2022 (4) TMI 433 - AT - Insolvency and Bankruptcy

Tribunal remands case for review of business module, purchase orders, and invoices

STR Holdings, INC. Versus Lucent Cleanenergy Pvt. Ltd.

The Tribunal remanded the case to the Adjudicating Authority for a comprehensive review of the business module, purchase orders, invoices, and payments, ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational debt or not - grievance of the Appellant is that the Adjudicating Authority on misapplication of facts and law has held erroneously that part of the claim filed by the Appellant for outstanding payment due on raw material invoices is not an ‘operational debt’ and that the remaining part of the claim for balance payment for equipment being an ‘operational debt’ is subject to disputes - existence of debt and dispute or not - HELD THAT:- It seems that Respondent has made some part payments also to the Appellant against their commercial invoices. However, it is a grey area and there is a need to go into details of voracity of various submissions made by the Appellant and the Respondent. There is a need to find out voracity of various submissions and the business module; it does not seem to be straight jacket case that there is no payment due to the Appellant from the Respondent but at the same time it cannot confirmed that all sums as demanded by the Appellant is due and payable in law and on fact by the Respondent as there seems to be some back to back payment understanding between the parties as appears from the record. The justice demands to refer back the matter to the Adjudicating Authority for having a fresh look on various issues relating to the business module and the purchase order and invoices raised by the Appellant and the payment so far released and the balance due linking it to the back to back receipt from customer for the supply made by the Respondent which is a joint responsibility - the matter is remanded to the Adjudicating Authority for a fresh look and the Adjudicating Authority is requested to dispose of the matter expeditiously in accordance with law. Appeal allowed by way of remand. Issues Involved:1. Classification of the claim as an 'operational debt.'2. Existence of a pre-existing dispute.3. Adjudicating Authority's decision to dismiss the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016.Issue-wise Detailed Analysis:1. Classification of the Claim as an 'Operational Debt':The Appellant, a foreign company, supplied raw materials to the Respondent under 43 invoices, with 27 invoices paid and 16 remaining unpaid. The Appellant contends these unpaid invoices constitute an 'operational debt' under the Insolvency and Bankruptcy Code, 2016. The Respondent argues that the Appellant facilitated purchases by making advance payments to suppliers, and the invoices raised by the Appellant were merely proforma invoices, not actual invoices for goods or services supplied. The Respondent maintains that no operational debt exists as defined under Section 5(21) of the Code, as the Appellant did not provide any goods or services directly to the Respondent.2. Existence of a Pre-existing Dispute:The Respondent highlighted significant pre-existing disputes arising from the hybrid structure of the Joint Venture (JV) operations. These disputes were categorized into five buckets: receivables from end customers, outstanding equipment payments, inventory issues, scrap/waste/bad debts, and miscellaneous items such as GST and credit note adjustments. The Adjudicating Authority noted that these disputes were acknowledged by both parties and were subject to ongoing reconciliation efforts. The existence of these disputes was further evidenced by various communications and emails between the parties.3. Adjudicating Authority's Decision to Dismiss the Petition:The Adjudicating Authority dismissed the petition, concluding that the claim did not qualify as an operational debt under Section 9 of the Code due to the pre-existing disputes. The Authority emphasized that the parties operated under a Term Sheet for a Tolling and Joint Venture Agreement, with the Respondent acting as a job worker entitled to a tolling fee. The Authority also noted disputes regarding scrap, wastages, equipment functionality, and other claims made by the Appellant.Observations and Judgments:- The Tribunal acknowledged the existence of the Term Sheet and the supply of materials by the Appellant, with partial payments made by the Respondent.- The Tribunal found that the Appellant had raised valid purchase orders and commercial invoices, contradicting the Respondent's claim that these were merely proforma invoices.- The Tribunal recognized the Respondent's smaller bargaining power compared to the Appellant, suggesting that equity considerations might play a role.- The Tribunal cited relevant judgments, including Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., emphasizing the need to determine the existence of an operational debt, the due and payable status of the debt, and any pre-existing disputes.- The Tribunal concluded that the case involved complex issues requiring a detailed examination of the business module, purchase orders, invoices, and payments. It remanded the matter back to the Adjudicating Authority for a fresh review, directing both parties to appear before the National Company Law Tribunal, Ahmedabad Bench.Conclusion:The Tribunal remanded the case to the Adjudicating Authority for a comprehensive review of the business module, purchase orders, invoices, and payments, emphasizing the need to resolve the pre-existing disputes and determine the validity of the operational debt claim. The Tribunal directed the parties to appear before the National Company Law Tribunal, Ahmedabad Bench, for further proceedings. Pending applications were disposed of, and any interim orders were vacated. No order as to costs was made.