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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 ..... heir reply email dated 21.12.2020 as placed at page 927 of Appeal Paper Book clearly admitted that they had made total imports of about USD 70 million during the period from 2016 to November 2020 against which they had paid only USD 57 million to the Operational Creditor. It was however contended by the Corporate Debtor that the Adjudicating Authority had not taken cognisance of the fact that the alleged balance confirmation dated 03.03.2021 was issued on the insistence of the Operational Creditor with the limited purpose of disclosure. The Corporate Debtor had admitted the operational debt and held adverse cash-flow to be the cause for non-payment of the operational debt and as such no dispute with the Operational Creditor was attributed for non-payment of the same - The tone and tenor of the email clearly shows that that the Corporate 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. The contention of the Corporate Debtor that only part of the debt has been admitted by the Corporate Debtor does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Appeal is dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Sunil Fernandes, Sr. Advocate with Mr. Milan Singh Negi, Mr. Ashish Pyasi, Mr. Nikhil Kumar Jha, Ms. Rajshree Choudhary and Ms. Akriti Gupta, Advocates For the Respondent : Mr. Sandeep Bajaj, Mr. Sharath Sampath, Mr. Mayank Biyani and Ms. Kavya Singh, Advocates JUDGMENT ( Hybrid Mode ) Per: Barun Mitra, Member ( Technical ) The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ( IBC in short) by the Appellant arises out of the Order dated 19.12.2023 (hereinafter referred to as Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in C.P. (IB) No. 137/MB/C-I/2023. By the impugned 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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rongly bifurcated the operational debt into disputed operational debt and undisputed operational debt and admitted the Corporate Debtor into CIRP on the ground that the undisputed debt was above the threshold limit. Another contention raised by the Appellant is that their business relationship with the Operational Creditor was governed by an agreement dated 21.06.2015 and not by the agreement claimed by the Operational Creditor. Submission was pressed that the Adjudicating Authority had ignored the fact that the existence of this agreement dated 21.06.2015 is adequately substantiated as these find mention in the emails dated 02.06.2021 and 03.06.2021 sent by the Appellant to the Operational Creditor. Denial by the Operational Creditor of the agreement dated 21.06.2015 by itself 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiating CIRP. Hence, following the above ratios, in the present case, there was no infirmity in the impugned order passed by the Adjudicating Authority admitting the Section 9 application. 6. We have duly considered the detailed arguments and submissions advanced by the Learned Counsel for both the parties and perused the records carefully. 7. The short point for our consideration is whether payment to the Operational Creditor was due from the Corporate Debtor giving rise to an operational debt, and if so, whether a default has been committed by the Corporate Debtor in respect of payment of such operational debt having already become due and payable and whether the said operational debt exceeds the threshold level and is an undisputed debt. 8. This examination would 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) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the Corporate Debtor had admitted the operational debt and held adverse cash-flow to be the cause for non-payment of the operational debt and as such no dispute with the Operational Creditor was attributed for non-payment of the same. That there was no dispute between the Operational Creditor and Corporate Debtor at this stage when debt was acknowledged by the Corporate Debtor can also be inferred from the fact that the Corporate Debtor stated in the same debt-acknowledgement email that they are proud of opening up India market for the Operational Creditor and to play their part in building the growth strategies of the Operational Creditor in the Indian market. The tone and tenor of the email clearly shows that that the Corporate 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 Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor amounts to be a clear acknowledgment of debt being due and payable. The contention of the Corporate Debtor that only part of the debt has been admitted by the Corporate Debtor does not hold ground as long as the admitted debt which has been admitted is clearly above the prescribed threshold limit of Rs 1 cr. The Corporate Debtor has duly admitted the outstanding debt and default which is a valid and proper admission in the eyes of law. In the attendant facts and circumstances, no error was committed by the Adjudicating Authority in admitting the application for initiating CIRP. 15. This now brings us to the third test as laid down by Mobilox judgement as to whether there is existence of dispute between the parties. 16. Material 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice. The Operational Creditor vehemently denied and disputed the existence of any such agreement of 21.07.2015 and stated by way of an affidavit before the Adjudicating Authority that this agreement was a forged and fabricated document created to prejudice the mind of the Adjudicating Authority. Submitting that no mention was ever made of this alleged agreement prior to filing of the reply to Section 9 application, the Operational Creditor was constrained to file an additional affidavit denying the existence of the alleged agreement as placed at page 1081 of APB. It was also pressed that the alleged agreement dated 21.07.2015 was not executed by any person authorised by the Operational Creditor. It has also been stated in the 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 fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the agreement of 2015, we, therefore, find credence in the argument of the Operational Creditor that this agreement of 21.07.2015 was brought to the fore on 14.09.2023 for the first time when the Corporate Debtor filed its reply to the Section 9 application purely as an after-thought with the sole purpose of avoiding their liability to pay the outstanding amount. 22. This brings us to yet another contention of the Appellant that the Operational Creditor on multiple occasions supplied inferior quality of goods. This issue was flagged and brought to the notice of the Operational Creditor on several occasions by the Corporate Debtor. It was also contended that the Operational Creditor had admitted the quality disputes 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, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to the Operational Creditor of an amount of USD 714,699 between the period 04.01.2021 to 20.07.2022 against the admitted amount due and payable by it to the Corporate Debtor. This payment post balance confirmation clearly showed that the Corporate Debtor clearly admitted outstanding debt and default which is a valid and proper admission in the eyes of law. The alleged discrepancy between the books of accounts of Corporate Debtor and the Operational Creditor was on account of a unilateral debit note of USD 4.5 million which did not have the approval of the Operational Creditor as at pages 978-979 of APB. It is the contention of the Operational Creditor that as this debit note was issued unilaterally, it cannot 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferences between them with regard to the agreement basis which they were conducting their business operations. When we look at the impugned order, we find that the Adjudicating Authority has considered the entire gamut of facts holistically. We are also satisfied with the findings of the Adjudicating Authority that facts on record speak loud and clear that the Corporate Debtor/Appellant all along admitted that it owed an operational debt to the Operational Creditor which amount was in excess of the threshold limit until their reply to the Section 8 demand notice. When the operational debt had already arisen and become due and invoices raised were not specifically disputed there is nothing on record 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 raise ..... 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