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TMI Blog2022 (7) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... n the exercising of quantifying the operational debt. Pre-existing dispute - HELD THAT:- In order to substantiate the plea of preexisting dispute between the parties, the respondent corporate debtor has stated contentions in its reply along with relevant documents including e-mail correspondences exchanged between the parties, ledger account for the year 2017-2019, copy of corporate debtor reply dated December 01, 2019 to the legal notice dated September 13, 2019 issued by the applicant intimating the applicant about the existence of dispute between the parties with regard to fulfillment of obligations as specified in the term sheets dated 02.09.2017, short supply of stocks, existence of outstanding debt - The Hon'ble Supreme Court in catena of Judgements has laid down the principle that pre-existing dispute which may be ground to thwart an application under Section 9 has to be real dispute a conflict or controversy, a conflict of claims or rights should be apparent from the reply as contemplated by Section 8(2). The Corporate Debtor is not to raise bogie of disputes but there has to be real substantial dispute. The existence of dispute when the Demand Notice was issued is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent corporate debtor will act as a Sub Franchise for stores located in Elante Mall, Chandigarh and Pavilion Mall, Ludhiana respectively. b. The applicant submits that covenants of the term sheets dated 02.09.2017 are as follow.- i. Clause 4A- The applicant will supply stocks/merchandise to the respondent corporate debtor on outright basis with 100% stock correction. The entire arrangement was subject to Sale or return basis ('SOR'), wherein the stocks were supplied by the Applicant to the respondent corporate debtor by raising invoices and the payment was received on weekly basis after sale of stocks for the weekly basis after sale of stocks for the week from the respective stores and after deducting the margins/commissions and taxes. ii. Clause 5A - The store occupancy charges to be solely borne by the respondent corporate debtor only, as charge normally includes Rent, CAM, property tax etc. iii. Clause 10 11 - All the expenses towards civil, Furniture and Fixtures and even maintenance of the entire store are to be solely borne by the Respondent only. iv. Clause 7A- The respondent corporate debtor had agreed to make payments to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to reconcile the accounts and make the outstanding payment to the applicant, consequently, the applicant had served legal notice towards both the stores dated 13.09.2019 asking the respondent corporate debtor to forthwith clear the legitimate outstanding amount which is pertaining towards the store located in Elante Mall and towards the secondary sales at Pavilion Mall store located at Ludhiana. h. The applicant submits that reply dated 01.12.2019 was received from the advocate of the respondent corporate debtor, wherein the respondent corporate debtor has rejected the legitimate claim of the applicant for both the stores and further threatened that if the applicant peruse towards their claim, than the respondent corporate debtor shall raise counter claim in return. i. Further, the applicant submits that a demand notice dated 30.01.2020 under section 8 of the Code was issued to the respondent corporate debtor, claiming the outstanding principal amount of INR 2,42,94,906/- along with further interest on the principal amount at the rate of 18% p.a. from December 31, 2019 till date of payment/realization. j. The applicant submits that the respondent corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the respondent corporate debtor had sent replies dated December 01, 2019 to legal notices dated September 13, 2019 issued by the Operational Creditor, highlighting various facts which unambiguously proves that there was a pre- existing dispute between the parties right from the closure of first store (DLF SAKET, which is not part of the present matter)- i. Despite investing agreed amounts for making the store operational, the Corporate Debtor incurred losses; ii. Lack of sale support on part of the Operational Creditor as it failed to provide sufficient quantity of new and fast moving stock; iii. Other stores of Operational Creditor were offering huge discounts; however, such offers were not extended to the Corporate Debtor: iv. Detailed accounts were shared by the Corporate Debtor based on which it is revealed that it is the Operational Creditor who owes money to the Corporate Debtor; v. The Franchise Agreement of the Operational Creditor with Master Franchisor got terminated effective from July 01, 2019, the store located at Pavilion Mall, Ludhiana (operated by the Corporate Debtor) were functional only for a period of 21 month against the term of 5 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its contentions: i. Copy of the e-mail dated August 23, 2019 vide which detailed workings were shared along with working sheet ii. Copy of e-mail correspondence exchanged between the parties which clearly provide the conduct of the Operational Creditor. iii. Copy of the respondent corporate debtor reply dated December 01, 2019 to legal notice dated September 13, 2019 issued by the operational creditor. iv. Copy of the respondent corporate debtor reply dated February 17, 2020 to the demand notice dated January 30, 2020 issued by the Operational Creditor. 5. The applicant filed the rejoinder to the reply submitted by the respondent corporate debtor. The submissions of the applicant in the rejoinder are stated herein in brief:- a. The applicant submits that no pre-existing dispute exist between the parties in the present matter as the dispute does not truly exist in fact and is illusory. The applicant state that the respondent corporate debtor in order to establish the pre-existing dispute has only relied upon feeble arguments and assertion of facts mentioned in its own replies dated 01.12.2019 to the legal notices dated 13.09.2019 and not supported/substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the operational debt of Rs. 17,13,326/- towards the outstanding rentals (including CAM, AHU, Electricity) of Elante store claimed by the applicant cannot be considered as supply of goods or rendering of any services and thus, cannot fall within the definition of Operational Debt as envisaged under the Code, 2016. Further, whether or not the alleged amount of Rs. 17,13,326/- towards the outstanding rentals (including CAM, AHU, Electricity) of Elante store, to be reimbursed by the respondent corporate debtor would be an issue of trial between the parties. 8. With regard to the alleged dispute in respect of the interest amount, we are of the view that since the principle amount due and payable towards the secondary sale is well above the minimum threshold of Rs. 1 Crore as stipulated in Section 4 of the Code, 2016, we are not inclined to indulge in the exercising of quantifying the operational debt. 9. With regard to the contention of the respondent corporate debtor of preexisting dispute. We find that in order to substantiate the plea of preexisting dispute between the parties, the respondent corporate debtor has stated contentions in its reply along with relevant documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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. 12. We will have to examine as to whether the claim of the respondent corporate debtor with regard to the existence of dispute can be considered to be the one which is spurious, illusory or not supported by any evidence. At this juncture, we find it relevant to refer the email correspondence exchanged between the parties in the month of August, 2019 with regard to reconciling and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MB. Hope this clarify everything we intend to say. Thanks, Rajesh Dudi 14. With regard to the contention of the applicant that respondent corporate debtor has made references to various communications which pertain to DLF Saket Mall which is not a subject to the present transaction, we find that the applicant had sent two legal notices dated September 13, 2019 having subject Demand Notice for Outstanding Dues and Termination of Term Sheet dated September 02, 2017 pertaining towards the Elante Mall store located at Chandigarh and Demand Notice for Outstanding Dues and Termination of Term Sheet dated September 02, 2017 pertaining towards the Pavilion Mall store located at Ludhiana preceding the sharing of workings related to all the three stores (Elante, Pavilion, DLF- Saket) and e-mail correspondence (August, 2019) exchanged between the parties for the purpose of account reconciliation of all the three stores. We have also gone through the email correspondence between the parties regarding the Pavilion, Ludhiana Store issues. We find no cogent evidence that the documents relied by the corporate debtor to prove 'pre-existing dispute' pertain to DLF Saket Mal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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