2020 (9) TMI 601 - AT - Insolvency and Bankruptcy

Tribunal upholds Sub-Distribution Agreement as operational debt under Insolvency and Bankruptcy Code

The tribunal upheld the validity of the Sub-Distribution Agreement between the Operational Creditor and Corporate Debtor, determining the debt as ... Operational debt - operational creditor - sub-distribution agreement as creating creditor-debtor relationship - admission under Section 9 of Insolvency & Bankruptcy Code, 2016 - dispute raised under Section 8(2)(a) of the Insolvency & Bankruptcy Code, 2016 - limitation for filing application under Section 9Sub-distribution agreement as creating creditor-debtor relationship - operational creditor - Whether M/s. Park Network Pvt. Ltd. is an operational creditor vis-a -vis M/s. PP Telecell Marketing Pvt. Ltd. by virtue of the Sub-Distribution Agreement dated 15.4.2015. - HELD THAT: - The Tribunal examined clauses of the Sub-Distribution Agreement, including obligations and pricing/payment terms (clauses 4 and 5 and Annexure C), which establish that the Distributor (M/s. PP Telecell Marketing Pvt. Ltd.) sold products to the Sub-Distributor (M/s. Park Network Pvt. Ltd.), bore responsibility for price drops and specified payment/credit terms. There is no contractual obligation on the manufacturer (M/s. Syntech (HK) Technology Ltd.) in the SDA. On this factual and contractual basis, the relationship of seller-buyer under the SDA gives rise to a creditor-debtor relationship between the Corporate Debtor and the Operational Creditor, making M/s. Park Network Pvt. Ltd. an operational creditor for the purposes of the IBC framework. [Paras 18]M/s. Park Network Pvt. Ltd. is an operational creditor in relation to M/s. PP Telecell Marketing Pvt. Ltd.Operational debt - admission under Section 9 of Insolvency & Bankruptcy Code, 2016 - Whether the claimed amount shown in the ledger and communicated by e-mail constitutes an operational debt such as to warrant admission of the Section 9 application (leaving aside quantification). - HELD THAT: - Having accepted the contractual scheme whereby the Distributor bears cost of price drops and credits are reflected in the ledger, the Tribunal inferred that the amount reflected in the Corporate Debtor's ledger (as communicated on 5.1.2019) pertains to liabilities arising from the provision of goods/services under the SDA. Though the exact quantum was not finally determined by the appellate forum, the Tribunal held that the existence of a debt in the name of the Corporate Debtor vis-a -vis the Operational Creditor is established for the limited purpose of assessing admissibility under Section 9, subject to threshold and quantification not being decided at this stage. [Paras 20]The amount standing in the Corporate Debtor's ledger is inferred to be an operational debt for the purposes of admitting the Section 9 application; quantum to be determined separately.Dispute raised under Section 8(2)(a) of the Insolvency & Bankruptcy Code, 2016 - limitation for filing application under Section 9 - Whether the reply to the demand notice raised a bonafide and pre-existing dispute under Section 8(2)(a), and whether the Section 9 application was filed within limitation. - HELD THAT: - The Corporate Debtor replied to the demand notice asserting that the amount was not its liability and there was no direct transaction; however, on examination of the SDA and accompanying ledger and communications, the Tribunal found that the contractual relationship and the ledger entries undermined the contention of a genuine dispute as defined in Section 8(2)(a). Accordingly the purported dispute was held to be imaginary. Separately, the Tribunal noted the date of default as recorded in the Section 9 application and the filing date before the Adjudicating Authority and held that the application was filed within the prescribed period. [Paras 21, 22]The dispute raised by the Corporate Debtor did not constitute a bona fide dispute under Section 8(2)(a); the Section 9 application was filed within limitation.Final Conclusion: The Appellate Tribunal found that the Sub-Distribution Agreement established an operational creditor-debtor relationship, that the claimed ledger amount constituted an operational debt for the purpose of admission under Section 9 (leaving quantification aside), that the dispute raised by the Corporate Debtor was not a bona fide dispute under Section 8(2)(a), and that the Section 9 application was filed within limitation; the appeal against admission was dismissed. Issues Involved:1. Validity of the Sub-Distribution Agreement (SDA) between the Operational Creditor and Corporate Debtor.2. Determination of whether the debt in question is an operational debt.3. Existence of any dispute regarding the operational debt.4. Timeliness of the application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.Issue-wise Detailed Analysis:1. Validity of the Sub-Distribution Agreement (SDA):The Sub-Distribution Agreement (SDA) was signed between the Operational Creditor and the Corporate Debtor on 15.4.2015. The agreement detailed the terms for the supply and distribution of mobile phones and accessories. Clause 5 of the SDA outlines the obligations towards the sub-distributor, including the introduction of sales-boosting schemes and the responsibility for liabilities arising from non-serviceability or unsatisfactory performance of products. Clause 4 specifies that the sub-distributor purchases products from the distributor according to the applicable price list and terms of sale. The agreement does not place any obligations on the mobile handset manufacturing company, Syntech (HK) Technology Limited. Therefore, the relationship between M/s. PP Telecell Marketing Pvt. Ltd. (Corporate Debtor) and M/s. Park Network Pvt. Ltd. (Operational Creditor) is valid under the SDA.2. Determination of Operational Debt:The definition of 'operational debt' under Sections 3(11) and 5(21) of the IBC, 2016, includes claims in respect of the provision of goods or services. The transactions between the distributor (Corporate Debtor) and the sub-distributor (Operational Creditor) involve the sale and purchase of mobile handsets and accessories. The ledger account attached to the email sent by the Corporate Debtor on 5.1.2019 confirms an amount of Rs. 20,02,872/- due to the Operational Creditor. The Corporate Debtor's mention of a settlement offer by Syntech (HK) Technology Limited does not alter the nature of the debt. The debt of Rs. 20,02,872/- is thus inferred to be an operational debt, and it is more than the threshold amount specified for admission under Section 9 of the IBC, 2016.3. Existence of Dispute Regarding Operational Debt:Section 8(1) of the IBC, 2016, requires the Operational Creditor to deliver a demand notice to the Corporate Debtor on the occurrence of default. The Corporate Debtor's reply to the demand notice dated 2.5.2019, sent through an advocate on 21.5.2019, claimed that the demand was illegal and that there was no direct transaction between the parties. However, the Sub-Distribution Agreement establishes a valid relationship between the parties, making the Corporate Debtor's dispute imaginary and not as defined under Section 8(2)(a) of the IBC, 2016. Therefore, the dispute raised by the Corporate Debtor does not hold any ground.4. Timeliness of the Application Under Section 9 of IBC, 2016:The application under Section 9 of the IBC, 2016, was filed by the Operational Creditor on 18.7.2019 before the Hon’ble NCLT (Adjudicating Authority). The date of default was mentioned as 5.1.2019, and the amount of debt in default was Rs. 20,02,872/-. The application was thus filed within the limitation period.Conclusion:After detailed examination, the tribunal found no reason to interfere with the impugned order dated 27.5.2020 of the Hon’ble NCLT, New Delhi (Adjudicating Authority). The appeal was dismissed, and there was no order as to costs.