Trafigura Pte. Ltd vs SLR Metaliks 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. Trafigura Pte. Ltd. (for brevity 'Applicant'), through its authorized signatory Mr. Ishwar Haswani, authorizing him to file present application vide Board resolution dated 27.11.2018, with a prayer to initiate the Corporate Insolvency Resolution Process (CIRP), against M/s. SLR Metaliks Ltd. (for brevity 'Respondent').

The Applicant, the Operational Creditor, is a company incorporated on 07.03.1996, under the provisions of Companies Act, CAP. 50, under the laws of Singapore with Company No. 199601595D, having its office at 10 Collyer Quay, No. 29, Ocean Financial Centre Singapore 049315 inter alia, engaged in the business of commodity trading, having operations around the globe.

The Respondent, namely M/s. SLR Metaliks Limited, is a company incorporated on 17.11.2005, under the provisions of Companies Act, 1956 with CIN No. U27106DL2005PLC142596, having its registered office at A-2/452, Sector 8, Rohini, New Delhi 110085. The Authorised Share Capital of the respondent company is Rs. 25,00,00,000/- and Paid Up Share Capital of the company is Rs. 22,49,57,500/- as per Master Data of the company.

It is the case of the applicant, that on December 22, 2017, the Corporate Debtor and Operational Creditor entered into a sales contract for purchase of 14,000 Metric Ton of low ash metallurgical coke ('Coke'). The coke was supplied by the Applicant to the Respondent under the contract. Prior to dispatch of the coke, sampling and analysis was conducted at the Load Port of Columbia on December 10, 2017. Further, the sampling and analysis was also conducted at the Discharge Port on January 27, 2018, as per the Clause 5 of the Sales Contract. At both instances, sampling was conducted as per ISO 18283 standard, as agreed between the parties. The coke was found to be within the parameters prescribed under the sales contract and to the satisfaction of the Respondent. The copy of the Certificate of Sampling and Analysis at the Load Port of Columbia, SAS along with the Certificate of Sampling and Analysis at the Discharge Port, Manglore, has been annexed by the Applicant.

The Applicant further states that, under Clause 9 of the Sales Contract, payment was to be made by the Respondent (buyer), or any third party on its behalf by opening a fully workable, irrevocable Letter of Credit for the entire value of the Coke. For the said purpose, an Addendum Agreement was executed on January 11, 2018 ('Addendum') between the Applicant and the Respondent and A.T. Trade Overseas Pvt. Ltd. Acting under the Addendum, read with the Clause 9 of the Sales Contract, A.T. Trade Overseas Pvt. Ltd. opened letter of Credit in favour of the Applicant on January 12, 2018. The Addendum makes it clear that ultimate buyer of the coke is the Respondent. A.T. Overseas Pvt. Ltd. only has a limited role of making financial arrangements on behalf of the Corporate Debtor. Further, dispute of any nature will be addressed, discussed and settled between the Corporate Debtor and Operational Creditor. The copy of said Addendum agreement along with the copy of Letter of Credit has been annexed by the Applicant. 6. The Applicant also states that, as per the Clause 9, payment was to be released in two parts:

a. Provisional Payment of 95% of the value of the coke; and

b. Final Payment of 5% of the value of the coke.

The Respondent was obligated to make Provisional Payment of 95% at sight under the Letter of Credit, on presentation of certain documents, including bill of lading, certificate of analysis and invoice. The coke arrived at the Port of Discharge on January 12, 2018 and was received by the Respondent. The copy of said documents have been annexed by the Applicant. Subsequently, the Applicant received Provisional payment from the Corporate Debtor on January 24, 2018. However, for the balance payment of 5% of value of the coke, the Respondent has committed default, despite admitting its liability to the tune of USD 2,34,242.72 i.e., INR 1,60,76,077.87 (Rupees One Crore Sixty Lakhs Seventy Six Thousand Seventy Seven and Eighty Seven Paisa).

The Applicant states that, under Clause 9, balance payment of 5% of value of the coke is to be released against presentation of following documents:

a. Sellers final invoice showing discharge port moisture and undersize penalties, if any;

b. Copy of Certificate of analysis issued by independent inspection agency at discharge port showing total moisture and undersize penalty, if any;

As stated above, Certificate of Analysis at the Discharge Port was issued by a mutually agreed independent inspection agency i.e., Inspector Griffith India Pvt. Ltd. on January 27, 2018. Further, after mutual discussion between the parties, final invoice for balance payment of USD 2,34,242.72 was issued by the Applicant on March 22, 2018. Thus, the Applicant has complied with the pre-requisites for clearing the balance amount. However, the Respondent defaulted in its obligation and did not clear the outstanding debt.

In spite of various requests made and reminders sent by the Applicant, the respondent did not reply. On failure to pay the outstanding dues by the Respondent, the applicant sent a demand notice dated 29.08.2018, under Section 8 of the Insolvency and Bankruptcy Code, 2016 to the respondent, asking them to make the entire payment of USD 2,34,242.72 i.e., Rs. 1,60,76,077.87/- (Rupees One Crore Sixty Lakhs Seventy Six Thousand Seventy Seven and Eighty Seven Paise), 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 receipt, for the delivery of the said demand notice at the registered office of the Corporate Debtor.

After the delivery of demand notice sent under Section 8 of the Code, the Respondent has filed its reply to the said notice. By way of the reply to the said notice the Respondent gave a notice of dispute to the Applicant. In its reply the Respondent stated that there exists a pre-existing dispute and hence, the application is liable to be dismissed.

The applicant has stated that total debt due and payable is USD 2,34,242.72 i.e., Rs. 1,60,76,077.87/- (Rupees One Crore Sixty Lakhs Seventy Six Thousand Seventy Seven and Eighty Seven Piasa). As per the invoice issued on 22.03.2018.

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 the respondent has been served through speed post on 26.02.2019. The postal receipt along with the tracking report, in this regard has also been annexed along with the affidavit.

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 respondent states that, the applicant has wrongly claimed itself to be an Operational Creditor. It also states that the Applicant has wrongly claimed that the alleged Operational debt is due against the Respondent company. It is submitted that neither any operational debt is due or payable by the Respondent to the Applicant nor the applicant is the Operational Creditor of the respondent as alleged. The Respondent states that there exists a pre-existing dispute, the details of which have been given below;

a. That as per email dated 15.01.2018 from the Respondent to the Applicant it was pointed out by the Respondent to the applicant that;

"2. It may also be noted, as explained to you by our representatives in port during discharge of cargo, the cargo looks "less hard" and "light in weight". However, the actual report is awaited from third party M/s. IGI.

We hope, as per your commitment, the quality of Coke shall be as guaranteed by you & your team to our Top Management. "

Apparently, at the first instance, two problems in the consignment were brought to the notice of the Applicant even prior to the receipt of the report. The two problems intimated were: -

• Less hard

• Light in weight

b. That as per the email dated 15.01.2018 from the Applicant to the Respondent, the Applicant acknowledged that the water in the hold is due to long voyage and with regard to the light weight only stated M10/M40 will be as per contractual agreement and ensured that the same shall be in line with their promise on quality. The Applicant further states that, M10 and M40 are the indicators of mechanical strength only and does not pertain to the weight (density) of the material. It is submitted that the density of the said coke was very less i.e., only 0.58 mt/m3 as compared to 0.70 mt/m3 which the Respondent is getting from the other sources.

c. Vide email dated 20.03.2018 from the Applicant to the Respondent, the Applicant duly acknowledged the poor quality of the material and offered to buy-back 1000 MT of the said material and attached the calculation of the said buyback.

d. Vide email dated 24.03.2018 from the Applicant to the Respondent, the Applicant changed the exchange rate offered vide email dated 20.03.2018 from 65.8 to 63.8 and attached the calculation sheet whereby the total sale price of the said 1000MT was changed to Rs. 25,214/- Per MT. it is pertinent to mention here that the Respondent had purchased the said material at the rate of Rs. 26,497/- per MT ex NMPT and besides the same had to incur costs towards plot rent, shortage due to long duration holding of the said material.

e. Further the Respondent refused to accept the aforesaid price offered by the Applicant and informed it, that they were willing to accept the price of Rs. 25,700/- per MT loaded at New Mangalore Port.

f. Vide email dated 28.03.2018 from Applicant to the Respondent, the Applicant informed the Respondent that against the price of Rs. 25,700/- loaded into the trucks at New Mangalore Port, the third party (Sona Alloys), had offered the price of Rs. 25,250/- loaded into trucks at New Mangalore Port.

g. Vide email dated 17.04.2018 sent by the Applicant to the Respondent, the Applicant acknowledged that the Respondent was facing issues and was unable to burn the material in their furnace and in three months had been able to use only 1000 mts and informed the Respondent that they have a Turkish Cargo with Chinese specifications at New Mangalore Port which they can swap with the Columbian Cargo in lots of 2000 mts. However, the Applicant though acknowledged that their material was of low quality asked the Respondent to make the payment of the balance 5% amount, it is stated that on 16.04.2018, officials of the Applicant made a visit to Delhi & met the officials of the Respondent to discuss the matters related to the poor quality of the subject coke with an intention to find a solution.

h. The same was thereafter, communicated/ formalized vide Applicant's mail dated 17.04.2018. As such the defect in the material supplied was duly acknowledged by the applicant and it agreed to swap the remaining material. However, the applicant in view of its dominant position, whereby it has already recovered 95% of the payment amounting to Rs. 32.00 Crore approx., whereas the Respondent was at the receiving end where the remaining consignment of 12000 mt approx.. worth Rs. 27.50 Crore approx.., was already lying useless in the month of May 2018, besides other losses being suffered by the Respondent, the Applicant in abuse of the said dominant position, has been demanding the balance 5% payment before swapping the defective goods.

i. Vide email dated 15.05.2018 by the Applicant to the Respondent, n continuation of the abuse of the dominant position by the Applicant, the Applicant sent a demand/ legal notice to the Respondent. In the said notice there was no mention of the swapping of goods which have already been promised by the Applicant in their emails dated 23.03.2018 and 17.04.2018.

j. Vide email dated 16.05.2018 by the Respondent to the Applicant, the Respondent vide the email brought to the notice of the applicant the pending issues of quality of the consignment supplied by the Applicant. Along with the said email the Respondent forwarded an email dated 28.04.2018 of Mr. Mukand Rao attaching therewith the detailed report on impact of Columbian Coke received from 08.02.2018 to 23.02.2018 on the production cost of the Respondent.

k. Vide email dated 19.05.2018 by the Respondent to the Applicant, the Respondent vid the said email pointed out that their intention is not to hold the balance amount which is only a small amount in comparison to the Coke. The Respondent stated that it is willing to remit the balance payment and the applicant was requested to replace the defective Coke with good quality of Coke.

The material/coke supplied by Applicant to Respondent was of poor/ substandard quality. On account of supply of defective Coke, the Respondent has suffered huge financial losses of more that 12 crore. The communication regarding the poor/ substandard quality was also done through email.

The Applicant is not an Operational Creditor as per the Insolvency Code, an Addendum to the main agreement dated 22.12.2017, was execute on 11.01.2018, whereby the Applicant agreed to sell the said material to A.T. Trade Overseas Pvt. Ltd. instead of the Respondent. As per the said Addendum, disputes if any, arising out of the quality/quantity claims etc. were to be addressed, discussed and settled directly between Applicant and the Respondent with no reference and liability on the part of A.T. Trade Overseas Pvt. Ltd. it is submitted with respect to the material/coke supplied to Respondent were raised by A.T. Trade Overseas Pvt. Ltd. and the payments with respect to the same were made by the Respondent to the A.T. Trade Overseas Pvt. Ltd. vide RTGS and/or Inland Letter of Credit(ILC).

Payment to Applicant were barred under FEMA laws, as per the FEMA Laws, since Respondent did not purchase any material/coke from Applicant and no invoice has ever been raised by Applicant to Respondent, as such no remittance can be made to Applicant by the Respondent which is barred under the FEMA Laws.

That moreover porosity of the said material/coke was much higher upto 18.4%. It is submitted that the Coke size degrades as it becomes porous and brittle by solution loss reaction and is subjected to mechanical impact in the raceway. Meaning thereby, when the high porosity Coke goes into furnace it degrades and chokes the furnace leading to the hanging and self slipping tendency hot metal chemistry varies widely increasing the fuel rate and damaging the refractory lining.

Pursuant to the reply of the Corporate Debtor, the Operational Creditor has filed its rejoinder. In its rejoinder the Applicant states that, there are no pre-existing disputes between the Applicant and Respondent. The coke supplied under the Sales contract was supplied by the Applicant strictly in accordance with the terms of Sales Contract. The coke was analyzed at the discharge port in India, under the supervision of the Respondent, Moreover, the Respondent has all along admitted its liability to clear the outstanding payment. It is only when it realizes its poor financial condition that it has raised the issue of pre-existing dispute which is illusionary and hypothetical.

As for the email dated 15.01.2018 being relied by the Respondent, it has selectively picked and quoted the communication of 15.01.2018, out of context. There was no acknowledgement of substandard quality of the Coke by the Applicant as is being claimed by the Respondent in order to mislead this Hon'ble Tribunal. from the email dated 15.01.2018, it is clear that the report of IGI at the discharge port is final and conclusive on the quality of the Coke. In the IGI's Report, it is established that the quality of the Coke was within the parameters agreed and set out in Clause 5 of the Sale Contract. Moreover, it is telling that the Respondent failed to raise any issue regarding the strength of density of the coke, which is in derogation of the Clause 5 of the Sale Contract.

It is pertinent to note that the applicant has placed on record all the invoices, stating that the respondent itself had acknowledged the said invoices. Once the debt is shown as due, it is for respondent to prove that there are no outstanding dues to be paid to the applicant. The respondent has time and again acknowledged its liability to pay the debt. However, no such payment has been made by the Respondent.

The applicant in its rejoinder, further denies the existence of any dispute prior to the issuance of Demand Notice under section 8 of the I & B Code, 2016. However, the Corporate Debtor had sent Notice of Dispute to the Operational Creditor on receiving the Demand Notice from the Corporate Debtor. Through the notice of Dispute the Respondent has annexed email communications indicating a pre-existing dispute.

Further the Hon'ble Supreme of India in Mobilox Innovations Private Limited vs. KirusaSortware Private limited has observed that-

"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."

As per the reply filed by the Corporate Debtor, it can be inferred & concluded that there is a pre exiting dispute between the Corporate Debtor and Operational Creditor, with regard to the quality of goods supplied and falls well within the definition of 'Dispute' as per Section 5(6) which is reproduced below:

"Dispute" includes a suit or arbitration proceedings relating to-(a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty.

It is further seen that the demand notice in the present case was issued under Section 8(1) of the Code on 29.08.2018, Respondents have placed their earlier correspondences dated 15.01.2018 and beyond, raising issues with respect to the quality of goods supplied by the Operational Creditor. It is thus seen that the dispute was brought to the notice of the applicant prior to the issuance of the demand notice dated 29.08.2018 issued under Section 8(1) of the Code.

As a sequel to the above discussion, this application fails and the same is hereby rejected and dismissed.

It is made clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy and the right of the applicant before any other forum shall not be prejudiced on account of dismissal of the instant application.

Let the copy of the order be served to the parties

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