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TMI Blog2024 (11) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... d order, the Adjudicating Authority has admitted the Section 9 petition against the Corporate Debtor and ordered initiation of Corporate Insolvency Resolution Process ("CIRP" in short) of the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the shareholder of the Corporate Debtor. 2. Coming to the brief facts of the case, the Operational Creditor had a business relationship with the Corporate Debtor and supplied Set Top Boxes ("STB" in short) on credit to the Corporate Debtor. Since the payments were not forthcoming from the Corporate Debtor and allegedly the latter continued to remain in default, the Operational Creditor sent a Legal Notice dated 07.07.2022. Despite the Legal Notice, the Corporate Debtor failed to make payment of the pending amount to the Operational Creditor. The Legal Notice was followed by reminders until filing of statutory demand notice under Section 8 of the IBC on 18.11.2022 demanding an amount of USD 121,47,968 towards principal amount. A notice of dispute to the Demand Notice was issued by the Corporate Debtor to the Operational Creditor on 01.12.2022 disputing the entire operational debt. The Operational Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf constituted a dispute and thus was a sufficient ground for rejection of the Section 9 application. It was therefore incumbent upon the Adjudicating Authority to take cognisance of these preexisting disputes which has however erroneously not been done. 5. Refuting the submissions made by the Appellant, the Ld. Counsel for the Respondent submitted that the Operational Creditor had always made delivery of goods to the Corporate Debtor within the time period agreed by the parties on the basis of purchase orders issued by the Corporate Debtor. The Corporate Debtor had been accepting delivery of the STBs without raising any demur or protest but made only partial payments to the Operational Creditor for the goods supplied because of which Operational Creditor issued reminders for payment to the Corporate Debtor. The Corporate Debtor had confirmed that as per its books a sum of USD 88,81,595 was due and payable to the Operational Creditor. Despite making clear admission of their liability towards Operational Creditor, the Corporate Debtor did not pay the entire amount which was due and payable to the Operational Creditor and this amount outstanding being more than the threshold of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in line with the test which has been laid down by the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited (2018) 1 SCC 353 for the Adjudicating Authority while examining an application under Section 9, the relevant excerpts of which are as follows:- "34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an "operational debt" as defined exceeding Rs. 1 lakh? (See 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor while admitting the debt had shown their commitment to participate with the Operational Creditor in building their brand presence in India thereby showing that there was no dispute between the parties on the business dealings. 13. Submission has also been pressed by the Operational Creditor that even thereafter their auditor had addressed an email to the Corporate Debtor on 25.02.2021 seeking balance confirmation of account of Corporate Debtor with the Operational Creditor which is placed at page 860 of APB. We have looked at the balance confirmation which was signed and stamped by the Corporate Debtor and sent to the Operational Creditor on 03.03.2021 as placed at page 859 of APB. The balance confirmation document at page 862 shows that the Operational Creditor had sought balance confirmation of USD 147 million from the Corporate Debtor. Even at this stage, the Corporate Debtor unequivocally admitted owing an amount of USD 8.8 million to the Operational Creditor as on 31.12.2020. There is no doubt that a differential amount of USD 5.8 million was pointed out in the signed and stamped confirmation but on perusing the document, we are unable to read any signs of outright ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial placed on record show that while the Corporate Debtor had admitted their liability a number of times but payments were not forthcoming from them, the Operational Creditor had sent a Legal Notice dated 07.07.2022. Despite this notice, the Corporate Debtor failed to make payment of the pending amount to the Operational Creditor. The Legal Notice was followed by filing of statutory demand notice under Section 8 of the IBC on 18.11.2022. It is at this stage that a notice of dispute was issued by the Corporate Debtor to the Operational Creditor on 01.12.2022 disputing the entire operational debt. 17. It is the case of the Corporate Debtor that in their Notice of Dispute as placed at page 876 of the APB, it was clearly stated by them that the said demand notice did not disclose the existence of agreement dated 21.06.2015 which had been executed between the Corporate Debtor and the Operational Creditor which agreement laid down the original understanding of the contractual relationship between the parties. The Ld. Sr.Counsel for the Appellant submitted that the Appellant by way of an affidavit had brought on record before the Adjudicating Authority the agreement dated 21.06.2015. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affidavit that the 21.07.2015 agreement was not made/executed on the letterhead of the Operational Creditor which is the standard business practice of the Operational Creditor. Hence it was contended that this was a frivolous contention raised as an afterthought and deserved to be disregarded. 20. From the material placed before us, we find that this alleged agreement was never specifically mentioned by the Corporate Debtor at any point of time prior to filing the reply to the Section 9 application. No specific disputes as to which agreement governed their contractual relationship was raised prior to the issuance of statutory demand notice on under Section 8 of the IBC by either parties. More importantly, we find from the records that the Corporate Debtor adopted contradictory and shifting stand on the agreement governing their business relationship. This becomes clear when we look at the notice of dispute dated 01.12.2022 wherein the Corporate Debtor has claimed that the business relationship with the Operational Creditor was guided by an agreement dated 04.10.2016 and there is no mention of the agreement of 21.07.2015. It may be useful to extract the relevant portions of the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes qua the goods supplied during the period 2017-2020 and that debit notes were issued from time to time which therefore evidences pre-existing disputes. Though the Corporate Debtor on 03.03.2021 had signed the confirmation for receivable and repayable balances amounting USD 88,81,595, it was simultaneously brought to the notice of the Operational Creditor that some amount was due to the Corporate Debtor from the Operational Creditor because of defective goods. Thus, there was need of account adjustment between the parties and their emails dated 02.06.2021 and 03.06.2021 specifically pointed out account reconciliation issues between the parties. It was also vociferously contended that the outstanding amount was disputed since the Corporate Debtor had sent an email on 29.01.2021 to the Operational Creditor informing them that they had reflected a debit note of USD 4.5 million in their audited books of accounts for F.Y. 2019-20. The Adjudicating Authority had clearly failed to look into the issue of reconciliation of accounts which were subsisting and pending adjustments required to be made between the Operational Creditor and the Corporate Debtor. It was asserted that in a Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be looked upon as a dispute. The Operational Creditor had infact replied back on 01.02.2021 agreeing to look into the debit note as placed at page 979 of APB. The issue of debit-notes as a ground of dispute as contended by the Corporate Debtor was therefore misplaced and lacks foundation. It was therefore contended that Adjudicating Authority had correctly noted that the Corporate Debtor had always acknowledged the unpaid outstanding liability amount which being above the threshold level of Rs 1 cr clearly established debt and default. 24. At this stage we may look into how the Adjudicating Authority has dealt with the issue of pre-existing disputes as raised by the Corporate Debtor. The relevant extracts from the impugned order is as reproduced below : "28. Nonetheless, the Corporate Debtor has consistently acknowledged that 7-8 million is outstanding and this payment is held up because of poor realization from debtors. We find that email dated 03.03.2021 from the Corporate Debtor clearly demonstrates the outstanding debt of Rs USD 8,881,595/-. Though, the Corporate Debtor has raised the issue of discounts, write-offs, goods returned and free goods and the Operational Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord which detracts from the operational debt having become due and payable. We also notice that debitnotes notwithstanding, the Appellant had acknowledged that they were liable to pay the outstanding operational debt. The Corporate Debtor never disputed or questioned the offer made by the Operational Creditor to look into the debit notes for making appropriate credit adjustments. This puts a serious question mark on the bona-fide of the bogey of pre-existing disputes being subsequently raised by the Corporate Debtor. The alleged disputes claimed by the Corporate Debtor are feeble and not supported by credible evidence. In sum, no real preexisting dispute is discernible. There is no good ground to establish any real and substantial pre-existing dispute which can thwart the admission of section 9 application against the Corporate Debtor. The Adjudicating Authority therefore does not appear to have committed any error in holding that all requisite conditions necessary to trigger CIRP under Section 9 stands fulfilled. 26. When we look at the impugned order, we also find that the Adjudicating Authority has looked into the judgements which has been relied upon by the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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