TaxTMI 
TaxTMI 
2020 (8) TMI 394
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....atus in the Company Petition and also in Miscellaneous Applications for the sake of convenience. 2. The brief facts of the case are as follows: The Appellant (Operational Creditor) and the Respondent (Corporate Debtor) entered into a Business Transfer Agreement (BTA) dated 07April 2018 for the transfer of undertaking on a Slump Sale basis under Section 2(42C) of the Income Tax Act, 1961 at a lump sum amount of Rupees One Hundred Twenty Three Cores only (Rs. 123 Crores) as per the provisions of BTA and its schedule annexed to it. The Appellant contends that the Corporate Debtor has only transferred a sum of Rs. 65 Crores to the Appellant out of Rs. 123 Crores and the balance amount of Rs. 58 Crores have not been paid, and on account of default, the interest amounting to Rs. 10.44 Crores, a total of Rs. 58 Crores remain outstanding, which is the unpaid Operational Debt, claimed to be due as unpaid Operational Debt. The Application of the Appellant has been rejected by the Adjudicating Authority mainly on the ground of pre-existing debt. 3. Operational Creditor submits that the Corporate Debtor sent an "Expression of Interest" to acquire the Silica Business of M/s. Allied Sil....
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....ng working capital adjustment of Rs. 0.19 Crores on closing date), has been disclosed, along with the break-up of the Consideration as Rs. Seventy-five Crores towards the cost of fixed assets and Rs.48Crores towards goodwill for the purchase of the Undertaking. 8. It is further submitted on behalf of the Operational Creditor that upon default by the Corporate Debtor to remit the balance consideration of Rs. 58 Crores for transfer of Undertaking on Slump Sale basis, notices dated 13 May 2019, 17 May 2019 were issued against the Corporate Debtor and after that demand notice in 'Form 3' dated 03 June 2019, demanding the release of due amount along with interest was issued. The Corporate Debtor sent a reply to demand notice dated 03 June 2019on 14 June 2019. 9. The Operational Creditor further contends that Form 5 filed in CP (IB) No. 2953/NCLT/MB/2019 before the Adjudicating Authority on 02 August 2019 showing Rs. 68.44 Crores, as outstanding amount which includes Rs. 58 Crores towards due consideration, receivable for consummated slump sale of precipitated Silica Plant as a 'going concern' in 'as is where is' condition, vide invoice No. EXEM/001 dated 18....
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.... Income Tax Act, 1961 and in Clause 1.1.77 of BTA, which very specifically states that "Slump Sale" basis means the transfer of Undertaking by a company as a going concern in "as is where is" basis in the manner defined under Section 2(42C) of the Income Tax Act, 1961. 14. It is further contended that the Adjudicating Authority has failed to appreciate that the additional work contracts for improvement, were taken up after transfer of ownership and possession of the Undertaking, to meet TATA's standards, i.e. beyond the scope of "as is where is" condition, under which transfer was consummated. There is no dispute about the transfer of undertaking on Slump Sale. Still, all such communication between the parties which have been treated as a pre-existing dispute by the Adjudicating Authority is related to subsequent business transactions between the parties. 15. It is also contended by the Operational Creditor that the Adjudicating Authority has failed to consider that the respondent's plea of pre-existing disputes is without any basis. No suit, arbitration or any other recovery proceedings are ever initiated by either of the parties in connection with the alleged pre-ex....
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....ted that the adjustment of Tranche III payment was agreed mutually between the parties and further recorded in Letter dated 08 January 2019. The Corporate Debtor argued that all the requisite amounts under the BTA were duly paid to the Applicant, and no outstanding debt is due to the Applicant as on the date of the present application. The Corporate Debtor submitted that the claim of balance consideration of Rs. 58,00,00,000/- was only raised by the Applicant for the first time in its Letter dated 13 May 2019,i.e. after one year from the execution of BTA and payment of Closing Balance Consideration of Rs. 65,19,00,000/-. Thus the Applicant is consciously misinterpreting the BTA to extort money from the Corporate Debtor. 21. We have heard the arguments of the Learned Counsels of the parties and perused the record. 22. The Adjudicating Authority has rejected the application mainly on the ground that the Applicant has failed to prove the Operational Debt and its default and further on the ground of pre-existing dispute. 23. Admittedly demand notice in Form 3, under Rule 5 of the Adjudicating Authorities Rules has been issued on 03 June 2019. In reply to the demand notice date....
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....re issuance of demand notice an email was sent by Corporate Debtor to the Operational Creditor, whereby the Operational Creditor requested the Corporate Debtor not to blacklist the Operational Creditor as a supplier to your Cuddalore unit on account of differences of opinion in the transactions relating to the slump sale. Scanned copy of the email dated 07 May 2019 is as under; In the above-mentioned emails dated 13 October 2018 it is specifically stated that "due to wrong BTA, which TCL got signed from us, you are delaying our payment." In Letter written by Operational Creditor dated 13 May 2019 it is stated that: "The drafting of BTA was done by Shardul, Amarchand Mangaldas (SAM), a law firm appointed by TCL with the task of preparation of the BTA. Two drafts of BTA first on 06March 2018, and second on 16 March were shared with ASL before the execution version of the BTA and was made available only on the 03 April 2018 by SAM/TCL, with only 3 days left for execution thereof. 5. It is a matter of great shock and blatant illegality that TCL through their consultants altered the EGM resolution passed by ASL relating to the proposed slump sale and sent changed....
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....Undertaking, which had been determined about 9 months earlier, was unfairly and unjustly inflicted on ASL by TCL, knowing very well that the financial stress that KGCL was undergoing left it with very litter option but to accept all the conditions imposed through the BTA." (emphasis supplied). The above email communications clearly reflect that dispute existed between parties regarding some alterations in the Business Transfer Agreement (BTA) prior to issuance of demand notice. Hon'ble the Supreme Court of India in "Mobilox Innovations Private Limited vs Kirusa Software Private Limited (AIR 2017 SC 4532)" has interpreted the phrase 'pre-existence of dispute' used in section 9 of the I&B Code. The relevant portion of the said judgment is reproduced below: "The scheme Under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on non-payment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate Debtor in the form set out in Rul....
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....tention 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." (Emphasis supplied) Therefore, on perusal of the documents submitted by the parties, it is evident from the Letter dated 08.01.2019 which is signed by both the parties, that the Applicant had failed to complete the Tranche II Conditions Precedent as a result of which the Corporate Debtor had exercised its right under the BTA and set-off and adjusted the Tranche III payment of Rs. 6,00,00,000/-. It is further evident from the Letter of Corporate Debtor dated 06.03.2019, wherein the Corporate Debtor had demanded a refund from the Applicant of Rs. 15.01 Crores along with in....
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....ives behind our decision to sell the precipitated silica plant at Cuddalore to Tata Chemicals Limited on slump sale basis for a consideration of upto Rs. 123 crores, was to become a long term supplier of Sodium Silicate to the Plant which will be owned and operated by TCL. all KIRAN GLOBAL CHEM LIMITED assure TCL of supplying best quality sodium silicate for your High Dispersable Silica at Cuddalore Plant. KGCL supplies of Sodium silicate at most competitive price and terms and complying your specifications and requirements. TAR KGCL request you not to blacklist us as a supplier to your cuddalore unit on account of differences officio in the transactions related to the slump sale. NO Y KGCL assure you that all differences have been sorted out by our mutual discussions with TCL Team Lee Business Center Office of TCL on 9th April, 2019 and understanding for long term mutual benefits and partnership between both TCL and KGCL will prevail. ROVT. Locking forward to better times and a more fruitful relationship between KGCL and TCL We remain your truly Er Manmohan Singh Jain Chairman CN Rufus, CEO CAMS Ezhil, Managing Director KIRAN GLOBAL CHEM LIMITED MUNAS " NOT....