TaxTMI 
TaxTMI 
2020 (4) TMI 511
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....Registered Office # 202, 2nd Floor, Oxford Plaza No. 9-1-129/1, S.P. Road, Secunderabad, Telangana State. 3. Brief facts of the Application are as under: i. The Operational Creditor is a Food Products Company and deals in the business of growing, market gardening and horticulture of various kinds of food products since 1992. ii. That in the year 2018, the Corporate Debtor approached the operational creditor to purchase its stock and had started to place various purchase orders of "Liquid Chicory". Initially, it was requested by the Corporate Debtor that the payment of the freight charges shall be paid by the Operational Creditor on its behalf and asked the operational creditor to raise debit note for the same. Accordingly, the operational creditor paid the freight charges on behalf of the Corporate debtor and raised debit note. iii. Pursuant to the purchase order, the operational creditor has been supplying the products to the Corporate Debtor on regular basis and has not received any complaint or quality error in respect of the supply made by the operational creditor. iv. Since, the Corporate Debtor was regularly taking supply/delivery of the products from Operational Cre....
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....stry of Corporate Affairs 4. Copy of Purchase Order No. 197/2017-18 dated 16-2-2018. 5. Copy of Purchase order No. 256/2017-18 dated 1-3-2018. 6. Copy of Purchase order No. 274/2017-18 dated 15-3-2018. 7. Copy of Purchase order No. DFPL/0207/2018 dated 22-11-2018. 8. Copy of Invoice No. 110 dated 16-2-2018. 9. Copy of Invoice No. 112 dated 22-2-2018. 10. Copy of Invoice No. 113 dated 24-2-2018. 11. Copy of Invoice No. 117 dated 6-3-2018. 12. Copy of Invoice No. 125 dated 29-3-2018. 13. Copy of Invoice No. 25 dated 28-9-2018. 14. Copy of Invoice No. 198 dated 24-11-2018. 15. Copy of Invoice No. 32 dated 24-11-2018. 16. Copy of Invoice No. 35 dated 7-1-2019. 17. Copy of the statement of account for the period 01/04/2017 to 31-3-2019 being maintained by Operational Creditor. 18. Statutory Demand Notice dated 29-1-2019 under section 8 of the Code read with Rule 5 (Demand Notice by Operational Creditor) of the Insolvency and Bankruptcy Rules, 2016 along with its proof of despatch. 19. Copy of the letter/reply dated 6-2-2019. 20. A copy of the letter dated 5-3-2019. 21. The copy of the letter dated 25-3-2019." 5. The Respondent/CD has filed its counte....
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.... creditor were collectively enclosed as Annexure-II to the counter-affidavit. iv. For the year 2018-19, due to repeated quality issues and low Brix in respect of supplies made by the operational creditor, the corporate debtor started placing orders on one more supplier thereby reducing dependence on the operational creditor. Out of a total quantity of 10,69,435 kgs of chicory (valued at Rs. 4,54,97,194.90ps) procured by the corporate debtor during 2018-19, the supplies made by the operational creditor have dwindled to 2,19,000 kgs valued at Rs. 84,53,580/-. Even in respect of these reduced supplies from the operational creditor, the corporate debtor repeatedly faced shortages, low Brix and quality issues dues to presence of dust and oil particles in liquid chicory that adversely affected the quantity as well as quality of chicory produced. There were shortages in respect of supplies made under invoices No. 84 dated 26-5-2018; 91 dated 30-5-2018; 169 dated 19-9-2018; 176 dated 08-10-2018; 214 dated 22-12-2018 and the value of shortages come to Rs. 11,691/-. In this connection, the corporate debtor addressed e-mails dated 5-6-2018 and 12-9-2018 to the operational creditor and raise....
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.... by the Corporate Debtor due to poor quality of supplies, low Brix, shortages and damaged drums comes to Rs. 36,71,262/-. Though the corporate debtor has repeatedly sent mails and raised debit notes, there was no response from the operational creditor except making false assurances that it would ensure quality, higher Brix in the next supplies. In addition, the corporate debtor has lost orders from an important overseas customer and the loss of business is tentatively quantified at Rs. 50,00,000/- and the corporate debtor reserves its right to take necessary steps against the operational creditor for recovery of the same. vii. With regard to allegations that the operational creditor had supplied liquid chicory in the quantity and as per description and specifications mentioned in the purchase orders placed by the corporate debtor and to its complete satisfaction, nothing can be farther from truth. As stated above, the supplies made by the operational creditor had repeated issues of shortages in quantity, damaged drums, low Brix, quality issues due to presence of dust particles and oil in the liquid chicory. The corporate debtor repeatedly brought to the notice of the operational ....
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....., so as to arrive at the exact amount, if any, payable to the operational creditor. x. Instead of deputing its representative and getting the accounts as well as the issue of quality etc., reconciled, the operational creditor sent one more notice dated 5-3-2019 which was duly replied to by the corporate debtor through its advocate vide reply notice dated 25-3-2019. It is also pertinent to mention here that after the reply notice dated 25-3-2019 was sent, the corporate debtor received a letter dated 2-5-2019 from its overseas buyer whereby it lodged a complaint with regard to supply of instant chicory that was found emitting bad odour and fermented smell and raised a claim for US$42,512/- equivalent to Rs. 29,75,750/-. A copy of the letter dated 2-5-2019 received from overseas buyer is enclosed as Annexure-VII to the counter-affidavit. In addition, the corporate debtor has suffered potential business loss quantified for the present at Rs. 50,00,000/- due to low quality supplies made by the operational creditor. xi. It is further submitted that the corporate debtor is a 100% export oriented unit earning valuable foreign exchange for the country besides providing employment to hu....
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....he agreed terms between parties following the normal business practices. 11. Further, it is also a matter of record that on receipt of notice u/s.8 of the IBC, 2016 dated 29-1-2019 claiming an operational debt due to the tune of Rs. 58,83,226/- (Rupees Fifty Eight Lakhs Eighty Three Thousand Two Hundred and Twenty six Only) from the Operational Creditor, the Corporate Debtor did not raise the issue of any pre-existing dispute, but only raised the issue of quantum of debt being a lesser amount. The relevant portion of the reply dated 6-2-2019 is extracted hereunder. "Our above clients wish to state that as per their accounts, the amount due and payable to your clients is much lesser than what has been claimed by them. We enclose herewith a statement of account showing the Account position as on date. Our clients therefore dispute that they owe your clients the sum of Rs. 58,83,226/- as claimed by your clients. If your clients so desire, they can depute one of their representative to our office to reconcile the accounts mutually and also to discuss the quality issue etc., so as to derive the exact amount that can be payable to your clients. We wish to state that our clients re....
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....n arbitration proceeding already filed before the receipt of such notice; or b. Bring to the notice of the operational Creditor that the claim amount has already been paid either through electronic transfer or by encashment of cheque by the Operational Creditor. 15. Thus it is always open to the 'Corporate Debtor' to point out existence of dispute, if any or to show that claimed amount has been paid already and there is no debt due and payable. However, such existence of dispute should be that of a period prior to the issuance of the demand notice under section 8(1) of the Code. In "Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. [2017] 85 taxmann.com 292/144 SCL 37, the Hon'ble Supreme Court held that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing - i.e. it must exist before the receipt of the demand notice or invoice, as the case maybe. The Hon'ble Supreme Court further observed that if the adjudicating authority finds that either there is no repayment of the unpaid operational debt after the invoice (section 9(5)(i)(b)) or the invoice or notice of payment to the corporate debtor has been delivered by the ....
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..... In Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 143 SCL 625, the Hon'ble Supreme Court while explaining the provisions of section 9 observed and held: "27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (section 4). The corporate insolvency resolution process maybe triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under secti....
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.... notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case maybe. The scheme of section 7 stands in contrast with the scheme under section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in section 8(1) of the Code. Under section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing- i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code." 19. From the aforesaid findings, it is clear that the claim means a right to payment even if it is disputed. Therefore, merely because the 'Corporate Debtor' has disputed the claim by showing that there is certain counter claim, it ca....
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.... case, there is no record of any pre-existing dispute which was brought to the notice of the Operational Creditor. As held by Hon'ble NCLAT in the case of Pedersen (supra), on mere dispute of amount , the application under section 9 cannot be rejected, as the Code gets triggered the moment default is of Rs. 1 lakh or more and there is no pre-existing dispute. Admittedly, the Corporate Debtor had a liability to the tune of Rs. 40,46,021.94 towards the Operational Creditor which it had failed to pay. 21. In view of the above factual and legal position, this Adjudicating Authority is satisfied that the Operational Creditor has proved its case by placing evidence that default has occurred for which the Corporate Debtor was liable to pay. The Petitioner has complied with all the requirements as stipulated under the provisions of the IB Code, 2016 for the purpose of initiating Corporate Insolvency Resolution Process. In these circumstances, having satisfied with the submissions made by the OC this Adjudicating Authority is inclined to admit the instant Petition. 22. Accordingly, the instant petition is hereby admitted and this Adjudicating Authority orders the commencement of the C....