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TMI Blog2024 (9) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... only and not for past invoices. In fact for establishing the payment made, the Respondent has filed the statement of account from the Federal Bank for each of the five invoices from @329 to @379 in the APB, which clearly establish that payment was made without any doubt. The ledger of Operational Creditor/Tamra Dhatu also is very clear from @382 to @384 and establishes that instead Operational Creditor has to pay Rs 75,627/- to the Corporate Debtor. There is no question of any outstanding to be paid by the Corporate Debtor. This is a case wherein there is a clear case of pre-existing disputes with respect to the quality of goods which was supplied by the Operational Creditor. Therefore, we cannot find any infirmity in the Order of the Adjudicating Authority. Under Section 9 (5) (ii) (d) of the IBC, an Application for initiation of CIRP by an Operational Creditor must be rejected if a pre-existing dispute is shown to exist prior to the issuance of the demand notice. The Hon ble Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. [ 2017 (9) TMI 1270 - SUPREME COURT] held that the dispute need not be a meritorious one but must be real, substantial, and bona fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2018. This comprised ₹47,26,700.65/- (rupees forty-seven lakhs, twenty-six thousand, seven hundred and sixty-five paise only) due from Sumo Metallic and ₹42,89,611/- (rupees forty-two lakhs, eighty-nine thousand, six hundred and eleven only) due from the Appellant. In an email dated 08.10.2018, the Respondent admitted to owing the ₹47,26,700.65/- (rupees forty-seven lakhs, twenty-six thousand, seven hundred and sixty-five paise only) to Sumo Metallic. The Respondent maintained separate ledgers for Sumo Metallic, highlighting its internal documentation procedures. 5. The Respondent made two payments ₹5,00,000/- (rupees five lakhs only) on 21.06.2018 and ₹10,00,000/- (rupees ten lakhs only) on 04.08.2018 towards the outstanding dues. On 09.08.2018, a further payment of ₹50,00,000/- (rupees fifty lakhs only) was made, which was partially adjusted against both the Appellant's and Sumo Metallic's outstanding amounts. The Appellant was operating from two units one in Pathredi, Rajasthan, and another in Sankrail, West Bengal and adopted a first in, first out method for adjusting the payments. 6. Between May and September 2019, the Respondent is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant filed a Company Petition [CP (IB) No. 160/KB/2022] under Section 9 of the IBC, seeking initiation of CIRP against the Respondent for the default amount of ₹1,39,41,382/- (rupees one crore, thirty-nine lakhs, forty-one thousand, three hundred and eighty-two only). 11. During the pendency of these proceedings, HDFC Bank initiated a separate CIRP process against the Appellant under Section 7 of the IBC. 12. Pertinent to mention herein that the ledger statement of the Appellant annexed with the Company Petition clearly shows the existence of opening balance of Rs.1,06,15,789.58/- (rupees one crore, six lakhs, fifteen thousand, seven hundred and eighty-nine, fifty-eight paise) due and payable by the Respondent to the Appellant. 13. On 25.05.2022, the Appellant was admitted into CIRP under Section 7 of the IB Code initiated by HDFC Bank vide order dated 25.05.2022 passed in CP (IB) No. 128/2020. 14. The Appellant had filed the Section 9 Application on the basis of 5 invoices and two invoices bearing no. MF 119-0375 and MF 119-0377 issued on 08.01.2019 does not form part of the claim under Section 9. Respondent had failed to make any allegations against the 5 invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor has misrepresented the facts by allocating their payments with the current invoices, whereas the Appellant has allocated all the payments on FIFO basis, in the absence of any bill wise payments or any such confirmations, whatsoever, ever since the commencement of business transactions with the said Respondent. The Respondent's counter affidavit at Annexure F at page 64 depicts that no bill wise payment is being made. 18. Thereafter, on 01.01.2024, the Ld. Adjudicating Authority vide its Order dated 01.01.2024 approved the resolution plan of Mr Tarun Kumar Singh in the CIRP of the Appellant and Mr Tarun Kumar Singh was declared as the Successful Resolution Applicant. Consequently, the mandate of the Resolution Profession of the Appellant was terminated and the new management under the control of Mr Tarun Kumar Singh was appointed. 19. Thereafter, the Ld. Adjudicating Authority vide Order dated 01.05.2024 passed the Impugned Order dismissing the Company Petition under Section 9 of the IB Code on the ground that at the time of filing of Section 9 Application there is a 'pre-existing dispute between the parties as there is a pending title suit being TS 1380/2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry demand notice dated 28.01.2022 by the Appellant against the Respondent. 24. The Respondent placed on record supplementary affidavit which contends: (i) The bank statements of the Corporate Debtor which are annexed to the reply affidavit and marked as Annexures A, B, C, D and E already prove that the Corporate Debtor had made full payment of the five invoices that are the subject matter of the Application. (ii) That several emails were exchanged between the parties wherein the Appellant kept demanding more advance payment despite the material not being ready at its end. (iii) Corporate Debtor made payment much more than the required advance amount as per the terms and invoices since it was in urgent need of the materials to enable to fulfil its commitment to BHEL. The payments made by the Corporate Debtor are reflected in the bank statements and ledger annexed to the main reply affidavit. 25. However, disputes arose over two invoices (MF119-0375 and MF119- 0377) dated January 8, 2019, due to defective goods as identified in the test reports. In a letter dated December 7, 2021, the Appellant also claimed Rs. 1,13,33,639.58/- (rupees one crore, thirteen lakhs, thirty-three thousand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Adjudicating Authority dismiss the Application under Section 9 (5) (ii) (b) of the IBC, as it lacks merit. 30. Apart from the disputed invoices MF119-0375 and MF119-0377 (which are the subject of a pending suit), there are no outstanding amounts for any other invoices. The statement of accounts confirms that all dues for invoices MF108-0379/1920, MF108-0478/1920, MF108-0688/1920, MF108- 0773/1920, and MF108-0904/1920 have been fully paid. 31. The Respondent denies any mala fide intent in filing the suit, which pertains specifically to invoices MF119-0375 and MF119-0377 from January 8, 2019. These invoices are separate from the ones fully settled in the application (MF108-0379/1920, MF108-0478/1920, MF108-0688/1920, MF108-0773/1920, and MF108-0904/1920). 32. At the time the demand notice was issued on December 7, 2021, no outstanding amounts remained for the invoices MF108-0379/1920, MF108- 0478/1920, MF108-0688/1920, MF108-0773/1920, and MF108- 0904/1920. Analysis and findings : 33. The Adjudicating Authority dismissed the Appellant's Application under Section 9 of the IBC, seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the Respondent/Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was a tactical ploy to evade payment and did not constitute a genuine pre-existing dispute. The Respondent's ledger statements were misleading, as they did not account for the full outstanding debt due to the merger of Sumo Metallic with the Appellant. 37. Per contra the Respondent contends that: There was a long-standing dispute regarding defective goods supplied by the Appellant, particularly under the invoices issued on 08.01.2019. The Respondent had fully paid the invoices mentioned in the Section 9 Application, and any outstanding amounts claimed by the Appellant were erroneous or had already been adjusted. The civil suit filed by the Respondent was prior to the filing of the Section 9 Application demonstrated a pre-existing dispute, which barred the initiation of CIRP under Section 9 of the IBC. The Appellant's reliance on a first in, first out (FIFO) method for adjusting payments was not agreed upon by the parties, and the Respondent had paid specific invoices in full. 38. Now we go on to examine whether the Adjudicating Authority was correct in dismissing the Section 9 Application based on the existence of a pre-existing dispute. The Reply of the Respondent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and the consequences suffered by our client, our client filed a suit being, T.S. 1380 of 2021 (Eastern Copper Manufacturing Company Pvt. Ltd. vs. Tamra Dhatu Udyog Pvt. Ltd. Civil Judge (Junior Division) at Howrah and the same is pending adjudication. 10. In view of the above facts and circumstances, it is apparent that your alleged claim of Rs. 2,10,09,089.11/- is not maintainable. Our client has raised a dispute against you in respect of the same subject matter alleged by you in the captioned demand notice. As such, a suit being T.S. 1380 of 2021 Eastern Copper Manufacturing Company Pvt Ltd vs Tamra Dhatu Udyog Pvt Ltd.) before the Ld. Civil Judge (Junior Division) at Howrah has been filed against you in pursuance of the breach committed by you. Your initiation of the proceeding under the Insolvency and Bankruptcy Code 2016 is absolutely bad in law, and that the same deserves no consideration at all. 39. Furthermore, the Respondent claims that he has not only paid full amount of these five invoices raised in the CP, but small excess payment which is borne out by his statement at page 422 of the APB. The total amount payable to the Corporate Debtor is Rs. 75,627/- (rupees seven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods directly affects the overall relationship between the parties. This becomes all the more relevant as the Appellant has stated claims of a period prior to 2019, even though the Appellant claimed for 5 invoices raised in the year 2019 only in part IV of Form-5, yet it has later claimed that the Corporate Debtor has misrepresented the fact by allocating their payments with the current invoices. It is contended by the Appellant that it has allocated all the payments on FIFO basis. If this contention of the Appellant is accepted, it is all the more reason that the disputes that have been raised concerning two invoices as indicated in the previous para are treated as pre-existing disputes for the supply of defective goods. The Respondent s quality concerns and the subsequent civil litigation are, therefore, sufficient grounds to establish a pre-existing dispute, which bars the initiation of CIRP under Section 9. 43. This is a case wherein there is a clear case of pre-existing disputes with respect to the quality of goods which was supplied by the Operational Creditor. Therefore, we cannot find any infirmity in the Order of the Adjudicating Authority. 44. Under Section 9 (5) (ii) (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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