TaxTMI 
TaxTMI 
2025 (8) TMI 1352
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.... regarding the quality of goods supplied. The Appellant, being aggrieved by the said order, has preferred the instant Appeal under Section 61 of the IBC, contending that the findings of the Adjudicating Authority are contrary to the evidence on record, the terms of the Purchase Order, and the statutory scheme of the Code. Brief facts of the case: 2. The brief facts of the case are as follows: (i) The IREL (India) Limited, / Respondent herein, and Corporate Debtor is a Government of India Undertaking under the Department of Atomic Energy, engaged primarily in the mining and production of rare earths, minerals, and related industrial inputs. (ii) The Respondent floated an E-Tender (No. IREL/Ganjam/19-20/ET/330) on 18.11.2019, for the supply of coal. Sendoz Commercial Pvt. Ltd / Appellant herein, participated in the tender process and was declared the successful bidder. The Respondent issued Purchase Order No. 36/P/02171/PT/P.O.36-01060 on 28.01.2020, requiring the Appellant to supply 8000 MT (+/-10%) of coal with GCV ranging between 2800 to 3400 Kcal/Kg, in a staggered manner within four months. (iii) The Appellant supplied a third lot comprising 4044....
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....t Appeal arises out of the impugned order dated 24.02.2023 passed by the Hon'ble National Company Law Tribunal, Mumbai Bench-C-IV, whereby the Section 9 Application filed by the Appellant under the Insolvency and Bankruptcy Code, 2016 was erroneously rejected. The Adjudicating Authority, while passing the said order, failed to appreciate that the Corporate Debtor raised a spurious dispute regarding the quality of coal supplied, despite the existence of a conclusive and binding report dated 11.09.2020 issued by National Metallurgical Laboratory (NML), Jamshedpur, certifying that the coal met the agreed calorific specifications. The rejection is completely devoid of any judicial analysis regarding the existence or genuineness of the alleged dispute and overlooks the report of NML, which was never disclosed by the Corporate Debtor until much later during appellate proceedings. 4. Further, the date of default has been clearly set out in Part IV of the Form 5 as well as in the Demand Notice dated 25.01.2021. It is submitted that the default occurred on 23.03.2020, i.e., 30 days from the date of invoice dated 22.02.2020, which falls squarely outside the moratorium period prescribed un....
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....e clauses, read holistically, leave no scope for unilateral testing or arbitrary rejection by the Corporate Debtor, especially when the Appellant had followed every contractual step, including government lab testing. 9. Ld. Counsel for the appellant asserts that the Corporate Debtor's defence that the coal was substandard lacks credibility. The NML report dated 11.09.2020 certified that the coal had GCV readings of 3275.6 and 3580.5 Cal/g, both of which were well within the contractual range of 2800-3400 Kcal/Kg. The report was obtained through proper sampling on 14.08.2020, in the presence of the Appellant's representative, and sent to an NABL-accredited government lab, as per Clause 3.0 of the Purchase Order. 10. It is the submission of Ld. Counsel that the Corporate Debtor intentionally withheld this report from the Appellant and chose instead to rely on an internal and unilaterally commissioned test from CSIR Institute of Minerals and Material Technology (IMMT), Bhubaneswar, dated 06.11.2020, which was obtained without notice to the Appellant. 11. Additionally, the counsel pointed out that the Corporate Debtor's assertion that the GCV was below 2800 Kcal/Kg is devoid o....
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....021 SCC OnLine NCLAT 442] and Tek Travels Pvt. Ltd. v. PCM Worldwide Flights Pvt. Ltd. [2022 SCC OnLine NCLAT 212] in support of its contention that a spurious or afterthought defence cannot be used to defeat legitimate insolvency proceedings. 16. Regarding the date of default falling within Section 10A period, Ld. Counsel for the appellant asserts that the Adjudicating Authority has gravely erred in treating the date of default as the date of the legal notice i.e., 12.11.2020, rather than the actual contractual date of default. As per the invoice dated 22.02.2020 and its payment terms, the amount became due on 23.03.2020. This default date clearly falls outside the protection granted under Section 10A, which applies only to defaults occurring on or after 25.03.2020. The Authority's finding ignores the provisions of Section 3(12) of the Code, which defines "default" as non-payment of debt, when it becomes due and payable. It includes even part payments or unpaid instalments. 17. It is his submission that the Adjudicating Authority, in essence, rewrote the contract by relying on the date of legal notice as the starting point for default, which is not tenable in law. The entire....
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....t results, it is evident that there exist wide discrepancies in the ash content and Gross Calorific Value (GCV). Counsel points out that these discrepancies substantiate the Respondent's position in raising a bona fide dispute after its lab analysis, and in rejecting the consignment after the CSIR-IMMT report. Counsel asserts that, in such circumstances, no liability to pay for the rejected supply arises, and the rejection is strictly in accordance with Clause 4 of the Special Conditions of Contract. 22. Learned Counsel states that the present Appeal is nothing but a second round of litigation instituted by the Appellant, who is a coal supplier, solely for the purpose of seeking payment for one single lot of rejected coal, despite the fact that several other lots had already been supplied and duly paid for without any objection. 23. Learned Counsel submits that the Respondent has honoured all its contractual obligations and made full payments for all other coal supplies made by the Appellant. He further states that the only pending issue relates to the Purchase Order dated 28.01.2020, which is the subject of the present dispute and concerns a consignment that was rejected on ....
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.... to point out any legal or factual infirmity in the impugned order dated 24.02.2023 passed by the NCLT, and that the findings recorded therein are well-reasoned and fully supported by the materials on record. 29. Learned Counsel further submits that, even assuming the Appellant had any grievance, it had already issued a notice for seeking arbitration through its letter dated 31.05.2020 (appearing at pages 136-138 of the Appeal), much prior to the filing of the Section 9 application under the Code. Counsel submits that such invocation of the dispute resolution clause precludes the Appellant from subsequently invoking insolvency jurisdiction. 30. Learned Counsel states that the Appellant's conduct amounts to a misuse of legal process by initiating two parallel proceedings under two separate enactments for the same cause of action viz., one under the Arbitration and Conciliation Act and another under the Insolvency and Bankruptcy Code. 31. Learned Counsel submits that once the Appellant had invoked arbitration and the Hon'ble High Court had appointed an Arbitrator, there is no legal basis for maintaining this parallel insolvency proceeding. Counsel urges that the Appeal deser....
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....LIMITED's representative will be sent for testing. The results of the test carried out at IREL (INDIA) LIMITED lab shall be treated for adjustments in payments. Cost of collecting samples and testing in lab shall be borne by IREL (INDIA) LIMITED. If you are not satisfied with the test results, you may ask for referee sample to be tested in a government lab whose results shall be final and binding. You shall have to bear the cost of such test in the government lab and the same shall be deposited by you to IREL (INDIA) LIMITED. Sample collection, sample preparation, analysis and testing at destination shall be done as per latest IS standards. (IS: 1350 latest revision)" [Emphasis supplied] 37. It is clear from Clause 3 that the test are to be carried out in the Respondents laboratory or in the lab of third party testing agencies. The procedure for drawing the samples has also been laid down and it provides for collection of samples for test in presence of both the parties provided the supplier/ OC in this case depute his representatives for collection. In case no representative of supplier/ OC is present then sample drawn by IREL India would be sent for testing. It is....
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....y, the entire consignment of coal was rejected by the Respondent. 42. We further note that the rejection was formally communicated by the Respondent through its email dated 25.02.2020. This email directly refers to the inspection carried out and records the finding that the supplied lot had failed the quality parameters. The said email is extracted below : 43. Relying on its internal lab reports dated 24.02.2020, the Respondent rejected the consignment on 25.02.2020 by citing that the coal had a GCV of 2429 Kcal/kg and ash content of 56.6%, both of which were outside the permissible limits of 2800-3400 Kcal/kg and 45% +/- 5%, respectively. In term of specific conditions in Clause-4 of purchase order the Respondent was left with no other option, but to reject the consignment on quality considerations. We note that the dispute as to quality arose immediately after supply; it was genuine and consistently maintained throughout the correspondence, and was later subjected to joint sampling and third-party testing. 44. A reading of the above clause 3 and 4 and the exchange of communication between the Respondent and Appellant leaves no doubt that the rejection of the consignment ....
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....hey agreed to the quality control report and shall not raise any further dispute in this regard. The respondent's representatives confirmed that they shall put up a proposal for further action. 48. We see from the above that there was a clear-cut dispute regarding the quality of first consignment which led to the meeting dated 11.06.2020. Therefore, we are of the considered view that a genuine and substantial dispute did exist. 49. What followed was a process of joint sampling initiated several months later, in August 2020, with the mutual consent of both parties. The samples were sent to two separate government-accredited CSIR laboratories-CSIR-NML (Jamshedpur) and CSIR-IMMT (Bhubaneswar). The results of these tests are extracted below : Parameters Specification Appellant in house test dt. 18.02.202 0 Respondent in house test dt. 24.02.202 NML Jamshedpur Test dt. 11.09.2020 CSIR - IIMT, Bhubhaneshwar dt. 06.11.2020 Total Moisture (ARB) 15% max 10.33 7.7 8.39 5.15 Ash Content (ADB) 45% +/-5% (<50% max) 46.12 56.6 40.50 60.21 Gross Calorific Value (ADB) 2800 - 3400 Kcal/Kg with Guaranteed GCV of 3000 3106 2429 ....
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....nt without delay. This conduct shows there was no mens-rea or intention on the part of the Respondent to avoid payment obligations. The withholding of payment here is directly linked to the specific quality dispute and not to any evasive conduct. 54. In this regard, we also take notice of the Judgment by the Hon'ble Supreme Court in 'Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353]', wherein the Hon'ble Supreme Court held that the threshold for rejecting a Section 9 application is the mere existence of a real dispute, not necessarily a legally correct or ultimately successful defense. If the dispute is bona fide, based on some factual or contractual foundation, and existed before the demand notice, the adjudicating authority must reject the application. 55. The next issue concerns the legal effect of ongoing arbitration proceedings between the parties in relation to the same underlying transaction. The Appellant contends that the pendency of arbitration cannot defeat its right under the IBC to recover its operational debt. It argues that merely because arbitration proceedings are pending does not establish that the debt is disputed or that the ins....
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....-cut misuse of IBC. Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (supra) has also cautioned that IBC should not be used as a coercive mechanism or a pressure tactic to recover disputed claims. 59. Therefore, we hold that there existed a genuine and pre-existing dispute between the parties regarding the quality of the coal supplied. The rejection was timely, based on internal laboratory results and supported later by independent lab findings. The dispute was rooted in the contractual relationship and was raised long before the demand notice. In light of the legal position under Section 8(2)(a) of the IBC and the settled judicial interpretation in Mobilox (supra), the application under Section 9 was rightly rejected by Adjudicating Authority. We, therefore, hold that the Impugned Order does not suffer from any legal infirmity in this regard. 60. In view of the findings above, the appeal is dismissed. Pending I.As if any, are also closed. There would be no order as to cost. ============= Document 1 Fwd: Rejection of coal supplied by Rake. sendoz To: Rohit Poddar 25 February 2020 at 12:56 Forwarded message From: PRANANATHPATNA....