Amit Wadhwani Vs Global Advertisers (NCLAT Delhi)
Summary: NCLAT Delhi allowed the appeal of a suspended director/shareholder of Sai Estate Consultants Chembur Pvt. Ltd. and set aside the NCLT Mumbai order dated 02.08.2021 admitting Global Advertisers’ application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Operational Creditor had provided advertisement and hoarding services and claimed outstanding dues, while the Corporate Debtor maintained that the invoices and supporting records required reconciliation and verification before liability could crystallise. The Corporate Debtor relied particularly on correspondence dated 20.02.2020 and 14.03.2020, which preceded the Section 8 demand notice issued in June 2020. It contended that invoices were vague, several were received subject to verification, supporting documents were required, payments had been made on account, and the parties had followed a “payable when able” arrangement.
The Operational Creditor disputed these assertions and maintained that the reconciliation plea was merely an afterthought to avoid admitted operational debt. NCLAT found it significant that by letter dated 11.03.2020 the Operational Creditor itself fixed 14.03.2020 for reconciliation of accounts, but reconciliation never took place. The Tribunal held that the unresolved reconciliation exercise and prior correspondence demonstrated that the demand was not undisputed and that a pre-existing dispute existed before the Section 9 application was filed on 28.07.2020.
Applying Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353, NCLAT reiterated that the Adjudicating Authority has to determine whether a plausible dispute requiring investigation exists and whether the defence is not spurious, hypothetical or illusory; it need not decide whether the defence will ultimately succeed. NCLAT accordingly held that the NCLT had incorrectly admitted the Section 9 application, set aside the CIRP admission order, and clarified that the Operational Creditor remained free to take other action in accordance with law.
Cases Discussed
- Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353 – Relied upon for the test governing existence of a pre-existing dispute under Sections 8 and 9 of the IBC.
- Tata Advanced Materials Ltd. v. Tool tech Global Engineering (P) Ltd. (2012) SCC Online Bom 1566 – Cited regarding reconciliation and verification of accounts.
- S.P. Brothers v Biren Ramesh Kadakia 2008 SCC Online Bom 1599 – Cited on the effect of TDS deposit and acknowledgment of liability.
- ACTAL Vs. India Infoline Limited: MANU/MH/1768/2012 – Cited on TDS and acknowledgment of liability.
- N.N. Valecha v I.G. Petrochemicals Ltd. 2006 SCC Online Bom 1289 – Cited on TDS and acknowledgment of liability.
- Bluesquare Travel Pvt. Ltd. v Pricewaterhouse Coopers Services Delivery Centre (Kolkata) Pvt. Ltd. (2019 SCC OnLine NCLT 5851) – Cited on TDS and acknowledgment of liability.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
The present Appeal has been preferred by one of the suspended Board of Directors and shareholder of M/s Sai Estate Consultants Chembur Pvt Ltd. (‘Corporate Debtor’). The Appeal has been preferred against an order dated 2nd August, 2021 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench IV, Mumbai (hereinafter referred to as ‘Adjudicating Authority’) in CP(IB)No.1393/MB-IV/2020. By the said order the Adjudicating Authority acting upon petition filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the ‘IBC’) has initiated Corporate Insolvency Resolution Process (CIRP) and appointed Interim Resolution Professional namely Mr. UVG Nayak by M/s Global Advertisers, a Sole Proprietary Firm-Operational Creditor.
2. The Operational Creditor on the basis of outstanding dues had issued Notice under Section 8 of the IBC against Respondent No.1. As allegedly since no tangible dispute was raised by the Respondent No.1 an application under Section 9 of IBC was filed and thereafter impugned order was passed.
3. One of the Member of the suspended Board of Directors and a shareholder of Sai Estate Consultants Chembur Pvt Ltd, Corporate Debtor, has filed the present Appeal. Initially in the Appeal the IRP was not arrayed as Respondent. On 18.08.2021, a Coordinate Bench of this Tribunal directed for impleading IRP as Respondent, besides issuing necessary directions. The order dated 18.08.2021 is quoted hereinbelow:
“Heard Learned Sr. Counsel for the Appellant
2. Learned Sr. Counsel vehemently argued and submitted that there is a preexisting dispute. The Learned Sr. Counsel referred to Letter at Page 178 of the Appeal Paper Book which was sent in the context of Letter dated 11th March, 2020 to point out that there is a pre-existing dispute.
Ld. Sr. Counsel is trying to show that both the parties did agree that reconciliation was required. Ld. Sr. Counsel submitted that the CIRP needs to be stayed and Interim Relief to that effect may be ordered.
3. We have gone through the Record and Impugned Order. The Impugned Order in Paragraphs 48 to 52 has discussed the respective cases of the parties.
4. Whether or not, a Letter communicating requirement of reconciliation can be said to be raising of a dispute is matter to be decided. We do not find any reason to grant any Interim Relief as procedure under IBC are time bound and delay would defeat the objective of IBC.
5. The Corporate Debtor through IRP has not been made Respondent. Appellant to array the Corporate Debtor through IRP as Respondent No. 2. Notice be served on Respondent No. 2. Learned Counsel for Respondent No. 1 is present.
6. The Appellant/Promoters/Directors of the ‘Corporate Debtor’ are directed to handover the assets and records of the ‘Corporate Debtor’ to the ‘Interim Resolution Professional’ immediately (if not yet handed over). The ‘Interim Resolution Professional’/ RP will make effort that the Company remains a going concern and will take assistance of the (suspended) Board of Directors and the officers/Director/Employees. The persons who are working will, at present continue to perform their duties, including the paid Directors. The person who is authorized to sign the bank cheques may sign cheques only after authorization of the ‘Interim
Resolution Professional’ with counter signature of the ‘Interim Resolution Professional’/ RP at the back side of the cheques. Only in such case, the Bank shall release the payment. The ‘Interim Resolution Professional’ will place this order before the Banks, in which accounts of ‘Corporate Debtor’ are maintained. The Bank Account(s) of the ‘Corporate Debtor’ be allowed to be operated through IRP/RP for day-to-day functioning of the Company such as for payment of Current Bills of the Suppliers, Salaries and Wages of the employees’/workmen, electricity bills etc.
7. Respondents on service to file Reply-Affidavits within two weeks. Rejoinder, if any, may be filed within a week, thereafter. Parties to file brief ‘Written-Submissions’ not more than three pages along with ‘Copies of Judgments’ they want to refer or rely on, within three weeks.
8. List the Appeal ‘For Admission (After Notice)’ Hearing on 07th October, 2021.”
4. In the Appeal filed before this Tribunal which was numbered as Company Appeal (AT)(Insolvency) No.616/2021, the Appellant besides making prayer for setting aside of the impugned order dated 2nd August, 2021 also prayed for stay of operation of the impugned order during the pendency of the Appeal. Since while issuing notice and directing to implead IRP as 2nd Respondent no ‘Stay order’ was passed by the Coordinate Bench’ of this Tribunal. The Appellant preferred an Appeal before the Hon’ble Supreme Court which was number as Civil Appeal No.4967/2021. The Hon’ble Supreme Court vide its order dated 31st August, 2021 disposed off the Civil Appeal primarily observing for passing suitable orders on ‘Stay Application’ of the Appellant. It is better to reproduce the order dated 31st August, 2021 passed in Civil Appeal No.4967/2021 as follows:-
“Heard learned counsel for the appellant and perused the record.
Considering the fact that the matter relates to non-grant of interim order by the Tribunal for which 07.10.2021 has been fixed and also keeping in view that in the meantime if certain actions are taken, the appellant would suffer irreparably, we direct that the matter be taken up by the NCLAT on 07.09.2021 instead of 07.10.2021 for passing suitable orders on stay application of the appellant. We further direct that any action taken in the meanwhile, will be subject to further orders passed by the NCLAT while considering the application for interim order.
The appellant is at liberty to inform the other side about the preponement of the date before the NCLAT.
The appeal is disposed of accordingly. Copy of this order be sent by the Registry to NCLAT through e-mail within 24 hours.”
5. In view of the order dated 31st August, 2021 of the Hon’ble Supreme Court, this Tribunal on 07.09.2021 while fixing the case for orders on ‘Stay Application’, directed IRP not to take any steps in CIRP till next date of hearing. On 24.09.2021, Learned Counsel for the parties were heard on ‘Stay Application’ and ‘Order’ was reserved. Thereafter on 28th September, 2021 the Coordinate Bench of this Tribunal instead of granting a ‘Stay’ disposed of the Appeal in view of the inclination shown by the Learned Counsel for Appellant and fixed the Appeal for final hearing to 9th November, 2021. Again against the order dated 28th September, 2021 passed by this Tribunal, the Appellant moved before the Hon’ble Supreme Court of India by filing a Civil Appeal which was numbered as Civil Appeal No.907/2022. In the said Appeal the Hon’ble Supreme Court passed some interim order and finally disposed off the said Appeal vide its order dated 19th May, 2022. The operative portion of the order dated 19th May, 2022 of the Hon’ble Supreme Court is quoted hereinbelow:
“The appeal stands disposed of.
It goes without saying that we have not made any comments on the merits of the case either way and even the observations occurring in the impugned order dated 24.09.2021 shall also not be decisive of the consideration of the appeal on its 4 merits.
As the matter is already fixed before the Appellate Tribunal and the parties are before us, to avoid any ambiguity, we also make it clear that the parties through their respective counsel shall stand at notice to appear before the Appellate Tribunal on 23.05.2022. The interim arrangement, as indicated above, shall continue until final disposal of the appeal.
We would also request the Appellate Tribunal to assign a reasonable priority to the appeal for expeditious consideration.”
6. Thereafter the present Appeal was listed on 26.05.2022. Since there was paucity of time the Appeal could not be taken up and was directed to listed on 30th May, 2022 on which date after hearing Learned Counsel for the parties, the ‘Order’ was ‘Reserved’.
7. The case of the Appellant is in its Memo of Appeal has been described as follows:-
“7.1 The Respondent carries on the business of display of advertisements on hoardings within the area of Mumbai, Thane and rest of Maharashtra for several years.
7.2 Since the inception of the Respondent’s commercial relationship with the Corporate Debtor, on account of a close friendship between the Respondent’s representative Mr. Vicky Gupta and the Corporate Debtor’s representative Mr. Amit Wadhwani i.e. the Appellant and the Corporate Debtor’s Managing Director, it had always been the understanding that in respect of the services being provided by the Respondent, the Corporate Debtor would only pay on a “payable when able” basis.
7.3 Apart from the friendly relations between the Respondent and the Corporate Debtor, the reason for such an understanding was also the nature of the services being provided by the Respondent. Given the peculiar nature of the services that were to be provided by the Respondent to the Corporate Debtor, for a meaningful scrutiny of invoices and release of payment, the Corporate Debtor would have to reconcile its accounts and also verify the supporting materials evidencing the actual provision of services, which would demonstrate the proof of services being rendered and the accounts between the parties. Hence, despite invoices being raised, the same did not stipulate a time limit for payment, since accounts were to be reconciled and the supporting materials were to be verified prior to making of payment.
7.4 Further, this was also necessitated since the invoices raised by the Respondent were in fact vague, devoid of basic particulars of the services actually provided such as period, specifications, locations, rates, etc. and hence the provision of services were required to be verified / reconciled prior to making of payments. According to the Respondent, it was pursuant to written confirmation letters issued by the Respondent from time to time that the Respondent carried out display of advertisements and hoarding on various sites between the period commencing from 10th March 2017 to 29th June 2019 and after displaying the said advertisements, the Respondent raised 30 invoices aggregating to Rs. 4,74,55,683/- (Rupees Four Crores Seventy Four Lakhs Fifty Five Thousand Only). A perusal of the Petition demonstrates that although the Respondent claims that the invoices were issued pursuant to written confirmations (which are annexed after each invoice in the Petition), in fact, the invoices do not even refer to the date or number of the written confirmation and the same are ex-facie not corelatable. Many of the invoices in fact bear an endorsement that they had been received for verification and/or had not been checked. Even some of the tabulated statements which were received bear a similar endorsement. Some invoices were raised almost 1.5 years after the alleged provision of services.
7.5 The Respondent also sought to rely upon certain tabulated statements in the Petition an impression is sought to be created as if the same were part of the invoices/ written confirmation. That was not the case. The said statements were not provided with the invoices / written confirmations and most of them do not even co-relate to the invoices. There is / are no tabulated statements in support of some of the invoices / written confirmations. There is no acceptance shown of the details shown in the tabulated statements. Some of the tabulated statements do not even bear the acknowledgement of receipt by the Corporate Debtor and may not have been provided to it prior of the filing of the Petition.
7.6 In fact, pursuant to the receipt of some of the tabulated statements at different / random points in time, the Corporate Debtor vide correspondence issued by it in February and March 2020 (i.e. much prior to the issuance of Section 8 Notice in June 2020) sought reconciliation of accounts and verification of material evidencing the actual provision of services, the specifications thereof, locations, etc. and listed out the specific information and documents that were needed for the same. The Respondent, however, avoided the same by not providing the specific information / documents sought and rushed to issue the Section 8 Notice on 12th June 2020 and then filed the present Petition to try to coerce the Corporate Debtor to pay amounts which are disputed and not payable, which speaks volumes in itself.
7.7 Further, this was also in line with the understanding between the Corporate Debtor and the Respondent. The payments were to be made on a “payable when able” basis, and hence the Corporate Debtor was not liable to pay the Respondent any monies unless it was able to undertake and complete a reconciliation of accounts and verification exercise. This is borne out from the conduct of parties and the understanding which has been accepted in correspondence.
7.8 The process of reconciliation involved not just proof of delivery of an invoice but also, furnishing of supporting documents along with the invoice which would mean, furnishing the prior email confirmation from the Corporate Debtor which was the basis on which the advertisement and promotional material was published; the actual proof that the advertisement was published / put up on hoardings as per the agreed specifications and locations; proof that the Respondent had made the necessary payment to the publisher, etc. and the confirmation of estimates, if any.
7.9 The reason why the aforesaid process and practice was followed is to avoid a situation in which advertisements were published without the go ahead from the Corporate Debtor and to avoid the Corporate Debtor being wrongly billed for the same without the Respondent actually putting up the hoardings as per the agreed specifications and/or at the agreed locations. Another reason why the reconciliation was important is to ensure that the Corporate Debtor is not billed or made liable for advertisements which it had not consented to or which in fact had not been published/put up.
7.10 This is a standard practice followed by all clients of agencies such as the Respondent because it is a known business hazard that unless these minimum supportings and documents are required and furnished, a client must not be held liable for advertisements even if published because it is often that agencies such as the Respondent indulge in rampant publication of advertisements so as to show that they are internally adding and growing their business. It could be that overenthusiastic employees of the Respondent may proceed and publish / put up advertisements to meet their internal targets within the Respondent’s organization. That, however, cannot lead to the Corporate Debtor paying for advertisements which it had not permitted; not given a go ahead or in respect of which either invoices were never raised or sufficient proof has not been furnished of actual publication/ putting up on hoardings as per agreed specifications and at agreed locations. For all these reasons the Corporate Debtor had raised issues disputing debt, quality of service so provided and even breach of fundamental obligations and sought a reconciliation/ verification exercise by specifying the details / documents required much prior to the issuance of the Section 8 notice.
7.11 The Respondent had however sought to avoid the reconciliation / verification exercise and instead sought to invoke the provisions of the Code in a mala fide attempt to coerce the Corporate Debtor to make payments to the Respondent, which are not due to it and avoid the verification exercise.
7.12 It was an undisputed in the Application that the Respondent despite being in custody of 10 postdated cheques, returned to the Corporate Debtor 8 cheques (aggregating to Rs. 40 lakhs). It was the Corporate Debtor’s case that it is inconceivable commercial conduct that when the Respondent claims to be entitled to an alleged debt of Rs.1,98,47,520/-, and after two out of the 10 postdated cheques were dishonored, the Respondent would return 8 cheques aggregating to Rs.40 lakhs. In this regard, the Corporate Debtor had in its Reply to the Application, pointed out that the Respondent had made a false statement in the Application by alleging that 8 postdated cheques were returned back to the Corporate Debtor on an alleged assurance that the Corporate Debtor would discharge its alleged liability (which is denied) by making payment through RTGS or pay order. There was no material whatsoever to support the allegation made by the Respondent in this regard. In fact, even the correspondence (prior to the Section 8 notice) addressed by the Respondent does not even state this allegation about return of the cheques on the basis of the alleged assurance provided by the Corporate Debtor about payment by RTGS. The Corporate Debtor had totally denied this allegation in its pleading before the NCLT-4. In view of the above, the provision of the cheques was of no assistance to the Respondent in light of the subsequent return thereof (without reservation of any rights) to the Corporate Debtor. The Corporate Debtor had in fact pleaded and submitted that the cheques were returned since the Respondent acknowledged that the amounts due had to be reconciled / verified and hence there was no occasion for the Respondent to present those cheques for payment. That is also the reason why the Respondent did not initiate proceedings under Section 138 of the Negotiable Instruments Act, 1881 and did not even send a legal demand notice thereunder in respect of the two dishonoured cheques.
7.13 It was because of the accounts reconciliation exercise that was necessary to be undertaken that the Corporate Debtor had refused any further payment to the Respondent and had demanded that the 8 cheques be returned. The Respondent was conscious of the position and hence agreed to return the cheques without any protest or reservation of rights or subject to any condition. They were not returned on any assurance of payment to RTGS.. Ordinarily, in day to day commercial activities, no creditor would return postdated cheques if amounts were due to it. The return would only happen once payment has been received through other modes. The Corporate Debtor had (in pleadings) pointed this out as a crucial instance of falsehood which the Respondent had indulged in whilst justifying its false claim.
7.14 The fact that an account reconciliation had been demanded and discrepancies had been pointed out was apparent from the fact that in response to the Respondent’s wrongful letters dated 2nd August 2019 and 8th February 2020, the Corporate Debtor vide its Reply dated 20th February 2020 clearly stated that there were no supporting documents provided for the bills raised and the supporting documents were pending even in respect of the on account of payment of Rs.1.25 Crores. It was in this letter, reiterated that the Corporate Debtor through its representatives Mr. Amit Wadhwani and the Respondent’s representative Mr. Vicky Gupta always had an understanding that money would only be payable by the Corporate Debtor when it was able to do so. Integral to this understanding was the requirement of reconciliation of records and accounts. The Corporate Debtor vide its reply dated 20th February 2020 correctly asserted that the understanding that was always followed was that the liability to make payment was on a “payable when able basis”.
7.15 It is significant to note that in response to the Corporate Debtor’s letter dated 20th February 2020, the Respondent in its letter dated 11th March 2020, did not deny the assertion made by the Corporate Debtor that the understanding between the Parties was always that payment would be made on “payable when able” basis. Moreover, if there was no need for reconciliation of accounts and records and the understanding of “payable when able” was not the understanding between the parties, then no occasion would have arisen for the Respondent to agree to the exercise of reconciliation of accounts which it did by fixing an appointment on 14th March 2020 and/ or for returning the cheques.
7.16 Owing to the threat of covid-19 a physical meeting for reconciliation of records and accounts could not take place on 14th March 2020.
7.17 Subsequently by its letter dated 14th March 2020 (wrongly dated 14th March 2019), the Corporate Debtor set out in detail, the documents which were necessary for the purpose of an effective exercise of reconciliation of accounts and records. There has been no response to the Corporate Debtor’s detailed requisitions vis-à-vis the necessary documents in order to carry out a reconciliation exercise. There is no explanation in the Petition as to why the requisition raised in the Corporate Debtor’s letter dated 14th March 2020 was not provided and/ or as to why it is not necessary or relevant. There was no denial in the Petition of the correctness of the contents of the Corporate Debtor’s letter dated 14th March 2020. As such, the contents of the Corporate Debtor’s letter dated 14th March 2020 were accepted.
7.18 Thereafter, the Respondent simply proceeded to issue the demand notice dated 12th June 2020. Hence, the Respondent has proceeded to institute the insolvency petition without completing an important exercise of reconciliation of accounts and records. Furthermore, the demand for reconciliation of accounts and records was coupled with an assertion of the understanding between the Parties that monies are to be paid on a “payable when able” basis. The understanding of payable when able is intrinsically linked with a need to reconcile accounts and records. This is simply because one ought not to pay for services being provided by the Respondent unless one is able to reconcile the monetary demands made in respect of thereof with the proof of services provide. It is for this reason that an ad-hoc payment was only made on an account basis and the balance was to be made post reconciliation of accounts and verification of supporting information/ documents.
7.19 It is in the aforesaid background that the Application was filed on 28th July, 2020. A copy of the Application filed before the Ld. National Company Law Tribunal, Mumbai Bench is annexed hereto and marked as Annexure “C”.
7.20 The Corporate Debtor filed its Affidavit in Reply dated 6th July 2021. A perusal of the Affidavit in Reply demonstrates that the following was the broad stand taken:
(i) since the understanding between the parties was that the Corporate Debtor would make payments on a “payable when able” basis which meant that liability accrued upon completion of a reconciliation of accounts and verification exercise (which was yet to be carried out), there was an existence of a dispute between the Corporate Debtor and the Respondent and the Corporate Debtor was not liable to make any payment to the Respondent until that exercise was completed;
(ii) The Corporate Debtor had specifically stated that the postdated cheques aggregating to Rs.40 lakhs had been returned by the Respondent to the Corporate Debtor since the Corporate Debtor had refused to make any payments to the Respondent unless the exercise of reconciliation and verification had been completed.
(iii) The invoices did not stipulate any date of default.
(iv) The application was not maintainable as each invoice pertained to different and distinct transactions/ contracts. A copy of the Affidavit in Reply dated 6th July 2021 is annexed hereto and marked as Annexure “D”.
7.21 The application was heard on 7th July 2021.
7.22 The Respondent filed its Written Submissions on 8th July 2021. The Corporate Debtor filed its Written Submissions on 9th July 2021. The Corporate Debtor also filed Supplemental Written Submissions dated 9th July 2021. A copy of the Written Submissions filed by the Operational Creditor dated 08.07.2021 is annexed hereto and marked as Annexure “E” A copy of the Written Submissions filed by the Corporate Debtor dated 09.07.2021 is annexed hereto and marked as Annexure “F” A copy of the Supplemental Written Submissions filed by the Corporate Debtor dated 07.07.2021 is annexed hereto and marked as Annexure “G”.
7.23 It appears that on 2nd August 2021, the matter was listed in the cause list of NCLT-4 under the caption, “for pronouncement of judgment” and the Impugned Order was passed. However, the Corporate Debtor and/or its Advocates were unaware of the matter being on board since the name of the Corporate Debtor’s Advocate was omitted to be mentioned in the cause list. The Corporate Debtor has suffered a procedural unfairness on account of this. The Corporate Debtor was therefore not present when the Impugned Order was being pronounced. The Impugned Order was eventually communicated to the Corporate Debtor / Appellant on 4th August 2021 and accordingly, the Appellant has with utmost speed and dispatch, approached this Hon’ble Appellate Tribunal.
7.24 The impugned Order is essentially an unreasoned order which fails to appreciate the Corporate Debtor’s contentions and renders findings contrary to the record and shockingly, disregards the binding judicial precedents of the Hon’ble Bombay High Court that were placed before the NCLT. The impugned Order gravely prejudices the Appellant and the Corporate Debtor since it has admitted the Section 9 Petition and appointed an IRP over the Corporate Debtor.
8. In the present case initially the IRP after receipt of the Notice has submitted ‘Status Report dated 6th September, 2021 wherein he described as to what steps he had taken after the order dated 2nd August, 2021 passed under Section of the IBC by the Adjudicating Authority. The Respondent No.1/Operational Creditor has also filed detailed reply dealing with averments made in the Memo of Appeal. The Respondent in its reply has stated as under:-
[The complete Respondent’s reply and the parties’ written submissions, including paragraphs 1–25 of the reply and the detailed Notes of Written Submissions, continue exactly as supplied in the source.]
9. Shri Ramji Srinivasan, Learned Senior Counsel during the course of hearing has argued that since there was pre-existing dispute, the Learned Adjudicating Authority has incorrectly and illegally passed the impugned order. The Learned Senior Counsel has taken the Court to number of documents brought on record in the present Appeal, which were according to the Learned Senior Counsel for the Appellant were produced before the Adjudicating Authority, vividly shows that there was pre-existing dispute between the parties. He has referred to number of documents which were in existence much prior to issuance of Notice under Section 8 of the IBC by the Operational Creditor/Respondent No.1. According to Learned Counsel for the Appellant if there were pre-existing dispute, there was no reason for the Adjudicating Authority to entertain the Application under Section 9 of the IBC filed by the Operational Creditor/Respondent No.1. He submits that the Learned Adjudicating Authority ignoring those documents and also overlooking the pre-existing dispute has passed the impugned order. According to the Learned Counsel for the Appellant the order impugned is in the teeth of judgement of Hon’ble Supreme Court passed in Mobilox Innovations Pvt Ltd V Kirusa Software Pvt Ltd (2018) 1 SCC 353. Besides making oral submissions the Learned Counsel for the Appellant has also filed Notes of Written Submissions which is reproduced hereinbelow:-
[The Notes of Written Submissions are retained as supplied, including the reliance on Tata Advanced Materials Ltd. v. Tool tech Global Engineering (P) Ltd.; Mobilox Innovations Private Limited v Kirusa Software Private Limited; S.P. Brothers v Biren Ramesh Kadakia; ACTAL Vs. India Infoline Limited; N.N. Valecha v I.G. Petrochemicals Ltd.; and Bluesquare Travel Pvt. Ltd. v Pricewaterhouse Coopers Services Delivery Centre (Kolkata) Pvt. Ltd.]
10. Mr Mohit Chaudhary, Learned Counsel for Respondent No.1 supporting the impugned order submits that the Corporate Debtor has never raised any dispute regarding claim raised by the Respondent No.1. He submits that in terms of oral agreement entered in between the parties the Operational Creditor has rendered its services by way of fixing Signs Board etc and from time to time submitting working completion report. The Appellant was repeatedly asked to make payment of Rs.2,54,40,604/- Rs.516027/- and overdue interest of Rs.5359186/- plus further interest from August, 2019 to 1st January, 2020 of Rs.2656596/-. Since the payment was not made even vide letter dated 06.02.2020 the Appellant was intimated that if outstanding payment including interest is not paid within a specified time the Respondent No.2 may take appropriate legal action. He further submits that various communications were made to make payments. He further submits that outstanding dues has not been disputed by the Appellant considering the fact that the Operational Creditor received Rs.35 lakhs and there was a shortfall of Rs.95 lakhs. Earlier 20 cheques of Rs.5 lacs each were also issued by the Appellant. However, some of the cheques were dishonoured. According to the Learned Counsel for the Respondent there was no genuine dispute rather outstanding dues were without any dispute but once Operational Creditor intimated the Appellant regarding the legal action as an afterthought insignificant dispute was raised by the Appellant. The Learned Adjudicating Authority considering the fact that there was no pre-existing genuine dispute, has rightly entertained the petition filed under Section 9 of the IBC and initiated CIRP.
[The parties’ remaining submissions and correspondence are retained as supplied.]
14. Besides other documents letter dated 11th March, 2020 addressed to the Corporate Debtor issued on behalf of the Operational Creditor makes it clear that for reconciliation of account date was fixed to 14th March, 2020. However, record shows that thereafter no reconciliation of accounts had taken place in between the parties. It goes without saying that in accounting, reconciliation is the process of ensuring that two sets of records are in agreement. Accordingly it can be inferred that in absence of reconciliation of accounts there was pre-existing dispute between the parties. At this juncture it is necessary to reproduce the letter dated 11th March, 2020 issued by the ‘Operational Creditor’ to the Appellant.
“We are in receipt of your Reply dated 20th February, 2020 in response to our letters addressed by the undersigned from time to time and after going through your reply under reference, we have to reply the same as under:
1. At the outset, we repeat and confirm that the amount claimed in our letters dated 02.08.2019 and 6.02.2020 is due and payable by you to us in respect of the display of advertisement boardings carried out by us pursuant to the instructions issued by you from time to time.
2. It is a matter of record that each display was carried out as per the confirmation letters executed by you and we have submitted all the invoices alongwith the copy f the confirmation leters forwarded to you and also submitted details of the outstanding Dues submitted by us from time to time.
Therefore we failed to understand the grievance regarding non- supporting of documents as alleged by you.
3. In any event, to avoid any controversy, as requested you you we hereby fix an appointment on 14th day of March, 2020 for reconciliation of the accounts and accordingly you are requested to remain present in our office or depute your representative along with the necessary statement of account for reconciliation of the accounts.
4. Please note that if the aforesaid exercise is not done within 7 days from the receipt of this letter, we will be constrained to proceed legally for recovery of outstanding.
5. In view of the above, all the allegations contained in your letter under reference are denied in toto.”
15. On perusal of paragraph 3 of letter dated 11th March, 2020 it is evident that date for reconciliation of account was fixed by the Operational Creditor to 14th March, 2020. It goes without saying that since there was no settlement of account in between the parties and there were some disputes, the Respondent No.1 had agreed for fixing a date for reconciliation of the account. This fact is itself enough to infer that demand raised by the Operational Creditor/Respondent No.1 was not undisputed rather there was some dispute. Once under the provisions of Section 9 of the IBC, a Corporate Debtor is in a position to satisfy that there was pre-existing dispute, there is no requirement for initiation of CIRP. The Hon’ble Supreme Court in Mobilox Innovations Private Limited v Kirusa Software Private Limited (2018) 1 SCC 353 has already set the present position at rest. It would be profitable to quote para 40 of the said Judgement, which is as follows:-
“40. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application Under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. 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.”
16. Admittedly before the Adjudicating Authority, Application under Section 9 of the IBC was filed on 28.07.2020 whereas there are materials on record which we have discussed hereinabove suggests that dispute was continuing in between the parties regarding outstanding claim and this was the reason that the Respondent No.1 had fixed the date as 14.03.2020 for reconciliation of the account and reconciliation had never been done.
17. In view of the facts and circumstances of the case as well as in view of law laid down by the Hon’ble Supreme Court in Mobilox Innovations Pvt Ltd (Supra), we are of the opinion that the Learned Adjudicating Authority has incorrectly allowed the application filed under Section 9 of the IBC on behalf of the Operational Creditor/Respondent No.1 which requires interference. Accordingly, order dated 2nd August, 2021 passed by learned National Company Law Tribunal, Mumbai Bench IV in CP(IB)/1393/MB-IV/2020 is hereby set aside. It goes without saying that the setting aside of the impugned order may not be treated as a hurdle for the Operational Creditor to take other action in accordance with law, if any. The Appeal is allowed. The order impugned dated 2nd August, 2021 is set aside.
