with the services provided by the Operational Creditor and wanted to use his expertise further in conducting its business operations.

(4) The Operational Creditor delivered the agreed services for a total period of 9 months, from August 2016 up to April 2017, in addition to certain services delivered prior to August 2016 for which the Operational Creditor did not seek any payment as a gesture of Goodwill. The Corporate Debtor has never disputed the delivery of the agreed services. The Corporate Debtor made certain partial payments initially covering dues for the first 3 months. But many of the subsequent invoices remained outstanding, despite which the Operational Creditor continued to render the agreed services.

(5) On April 2017, the CEO of the Corporate Debtor requested the termination of the relationship with effect from May 2017 and committed to pay the outstanding amounts incurred prior to this point. The Operational Creditor acceded to the request without insisting on notice period. Till date, the outstanding amounts remain unpaid despite repeated reminders and promises to clear all the dues. On 31st May, 2017 and also on 7th October 2017, the CEO of the Corporate Debtor again promised to clear the outstanding amounts.

(6) The Corporate Debtor has made certain partial payments in accordance with the arrangements and acknowledged the remaining outstanding dues and agreed to clear these dues in various conversations. Reported to Indian Income tax Authorities, expenses incurred by the Corporate Debtor towards due to Operational Creditor and deposited TDS amounts thereof. Thus, constituting a de facto acceptance of retainer ship of Operational Creditor and the payments due to him.

(7) The Corporate Debtor has defaulted in paying the amount and also has not provided to Operational Creditor TDS certificate as required by law. On July 2018, Operational Creditor sent a demand letter to the Corporate Debtor's director via Email to which the Corporate Debtor did not respond. As on 31st January, 2019, Rs. 13,26,340/- including default interest amount due on 5 invoices the last of which was on 07.05.2017. Further, the Corporate Debtor vide WhatsApp Messages dated 31.05.2017 and 16.10.2017 has acknowledged the liability.

(8) The Operational Debtor having no other option issued a Demand Notice as prescribed under the Insolvency and Bankruptcy Code. Though the Corporate Debtor received the notice on 14.01.2019, failed to respond within the mandatory period of 10 days as stipulated under the Code. Further, pursuant to receipt of the notice, though the Corporate Debtor has reached out to the Operational Creditor, promising to pay from time to time, it has till date not made any payment, which establishes that the Corporate Debtor is insolvent and not in a position to pay its dues. Hence the petition.

The Respondent has filed a statement of Objection dated 30.06.2020 by inter alia contending as follows:

(1) The Petition has been filed by suppressing material facts. The Respondent, through their hard work and dedication, has established good will in the market and has maintained good name by sheer hard work with meticulous business plans and professionalism. The Respondent maintains amicable relationship with its customers, vendors and services providers. The Respondent is a profit making company with sufficient financial strength. It is not in dispute that the Corporate Debtor availed the mentorship services of Operational Creditor as a retainer basis for the period from August 2016 to April 2017. It is a fact that the Corporate Debtor discontinued the services of the Operational Creditor since the services provided during April 2017 were not up to the satisfaction level of the Corporate Debtor.

(2) It is stated that the Corporate Debtor was served with demand notice on 14th February 2019 in Form-3. The Corporate Debtor vide email dated 21st March 2019 requested the Petitioner to furnish the documents regarding details of the activities done for the period, month wise and relevant documents supporting the invoices raised. Further in the same correspondences, the Corporate Debtor expressed their readiness to process the payment due to the Petitioner upon receiving the documents sought from the Petitioner. The Applicant failed to furnish the supporting documents sought for, and on the other hand filed the present application for initiating the CIRP after the delay of 349 days. Further the Corporate Debtor has not entered into any written agreement with regard to service and question of payment of interest does to arise, that too calculated at 15% compound interest i.e., Rs. 4,59,590/- is absurd. The amount of interest calculated by the Petitioner shows that the Petitioner is trying to make wrongful gains for himself by filing the instant petition.

(3) The Corporate Debtor is a solvent company and running its business with about 200 employees and has turnover for the year 2018-19 is Rs. 41.18 crores. By initiating CIRP against the Company would have serious devastating effect on its operations, defeating very purposes of IBC, 2016.

Heard Mr. S.Rama Krishnan, learned Counsel for the Petitioner.

Mr. Balady Shekhar Shetty, learned PCS for the Respondent through Video Conference. We have carefully perused the pleadings of both the parties, and the extant provisions of the Code, the Rules made thereunder, and the law on the issue.

Shri. S. Ramakrishnan, learned Counsel for the Petitioner, while reiterating the averments made in the Petition, as briefly stated supra, has also filed his written submissions dated 01.07.2020 by inter alia contending as follows:

(1) The Corporate Debtor clearly admitted to the debt owed to the Petitioner. There is also a clear admission of having TDS deduction being submitted to the Income Tax Department and the same has been done without disbursal of payments which is clear violation of law. Further the corporate Debtor failed to produce the emails. Despite of emails the Corporate Debtor did not make any payments of the debt which it had duly acknowledged.

(2) There is a proof of the acknowledgement of debt by the Director, Mr. Rivi Varghese through his whatsapp messages as well as there is no mention of unsatisfactory hence even the said ground of the Corporate Debtor is false. It is important to note that no dispute has been raised prior to the issue of demand notice to the Corporate Debtor and these alleged issues raised only after a month of receipt of the same. It is established law that any alleged dispute raised prior to issue of demand notice cannot be taken in consideration by the Hon'ble Tribunal. The Corporate Debtor failed to prove that there was any prior dispute. The interest charged at 15% is not absurd as alleged and is conservation by market estimates, however the Tribunal may decide on the question of interest.

(3) It is further submitted the Petitioner rendered services at the request of the Corporate Debtor for a total period of 9 months, starting from August 2016 upto April 2017. The Petitioner made several request and the Respondent also promised to clear the outstanding amount. Having failed to pay the outstanding amount. The Petitioner issued the demand notice dated 14.01.2019. Further, the debt and default in question is not in dispute and the instant Company Petition is filed in accordance with law, and thus he has asserted that it is a fit case to initiate CIRP in respect of the Corporate Debtor appointing IRP, imposed moratorium etc. etc.

Mr. Balady Shekar Shetty, learned Counsel for the Respondent, on other hand, while pointing out various averments made in the Reply, as briefly stated supra, has further submitted that the instant Company petition is filed with an intention to recover the alleged outstanding amount. Even though, the Respondent expressed its readiness to settle the issue subject to substantiating his claim, the Petitioner for the reasons best known to him, has filed the instant Petition with malafide intention.

As stated supra, the Corporate Debtor is a solvent Company having about 200 employees and has turnover of Rs. 41.18 crores for the year 2018-19..The cause of action arises in the case, basing on the five (5) invoices starting from August, 2016 till May, 2017 and the invoices being Invoice No. 1 dated 28.08.16 payment due date dated 28.08.2016; Invoice No. 2 dated 20.12.2016 payment due date was 20.12.2016; Invoice No. 3 dated 02.02.2017 due date 02.02.2020, : Invoice No. 4 dated 10.04.2017 due date 20.04.2017, Invoice No. 5 dated 07.05.2017 due date 07.05.2017. And there is no element of interest mentioned in the invoices or any agreement in this regard and however, the Petitioner on his own accord has calculated interest. The payment date for the first Invoice was on 28th August 2016, however, the Petitioner without taking any legal course of action against the Respondent, has ultimately issued the demand notice only on 21.01.2019. However, the Petitioner without availing opportunity given by the Respondent, to substantiate his case so as to settle his case, has filed the instant Petition. Out of total claim of Rs. 13, 26,340/-, Principle amount is Rs. 10,12,930/- and late payment interest due is Rs. 3,13,410/- calculated from the date of each invoice till 31.01.2019, at 15% compound annual interest.

It is relevant to refer the email dated 21.03.2019 sent by the Respondent to the Petitioner, which is extracted below for ready reference:

"Hi Murli,

This is the 3rd time I am communicating to you on this subject over time, hopefully I receive a response this time.

We had an engagement in good faith with you. I will address this in two parts A) payment for the engagement B) comment on the engagement itself.

A) Payment for the engagement

We have accepted the invoices raised upon us, in good faith. We have complied with tax requirements in the applicable years and the tax is already paid to the govt and you can see that in you tax credits. Reproducing our statement of accounts as below:

Invoice date

Invoice No.

Invoice details

Gross Value

TDS

Payments made

Balance payable

20.12.16

2

Founder Mentorship Service Sep to Nov 2016

4,939,601

49,396

297,191

147,374

02.02.17

3

Founder Mentorship Service - Dec 2016 & Jan 2017

322,401

32,240

290,161

10.04.17

4

Founder Mentorship

20,029

32,003

288,026

Service - Feb to Mar 2017

10.04.17

5

Founder Mentorship Service - April 2017

156,877

15,688

141,189

Total

866,750

This payment is held in our account for want of you complying with the few requirements Please ensure that you comply with the following requirement so that we can release this payment by April 20th 2019 (assuming we get these before March 31, 2019)

Though you have raised the invoice, you have failed to give the supporting documentation for the same. This is a compliance requirement

Please share with us the details of the activities that you did in this period, month wise and any supporting evidence for the same.

You should also indicate that for a particular period, there was no activity done, however the billing was still done.

We will be able to release the payment, once we get these supporting documents

B) Comment on the engagement itself

We would like to mention that we are deeply disappointed with the lack of any constructive outcomes. We had very high professional expectations from you. On analysis we see that, while there was not letup on the payment demand for the retainer ship, the other of end of the bargain, the need to deliver a month on month outcome, was not complied with. We have learned our lessons.

We feel that we have not received value for the money paid.

Please send the compliance details mentioned above so that we can release the payments to you."

The contents of above communication clearly established that the instant Petition is filed with an intention to recover the disputed dues and without substantiating the claim of Petitioner first before the Respondent. In terms of provisions of Code, in the first instance, the debt in question should be established and it should legally recoverable, and thereafter default should be committed by the Corporate Debtor. However, the Petitioner failed to fulfil even the pre-requisite conditions as referred to above to maintain the instant Petition.

It is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount but it can be invoked to initiate CIRP on justified reasons. 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 judgement 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 judgement, it is stated that Adjudicating Authority, while examining an application filed under Section 9 of Code, will have to determine:

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

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

iii. 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?

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

For the aforesaid reasons and circumstances of the case, and the law on the issue, we are of the considered opinion that the instant petition is filed on misconceived fact and law and against the object of Code. Since the Respondent agreed to settle the claim of the Petitioner, subject to substantiating it, we are inclined to dispose of the instant petition directing the Respondent to settle the claim of the Petitioner, provided the Petitioner submitted requisite documents, as referred to in the said email dated 21.03.2019 within prescribed period below.

In the result, C.P (IB) No. 139/BB/2020 is hereby dispose of with the following directions:

(1) The Petitioner is directed to furnish the requisite documents, as required vide email dated 21.03.2019, as referred to above, to the Respondent, within a period of 4 (four) weeks from the date of receipt of a copy of this order.

(2) If the Petitioner submit the required documents substantiating his claim, as stated supra, within said period, the Respondent is directed to consider the same and pass appropriate orders within a period of four weeks thereafter, and communicate the decision to the Petitioner.

(3) No order as to costs.