TaxTMI 
TaxTMI 
2021 (1) TMI 447
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....19.1.2014 (Exhibit-2 at p-42 of the Reply), wherein it has been stated that during the manufacturing process, many times there are problems that are faced while cutting the strip or defective portion, and thus there may be several cut rolls in one roll. 14. Since the email dated 16.01.2014 specifically notes that 'in the last batch of carbon fiber reinforced laminates, several imperfections were found', it can only be taken that the other consignments were defect-free. Further, in the rejoinder, the operational creditor has taken a specific stand that the issue of defective quality of supplies has been raised in only one out of twenty-seven consignments, and that this issue was also resolved. Even if the issue is assumed to be unresolved, this would only cover one consignment, and there is no reason why the other consignments ought not to be paid for, especially when seen in the context of the specific stand of the operational creditor that after the issue raised in the e.mail of 16.01.2014, four more consignments were supplied to the Corporate Debtor. 15. As regards the cheque stated to have been given, as security, this cannot be taken to....
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.... pursuant to the notification No. GSR 1119(E) dated 07.12.2016 issued by the Central Government as per Section 434 of the Companies Act, 2013 r/w Section 239 of the Code, the petition was transferred to the Adjudicating Authority, Mumbai Bench. But the Adjudicating Authority, before considering the said petition u/s 9 of the 'I&B' Code failed to consider the Rule 5 of the Companies (Transfer of pending proceedings) Rules, 2016, which clearly states that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7 required for admission of the petition under sections 7, 8 or 9 of the Code. 7. The Learned Counsel for the Appellant adverts to Rule 5 of the Companies (transfer of pending proceedings Rules, 2016 which enjoins as follows:- "5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts. (1) ... Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with rule 7, required for admission of the petition under sections 7,8 or 9 ....
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....he judgement of this Tribunal in the matter of 'M/s Sabari Inn Pvt. Ltd.' V. 'M/s Ramesh Associates Pvt. Ltd.' reported in (2018)142 CLA 158(NCLAT) wherein it is held as under:- "...11. From the aforesaid Rule 5, it is clear after transfer of the case the Applicant (Respondent herein) was required to submit all information, other than information forming part of the records transferred from the High Court, for admission of the petition under sections 7,8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal upto 15th day of July, 2017 failing which the petition shall stand abated etc. 12. As per Section 9 of the 'I&B' Code, before admission of application and its filing, a demand notice under subsection (1) of Section 8 is required to be issued on the 'Corporate Debtor' as quoted below:- 8. Insolvency resolution by operational creditor. -(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form an....
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....red by Respondent under Sections 433 and 434 of the Companies Act, 1956 stood abated. 20. In effect, order (s) passed by Adjudicating Authority appointing 'Interim Resolution Professional', declaring moratorium, freezing of account and all other order(s) passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the 'Interim Resolution Professional', including the advertisement, if any, published in the newspaper calling for applications and all such orders and actions are declared illegal and are set aside. The application preferred by Respondent is dismissed as abated. Learned Adjudicating Authority will now close the proceeding. The appellant company is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect......" 13. The Learned Counsel for the Appellant relies on the decision of this Tribunal in the matter of 'Uttam Galva Steels Ltd.' V. 'DF Deutsche Forfait AG & Anr.' dated 28.7.2017 (Comp. App. (AT) (Ins.) 39/2017) reported in (2017)204 Comp. Cas. Pg. 511 wherein it is observed as under: ....
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....djudicating Authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected..." "... 27. ...On the other hand, contracts with operational creditors are relatable to supply of goods and services in the operation of business. Financial contracts generally involve large sums of money. By way of contrast, operational contracts have dues whose quantum is generally less. In the running of a business, operational creditors can be many as opposed to financial creditors, who lend finance for the set up or working of business. Also, financial creditors have specified repayment schedules, and defaults entitle financial creditors to recall a loan in totality. Contracts with operational creditors do not have any such stipulations. Also, the forum in which dispute resolution takes place is completely different. Contract with operational creditors can and do have arbitration clauses where dispute resolution is done privately. Operational debts also tend to be recurring in nature and the possibili....
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....he operational creditor may trigger the insolvency process by filing an application before the adjudicating authority under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 5, accompanied with documents and records that are required under the said form. Under Rule 6(2), the applicant is to dispatch by registered post or speed post, a copy of the application to the registered office of the corporate debtor. Under Section 9(3), along with the application, the statutory requirement is to furnish a copy of the invoice or demand notice, an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt and a copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor. Apart from this information, the other information required under Form 5 is also to be given. Once this is done, the adjudicating authority may either admit the application....
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....cumentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And (iii) Whether there is 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 in relation to such dispute? 38. It is, thus clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in the prescribed form. The corporate debtor is then given a period of 10 days from the receipt of the demand notice or copy of the invoice to bring to the notice of the operational creditor the existence of a dispute, if any. We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which the "existence of a dispute" alone is mentioned. Even otherwise, the word "and" occurring in Section 8(2)(a) must be read as "or" keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as "or".&nbs....
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....nt 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". First Respondent's Contentions 16. The Learned Counsel for the First Respondent submits that the second Respondent/ R&M International Pvt. Ltd. was purchasing Carbon Fibre Laminates from the First Respondent through e.mail dated 16.01.2014 had informed the First Respondent that they found several imperfections in the last batch of Carbon Fibre reinforced Laminates. Apart from this, it is the stand of the First Respondent that the Second Respondent wanted to know about the challenges involved thus establishing that there existed no pre-existing dispute. In fact, the relevant portions of the e.mail dated 16.01.2014 sent by R-2 to R-1 run as under:- "In the last batch of Carbon fiber reinforced laminates, several imperfections were found. The snap shots of those have been attached herewith." Kindly make a note of such imperfections and let us know the challenge involved. 17. The Learned Counsel for the First Respondent contends that on 19.0....
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.... 2014-2016. In fact, to mislead this Tribunal, the second Respondent presented a letter dated 23.03.2017 that the first Respondent never supplied carbon fibre raw material to the second Respondent whereas the reply was denial of supply of raw material and it was made clear in this reply that the First Respondent had supplied 'Carbon Fibre Reinforced Laminates' which is different from 'Carbon Fibre Raw Material' which was mentioned to have been supplied by the First Respondent. In this regard, the First Respondent's stand is that the 'Carbon Fibre Reinforced Laminates' is a different product than 'Carbon Fibre Raw Material', hence was disputed in the reply letter dated 23.03.2017. Indeed, no action / suit / dispute was ever taken/raised by the second Respondent based on the contents of the letter dated 23.03.2017. 23. Yet another argument advanced on behalf of the First Respondent is that the 'Demand Notice' for the amount of the cheque dishonoured is in the record of the petition transferred to the 'National Company Law Tribunal' and that the mandatory information required in Form-5 is all available in the records of the company petition trans....
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....ject matter be within their jurisdiction, may waive any irregularity in the summons, or indeed dispensed with the summons altogether, and he does so in such cases not, indeed, by appearing merely but by appearing and entering on the case on its merits. The tribunal having jurisdiction over the matter, he would not be allowed to take his chance of prevailing on the merits and to reserve his objections to a mere preliminary irregularity..." Pleas of Third Respondent 28. The Third Respondent/Interim Resolution Professional of the Second Respondent/Corporate Debtor takes a stand that the First Respondent had deposited a sum of Rs. one lakh pursuant to the order dated 07.01.2020 passed by this Hon'ble Tribunal to meet the expenses arising out of the issuance of public notice and inviting claims. Further, a sum of Rs. 11,33,016/- was to be paid to him and in this regard, he prays for directions being issued to the Second Respondent to pay the same to him. Assessment 29. At the outset, this Tribunal points out that it is the plea of the Appellant that the alleged Demand Notice dated 25.09.2017 of the First Respondent was sent to an address 'C-2098, Oberoi Gardens E....
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....ended with the rejoinder and was duly served upon the second Respondent along with the rejoinder and the same is on the record of the 'National Company Law Tribunal', Mumbai. 32. It is seen from the 'Company's Master Data' (Annexure A-3 pg. 51) of the Appeal paper book (vide diary no. 30460 dated 21.01.2020) that the registered office of the Second Respondent/Corporate Debtor is mentioned as under:- A-3027, Oberoi Garden Estate, Off Saki Vihar Road, Chandivali, Andheri East, Mumbai City MH - 400072 IN 33. It is to be pointed out that the First Respondent in its reply to the instant Appeal filed by the Appellant had clearly stated that a Rejoinder to the reply of the 'Corporate Debtor' was filed by it all with the copy of notice sent in form 3 before the 'Adjudicating Authority' in April, 2017. 34. The First Respondent in its reply to the present Appeal before this Tribunal has averred that as directed by the Adjudicating Authority on 04.01.2018 the First Respondent had issued a notice on the second Respondent that a Company Petition for winding up of the Second Respondent was filed for failure on its part to pay the outstanding debt amou....
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....nbsp; Therefore, the Appellant cannot take a plea that no Demand Notice as per Form 3 of 'I&B' Code was issued to the Second Respondent. 38. Be it noted, that as per Section 8 of the 'I&B' Code an 'Operational Creditor' is required to deliver a demand notice on the occurrence of the default within ten days from the receipt of the demand notice, the Corporate Debtor shall bring to the notice of the 'Operational Creditor' the 'existence of a dispute', if any, and the record of the pendency of the suit or arbitration proceedings before the receipt of such notice or invoice in relation to such dispute. As a matter of fact, the 'dispute' must be existing prior to the receipt of the notice and the same can be in a form other than a pending suit or arbitration proceeding. 39. It is to be remembered that a 'Demand Notice' is forerunner to the commencement of insolvency proceedings against a Corporate Debtor. An unpaid 'Demand Notice' is good enough to exhibit the Debtor's inability to pay its debts for the purpose of 'Bankruptcy Proceedings'. If a bonafide dispute is established then an 'Insolvency' petition is not the appropriate proceeding....
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....erational Creditor' shall deliver to the 'Corporate Debtor' a Demand Notice in Form-3 or a copy of an invoice attached with a notice in Form-4 as per Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Demand Notice or the copy of the invoice demanding payment referred to in sub-section 2 of section 8 of the code may be delivered to the 'Corporate Debtor' at the registered office by hand, registered post or speed post with acknowledgement due or by electronic mail service to a whole time Director or designated partner or key managerial personnel, if any, of the 'Corporate Debtor'. Besides these, a copy of Demand Notice of invoice demanding payment shall also be filed with an information utility. 46. Be it noted, that only if a 'Demand Notice' / Invoice demanding payment under the code is issued, the 'Corporate Debtor' will appreciate in right earnest the consequences flowing on account of failure to pay the 'operational debt'. Also, that, after transfer of the case from Hon'ble High Court to the Tribunal (in respect of the winding up petition) an 'Operational Creditor' is required to submit all informatio....
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.... the 'I&B' Code was sent to the second Respondent's regd. address but the same was returned unserved on account of debtor's company changing its registered address, without complying the mandate procedure as per Companies Act, 2013 and that apart, the Demand Notice was appended with the rejoinder and was duly served upon the second Respondent along with the rejoinder and the same is in the record of the Tribunal, Mumbai and added further, a rejoinder to the reply was filed by the First Respondent / Operational Creditor all with the copy of notice sent in Form3 before the Adjudicating Authority in 2017, this Tribunal is of the considered view that service of 'Demand Notice' to the second Respondent/Corporate Debtor is mandatory as per Section 8 of the Code. 54. In the instant case the Adjudicating Authority while passing the impugned order on 01.01.2020 in CP (IB) No.749/MB/C-IV/2017 had admitted the application without there being service of demand notice to the Second Respondent / 'Corporate Debtor' which is admitted by the First Respondent/Operational Creditor in its 'Reply' filed before this Tribunal and a plea of the registered address of the Second Respond....
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....to paragraph 8(f), the Respondent has denied the averments relating to serving a copy of form 5, but there is nothing on record to suggest that any notice under sub-section (1) of section 8 was issued and served or the application under Form-5 was filed. The respondent has also taken a plea that there is no requirement of furnishing the copy of the application on the appellant, however, such submission cannot be accepted...." 58. It cannot be forgotten that the proceedings under section 138 of NI Act, 1881 pertain to criminal liability for dishonour of cheques issued and do not bar an application u/s 9 of the code as opined by this Tribunal. Likewise, the pendency of proceedings under Or.37 of the Civil Procedure Code will not prohibit an application under Section 9 of the Code. 59. Even though on behalf of the First Respondent it is contended that the Second Respondent/Corporate Debtor had mentioned that they will be making payment all outstanding amount of Rs. 79,76,937/- as per letter of the Second Respondent dated 08.07.2014 against the purchase and the same being an admission of the debt, this Tribunal is of the considered view that since th....