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TMI Blog2022 (4) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed that all sums as demanded by the Appellant is due and payable in law and on fact by the Respondent as there seems to be some back to back payment understanding between the parties as appears from the record. The justice demands to refer back the matter to the Adjudicating Authority for having a fresh look on various issues relating to the business module and the purchase order and invoices raised by the Appellant and the payment so far released and the balance due linking it to the back to back receipt from customer for the supply made by the Respondent which is a joint responsibility - the matter is remanded to the Adjudicating Authority for a fresh look and the Adjudicating Authority is requested to dispose of the matter expeditiously in accordance with law. Appeal allowed by way of remand. - Company Appeal(AT) (Ins)No. 367 of 2021 - - - Dated:- 31-3-2022 - [ Justice M.Venugopal ] Member ( Judicial ) And ( Dr. Ashok Kumar Mishra ) Member ( Technical ) For the Appellant : Mr. Raj Shekhar Rao, Sr. Advocate, Ms. Peppino Bhal, Ms. Maansi Sood, Mr. Areeb, Ms. DivyaBahl, Mr. Abhishek Bharti, Advocates For the Respondents : Mr. Ritin Rai, Sr. Advocate, Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt sold the finished goods to end customers under the Respondent s Tax invoices. Receipts for sale of finished goods were received by the Respondent in the Respondent s bank accounts. After adjusting its tolling charges and other expenses, the Respondent used the proceeds from the sale of finished goods to pay the Appellant, for the Raw Material sold to the Respondent under the Appellant s commercial invoices. Records were maintained by the Respondent in its Sales Register. 6. It is stated by the Ld. Sr. Counsel for the Appellant that from July 2016 to October 2018, the Appellant sold Raw Material to the Respondent under the Appellant s 43 Commercial Invoices raised on the Respondent (Raw Material Invoice). On 19.03.2018, the Appellant and Respondent also finalized terms for sale of Equipment (line4) for USD 400,000. The Appellant raised an invoice for USD 200,000 and the balance payment was to be paid by the Respondent faster by either increasing the discount on tolling or by any other method that works. From 10.07.2018 till 22.03.2019 the Respondent paid the Appellant towards the Appellant s 20 Raw Material Invoices. Between 11.04.2019 to 16.04.2019 the Respondent was liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for imported raw materials to such suppliers who then supplied the materials to the respondent company. The respondent has never raised any PO on the appellant or on any of the suppliersof the imported Raw Material. However, since as per the job work arrangement, the purchases are required to be made by the appellant and then the material in question is required to be given for job work by the appellant to the respondent. It is only normal and logical that the purchases are actually made by the appellant in its own name and the material of import purchase is shipped by the supplier to the respondent. 10. Since it was the responsibility of the respondent to clear the goods from the customs, as a part of the stipulated procedural formalities in this regard, the respondent had to file a Bill of Entry and book the purchase as if the purchase has been made by the respondent. However, at the time of clearing the material from the customs the only document available with the respondent is the invoice copy of the original supplier. Thus, it was technically and legally not possible for the respondent to show that the material is received on job work basis otherwise the material could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of any goods or services to the respondent, and there is not a single purchase booked by the respondent in the name of the appellant, the appellant has only facilitated the purchases as per the above arrangements by way of advance payments made to the supplier. 12. It is stated by the Ld. Sr. Counsel for the Respondent that in a nutshell the appellant has never made any supply of goods or services and therefore there is no operational debt which is payable and due as per Section 5(21) of the Code and therefore the appellant is not an operational creditor as per Section 5(20) of the Code.Section 5(20) Section 5(21) of the Code is depicted below, for brevity and clarity: Section 5 (20) operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; Section 5 (21) operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; 13. There were significant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at page 25 to 29 affidavit in reply filed by the Respondent and the same is depicted below, for brevity and clarity: b. It is also not in dispute that the Appellant has supplied the materials to the Respondent and the Respondent has cleared the goods from the custom and also released a part payment of the outstanding dues. c. It is also not in dispute that the parties have also entered into the Terms Sheet for sale of equipment vide email dated 15th March, 2018/ 19th March, 2018 and the same is depicted below: d. The Respondent s submission that the Appellant has not raised any purchase order on the Appellant does not seem to be correct. The various purchase order produced by the Appellant is appearing at page 519 to 532 of the Appeal Paper Book in Vol-II, for brevity and clarity, the purchase order appearing at page 519 532 are reproduced below just for the sake of example: e. It does not seem to be correct that the invoices are performa invoices as it appears from the details of commercial invoices appearing at page 39 and page 60 of the rejoinder vol.-1. The first last invoices are reproduced below for the sake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corporate debtor or notice of dispute, that the operational creditor may trigger the insolvency process by filing an application before the adjudicating authority under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 5, accompanied with documents and records that are required under the said form. Under Rule 6(2), the applicant is to dispatch by registered post or speed post, a copy of the application to the registered office of the corporate debtor. Under Section 9(3), along with the application, the statutory requirement is to furnish a copy of the invoice or demand notice, an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt and a copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor. Apart from this information, the other information required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 37.It is now important to construe Section 8 of the Code. The operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means a claim in respect of the provision of goods or services, including employment, or a debt in respect of repayment of dues arising under any law for the time being in force and payable to the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an invoice demanding payment of the amount involved must be delivered in the prescribed form. The corporate debtor is then given a period of 10 days from the receipt of the demand notice or copy of the invoice to bring to the notice of the operational creditor the existence of a dispute, if any. We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which the existence of a dispute alone is mentioned. Even otherwise, the word and occurring in Section 8(2)(a) must be read as or keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as or . If read as and , disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitration proceedings and not otherwise. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an arbitral tribunal or a court for upto three years, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a possibility that Mr. Banerji s client may succeed on these cross-claims is sufficient to state that the operational debt, in the present case, cannot be said to be an undisputed debt. iii. Sudhir Sales and Services Ltd. Vs. D. Art Furniture Systems Pvt.Ltd., 2018 SCC Online NCLAT 779 has held at para 27: 27. In view of the aforesaid fact, we hold that there is no pre-existing dispute in the present case and the Adjudicating Authority wrongly relied on the letter dated 13th November, 2013 and letter dated 9th September, 2017 to reject the claim of the Appellant. We accordingly set aside the impugned order dated 24th April, 2018 passed by the Adjudicating Authority in Company Petition No. (IB)- 94 (PB)/ 2018 and remit the case to the Adjudicating Authority for admitting the application under Section 9 filed by the Appellant- ('Operational Creditor'), in absence of any defect. The Respondent- ('Corporate Debtor') cannot raise any objection before the Adjudicating Authority for admission of the application under Section 9, having heard by this Appellate Tribunal and the issue having decided. However, the order passed in this appeal will not come i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a Trial Court but it is a summary proceeding. We are not in a position to go into the details what has been internal understanding between the parties. The Term Sheet produced by the Respondent is also a revised draft only. Hence, taking shelter under this judgment is not tenable either on law or on fact. 2) Civil Appeal No. 9597 of 2018 in Transmission Corporation of Andhra Pradesh limited Vs. Equipment Conductors and Cables Limited held at para 51: 51. 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 ..... 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