AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 511
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..../Corporate Debtor is a Company having its 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 w....
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....ificate of Incorporation of the Corporate Debtor. 3. A Copy of the Master Data as available on the website of Ministry 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 Bankrupt....
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....d e-mails 30-1-2018; 5-2-2018, 28-2-2018 and 2-3-2018 to the operational creditor bringing to its notice the issue of low Brix and consequently raised in all, five debit notes dated 13-3-2018 in a sum of Rs. 2,79,512/-. The emails and debit notes raised on the operational 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.....
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....rseas buyer comes to US$42,510.72 which is equivalent to Rs. 29,75,750/-. In addition, the Corporate Debtor has lost its carefully crafted reputation as a quality supplier of instant chicory among the overseas buyer besides losing important customer basis. vi. The total loss suffered 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....
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..... In its reply dated 6-2-2019, the corporate debtor categorically disputed that it owes a sum of Rs. 58,83,226/- to the operational creditor. On the contrary, it was suggested that the operational creditor can depute one of its representatives to reconcile the accounts and also to discuss the issue of quality etc., 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 de....
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....enced by way of correspondence between the parties including copies of whatsapp messages, as filed by the Operational Creditor in its support. Further, the correspondence also shows that some of the consignments had quality issues, which were resolved by way of return of goods and raising of debit notes by the Corporate Debtor, as per the 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 ....
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....e corporate debtor demanding 3[payment] of the operational debt in respect of which the default has occurred. 14. It is clear from a perusal of the provisions of section 8 of the Code that when a demand notice u/s 8 is served on the Corporate Debtor, the Corporate Debtor may do either of the following: a. Bring to the notice of the Operational Creditor that there is existence of a dispute or pendency of a suit or an 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 di....
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....;operational debt' is exceeding Rs. 1 lakh and the application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid 'operational debt', the application under section 9 cannot be rejected and is required to be admitted. 18. 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 Secti....
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.... corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a 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 procee....
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....copy of the ledger account of the Operational Creditor in its books of account to claim that the actual liability is to the tune of Rs. 40, 46,021.94 only as against the claim of Rs. 58,83,226/- as made by the Operational Creditor. No doubt the Corporate Debtor mentioned in the said reply that it reserved its right to lodge claim, if any, in future, for supply of inferior quality material, no pre-existing dispute was mentioned in the said reply. Thus, in the instant 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 Debto....
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....ances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concessions, clearances or a similar grant or right during the moratorium period. 25. However, the supply of essential goods or services of the Corporate Debtor shall not be terminated or suspended or interrupted during moratorium period. Further, if the IRP considers supply of any goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period. Furthermore, the provisions of sub-section (1) of section 14 shall not apply to such transactio....