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TMI Blog2023 (6) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... is the last final contract signed between the parties, clearly specifies that the payment against invoice is to be made by LC which is collectable within 60 days . Hon ble Supreme Court in the matter of M/S BAWA PAULINS PVT. LTD. VERSUS UPS FREIGHT SERVICES (INDIA) PVT. LTD. AND ANOTHER [ 2022 (11) TMI 1361 - SUPREME COURT] , which is cited in support by the Learned Senior counsel for Appellant, held that a letter of credit is independent of and unqualified by the contract of sale or underlying transactions. The autonomy of an irrevocable LOC is entitled to protection and as a rule, courts refrain from interfering with that autonomy. If courts interfere in such transactions, it would be prone to misuse by the applicant party to gain undue advantage leaving the issuing bank at peril in the international financial market. The above judgment places autonomy on an irrevocable LC which is held to be entitled to protection. In the present case, we note that after the opening of LC, a HSS Agreement was entered into between the two parties, which when seen in conjunction with the sales invoice, notes that the payment is to be made through a LC within 60 days from the date of issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erational creditor - HSS Agreement was executed on 15.1.2020 and under the General Conditions of Sale included in the HSS Agreement, the payment was to be made with 60 days from the date of bill of lading, which would be date of default and which would not be covered in the period stipulated in Section 10-A of the IBC. The Impugned Order does not suffer from any infirmity and it does not require any interference - Appeal dismissed. - Company Appeal (AT) (Ins) No. 154 of 2023 - - - Dated:- 31-5-2023 - [ Justice Rakesh Kumar ] Member ( Judicial ) And [ Dr. Alok Srivastava ] Member ( Technical ) For the Appellant : Mr. Salman Khurshid, Sr. Advocate with Mr. Mohit Chaudhary, Mr. Prakhar Mithal, Ms. Arushi Jain, Mr. Ishu Dikshit, Advocates For the Respondents : Mr. P. Nagesh, Sr. Advocate with Ms. Geetika Sharma, Mr. Akshay Sharma, Advocates. Mr. Atul Bhatia, Advocate for R-2/RP JUDGMENT [ Per. Dr. Alok Srivastava, Member ( Technical ) ] In this appeal the challenge is to the order dated 25.1.2023 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi) (in short Impugned Order ), whereby on a section 9 application filed by BASF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication by the Adjudicating Authority is erroneous, and therefore, it has assailed the Impugned Order. 4. We heard the arguments of Learned Senior Counsels for both the parties and perused the record with their able assistance. 5. The Learned Senior Counsel for Appellant has argued that in response to the sale order dated 6.1.2020 issued by the operational creditor, a LC was opened by the corporate debtor as agreed between both the parties, wherein a 90 day period from the date of bill of lading was provided for payment through the LC. He has further stated that the negotiated document regarding opening of the LC notes that three lakh kilograms of Isobutanol as per purchase order No. 6008159077 dated 6.1.2020 was given by the corporate debtor, and as per the LC document which specified validity of LC for 90 days, interest for the 60 days was to be free and for the next 30 days was on the corporate debtor s account. He has brought to our attention the definitions included in the Users Handbook for Documentary Credits under UCP 600 to point out that the LC is an undertaking on the part of the bank at the request of the corporate debtor to pay the main beneficiary (which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debtor, the section 9 application should not have been admitted in view of pre-existing dispute. 8. The Learned Senior Counsel for Appellant has strongly argued the 90 days limit for the payment of LC was to expire on 25.4.2020, when the bar to filing of section 9 application had come into force by virtue of section 10-A, and therefore, the section 9 petition could not have been admitted. 9. In reply, the Learned Senior Counsel for Respondent/operational creditor has argued that the date of default which was mentioned by the operational creditor in its section 9 application, is 15.3.2020, which is the 60 day period from the date of bill of lading, and which is in accordance with the period of validity of LC. He has further brought to our notice that HSS Agreement wherein clause 1 clearly sets out General Conditions of Sale (in short GCS ), which is annexed to the agreement and also forms part of the seller s invoice, shall be applicable for sale under this agreement, and further the GCS which is part of record, in clause 8 very clearly stipulates that the invoice value has to be paid by the due date indicated in the invoice. He has thus argued that the date of default wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the corporate debtor as defined in law? (iii) Whether the dishonouring of the LC discounting by the South Indian Bank was on account of negligence of the corporate debtor? 12. On the first issue whether the date of default is within the period as specified in section 10-A during which initiation of CIRP is suspended, we note that the purchase order was given by the corporate debtor Meghaaarika International Pvt. Ltd. on 8.1.2020 (page 101 of the appeal paperbook Vol. I) and it stipulated that the payment terms are LC 60 days from the HSS date . This purchase order was preceded by a sale order dated 6.1.2020. In this sale order the credit days as specified is collectable in 60 days . Further, the LC document (attached at pp.103-106 of the appeal paperbook Vol.I), which is found to be created on 13.1.2020 has an entry stating BY NEGOTIATION, 42C: 90 DAYS FROM THE DATE OF BILL OF LADING . Further, the HSS Agreement dated 15.1.2020, which is signed two days after the creation of LC on 13.1.2020, includes the following:- 1. General Conditions of Sale The General conditions of Sale (GCS) as annexed in Annexure-3 and forming part of the Sellers invoice (Local Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 6.1.2020, which is the date of invoice. Counting 60 days from 6.1.2020, we find that the payment was due to be made by 5.3.2020. Thus, it is clear that the date of default is not covered in the period as stipulated in section 10-A of the IBC, and therefore, section 9 application does not suffer from bar as specified in section 10-A regarding its admission and initiation of CIRP. 16. On the issue of pre-existing dispute, we note that in reply to the section 8 demand notice, the corporate debtor has raised the issue of poor quality of Isobutanol supply by the operational creditor, and as also the invocation of arbitration clause and issuing of notice under section 21 of the Arbitration and Conciliation Act, 1996. Notably, the corporate debtor has not produced any record or document before the NCLT or before us regarding pre-existence of dispute about the quality of material supplied. We also note that a notice under section 21 of the Arbitration and Conciliation Act seeking appointment of arbitrator dated 14.2.2020 is submitted as part of the record, and ostensibly this notice was sent through Blue Dart Courier by Airway Bill No. 149045191162 dated 15.2.2020. The Learned Senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229 Northrop J referred to the formulations of Thomas J in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919, 922 and Hayne J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia (supra), where he noted the dictionary definition of genuine as being in this context not spurious ... real or true and concluded (at 234): Although it is true that the Court, on an application under ss 459G and 459H is not entitled to decide a question as to whether a claim will succeed or not, it must be satisfied that there is a genuine dispute between the company and the respondent about the existence of the debt. If it can be shown that the argument in support of the existence of a genuine dispute can have no possible basis whatsoever, in my view, it cannot be said that there is a genuine dispute. This does not involve, in itself, a determination of whether the claim will succeed or not, but it does go to the reality of the dispute, to show that it is real or true and not merely spurious . In our view a genuine dispute requires that: the dispute be bona fide and truly exist in fact; the grounds for alleging the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the South Indian Bank would release the payment to operational creditor before expiry of 60 days validity period of the LC. It is noted that the documents so required were not received by the South Indian Bank from the corporate debtor and hence, the payment due to the operational creditor by the due date 3.3.2020 could not be made. 23. We also note that e-mails were exchanged between the operational creditor BASF India, Bank of Baroda and the corporate debtor regarding payment due to BASF India. These e-mails and letters are attached at pp.149-160 of the appeal paperbook vol. I. It is also noted that the letter dated 24.2.2020 (at page 149 of the appeal paperbook Vol.I) is addressed to the corporate debtor and further e-mails starting from 23.4.2020 to 3.9.2020 are all addressed to Mr. Nikhil Sethi with copy to Mr. Satish Kumar Sethi. Notably, Mr. Nikhil Sethi is a director in the corporate debtor company. We also note that in the e-mails dated 24.4.2020, 19.5.2020, 25.5.2020, 16.6.2020, 2.7.2020, 10.7.2020, 27.7.2020, 10.8.2020 and 3.9.2020, there are requests from the operational creditor for the payment of overdue amount, and it is after the overdue payment is not made des ..... X X X X Extracts X X X X X X X X Extracts X X X X
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