Sharad Chandra Goel Vs Tarannom Shargh International Transportation Company (NCLAT Delhi)
Summary: NCLAT Delhi dismissed the appeal filed by the suspended director of Lark Logistics Private Limited against the NCLT New Delhi Bench-IV order dated 20.06.2022 admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 filed by Tarannom Shargh International Transportation Company and initiating CIRP against the Corporate Debtor. The Operational Creditor claimed outstanding operational dues of USD 3,16,217 (Rs.2,45,72,796) arising from unpaid invoices. The Corporate Debtor contended that serious pre-existing disputes existed regarding discrepancies and overcharging in invoices and the Operational Creditor’s refusal to transport certain consignments, which allegedly caused demurrage, loss of clients and business.
Applying the test laid down by the Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., NCLAT examined whether an operational debt exceeding the statutory threshold was due and payable, whether default had occurred and whether a genuine pre-existing dispute existed. The Tribunal noted the Corporate Debtor’s earlier statements of account, agreement acknowledging outstanding balances, email correspondence and its admission that payments had been withheld because of the Covid-19 pandemic, market conditions and financial difficulties. The Corporate Debtor had also admitted that business transactions proceeded without disputes until mid-2019. NCLAT found no material showing that the Corporate Debtor had categorically rejected the outstanding dues before issuance of the Section 8 demand notice.
The subsequent plea regarding rate differences and reconciliation lacked substance after the Corporate Debtor had itself frozen its liability through the statement of account. NCLAT further held that stoppage of shipments could not constitute a pre-existing dispute because the operational debt had crystallised before those shipments were stopped; rather, the stoppage was an outcome of the unpaid debt. Finding no genuine pre-existing dispute and no illegality in admission of the Section 9 application, NCLAT dismissed the appeal and affirmed the directions concerning payment of the Resolution Professional’s expenses.
Cases Discussed
- Mobilox Innovative Pvt. Ltd. V. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353 – Supreme Court test applied for examining a Section 9 application, including whether operational debt is due and payable, default exists and there is a genuine pre-existing dispute.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
The present appeal filed under Section 61 of Insolvency and Bankruptcy Code, 2016 (“IBC” in short) by the Appellant arises out of the Order dated 20.06.2022 (hereinafter referred to as “Impugned Order”) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-IV) in CP (IB) No. 139/(ND)/2021. By the Impugned Order, the Adjudicating Authority admitted the Section 9 application under IBC filed by the Operational Creditor and initiated Corporate Insolvency Resolution Process (‘CIRP’ in short) against the Corporate Debtor with immediate effect. Aggrieved by this impugned order, the present appeal has been preferred by the suspended director of the Corporate Debtor.
2. Throwing light on the facts of the present matter, the Learned Counsel for the Appellant submitted that Lark Logistics Private Limited – the Corporate Debtor provided logistics services to exporters for which purpose they had engaged the services of Tarannom Shargh International Transportation Company – the Operational Creditor. The business transactions between the Corporate Debtor and the Operational Creditor had admittedly proceeded without any disputes till mid-2019 and thereafter the Operational Creditor did not comply with the request of the Corporate Debtor to continue providing their services of transporting goods to their final destination. The Operational Creditor refused to move the Corporate Debtor’s cargo in respect of a consignment of medical supplies and another consignment containing the belongings of Indian Embassy personnel in Kyrgyzstan. This refusal to move the cargo led to accrual of necessary demurrage charge besides causing loss of credibility and business goodwill of the Corporate Debtor leading to the loss of clients.
3. It was further contended that the Operational Creditor got down to pressurizing the Corporate Debtor to make payments in spite of various discrepancies in the invoices which included overcharging, difference in rates etc. The Operational Creditor also turned down the request of the Corporate Debtor to carry out appropriate reconciliation of accounts. With a view to resolve the claims raised by the Operational Creditor, it was stated that the Corporate Debtor made bona-fide efforts to suggest a solution on 11.01.2020 which solution was agreed to by the Operational Creditor on the same date by exchange of emails. However, the Operational Creditor made a somersault with mala-fide intent and communicated to the Corporate Debtor on 13.08.2020 that they had decided to donate the consignment of medical supplies to Afghanistan. The Corporate Debtor objected to this unprofessional and arbitrary behaviour of the Operational Creditor by email on 24.08.2020. However, the Operational Creditor/Respondent No.1 sent a demand notice under Section 8 of the IBC to the Corporate Debtor on 16.12.2020. This was replied by the Corporate Debtor on 06.04.2021. In the meantime, the Respondent No.1 had filed an application under Section 9 of the IBC on 23.02.2021. Reply affidavit to Section 9 application was filed on 07.08.2021 by the Corporate Debtor. However, the Adjudicating Authority vide impugned order dated 20.06.2022 admitted the Section 9 application.
4. Challenging the impugned order admitting the Section 9 application, it was contended that the Adjudicating Authority had overlooked the fact that there were serious pre-existing disputes between the Corporate Debtor and the Operational Creditor on account of discrepancies in invoices; levy of bogus charges and overcharging, besides the unprofessional behaviour on the part of Respondent No.1 by arbitrarily stopping cargo movement leading to loss of clients and consequential loss of revenue.
5. Refuting the submissions made by the Appellant, the Learned Counsel for the Respondent No.1 submitted that there was an outstanding liability of USD 3,16,217 towards operational dues which pertain to invoices from 19.02.2019 up to 01.12.2020. Explaining that the business practice adopted was to appropriate whatever payment was received to the oldest invoice first, it was added that payments received from the Corporate Debtor were concurrently credited and debited to the running account. The invoices raised by the Operational Creditor had been accepted by the Corporate Debtor without any demur. 56 out of 304 invoices raised on the Operational Creditor remain unpaid. It was further pointed out that there was a clear default of USD 3,16,217 (Rs.2,45,72,796) as on 04.10.2019 after adjusting the last payment of USD 18,000 received on the same date from the Corporate Debtor.
6. The outstanding amount having never been disputed by the Corporate Debtor and failure to clear the same in spite of assurances given, it was submitted by the Learned Counsel for Respondent No.1 that the Operational Creditor was compelled to send a Section 8 demand notice on 16.12.2020. It is further submitted that several exchanges of email correspondence took place between the two parties from 11.12.2019 to 11.01.2020 regarding the outstanding liabilities. It has been pointed out that in spite of adequate time and opportunity given to the Corporate Debtor to release the outstanding dues, they failed to do so. It was vehemently contended that the Corporate Debtor having themselves admitted their inability to clear the due on account of Covid pandemic and prevailing market conditions cannot now take the defence of pre-existing disputes for defaulting in clearing the debt due. It has therefore been argued that the Adjudicating Authority had rightly noted that the Corporate Debtor having admitted their debt and having not disputed the same, a default had been committed by the Corporate Debtor qua the invoices raised by the Operational Creditor. Thus, when there is a categorical admission by the Corporate Debtor of a debt of over Rs.1 crore, the law is well settled that a Section 9 petition ought to be admitted if there is no existence of any dispute.
7. We have duly considered the arguments and submissions advanced by the Learned Counsel for the parties and perused the records carefully.
8. The short point for our consideration is whether payment was due to the Operational Creditor/Respondent No. 1 in the facts of the present case giving rise to an operational debt, and if so, whether a default has been committed by the Corporate Debtor/Appellant in respect of payment of such operational debt having already become due and payable and whether the said operational debt exceeds the threshold limit and is an undisputed debt. This examination would be in consonance with the test which has been laid down by the Hon’ble Supreme Court in Mobilox Innovative Pvt. Ltd. V. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 (‘Mobilox’ in short) for the Adjudicating Authority while examining an application under Section 9, the relevant excerpts of which are as follows:-
“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 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.”
9. Given the above backdrop, we may now proceed to examine the analysis and findings returned by the Adjudicating Authority in the impugned order, the relevant parts of which are reproduced below for convenience: –
“9. In the present matter, the Corporate Debtor in his reply has admitted the fact that till mid-2019, all the transactions between the Applicant and the Corporate Debtor were conducted without any disputes or disagreement. And the Corporate Debtor had withheld payments towards the Applicant due to the conditions beyond their control. Herein, reference can be made to judgment passed by the Hon’ble Supreme Court in the case of ‘Mobilox Innovative Private Limited vs. Kirusa Software Private Limited’ in civil appeal number 9405 of 2017 [(2017) 01 SC] vide order dated 21.09.2017 wherein, it was held that:
“Therefore, all that the adjudicating authority is to see at this stage 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 unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. In the present case the respondent has raised dispute with sufficient particulars. Besides the case records reveal that there was existence of dispute much prior to the issuance of notice under Section 8 of the code. The claims of the dispute suggest the need of elaborate investigation. The moment there is existence of such a pre-existence dispute, the corporate debtor gets out of the clutches of the code.”
10.Henceforth, the dispute raised by the Corporate Debtor herein is only feeble and it is relevant to note that the admission with respect to no dispute or disagreement and also toward the debt of USD 60,000/- pose a reasonable inference that it is an admitted fact that ‘debt’ and ‘default’ exists. The Corporate Debtor was in a bad financial position and has failed to pay the debts due towards them.
11.In view of the foregoing documents, this Tribunal is of the affirm view that there was default on the part of the respondent in pursuance of invoices raised on behalf of the applicant, accordingly, the present application stands admitted in terms of Section 9(5) of the Code and CIRP is hereby ordered to be initiated against the respondent Corporate Debtor, forthwith.”
(Emphasis supplied)
10. The Learned Counsel for the Respondent No.1 asserted that the Adjudicating Authority had correctly taken note of the fact that the Corporate Debtor had not only admitted that a debt was due and payable to the Operational Creditor but that they had also admitted that transactions between them and the Operational Creditor was conducted without any disputes or disagreement till mid-2019. Hence, it was contended that this is clearly a case where the Corporate Debtor had admitted that an undisputed operational debt had become due and payable to the Operational Creditor and that there is incidence of default in payment.
11. Reinforcing their contention that the Corporate Debtor had admitted the operational debt, the Learned Counsel for the Respondent No.1 adverted attention to an email dated 16.07.2018 wherein the Corporate Debtor had sent a Statement of Account (‘SoA’ in short) to the Operational Creditor regarding an outstanding amount of USD 2,00,902, which SoA was thereafter frozen by the Corporate Debtor on the same date thus signifying admitted liability. The said SoA finds place at page 136-137 of Appeal Paper Book (‘APB’ in short).
12. Advancing their arguments further, it was further stated that a document nomenclated as ‘New Agreement’ dated 17.07.2018 had been signed between the two parties wherein the Corporate Debtor had confirmed the outstanding balance of USD 1,91,111 of which USD 1,80,000 was to be treated as frozen amount and the balance to be cleared within 7-10 days’ time from the date of agreement as placed at pages 291-294 of APB. Furthermore, it was contended that this agreement has also not been denied by the Corporate Debtor.
13. It was further pointed out that no payments were received from the Corporate Debtor in respect of invoices No.597-652 starting from 19.02.2019 to 01.12.2020. This led to a clear default of USD 3,16,217 (Rs.2,45,72,796) as on 04.10.2019 in respect of the above invoices after adjusting receipt of the last payment received on the same date from the Corporate Debtor. It was stated that these 56 unpaid invoices are on record at pages 20-88 of Reply Affidavit of the Operational Creditor and no dispute qua these invoices were raised by the Corporate Debtor. It was also brought to our notice that the Respondent No.1 had filed Additional Documents before the Adjudicating Authority on 25.01.2022 enclosing the invoices sent by them to the Corporate Debtor. It was also added that these additional documents were submitted before the Adjudicating Authority not on their own accord but because the Adjudicating Authority had sought clarifications vide its order dated 02.12.2021 from the Operational Creditor regarding the mode by which they used to send invoices to the Corporate Debtor. The Corporate Debtor had also been given an opportunity by the Adjudicating Authority vide its order dated 24.02.2022 to peruse the said documents but they did not choose to rebut/reply to the said documents. It was therefore emphatically asserted that the Corporate Debtor having not put any material on record controverting the receipt of these emails have implicitly admitted the receipt of these invoices. No disputes having been raised either on the quantum of dues qua the invoices or on the quality of the services provided by the Corporate Debtor, it was a fit case for admission of Section 9 application.
14. The Learned Counsel for the Respondent No.1 also submitted that the Corporate Debtor had sent an email to the Operational Creditor on 11.01.2020 admitting a liability of over Rs.1 crore and providing a solution on how to reduce his debt. The relevant excerpts of the email is as reproduced below: –
From: sharad <[email protected]>
Sent: Saturday, January 11, 2020 2:16 PM
To: Leila Naseri <[email protected]>
Cc: Vikaram <[email protected]>
Subject: Re: Our issues
Dear Mr. Saghafi,
There is a saying in our country::
WHEN THERE IS A PROBLEM, THERE IS ALSO A SOLUTION FOR THE SAME.
I fully understand that the faith which you had in us is no longer there but I request the mail I am sending to be read not as business partner but as a family member which you have always considered me.
Frankly speaking my intentions are not bad as you may be thinking, its just that I am passing through a very bad period of my life and I am very sure this will also be over soon.
Coming to your message below I want to suggest as follows::
1. Reg VSBU2076917, you know very well that the consignee needed the material in Almaty by 31st Dec latest and as this time is over now the shipper has refused to send this cargo as the consignee has refused to take the delivery. In turn he has filed a claim of USD 100,090. – on my company as compensation for the value of goods which he wants to recover from us. Thus I propose that you find a suitable buyer of these products in whichever country you can and reduce my debt by the above amount. If you can sell this even at a higher value you can keep that amount also with you.
2. Reg OOLU8192360, we have two options…
First of all the value of goods in this container is approx USD 60,000. – and because it is lying there for the last four months the shipper wants us to pay this amount to them as well. So either we pay this amount to them in the next 4 to 6 months as agreed with them or if you can move this container we will make the payments to you in the same period as has been agreed with the shipper. So instead of paying them I will pay to you.
Second option is the same as reg VSBU 207 6917, that you sell the cargo of this container as well to whosoever you can and recover the money. If you get more it will be yours I will not claim anything……..
Sharad Goel
Lark Logistics Pvt. Ltd
519, Osian Building, 12, Nehru Place
That the Corporate Debtor had on their own volition proposed a solution vide email dated 11.01.2020 suggesting options to the Operational Creditor to resolve their outstanding liabilities clearly establishes admission of debt which was due and payable.
15. More importantly, the Corporate Debtor cannot absolve himself from the fact that liability has been admitted but payments not made. We notice that emails were exchanged between the two parties between 11.11.2019 to 11.01.2020 at pages 182-191 of APB wherein the Corporate Debtor had been given more than one opportunity to clear the outstanding liabilities of more than USD 2,00,000. However, no payment of arrears was forthcoming.
16. We find that the Adjudicating Authority has recorded at para 9 of the impugned order the admission on the part of Corporate Debtor in their reply that there were no disputes until May 2019 in respect of business transactions conducted with the Operational Creditor. Moreover, we notice that in the reply to demand notice, at page 145 of APB it has been admitted by the Learned Counsel on behalf of the Corporate Debtor that ‘due to intervening Covid-19 and prevailing market conditions certain circumstances beyond the control of our client has arisen and our client had to withhold payments as it was difficult to get credit from the banks at that time.’ That being so, we are of the considered opinion that the Adjudicating Authority has committed no error in taking cognizance of the Corporate Debtor’s admission of failure to pay the operational dues on account of bad financial position and conditions beyond their control. This admission by the Corporate Debtor to our mind validates the contention of the Operational Creditor that the Corporate Debtor has admitted on several occasions that there was a debt due and payable and that there was also a default in making the payment.
17. We now come down to examine whether there was any pre-existing dispute which was raised prior to the issue of demand notice by the Operational Creditor on 16.12.2020.
18. It is relevant to note at this stage that the demand notice under Section 8 was issued 16.12.2020. As no reply to the demand notice was received within 10 days nor any payment was made by the Corporate Debtor, the Respondent No.1 had filed the Section 9 application before the Adjudicating Authority. It is pertinent to note that the reply to the demand notice was filed by the Corporate Debtor on 06.04.2021 by which time the hearing on Section 9 application had already commenced, the first hearing having taken place on 04.03.2021.
19. The Learned Counsel for the Appellant contended that there has been a long-standing dispute between the two parties in respect of discrepancies in invoices on account of rate difference and levy of unnecessary charges. The issue of unnecessary charges on account of demurrage/warehousing costs besides inspection and repair charges had been raised on 03.05.2016 and 10.01.2018 by the Corporate Debtor. It was also claimed that the Corporate Debtor had reminded the Operational Creditor of the need to resolve the discrepancies in invoices on 02.06.2018 and subsequently an updated statement of accounts was sent on 17.07.2018. Challenging the impugned order, the Learned Counsel for the Appellant contended that the Adjudicating Authority had failed to appreciate that the Corporate Debtor had been insisting on reconciliation of accounts to find out whether any payment was actually due. However, the Operational Creditor conveniently avoided reconciliation of accounts as they knew fully well that there were no dues beyond the threshold limit which could trigger CIRP. It has therefore been stated that the Operational Creditor has been trying to use the IBC for the purpose of recovery of money and the Adjudicating Authority has acted like a debt recovery forum having ignored the presence of long-standing dispute between the parties.
20. The Learned Counsel for the Respondent No.1 vehemently contended that the issue of discrepancy in invoices arising out of rate difference in invoices raised by the Corporate Debtor as a ground of dispute lacks foundation. The Corporate Debtor in their email of 16.07.2018 captioned “Re:SOA:200902.32$” categorically admitted a debt of over USD 2,00,000. This outstanding amount having been admitted and frozen by the Corporate Debtor clearly established that no disputes were in existence with respect to rate difference. Therefore, the Learned Counsel for the Respondent No.1 contended that the bogey of rate determination as a ground of dispute was not tenable.
21. We notice that no material has been placed on record by the Corporate Debtor to show that they had categorically rejected the outstanding dues claimed by the Operational Creditor prior to issue of demand notice. Present is a case where the accounts were frozen in terms of SoA prepared by the Corporate Debtor and sent to the Operational Creditor by email on 16.07.2018. In such circumstances, when the Corporate Debtor has frozen their liability, subsequent raising the issue of rate differences and attendant reconciliation, to our mind becomes redundant and therefore does not appeal to us to be genuine. When the Corporate Debtor had admittedly prepared the SoA showing an outstanding liability of over USD 2,00,000 and it was frozen after mutual agreement, raising the issue of reconciliation of accounts as a ground of dispute clearly lacks substance and credibility.
22. We now come to the issue raised by the Learned Counsel for the Appellant that the Corporate Debtor regarding illegal stopping of containers/shipments by the Operational Creditor which resulted in their loss of clients and business. The tenability of this dispute has been questioned by the Learned Counsel for the Respondent No.1. It has been submitted that three shipments not being moved by the Operational Creditor cannot fall in the category of pre-existing dispute since these shipments pertain to a period much after the period by when the debt of over USD 3,00,000 had already accumulated. It was pointed out that these shipments cannot be viewed to be a ground for pre-existing dispute as the Operational Creditor had agreed to move the shipments only after receipt of payment to meet the existing debt of over USD 3,00,000. From the facts available on record, we are convinced that the operational debt had crystallized well ahead of the stoppage of the containers. That being the case, by no logical process, can the stoppage of shipments be held to be a pre-existing dispute, rather it was the outcome of a debt remaining unpaid.
23. We are inclined to agree that no serious lacunae have been pointed out by the Corporate Debtor prior to demand notice with regard to the quality of services provided by the Operational Creditor. Moreover, no evidence of outright denial of the liability to pay has been placed on record by the Corporate Debtor. Furthermore, we notice that Corporate Debtor has admitted on their own that there were no disputes till mid-2019. In sum, no real pre-existing dispute is discernible. The Adjudicating Authority therefore does not appear to have committed any error in holding the alleged disputes claimed by the Corporate Debtor to be feeble as it is not supported by credible evidence.
24. We also take on record the submission made by Learned Counsel for Respondent No.2 that the IRP had already made a public announcement in Form A and collated the claims and constituted the CoC. It was also submitted that the Adjudicating Authority had directed the Operational Creditor to deposit Rs.2 lakhs to meet the initial expenses of which Respondent No.2 has received only Rs.1,00,000/-.
25. Considering the overall facts and circumstances of the present case, we do not find any illegality in the impugned order of the Adjudicating Authority admitting the Section 9 application. There is no merit in the appeal. The appeal is dismissed. We also affirm the directions contained in the impugned order regarding defraying of expenses of the Resolution Professional and direct the payment of balance fees/expenses of the Resolution Professional by the Operational Creditor, subject to adjustment by the CoC. No order as to costs.
