Shree Ram Cargo Private Limited vs Rajat Ispat Private Limited

Harish Chander Suri, Member (Technical)

This Court convened via video conferencing.

This is a Company Petition filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) by Shree Ram Cargo Private Limited (‘Operational Creditor’), a Company incorporated under the Companies Act, 1956, having its registered office at 3 A & B, Archies Court Shankar Shet Road, Pune - 411037, by Pawan Kumar Lakhotia, duly authorised vide Board Resolution dated 19.07.2019 1 Annexure 2, Page – 17 of the CP (IB) No.1628/KB/2019. seeking to initiate Corporate Insolvency Resolution Process (‘CIRP’) against Rajat Ispat Private Limited, a Company incorporated  under  the  Companies  Act,  1956,  having  its  registered  office  at Marshal House, Room No.234, 2nd Floor, 33/1, Netaji Subhas Road, Kolkata - 700001, West Bengal (‘Corporate Debtor’).

The present petition was filed on 23.09.2019, before this Adjudicating Authority on the ground that the Corporate Debtor failed to make payment of a sum of Rs. 89,25,811/- (Rupees Eighty Nine Lakh Twenty Five Thousand Eight Hundred Eleven only), including interest

Submission of the learned Counsel for the Operational Creditor

(i) The case of the Operational Creditor is that transportation / freight services were provided by the Operational Creditor and its unit (i.e., Shubham Logistics) to Jindal Steel and Power Limited (‘JSPL’) for transportation of Quick Lime/ Domolite to JSPL, Raigarh Plant.

(ii) However, due to some internal arrangement between JSPL and the Corporate Debtor, the dues were transferred from JSPL to the Corporate Debtor. The same was duly accepted by the Corporate Debtor vide letter dated 20.09.2016 and 10.10.2016, issued to the Operational Creditor. Annexure 6, Pages – 23 – 26 of the CP (IB) No.1628/KB/2019

(iii) Subsequent, to the transfer of dues from JSPL to the Corporate Debtor, the Corporate Debtor on different occasions paid a sum of Rs.23,00,000/-(Rupees Twenty Three Lakh only) towards the outstanding dues. Therefore, the balance amount as due from the Corporate Debtor is Rs.55,27,448/- (Rupees Fifty Five Lakh Twenty Seven Thousand Four Hundred Forty Eight only)

(iv) It is also pertinent to mention that the Operational Creditor had received cheques amount of Rs.51,49,064/- (Rupees Fifty One Lakh Forty Nine Thousand Sixty Four only) from the Corporate Debtor but the same were dishonored at the time of presentation due to insufficient funds. Annexure 8, Pages 31-32 of the CP (IB) No.1628/KB/2019.

(v) The Operational Creditor has issued a demand notice on 06.08.2019 to the Corporate Debtor and same was also delivered on 10.08.2019.

(vi) In pursuance of the said notice, the Corporate Debtor vide letter dated 28.08.2019 replied to the Operational Creditor stating that they have no liability to make any payment to make to the Operational Creditor.

(vii) Further, with respect to section 9(3)(b) of the Code, the Operational Creditor has also submitted an affidavit stating that no notices relating to any dispute of the unpaid operational debt were given by the Corporate Debtor.

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

(i) Learned Counsel on behalf of the Corporate Debtor submits that the Application filed by the Operational Creditor is not maintainable in law and no amount of operational debt as claimed by the Operational Creditor is due. Annexure 2, Page – 17 of the CP (IB) No.1628/KB/2019

(ii) The Application is barred by limitation and the Petitioner has no locus standi to file the Application or to make any claim against the Corporate Debtor.

(iii) The Petitioner has suppressed the letter dated 10.01.2018 issued by the Corporate Debtor to the Operational Creditor. In the said letter the Corporate Debtor had categorically mentioned that the goods supplied by JSPL against back to back arrangement were of extremely substandard Quality. Further, their consent to pay the outstanding of JSPL was based on the condition that the goods to be supplied to them would be of agreed specification and quality. Annexure – A of the Reply.

(iv) The Corporate Debtor in the said letter dated 10.01.2018 had also withdrawn their consent to have the outstanding transferred and called upon the Operational Creditors to return their cheques. Ibid.

(v) Further, in response to the said letter by the Corporate Debtor, the Operational Creditor in its letter dated 29.01.2018 had recorded that they are cancelling the back to back arrangements and they shall make the claims against JSPL and the Corporate Debtor has no liability in this regard. Annexure – B of the Reply

(vi) Further, the Corporate Debtor denied that there was any default by the Corporate Debtor because the accounts between the parties were fully and finally settled as acknowledged and accepted by the Operational Creditor. The purported ledger account has been unilaterally prepared by the Operational Creditor. Thus, it does not assist/substantiate the claim of the Operational Creditor.

(vii) It is also significant to note that Shubham Logistics is a wholly different entity and cannot make any claim as against the Corporate Debtor because not only the claims stood settled but also there cannot be a joint application by more than one creditor under section 9 of the Code.

(viii) The documentation brought on record by the Operational Creditor relates to a period prior to the present management of the Corporate Debtor. There are serious disputes pending under section 241 and 242 of the Companies Act, being C.P. No.1460/KB/2019, before this Adjudicating Authority. The arrangement forming subject matter of the instant claim was done by the old management, who are possibly colluding with the Operational Creditor to prejudice the right of the present management of the Corporate Debtor.

(ix) Further, the present management of the Corporate Debtor took over the control in July, 2017 from the erstwhile management and the purported emails disclosed in this instant Petition cannot be traced in the records of the Corporate Debtor. Hence, the Operational Creditor to be put to strict proof of the authenticity of the mails.

The Operational Creditor through its Supplementary Affidavit dated 13.01.2021,  submits as follows:

(i) Vide letter dated 20.09.2016 and 10.10.2016 the Corporate Debtor confirmed and admitted the amount of Rs.37,11,507/- (Rupees Thirty Seven Lakh Eleven Thousand Five Hundred Seven only) and Rs.41,15,941/- (Rupees Forty One Lakh Fifteen Thousand Nine Hundred Forty One only) payable to Subham Logistics (unit of Sri Ram Cargo Limited), respectively. Against, the due of Rs.41,15,941/- (Rupees Forty One Lakh Fifteen Thousand Nine Hundred Forty One only) the Corporate Debtor had also issued two post-dated cheques for Rs.20,00,000/- and Rs.20,74,674/- but the same were dishonored by the bank.

(ii) With respect to the admitted dues of Rs.37,11,507/- (Rupees Thirty Seven Lakh Eleven Thousand Five Hundred Seven only), the Corporate Debtor has made the payment of Rs.8,00,000/- (Rupees Eight Lakh only) on 09.10.2016 and of Rs.10,00,000/- (Rupees Ten Lakh only) on 25.10.2016, thereby, leaving a balance due of Rs.19,11,507/- (Rupees Nineteen lakh Eleven Thousand Five Hundred Seven only).

(iii) On 23.10.2016, the Corporate Debtor issued a cheque for Rs.18,74,390/-(Rupees Eighteen Lakh Seventy Four thousand Three Hundred Ninety only) against the balance of Rs.19,11,507/- (Rupees Nineteen lakh Eleven Thousand Five Hundred Seven only) but the same was dishonored.

(iv) Subsequently, on 25.11.2016 an amount of Rs.5,00,000/- (Rupees Five Lakh only) was credited against the balance of Rs.19,11,507/- (Rupees Nineteen lakh Eleven Thousand Five Hundred Seven only). A cheque of Rs.5,00,000/- (Rupees Five Lakh only) was again issued by the Corporate Debtor but the same was dishonored leaving an outstanding of Rs.14,11,507/- (Rupees Fourteen Lakh Eleven Thousand Five Hundred Seven only).

(v) The total principal outstanding amount remained to a sum of Rs.55,27,448/- (Rupees Fifty Five lakh Twenty Seven Thousand Four Hundred Forty Eight only).

The Operational Creditor through its Supplementary Affidavit dated 14.07.2021,  submits as follows:

(i) Letter dated 10.01.2018, on which the Corporate Debtor is relying is frivolous and baseless, the Corporate Debtor is trying to establish a prior dispute to the claim of the Operational Creditor with regard to the material supplied by the JSPL.

The Corporate Debtor in its written Submission submits that;

(i) The aforesaid stand taken in the Supplementary Affidavit by the Operational Creditor is not only mala fide but also totally misconceived. Firstly, as regards the vague allegation of fabrication, it is well settled that in summary proceedings under IBC, such allegations cannot be adjudicated upon since the same requires trial on evidence. [Please see (2020) 10 SCC 538 [Radha Exports v. K.P. Jayaram] at paragraph 39]. Anyhow, the CD has disclosed proof of service of its letter dated January 10, 2018 on the Applicant by courier and even in course of oral submissions, nothing was submitted on this aspect by the applicant.

(ii) Secondly, the subsequent 2021 correspondence between the applicant and Jindal is totally misleading. This is because the Corporate Debtor’s liability was towards the applicant and not to Jindal. Thus, there was no occasion for the Corporate Debtor to make quality complaints with Jindal. Rather, the Corporate Debtor had correctly lodged its complaint with the applicant and the applicant had also assured in its letter dated January 29, 2018 that it would take up the issue with Jindal. The applicant cannot be permitted to take advantage of its own laches/defaults.

(iii) On a query put to the Learned Counsel appearing for the CD by the Bench regarding maintenance of receipt register by the CD, an affidavit dated 3rd March, 2022 has been filed by the CD confirming and stating that the CD has never maintained any register recording receipt of letters/written correspondence. The applicant is attempting to wrongfully take advantage of its own misdeeds and gross suppression.

(iv) Further, the Corporate Debtor also submits that there is no date of default mentioned in the application, though this is a mandatory condition in an application under Section 9 of IBC [See decision of this Tribunal dated 12/1/2022 in C.P. (IB) No.2119/KB/2019 [Adventz Finance v. Jai Annanya] at paragraph 10].

Heard the Ld. Counsel for the Operational Creditor and the Ld. Counsel for the Corporate Debtor and have perused the records and the concerned documents annexed to the Petition.

Upon perusal of the record placed before us, we rely on Innoventive Industries Ltd. v. ICICI Bank and Anr., (2018) 1 SCC 407 where the Hon’ble Supreme Court while explaining the provisions of Sections 7 or 9 observed and held:

“27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of “debt”, we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a “claim” and for the meaning of “claim”, we have to go back to Section 3(6) which defines “claim” to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services.

The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned of a dispute or the record of the pendency of a suit or arbitration proceedings, which is preexisting- i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.”

Further, in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited 2017 (1) SCC onLine SC 353 it was opined by the Hon’ble Apex Court that;

“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. ……..”

The Hon’ble Supreme Court in Mobilox (Supra) has observed that all that the Adjudicating Authority has to see at ‘the stage of Admission’ 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 or a moonshine defence unsupported by tangible materials/evidence. In this context it is pertinent to mention that the Corporate Debtor in their letter dated 10.01.2018 has categorically mentioned that the goods supplied by JSPL against back to back arrangement were of extremely substandard Quality. Further, their consent to pay the outstanding of JSPL was based on the condition that the goods to be supplied to them would be of agreed specification and quality’.

Further, the Operational Creditor in their reply dated 29.01.2018 stated that they will cancel the back to back arrangements and shall make claims against JSPL and they also assured that the Corporate Debtor will have no liability in this regards.

In light of the above noted facts and circumstances, we are of the view that the defence is not spurious or plainly frivolous or vexatious. The dispute very much existed between the parties way before the demand notice sent by the Operational Creditor i.e., 06.08.2019. Hence, the Petition being C.P. (IB) No. 1628 /KB/2019 is dismissed. Further, the Operational Creditor has also failed to mention the date of default in the Application.

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

Files be consigned to record.