TaxTMI 
TaxTMI 
2021 (11) TMI 613
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....f events which are necessary to be noted for deciding this Appeal are: The Appellant, 'Operational Creditor' is a manufacturer and exporter of Gelatin & Collagen products having its registered office at 96, Middle of Hanghai Road, Zhengzhou, Henan China. The Respondent- 'Sunil Healthcare Limited' is a company engaged in the business of manufacturing man-made fibers which includes manufacturing of artificial or synthetic filament and non-filament fibers. An arrangement was entered between the 'Operational Creditor' and 'Corporate Debtor' for supply of Pharmaceutical Grade Gelatin, one of the conditions for such supply was that payment of the goods so supplied was to be made on the basis of Open Account 45 days after bill of lading date. Three Sales Contract were entered in between being (i) Sale Contract bearing No. 18BOOMG004 dated 25.01.2018; (ii) Sale Contract bearing No. 18BOOMG028 dated 05.03.2018 and (iii) Sales Contract bearing No. 18BOOMG029 dated 07.03.2018 in pursuance of which supply was made and Appellant raised Invoices bearing Nos. 18BOOMG004 dated 11.02.2018, 18BOOMG028 dated 19.03.2018 and 18BOOMG029 dated 19.03.2018. The Corporate Debtor failed to make payment wi....
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....te Debtor filed third reply dated 03.02.2020 to Section 9 Application. In third reply, the Corporate Debtor referred to email dated 30.07.2018 sent by the Corporate Debtor wherein reference was made to the email dated 04.05.2018 of the quality control department sent to CEO of the Corporate Debtor. The Adjudicating Authority heard the parties and by impugned order dated 19.02.2021 rejected the Application of Operational Creditor filed under Section 9 of the 'I&B Code'. This Appeal has been filed challenging the said order. 3. We have heard Mr. Mudit Sharma, Learned Counsel for the Appellant and Ms. Sadapurna Mukherjee, Learned Counsel for the Respondent. 4. Learned Counsel for the Appellant submits that the Adjudicating Authority has committed error in rejecting the Application relying on email dated 04.05.2018 sent by the quality control department to the CEO of the Corporate Debtor. The Adjudicating Authority wrongly assumed that there was pre-existing dispute, hence, the Application under Section 9 deserves to be rejected. Learned Counsel submits that in response to Demand Notice under Section 8 issued by the Operational Creditor, as contemplated under Section 8(2) the Cor....
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....y for rejecting the Application. The entire discussion and reasons are contained in Paragraph 17 of the judgment, which reads as follows:- "17. From the aforesaid decision, it is clear that the dispute must exist before the receipt of demand notice or invoice. Be that as it may, on appraisal of the arguments advanced by the Ld. Counsels, it emerges that there were disputes existing prior to the issuance of the Demand Notice. We find that in the e-mail dated 04.05.2018, the quality Control department had indicated its issues to the CEO of the Corporate Debtor regarding quality of gelatine received from the Applicant, the same was communicated by the CEO of the Corporate Debtor to the Applicant vide email dated 30.07.2018, which was acknowledged by the Applicant, clearly demonstrates a pre-existing dispute. A pre-existing dispute does not entitle the Operational Creditor to seek Insolvency Resolution of the Corporate Debtor. Whether the Operational Creditor is entitled to seek recovery of the amount of balance USD 2,28,079 out of the total USD 3,77,392.00 as set off by the Corporate Debtor through issuance of Debit Notes, is not for the consideration of this Bench. However, ....
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....ed on behalf of the CEO of the Corporate Debtor along with Senior Vice President. The proceedings are brought on record as Annexure- A/10. Para Nos. 1 and 2 of the proceedings are as follows:- "MOU Between Sunil Healthcare Ltd. & Henan Boom Gelatin Co. Ltd. on Schedule of payments due to Henan Boom Gelatin Co. Ltd., held on 27th July 2018 at Shanghai. xxx xxx xxx 1. The circumstances by which the delay of payment occurred for the three containers supplied vide invoices: 1). 18BOOMG004 dt. 11-02-2018, 2). 18BOOMG028 dt. 19-03-2018, 3). 18BOOMG029 dt. 19-03-2018 has been explained by SHL, which was understood by HBGL. 2. As it was already communicated to HBGL vide email dt. 20th June on payment schedule (copy enclosed), the following payment schedule for Invoices were reiterated and mutually agreed between SHL & HBGL. 1. Invoice 18BOOMG004 dt 11-02-2018 to be paid before end of November' 18. 2. Invoice 18BOOMG028 dt 19-03-2018 to be paid before end of December' 18. 3. Invoice 18BOOMG029 dt 19-03-2018 to be paid before end of January' 18." 11. The above minutes clearly records acknowledgment of debt by the Corporate Deb....
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....'. Although notice under Section 8(1) was replied by the Corporate Debtor vide email dated 04.02.2019 as extracted above, but there is no mention of existence of a dispute. Rather the reply dated 04.02.2019 reiterate that the Respondents are ready to make the payment as per their revised plan communicated on 30.01.2019. 13. There is a statutory purpose for requiring a Corporate Debtor to bring into notice of the Operational Creditor about the existence of a dispute in its reply to Section 8(1) notice. The purpose is that if there is a dispute in existence, the same may be immediately communicated to the Operational Creditor so that he may chart his course of action. When no mention of existence of dispute is made by the Corporate Debtor, the Operational Creditor can immediately file Application under Section 9 which has been done in the present case by Operational Creditor. 14. Section 8 has come for consideration before the Hon'ble Supreme Court in "Mobilox Innovations Private Limited vs. Kirusa Software Private Limited". In Para 33, the Hon'ble Supreme Court laid down: "33. ................. What is important is that the existence of the dispute and/or the suit or ....
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....orate debtor has been delivered by the operational creditor [Section 9(5)(i)(c)], or that no notice of dispute has been received by the operational creditor from the corporate debtor or that there is no record of such dispute in the information utility [Section 9(5)(i)(d)], or that there is no disciplinary proceeding pending against any resolution professional proposed by the operational creditor [Section 9(5)(i)(e)], it shall admit the application within 14 days of the receipt of the application, after which the corporate insolvency resolution process gets triggered. On the other hand, the adjudicating authority shall, within 14 days of the receipt of an application by the operational creditor, reject such application if the application is incomplete and has not been completed within the period of 7 days granted by the proviso [Section 9(5)(ii)(a)]. It may also reject the application where there has been repayment of the operational debt [Section 9(5)(ii)(b)], or the creditor has not delivered the invoice or notice for payment to the corporate debtor [Section 9(5)(ii)(c)]. It may also reject the application if the notice of dispute has been received by the operational creditor or ....
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....y in supply/ dispatch of gelatine to us, which had consequentially resulted the losses to the Corporate Debtor. Despite having knowledge of the dispute between the parties, the Petitioner had maliciously filed the present application and the same ought to be dismissed on this ground alone. It is clear that the present Application has been filed, not because there is any default on part of the Respondent, but as an attempt to arm twist the Respondent to submit to the illegal demands." 17. The above reply indicates that pre-existing dispute referred in reply was in relation to the amount claimed. In second reply dated 09.10.2019, in paragraph 12, the Corporate Debtor in the heading of 'pre-existing disputes' stated following:- "Pre- Existing Disputes 12. The Applicant has intentionally and in a mala fide manner suppressed a crucial fact that the Corporate Debtor and Operational Creditor have a very sound, strong business association, which is age old and time tested. Despite the outstanding debt mentioned in the Application, the Operational Creditor has directly through his own personal involvement effected shipments of worth US$4,41,000 to Corporate Debtor which....
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....ngs dated 27.07.2018. However, to satisfy ourselves we looked into the email dated 04.05.2018 as well as the email dated 30.07.2018 which is claimed to have been sent to the Operational Creditor by the Corporate Debtor. The email dated 04.05.2018 is internal correspondence between quality department of the Corporate Debtor to its CEO. What was communicated to Operational Creditor is email dated 30.07.2018. The email dated 30.07.2018 has been brought on record at Page 183 of the Paper Book. The email dated 30.07.2018 reads as follows:- "Dear Ancho, During our meeting on 27th July in Shanghai, I shared with you the below mail which was drafted in May 1st week. As desired I am forwarding the mail to you. The Quality reports of both 250 Bloom and 180 Bloom supplies are enclosed. The Quality of 250 Bloom Gelatin supplied was found be good. Please tell the manufacturer to maintain this blend in future supplies as well. As regards to 180 Bloom; here again the parameters are as per the requirements and the blend is good. However, we are observing wooden chips/ particles in the 180 Bloom Gelatin bags. May be during the packing the Gelatin there was som....
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....nd out whether there is a real dispute is decipherable from the reply. 24. The existence of dispute when the Demand Notice was issued is mandatory condition for exercising jurisdiction to reject the Application by the Adjudicating Authority as is referred to in sub-section (5) of Section 9. We may notice sub-section (5) of Section 9, which reads as follows:- "9. Application for initiation of corporate insolvency resolution process by operational creditor. -......................(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 [payment] of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pen....