TaxTMI 
TaxTMI 
2020 (3) TMI 99
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....n C.P. (IB) No.260/BB/2019, whereby the Adjudicating Authority has admitted the Application for initiation of Corporate Insolvency Resolution Process ('CIRP') against the 'Corporate Debtor', filed under Section 9 of the Insolvency and Bankruptcy Code (in short 'I&B Code') on 24th October 2019, in the case of Neeraj Jain, Director of M/s Flipkart India Private Limited Vs. M/s. Cloudwalker Streaming Technologies Pvt. Ltd. The parties are referred to by their original status in the Company Petition for the sake of convenience. 2. Brief facts of the case are as follows: The Company Petition No. CP (IB) No. 260/BB/2019 is filed by M/s Cloudwalker Streaming Technologies Pvt. Ltd., under Section 9 of Insolvency & Bankruptcy Code, 2016 against the 'Corporate Debtor' M/s Flipkart India Private Limited on the ground that it has committed default for an amount of Rs. 26,95,00,000/- (Rupees twenty-six crore ninety-five lacs only). 3. The Operational Creditor M/s Cloudwalker Streaming Technologies Private Limited contends that the Corporate Debtor Flipkart India Private Limited contacted the Operational Creditor and showed interest in selling its product of LED TVs. The Operational Creditor ....
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....y and Bankruptcy Code, 2016 which was received by the 'Corporate Debtor' on 13th June 2019. However, there has been no reply to the same. The 'Corporate Debtor' has not raised any dispute about the amount outstanding to the Operational Creditor at any point of time. 5. The 'Corporate Debtor' has filed its Response dated 25th September 2019 against the Company Petition contending as follows: (i) There is no admitted debt or liability, further stated that the 'Corporate Debtor' had already paid an amount of Rs. 85,57,00,664/-, towards the invoices raised by the Petitioner/Operational Creditor. The 'Corporate Debtor' is not liable to make any payment to the Operational Creditor. (ii) The Operational Creditor has approached the 'Corporate Debtor' expressing its desire and interest in establishing business relation with the Respondent - 'Corporate Debtor', for sale of the Petitioner's product, through the resellers of the Respondent. Under due deliberations between the Petitioner and Respondent, the parties entered into a Supply Agreement dated 29th December 2016. (iii) Given Clause 2(a) of the Supply Agreement, the Respondent shall issue purchase orders (from now on referred to ....
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....ts of the petition. In the Rejoinder by the operational creditor, it is specifically stated that as against the admitted amount of Rs. 103,62,00,000/- against invoices, the 'Corporate Debtor' admitted having paid only Rs. 85,57,00,664/- (Rupees eighty-five crore fifty-seven lacs six hundred sixty-four only). Therefore, even as per admission 'Corporate Debtor' Rs. 18,04,99,336/-is still outstanding from and out of the total invoice amount. Therefore, the Petition deserves to be admitted on the sole ground. (ix) The 'Corporate Debtor' has contended that there is an existing dispute between the parties, which is to be adjudicated by the Civil Court, upon appreciating the evidence placed on record. It is further contended that on the instructions of the 'Corporate Debtor', the Operational Creditor imported the goods, which was duly communicated to the 'Corporate Debtor. But due to the shortage of warehouse facilities, the 'Corporate Debtor' could not take delivery of goods resulting in paying excess excise duty by the Operational Creditor. The 'Corporate Debtor' also accepted that it had withheld approximately an amount of Rs. 42,96,668/- towards deficiency in services by the Petitio....
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....cy Code 2016? 2. Whether or not, copy of the invoice is a mandatory requirement for issuance of demand notice U/S 8(1) of the Insolvency and Bankruptcy Code 2016, in Form 3 of the Insolvency and Bankruptcy (Adjudicating to Authority) Rules 2016? 3. Whether or not for filing an application, U/S 9 of the Code in Form 5 under [sub-rule (1) of Rule 6] Insolvency and Bankruptcy (Adjudicating to Authority) Rules 2016, the submission of a copy of the invoice is a mandatory requirement, although the demand notice is served in Form 3? 10. Learned Counsel for the Appellant has raised the argument that the Operational Creditor - Respondent No.1 has failed to produce invoices, purchase orders or any documents to prove its claim and has filed a defective Application under Section 9. 11. In reply to the above, the Appellants /Corporate Debtor contends that the Respondent No.1-Operational Creditor/ Cloudwalker Streaming Technologies Pvt. Ltd., entered into a Supply Agreement, dated 29th September 2016. Clause 2(a) of the said Agreement provides that the M/s Flipkart India Private Limited / Corporate Debtor was to place a purchase order, which was to be evaluated by the Operational Cre....
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....be no sale and supply of goods without a purchase order. The learned Senior Counsel for the Appellant has vehemently emphasised on the format of Section 9 Application, which is filed in the prescribed Form 5, under the Insolvency & Bankruptcy Code (Application to Adjudicating Authority Rules, 2016) (from now on referred to as "Rules"). The said Part - V of Form 5 mandates that "relevant document under which the debt has become due must be annexed". 15. To satisfy this requirement, the Operational Creditor has chosen only to produce the Supply Agreement and the projections emails, which by themselves can by no stretch of imagination constitute proof of debt. 16. It is further said that Part-V, Column 7 of Form 5 also mandates that a statement of the bank account where deposit or credit is normally received must be attached. The Operational Creditor has not attached even this bank statement. Though bank statement is a crucial document to establish, which amounts have been received, and lack thereof, merits rejection of Section 9 Application. 17. The Appellant further contends that the Respondent's claim does not qualify as an Operational debt. It is contended that an operational d....
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....e Respondent No.1 has based its claim on alleged unpaid amounts towards goods, custom charges and interest @ 12.65% without any substantiation. 23. It is further said that Clause 5(d) of the Supply Agreement provides, that no custom charges will be payable by the M/s Flipkart India Private Limited to the Respondent No.1. The Respondent No.1 had not filed any document or record relating to the purchase orders, invoices, to substantiate its claim. The Operational Creditor had charged interest, whereas, Clause 13 of the Agreement provides that no interest component is payable in any situation. 24. It is further contended that as per the terms of Supply Agreement, various purchase orders have been placed by the Flipkart, against which invoices have been issued. Post the issuance of debit notes, under Clause 4(b) of the Supply Agreement, a total reconciled amount of Rs. 85,99,97,332/- has been paid by the M/s Flipkart India Private Limited to the Respondent No.1. This total amount contains an amount of Rs. 42,96,668/- (Rupees forty-two lacs ninety-six thousand six hundred and sixty-eight only), which had been originally withheld by the M/s Flipkart India Private Limited owing to defec....
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....orporate Debtor' to the Respondent No.1, which amount the 'Corporate Debtor' has remitted to the Respondent No.1, without prior intimation, after the admission of the application by the Adjudicating Authority. 28. The Learned Counsel for the Operational Creditor has further contended that NCLT is not a forum for adjudication of the monetary claim as between the Respondent No.1 and the 'Corporate Debtor', so it was not necessary that the exact due from the 'Corporate Debtor' should have been finalised. 29. The Learned Sr. Counsel for the Respondent No.1/Operational Creditor further contended that the Operational Creditor has fulfilled the requirement of I&B Code and had issued a demand notice, which was not even replied to by the 'Corporate Debtor'. The 'Corporate Debtor' having admitted its unconditional liability to the Respondent No.1 for an amount of excess of Rs. 1,00,000/- (Rupees one lacs only) and having further admitted that an amount of excess of Rs. 1,00,000/- (Rupees one lacs only) was due and payable by the 'Corporate Debtor' to the Respondent No.1. Thus the application of the Respondent No.1 under Section 9 of the I&B Code against the 'Corporate Debtor' deserved to b....
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....ee as may be prescribed. (3) The operational creditor shall, along with the application furnish- (a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and (d) such other information or as may be specified. (4) An operational creditor initiating a corporate insolvency resolution process under this section may propose a resolution professional to act as an interim resolution professional. (5) The adjudicating authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order- (i) admit the application and communicate such decision to the operational creditor and the corporate debtor, if- (a) the application made under sub-section (2) is complete; (b) there is no repayment of the unpaid operational debt; (c) the invoice ....
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.... that has adjudicated upon the non-payment of a debt, if any; or (iv) financial account. FORM B PROOF OF CLAIM BY OPERATIONAL CREDITORS EXCEPT WORKMEN AND EMPLOYEES [Under Regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016] 1. [Date] To, The Interim Resolution Professional/Resolution Professional [Name of the Insolvency Resolution Professional/Resolution Professional] [Address as set out in public announcement] From, [Name and address of the operational creditor] Subject.-Submission of proof of claim. Madam/Sir, [Name of the operational creditor], hereby submits this proof of claim in respect of the corporate insolvency resolution process in the case of [name of corporate debtor]. The details for the same are set out below: PARTICULARS 1. Name of operational creditor 2. Identification number of operational creditor (if an incorporated body provide identification number and proof of incorporation. If a partnership or individual provide identification records [PAN number, passport, AADHAAR Card or the identity card issued by the Election Commission of India] of all the partne....
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....nsolvency resolution process against a corporate debtor under Section 9 of the Code in Form 5, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (2) The applicant under sub-rule (1) shall dispatch forthwith, a copy of the application filed with the adjudicating authority, by registered post or speed post to the registered office of the corporate debtor. *** FORM 3 [See clause (a) of sub-rule (1) of Rule 5] FORM OF DEMAND NOTICE/INVOICE DEMANDING PAYMENT UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016 [Under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016] 2. [Date] To, [Name and address of the registered office of the corporate debtor] From, [Name and address of the registered office of the operational creditor] Subject.-Demand notice/invoice demanding payment in respect of unpaid operational debt due from [corporate debtor] under the Code. Madam/Sir, 1. This letter is a demand notice/invoice demanding payment of an unpaid operational debt due from [name of corporate debtor]. 2.....
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....ational creditor Address of person signing Instructions 1. Please serve a copy of this form on the corporate debtor, ten days in advance of filing an application under Section 9 of the Code. 2. Please append a copy of such served notice to the application made by the operational creditor to the adjudicating authority. FORM4 [clause (b) of sub-rule (1) of Rule 5] FORM OF NOTICE WITH WHICH INVOICE DEMANDING PAYMENT IS TO BE ATTACHED [Under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016] [Date] To, [Name and address of registered office of the corporate debtor] From, [Name and address of the operational creditor] Subject.-Notice attached to invoice demanding payment Madam/Sir, [Name of operational creditor], hereby provides notice for repayment of the unpaid amount of INR [insert amount] that is in default as reflected in the invoice attached to this notice. In the event you do not repay the debt due to us within ten days of receipt of this notice, we may file an application before the adjudicating authority for initiating a corporate insolvency resolution process under Section 9 of the Code. Yours sincerel....
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.... PARTICULARS OF OPERATIONAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF DEFAULT] 1. Particulars of security held, if any, the date of its creation, its estimated value as per the creditor. Attach a copy of a certificate of registration of charge issued by the registrar of companies (if the corporate debtor is a company) 2. Details of reservation/retention of title arrangements (if any) in respect of goods to which the operational debt refers 3. Particulars of an order of a court, tribunal or arbitral panel adjudicating on the default, if any (attach a copy of the order) 4. Record of default with the information utility, if any (attach a copy of such record) 5. Details of succession certificate, or probate of a will, or letter of administration, or court decree (as may be applicable), under the Indian Succession Act, 1925 (10 of 1925) (attach a copy) 6. Provision of law, contract or other document under which operational debt has become due 7. A statement of bank account where deposits are made or credits received normally by the operational creditor in respect of the debt of the corporate debtor (attach a copy) 8. List of other documents attached to this application i....
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.... Regulations, namely- PROOF OF CLAIMS Regulation 7: Claims by operational creditors. (1) A person claiming to be an operational creditor, other than workman or employee of the corporate debtor, shall 12[submit claim with proof] to the interim resolution professional in person, by post or by electronic means in Form B of the Schedule: Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee. (2) The existence of debt due to the operational creditor under this Regulation may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant documents, including - (i) a contract for the supply of goods and services with corporate debtor; (ii) an invoice demanding payment for the goods and services supplied to the corporate debtor; (iii) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; or (iv) financial accounts Sec 5(6) of the Insolvency and Bankruptcy Code 2016: (6) "dispute" includes a suit or arbitration proceedings relating to- (a) the existence of the amount of debt; (b) the qu....
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...., "as reflected in the invoice attached to this notice", is specifically mentioned which shows that the invoice is mandatory along with the Notice in Form 4, whereas there is no such requirement with Form 3 notice. The relevant portion of Form 3 is provided herewith: PARTICULARS OF OPERATIONAL DEBT 1. Total amount of debt, details of transactions on account of which debt fell due, and the date from which such debt fell due 2. Amount claimed to be in default and the date on which the default occurred (attach the workings for computation of default in tabular form) 3. Particulars of security held, if any, the date of its creation, its estimated value as per the creditor. Attach a copy of a certificate of registration of charge issued by the Registrar of Companies (if the corporate debtor is a company) 4. Details of retention of title arrangements (if any) in respect of goods to which the operational debt refers 5. Record of default with the information utility (if any) 6. Provision of law, contract or other document under which debt has become due 7. List of documents attached to this application in order to prove the existence of operational debt and the amount in de....
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....al creditor has to file its claim along with 'an invoice demanding payment for the goods and services supplied to the Corporate Debtor'. 40. It is necessary to mention that as per Form 5, for submission of an application by an Operational Creditor, the following documents are to be attached with the application: "Instructions Please attach the following to this application- Annex I Copy of the invoice/demand notice as in Form 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 served on the corporate debtor. Annex II Copies of all documents referred to in this application. Annex III Copy of the relevant accounts from the banks/financial institutions maintaining accounts of the operational creditor confirming that there is no payment of the relevant unpaid operational debt by the operational debtor, if available. Annex IV Affidavit in support of the application in accordance with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Annex V Written communication by the proposed interim resolution professional as set out in Form 2 of the Insolvency and Bankruptcy (Application to Adjudicating Autho....
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....ith all the eventualities that may arise in the implementation of the said provisions. Therefore, the use of the word "OR" in Section 8 cannot be interpreted as such, that the Insolvency and Bankruptcy Code has provided a choice or a discretion to an Operational Creditor, to provide an escape route from submission of the invoice, which can be treated as the most relevant document to prove the debt and amount in default. 46. On perusal of the language of Section 8, it is clear that an Operational Creditor on the occurrence of default has been provided with the option of delivering a demand notice of the unpaid operational debt or raising an invoice demanding payment of the amount involved. The two options available for initiation of Corporate Insolvency Process are provided to deal with all the eventualities that may occur. For example, if an operational debt is in the nature of salary dues, then in that situation, the question of submitting an invoice does not arise. To deal with such a situation, Section 8 contains the provision for issuance of demand notice of the unpaid operational debt. Form 3 of the Adjudicating Authority Rules has only laid down the condition that the applic....
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....ale and supply of goods without a purchase order against which an invoice has been raised. In the absence of any supply or sale and any document to substantiate the same, the Respondent No.1 would not be an Operational Creditor, and hence the Application under Section 9 would not be maintainable. 50. The Operational Creditor/Respondent No.1 placed reliance on the definition of 'claim' under the I&B Code and argued that since the term 'claim' has been used in the definition of the 'operational debt', thus, even if the claims are disputed, the Respondent No.1 would be an Operational Creditor. As per provision of Section 8(1) of the Code, an Operational Creditor can deliver a demand notice only upon the occurrence of a 'Default', which happens on non-payment of 'Debt'. The word 'Debt' has been defined to mean a liability or obligation in respect of the claim, which is due from any person and includes a financial debt and operational debt. Even otherwise, mere failure to reply to the demand notice does not extinguish the rights of the Operational Creditor to show the existence of a pre-existing dispute. If there is no crystallization of the claim, there is no debt due or owed or defau....
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.... adjudicated by referring the same to the Arbitral Tribunal in terms of Clause 18 of the agreement dated 29.12.2016. In view of the Clause 18, before, we proceed to refer the matter to Arbitral Tribunal, we hereby call upon you to come forward and mutually settle the aforesaid dispute within a period of 30 days from date of receipt of this Notice. In the event of your failure, it would be deemed that you are not interested in settlement of disputes amicably and our aforesaid client shall be liberty to proceed further for appointment of an Arbitrator at your cost risk and consequences in terms of the aforesaid clause. Copy of this notice is retained for further action. For Rajiv Garg & Co. (Ashish Garg) Advocate" (Quoted verbatim) 52. On perusal of the above notice, it is clear that the Operational Creditor gave the above-stated notice to the Corporate Debtor, on account of breaches on the part of the Corporate Debtor stock of 21,808 TVs, exclusively imported for the Corporate Debtor were not picked up by it. Therefore, the Operational Creditor gave the notice that this is a breach of the contract, which has caused the Operational Creditor to suffer, for no fault on account....
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....s submitted by the Operational Creditor before the Adjudicating Authority. The said synopsis is on page 172 of the Appeal paper book. In this synopsis, it is specified by the Operational Creditor, that: "5. After receiving the said Purchase Orders, the Operational Creditor imported and procured the required quantities of LED TVs, which were then delivered to the Corporate Debtors desired location. 8. ....... The Operational Creditor facing huge losses and a liquidity crunch agreed to offer the said discount on the condition that the Corporate Debtor forthwith takes delivery of the remaining LED TVs purchased by him and make payment for the same. 10. Various emails, in demand for payment for the aforesaid LED TVs procured and imported for the Corporate Debtor from 11th October 2017 to 1st December 2017, were raised by the Operational Creditor pursuant to the import of the LED TVs based on the Purchase Order Emails to no avail. As of March 2018, the Corporate Debtor had failed to collect more than 70% of the stock as ordered by them. A copy of the emails by the operational creditor demanding payment is produced herewith as Annexure VII. 12. The Operational Creditor facing hea....
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....the debt fell due. The total amount of debt is Rs. 26,95,00,000/- (Rupees Twenty- Six Crore and Ninety-Five Lakhs Only). Purchase Orders made vide emails as per the Supply Agreement dated 29th December 2016. Hereto annexed and marked as Annexure I is a copy of the Supply Agreement dated 29th December 2016 and Annexure-II are the Purchase Order Emails. 7. List of documents attached to this application in order to prove the existence of the operational debt and the amount in default. Annexure I: Supply Agreement dated 29th December 2016. Annexure-II: Purchase Orders/Emails Annexure III: Computation of Amount in a Tabular Form 61. On perusal of the above notice, it appears that in Form-III Operational Creditor has only mentioned the total amount of debt without giving any detail of the debt. The list of documents which are attached to the Form-III Demand Notice contains only Supply Agreement dated 29th December 2016, Purchase Order/E-mail and computation of amount in tabular form. As per Proforma of Form-III, then Operational Creditor had to attach the documents with the Notice to prove the existence of Operational Debt and the amount in default. 62. In this case, Operatio....
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.... which by themselves can by no stretch of the imagination, constitute proof of debt. In Part V, Row -7 of the Form-5 under the Rules also mandates that statement of Bank Account where the deposit is normally received, must be attached. Even this Bank Statement has not been attached by Operational Creditor. Keeping in mind the summary nature of the proceeding, the Bank Statement is a crucial document to help establish which amounts have been received and lack thereof merits rejection of Section 9 Application. 65. The Operational Creditor, instead of producing the relevant document, has solely placed reliance on a few e-mails to allege that it had suffered losses on account of projections for the demand provided by the corporate debtor. The figures provided by corporate debtor are only projections for the 'demands' or 'demand assumptions' and does not constitute a binding Purchase Order under the Supply Agreement. It is, for this reason, the Operational Creditor time and again requested the Corporate Debtor for issuing Purchase Orders to undertake the supply of goods. 66. As per Clause-2(a), Clause-4(a), Clause-4(b) and Clause 6(a) and (b) of the Supply Agreement, there was a forma....
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.... specific evidence relating to invoices forwarded by the Appellant and there being a doubt, we hold that the Adjudicating Authority has rightly refused to entertain application under Section 9 which requires strict proof of debt and default." 70. Thus, it is clear that the Demand Notice issued under Section 8(1) of the Code against the Corporate Debtor in Form-3 was incomplete. It is also apparent that the Application filed in Form -5 under Rule 6(1) of the Adjudicating Authority Rules is also incomplete and the Operational Creditor has failed to produce invoices, purchase orders or any documents to prove its claim and has filed a defective Section 9 Application for initiation of Corporate Insolvency Resolution Process. 71. It is also apparent from the record that Operational Debt can only arise against provisions of Goods or Services. In the present case, the Operational Creditor has failed to substantiate the provision of a single good or service for which payment has remained outstanding. In the facts of the present case, there can be no sale or supply of goods without a Purchase Order against which an Invoice has been raised. In the absence of any supply or sale and any docum....
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.... assurance of the Corporate Debtor has not been crystallized, and the Adjudicating Authority under summary jurisdiction cannot adjudicate and determine the claim amount payable to the Operational Creditor. 75. It is pertinent to mention that before issuance of Demand Notice under Section 8(1) of the Code, the Operational Creditor issued a notice against the Corporate Debtor for making the payment within 30 days, failing which the Operational Creditor threatened to refer the dispute to Arbitral Tribunal. On perusal of the records, it appears that there is a pre-existing dispute, but the Operational Creditor withdrew the Notice issued by it on the pretext that the corporate debtor would try to settle the dispute amicably. After that, the Operational Creditor issued Notice under Section 8(1) of the Code and initiated action against the Corporate Debtor under Section 9 of the Code. Withdrawal of the said Notice does not mean that the dispute ceased to exist. The entire claim of the Operational Creditor is based on the loss caused to it on account of not taking delivery of 21,808 LED TVs which were imported and shipped on the assurance of the Corporate Debtor. Resultantly, Operational ....
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....pute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application." 76. The Ld. Senior Counsel for the Operational Creditor argued that during pendency of the Section 9 Application and post the order of the stay by ....
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....ice delivered under Section 8(1) of the Code was not proper and was also incomplete. The Operational Creditor failed to submit any documents to prove in existence of the Operational debt and the amount in default. The Operational Creditor also failed to submit the copy of invoices and copies of all the documents referred in the application to be submitted in Form 5, under Section 9 of the Code. The Operational Creditor has failed to submit the relevant documents under which the debt has become due. The Operational Creditor has only filed the copy of the Supply Agreement, and the projections email, which by themselves can by no stretch of the imagination constitute proof of debt. The Operational Creditor had not filed a copy of the bank statement. Instead of filing the relevant document, the Operational Creditor had solely placed reliance on a few emails to allege that he had suffered losses on account of projections for the demand provided by Flipkart. The figures provided by Flipkart were only projections that do not constitute the binding purchase order under the Supply Agreement. It is also clear that before issuance of demand notice, Operational Creditor had itself issued a not....