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TMI Blog2024 (11) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. In the present factual matrix, the defence raised cannot be viewed as moonshine, spurious, hypothetical or illusory. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the behest of the Operational Creditor. The Adjudicating Authority therefore clearly fell in error in admitting the Section 9 application while turning a blind eye to the Notice of Disputes which clearly establishes that there were serious differences between them in the nature of real pre-existing disputes. The ratio of Naresh Sevantilal Shah judgment [ 2021 (1) TMI 759 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI ] which has been relied by the Adjudicating Authority to set the cut-off date of the date of issue of first demand notice for taking cognisance of the notice of dispute is not applicable in the present case since in that case, the first Demand Notice had been followed by filing of a Section 9 application before the Adjudicating Authority which was dismissed on technical grounds because Operational Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor sent a reply to the Demand Notice on 20.01.2020 denying any payment as due to the Operational Creditor besides and alleging that they had already disputed the outstanding amount claimed by the Operational Creditor earlier. Thereafter, the Operational Creditor filed the Section 9 application before the Adjudicating Authority which was allowed on 30.10.2023 and the Corporate Debtor admitted into the rigours of Corporate Insolvency Resolution Process. Aggrieved by the impugned order, the present appeal has been filed by the present Appellant who is the Ex-Director of the Corporate Debtor. 3. Making his submissions, Shri Abhijit Sinha, Ld. Senior Counsel for the Appellant emphatically asserted that there was no outstanding debt qua the Operational Creditor which was payable by the Corporate Debtor. Describing the debt purportedly claimed by the Operational Creditor as a created debt , it was submitted that the claim of Rs 1.67 Cr. raised by the Operational Creditor was based on a carry-forward entry in its ledger which was created out of forged documents and should have been disregarded by the Adjudicating Authority. It was also contended that the Operational Creditor had se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporate Debtor were settled by following the FIFO method and thereafter the balance principal amount stood at Rs 1.29 Cr. as on 31.03.2019. It was stoutly denied that there was any mismatch in the payment of VAT as alleged by the Corporate Debtor. This contention of mismatch was a spurious defence raised by the Corporate Debtor and this appeal was an attempt to drag on the CIRP proceedings which is evident from the fact that the RP had filed an application under Section 19 of the IBC for non- cooperation by the Appellant. 5. Having heard the rival contentions of both the parties and having seen the material on record, the short point for our consideration is whether there was any debt and default on the part of the Corporate Debtor qua the Operational Creditor and if so whether there was any pre-existing dispute surrounding the operational debt. 6. It is the case of the Appellant that the Operational Creditor had issued the first Demand Notice on 18.03.2019 demanding an outstanding principal amount of Rs. 1.35 cr along with interest. The second Demand Notice was issued on 11.04.2019 demanding an outstanding principal amount of Rs. 1.35 cr plus interest of Rs.53.30 lakhs while t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter of evidence, the defence cannot be brushed aside as spurious. 7. Per contra, it is the contention of the Operational Creditor that when the Corporate Debtor had sent an e-mail on 21.10.2019 to the Operational Creditor attaching their ledger account for FY- 2016-17 confirming an outstanding amount of Rs 1.49 Cr. as on 31.03.2017, this is a pure case of admitted operational debt. It was pointed out that as per the ledger account of Operational Creditor an amount of Rs 1.50 Cr. was outstanding on the Corporate Debtor as on 31.03.2017 and thereafter taking into account further sales made by them to the Corporate Debtor between 01.04.2017 to 31.03.2019 amounting Rs 2.51 Cr. the total outstanding recoverable from the Corporate Debtor stood at Rs 4.01 Cr. against which the Corporate Debtor had only made part payment of Rs 2.71 Cr. only. The balance principal amount stood at Rs 1.30 Cr. as on 31.03.2019. The quarter wise sale and payment of VAT Tax to the government by the Corporate Debtor and the summary of sale from the D-VAT Portal for FY-2015-16 and 2016-17 alongwith quarter wise ledger accounts had also been made available to the Adjudicating Authority which had no signs of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case to analyse the sustainability of the impugned order which is under challenge, the statutory scheme with regard to filing of an application under Section 9 needs to be recapitulated. Section 8 of the IBC requires the Operational Creditor on occurrence of a default to deliver a Demand Notice for payment of unpaid Operational Debt. Section 8(2) provides that Corporate Debtor within a period of 10 days of the receipt of the Demand Notice is required to bring to the notice of the Operational Creditor existence of dispute, if any. Thus, the existence of dispute and its communication to the Operational Creditor is statutorily provided for. 10. Section 8 of the IBC reads as follows: Section 8: Insolvency resolution by operational creditor.- (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days(i) of the date of receipt of such notice from the adjudicating Authority. 13. Having noted the relevant statutory provisions, it is pertinent to point out that the Adjudicating Authority in the impugned order has taken note of the guiding principles laid down by the Hon ble Supreme Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (2018) 1 SCC 353 particularly the need to look into the existence of pre-existing disputes between parties. It may be useful at this stage to note that in Paragraphs 33 and 51 of the Mobilox judgement, following has been laid down: What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the self-same 10 days send an attested copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of the Corporate Debtor which is as reproduced below: Dear Sir or Madam : Our auditors, S. R. Batliboi Associates LLP, are auditing our financial statements and statement wish to obtain direct confirmation of amounts due to you as of 31st march 2017. Compare the information below with your records on that date and confirm that this information agrees with your records on that date or note the details of any discrepancies in the space provided below. Then please sign this request and return it in the enclosed reply envelope directly to our auditors. Our records on 31st march 2017 showed Rs.1,49,71,565 as payable to you. This is not a request for payment and remittances should not be sent to S.R. Batliboi Associates LLP. (Emphasis supplied) 15. This contention of the Operational Creditor has been repelled by the Corporate Debtor by asserting that Section 9 application requires strict proof of debt and default. Mere communication from the auditor is not sufficient to be read as an acknowledgement of debt. Reliance has also been placed on the judgment of this Tribunal in Gautam Sinha Vs U.V Asset Reconstruction Company Ltd. in CA(AT)(Ins) No. 1382 of 2019 wherein it has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view that the cut- off date for considering the existence of pre-existing dispute will be the date of issue of the First Demand Notice i.e., 18.03.2019. Accordingly, it has held that reliance of the Corporate Debtor on its reply dated 24.04.2019 to the First and Second Demand Notices to prove the existence of pre-existing dispute cannot be accepted. 18. It therefore becomes necessary to examine whether the cut-off date pegged by the Adjudicating Authority in the present matter is tenable. It is an admitted fact that the Corporate Debtor had sent a combined Notice of Dispute dated 24.04.2019 in response to the First Demand Notice dated 18.03.2019 and Second Demand Notice dated 11.04.2019. Another Notice of Dispute dated 20.01.2020 was sent in response to the Third Demand Notice dated 07.01.2020. 19. For reasons of clarity, we would like to refer to the two Notices of Dispute. The first Notice of Dispute dated 24.04.2019 is as extracted below: Without prejudice to the rights and contentions of Our Client as available under Law, our reply to your said Notice is as under: 1. The demand of purported operational debt of INR 1,35,44,526 and interest is false and frivolous ex-facie. You ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same; The said reply dated 24.04.2019 was not even disputed or replied by Your Client after its receipt. However after 9 months therefrom, now this fresh demand notice has been issued which is baseless and disputed. True copy of the reply dated 24.04.2019 is annexed as Annexure A. 2. It is most important to mention here that, on the contrary, as per the audited balance sheet for the year ending 31.03.2019 as well as the ledger statement for period 01.04.2018 to 31.03.2019 of Our Client, an amount of INR 14,09,899/- (Rupees Fourteen Lakh Nine Thousand Eight Hundred and Ninety Nine only) is due from your Client as receivable (herein referred as Credit Balance). The Credit Balance forms a part of gross amount of INR 1,31,610,91/- appearing under the head Short Terms Loan Advances and sub-head Unsecured, considered good unless stated otherwise briefed as Advance Recoverable in Cash or Kind. Hence, on the date of issuance of said Notice, it is Your Client who is indebted to Our Client and there is already a prior existing dispute raised vide reply dated 24.04.2019, Needless to mention, the audited balance sheet is dated 29.11.2019 i.e. almost two months prior to the receipt of your sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier on 24.04.2019. It was again emphasised that in terms of their audited balance sheet, it was the Operational Creditor who was indebted to the Corporate Debtor and not the other way around. Mention was also made of certain invoices which the Operational Creditor had themselves earlier admitted to have been paid by the Corporate Debtor was now shown as unpaid and that such self-contradictory and shifting stand showed clear evidence of dispute. We also notice that in both the Notice of Dispute, the Operational Creditor was advised to take up reconciliation of accounts. It is sufficient to notice that the Corporate Debtor in the reply to statutory Demand notice made a categorical statement that nothing was due and payable by them. We also do not find any material which has been placed on record to show that the dispute raised by the Corporate Debtor were controverted, contradicted or denied by the Operational Creditor at any stage. 22. The tone and tenor of both the Notice of Disputes clearly manifested existence of dispute prior to the date of the Section 8 demand notice basis which the present Section 9 application has been filed. This constitutes sufficient foundation of genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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