TaxTMI 
TaxTMI 
2025 (7) TMI 1465
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.... Morex Corporation Limited. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant. 2. Putting the facts briefly, the Appellant-M/s Morex Corporation Limited had entered into a business understanding with the Respondent-M/s Jindal Poly Films Ltd. for supply of non-woven fabric (hereinafter referred to as "contracted materials") for export to a China based company. As part of this business arrangement, the shipping terms for the contracted material was on FOB basis and for this purpose, the Appellant had also booked a charter flight for the consignment to be shipped from India to China. The Appellant had issued a Purchase Order on 12.03.2020 for supply of contracted material and made an advance payment of Rs.1.61 crores and Rs.1.38 crores on 04.03.2020 and 12.03.2020 to the Respondent for performing their part of the contract. The Respondent was required to hand over the cargo to the Forwarder as designated by the Appellant on or before the 23.03.2020. In the meantime, the Government of India had issued a notification vide No. 52/2015-2020 dated 19.03.2020 prohibiting the export of the contracted materials due to Covid-19 and due to this ban notif....
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....e Appellant. Reliance was placed on the judgement of the Hon'ble Supreme Court in M/s Bawa Paulins Pvt. Ltd. Vs UPS Freight Services (India) Pvt. Ltd. (2023) 2 SCC 330 to assert that under FOB contract the seller's responsibility ends with putting the goods on board without any further responsibility of shipping of goods. Since the Respondent's obligation was only to deliver the goods to the Forwarder, the ban notification of 19.03.2020 is only an excuse to cover up their inability to manufacture the contracted goods on time. The Corporate Debtor was therefore liable to refund the amounts received as advance payment from the Operational Creditor. It is also contended that the termination of contract dated 01.04.2020 was not disputed by the Corporate Debtor until filing of reply to the Demand Notice on 20.05.2020. When the termination of contract was never opposed or challenged by the Respondent until receipt of the Demand Notice on 15.05.2020, the Adjudicating Authority committed a grave mistake in treating the termination of contract as a pre-existing dispute and for dismissing the Section 9 application on this ground. 5. Refuting the submissions made by the Appellant, it was c....
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....miss the Section 9 application. 7. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. 8. When we peruse the impugned order, we find that the Adjudicating Authority in the impugned order has inter alia observed that there is a pre-existing dispute in the present case as envisaged under Sections 8 and Section 9(5)(ii)(d) of the IBC which stems from the termination of the contract by the Operational Creditor. The Adjudicating Authority has further held that the ratio laid down by the Hon'ble Supreme Court in case of Mobilox Innovations Private Limited Versus Kirusa Software Private Limited (2018) 1 SCC 353 is attracted in the facts of this case and on grounds of existence of pre-existing dispute, dismissed the Section 9 application. 9. The short point for consideration is whether the Adjudicating Authority was right or wrong in holding that the Section 9 deserved to be dismissed as this was a case of genuine pre-existing dispute arising out of the termination of the contract by the Operational Creditor in respect of the Purchase Order of 12.03.2020. 10. Before we return our analysis and findings....
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....1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process." 13. When we read Section 9 further, we find that Section 9(5)(ii) envisages that Adjudicating Authority shall reject the Section 9 application, if a notice of dispute has been received by the Operational Creditor or there is record of dispute in the Information Utility. Section 9(5)(ii) is as extracted below: "(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under subsection (2), by an order- (i)..... (ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if- (a) the application made under sub-section (2) is incomplete; (b) there has been [payment] of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operat....
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....urt in Mobilox judgment supra where it has been held that the dispute must be raised prior to the issue of demand notice and the said dispute has to be real and ought to be supported by documents. 17. Adverting attention to the facts of the case leading to termination of the contract of 12.03.2020, it has been submitted by the Appellant that though adherence to the stringent time-lines was the bedrock of the instant FOB contract, the Respondent had failed in performing its obligation of dispatching the contracted material by the scheduled time-line of 23.03.2020. This incapacity to supply was clearly admitted by the Respondent in their email of 18.03.2020 wherein they have stated that production was delayed "due to production issues" and that they would be able to dispatch contracted goods only by 24th or 25th March, 2020 which was beyond the time-line. It was also emphasised that subsequent emails after 23.03.2020 are a pointer to the fact that the Respondent had admitted that the contracted material had neither been manufactured by them nor was it ready for dispatch as per agreed timelines. Respondent had sent an email on 13.04.2020 to the Appellant proposing to supply the mat....
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....ound for the Appellant to terminate the contract. It was contended that in the present case the Respondent had duly discharged their contractual obligation on the part of the Corporate Debtor, the termination of the contract by the Appellant was wrongful. It was only on account of the prevailing prohibition imposed on the export of goods by the Government of India that the contract had become impossible to be completed. Thus, this was a case of frustration of contract for which no amount was recoverable by the Appellant from the Corporate Debtor. It is the contention of the Respondent that since the dispute arises from the wrongful termination of contract on 01.04.2020 which pre-dated the sending of the Demand Notice on 15.05.2020 this was a case of pre-existing dispute. The parties being already in dispute regarding unilateral cancellation of the purchase order, this was a case of pre-existing dispute for which a Section 9 application could not have been filed by the Operational Creditor particularly so since CIRP cannot be initiated to penalize a solvent company with healthy financial parameters when there is a pre-existing dispute between the parties. Even if the Corporate Debto....
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....hat the contracted material had already been manufactured and ready for dispatch. The Operational Creditor has however held that this communication is only a discussion on cargo dimension and cannot be read to mean that cargo was ready. Hence, it was contended that it was erroneous for Adjudicating Authority to hold that the contracted material was ready basis the e-mail of 19.03.2020. 26. More importantly, we find a spate of messages exchanged between the Corporate Debtor and Operational Creditor on 20.03.2020. The series of conversation which took place between the Operational Creditor and the Corporate Debtor over WhatsApp on 20.03.2020 regarding the production, delivery and dispatch of the contracted material is as extracted below. For convenience the messages have been serially numbered: 1. Operational Creditor: Is this applicable to us...Wats our product code 2. Corporate Debtor: Yes. Our code Is 560031100 3. Operational Creditor: So now wat is the solution 4. Corporate Debtor: Please decide your course of action and let us know. We can sell in local also 5. Operational Creditor: Ok.. I'll let u know in few minutes time ... So, ....
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....response to the Demand Notice served by the Operational Creditor on 15.05.2020. The relevant extracts of the said letter is as reproduced below : Sub.: Reply to Demand Notice under the provisions of Insolvency and Bankruptcy Code, 2016 on behalf of M/s. Morex Corporation Ltd., Workshop-6, 11/F, Lemmi Centre, No.50, Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong. Dear Ms. Sonali, We are in receipt of your subject demand notice dated 5 May 2020 issued on behalf of your client M/s. Morex Corporation Ltd. Hong Kong under the provisions of Insolvency and Bankruptcy Code, 2016 (IBC). At the very outset, we deny the contents of your demand notice, being baseless and false and far from the facts of the matter. The present notice itself is not maintainable as there exists a dispute qua the illegal and unilateral contract termination request dated 01.04.2020, which is not acceptable to us. We deny the demanded amounts including the interest and other charges etc. as mentioned in your demand notice being not payable legally or otherwise. The alleged claim amount cannot be treated as a Default in terms of the provisions of IBC, as we are still ready to deliver....
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....rsists between the parties, the provisions of IBC cannot be invoked as there exists a dispute between the parties. .... Mr. Mallyah Marimuthu For Jindal Poly Flims (Emphasis supplied) 29. It is an undisputed fact that the Reply to Demand Notice was served upon the Operational Creditor. When we look at the Notice of Dispute, we find that the Corporate Debtor has categorically denied its liability to pay the demanded amount including interest. The alleged default has also been denied by them and assertion made that the contracted goods had already been manufactured and kept in the warehouse ready for delivery subject to the lifting of the imposition of ban by the Government of India. The Reply Notice also categorically mentions that the closure of contract by the Operational Creditor cannot be treated as termination of the contract as it is a unilateral decision without notice or discussion between the parties. In the absence of this closure of contract being accepted by the Corporate Debtor, it was clearly spelt out in the Notice of Dispute that the unilateral termination of contract is illegal and tantamount to a dispute between the parties. ....