TaxTMI 
TaxTMI 
2026 (2) TMI 23
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....folding Noida Pvt. Ltd. for initiation of CIRP against the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-Operational Creditor. 2. Coming to the brief facts of the case, the Appellant-Operational Creditor had been engaged by the Kanwar Enterprises Pvt. Ltd.-Corporate Debtor for supply of shuttering and scaffolding materials on lease/hire basis. As per business arrangement, the Appellant raised monthly invoices against the shuttering and scaffolding material supplied to the Respondent from 01.03.2021 to 30.04.2024 on running account basis. Since the Respondent had stopped making payments qua the invoices raised after 20.10.2023 the Appellant issued reminder notices on 01.01.2024 and 10.04.2024 to clear the outstanding dues and return of the rented scaffolding material. The Corporate Debtor sent a reply to the above two notices on 10.06.2024 denying any liability to pay the Operational Creditor. Thereafter, the Operational Creditor issued Section 8 Demand Notice on 18.06.2024 which was replied to by the Corporate Debtor on 29.06.2024. Failing to receive a satisfactory reply, the Appellant filed the Section 9 application on....
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....te Debtor causing financial losses, the Appellant had added the value of the unreturned material. Reliance has also been placed on the judgment of this Tribunal in Prashat Agarwal Vs Vikas Parasrampuria in CA(AT)(Ins) No. 690 of 2022 to contend that when interest is stipulated in the invoices it can be clubbed with the outstanding principal amount. 6. Submission was further pressed that since payments were still not forthcoming, a Section 8 Demand Notice was issued. However, the Corporate Debtor thereafter tried evading the discharge of their liability by raising spurious disputes without any supporting documents in their reply dated 29.06.2024 to the Demand Notice. It was asserted that the Corporate Debtor had raised frivolous allegations regarding poor quality of material supplied and failure by the Appellant to collect the damaged materials though no such disputes were ever raised earlier during the course of their business dealings. It was contended that the Adjudicating Authority had failed to appreciate that these moonshine disputes were raised as an afterthought with the sole intent to create a defence of pre-existing dispute to escape the fallout of Section 9 application....
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....LAT 1262. Submission was further pressed by the Respondent that the clear business understanding between the parties was only for payment of the rental hiring charges of the shuttering and scaffolding material supplied and there being no obligation on them to pay for the value of these materials, the Appellant could not have added the same in the computation of the outstanding debt. With the levy of interest and the claim of cost of unreturned goods having been disputed, the Section 9 application deserved to be rejected. 8. Since the invoices raised by the Appellant had been disputed by the Corporate Debtor even prior to the issuance of the Demand Notice on 18.06.2024, these complaints were in the nature of pre-existing disputes. Support was also drawn from the judgment of the Hon'ble Supreme Court in Mobilox judgment supra wherein it has been held that disputes raised by the Corporate Debtor prior to the issuance of demand notice under Section 8 of the IBC squarely fall within the ambit of pre-existing dispute and if the disputes are found to be prima facie plausible, rejection of the Section 9 application was in order. It was vehemently contended that they had disputed the inv....
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.... of the demand notice of the unpaid operational debt in relation to such dispute? If any of the aforesaid conditions is lacking, the application would have to be rejected." 12. At the very outset, it would be useful to have a look at the Part-IV details in Form-5 as claimed by the Appellant which appears at page 70 of the Appeal Paper Book ("APB" in short) under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with respect to the total debt amount claimed. The Part-IV is as reproduced below: PART-IV PARTICULARS OF OPERATIONAL DEBT 1. TOTAL AMOUNT OF DEBT, DETAILS OF TRANSACTIONS ON ACCOUNT OF WHICH DEBT FELL DUE, AND THE DATE FROM WHICH SUCH DEBT FELL DUE Total Amount of Debt: Rs. 2,77,00,575.5/-(Principal amount of Rs.89,75,401.88/- + Interest of Rs. 22,00,486/- and unreturned shuttering and scaffolding material of Rs. 1,65,24,737.70/) towards shuttering and scaffolding material provided on hire-basis at the project site(s) of Corporate Debtor Total amount of Debt: Rs. 2,77,00,575.5/- Debt fell due from-20th October, 2023 Having noted the Part-IV particulars above, we have no doubts that the Appellant has listed out....
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....T, etc. which read as follows: "Final tax invoice for GST, there should not be any difference with respect to basic rate, HSN CODE, CGST/SGST/IGST rate. In case any difference interest @2% Per Month will be charged extra on prorata from date of credit /cheque date." In such circumstances, the interest claimed by the Appellant was unsustainable and cannot be justifiably added to the operational debt. It was added that this clause for payment of 24% interest had been unilaterally inserted in the invoices and therefore the same has no legal effect as it was contrary to the principal agreement between the parties i.e. the hiring orders. 15. Coming to our findings, we notice that the Appellant has contended that when interest is stipulated in the invoices, this liability can be clubbed with the outstanding principal amount and in support of their contention, the Appellant has relied on the judgment of this Tribunal in Prashat Agarwal judgement supra. This contention of the Appellant is misplaced since in Prashat Agarwal case, the interest amount was added to the principal amount as the Operational Creditor and Corporate Debtor were at ad idem on the levy of interest as it was reflect....
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....jurisdiction. Dispute over interest amount claimed was therefore a clear ground of dispute between the two parties and this dispute having also been raised in the Notice of Dispute formed sufficient basis for rejection of the Section 9 application by the Adjudicating Authority. 17. We next come to the addition of an amount of Rs. 1.65 Cr. as value of unreturned shuttering and scaffolding material by the Operational Creditor while computing the outstanding liability. It is the case of the Operational Creditor that the Corporate Debtor had wrongfully retained the shuttering and scaffolding materials in breach of the contractual terms. Submission was also pressed by the Operational Creditor that in both their reminder notices sent on 01.01.2024 and 10.04.2024, Corporate Debtor had been requested to return the said material. It was also pointed out that the Corporate Debtor had not denied the fact that the said material was not in their possession. The only explanation offered by the Corporate Debtor was that some of the scaffolding material was damaged while majority of it was lying with them in good condition. Hence, the non-return of the material caused the financial loss as they....
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....of which none realised. Refer to annexure B it is clear that not even a single lorry of material has been returned back to us. The material is legal property of Shri Durga Scaffolding Noida Pvt Ltd and as such ask you again to return it immediately without delay. Kindly see that failure to clear our payment and return back our material shall attract strict penalties. For SHRI DURGA SCAFFOLDING NOIDA PVT LTD" 10.04.2024 "Subject: - Notice for due payment and return of material. ........ The outstanding dues have now reached a critical stage As on date 1-04- 2024 the outstanding amount without interest is Rs. 85,90,728.88/- app. We have called upon your staff to immediately return our material but only feeble commitments had been made of which none have realised. Refer to annexure B, it is clear that not even a single lorry of material has been returned back to us. The material is legal property of Shri Durga Scaffolding Noida Pvt Ltd and as such ask you again to return it immediately without delay. Kindly see that failure to clear our payment and return back our material shall attract strict penalties." For SHRI....
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.... such ask you again to return it immediately without delay. It is submitted that the official of my client several times intimated you the addressee to collect the material but you the addressee failed to collect the material from the site of my client. Moreover, the contents of preliminary objection may be read as part and parcel to the reply of the current para and same has not been repeated herein for the sake of brevity." (Emphasis supplied) 20. When we go through the above communications, we do agree with the Operational Creditor that in their reply dated 10.06.2024, the Corporate Debtor had admitted that most of the material was in good condition and that damage had occurred while the material was in their possession. Nevertheless, we cannot be unmindful of the fact that objections were also raised by the Corporate Debtor regarding substandard and poor quality of shuttering and scaffolding material supplied; that the Operational Creditor had failed to take back or replace the damaged material and to conduct a proper assessment of the damaged material besides failure to replace the damaged material. This communication dated 10.06.2024 addressed to the Appellant which was....
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.... a legitimate liability. The Adjudicating Authority has also noted that the Corporate Debtor had requested for reconciliation of accounts prior to making payments which clearly shows pre-existing disputes between parties. 23. Further, it has been the contention of the Corporate Debtor that the alleged cost of unreturned goods was claimed for the first time by the Appellant only in the Section 8 Demand Notice dated 18.06.2024 and that this issue had also been disputed by the Respondent in their reply dated 29.06.2024 to the Section 8 Demand Notice. 24. It will therefore be constructive to have a look at the reply of the Corporate Debtor to the Section 8 Demand Notice which is extracted below: "Subject: Reply to Demand Notice dated 18.06.2024 Re: Demand Notice dated 18.06.2024 under Rule 5 o/the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. ...... 5 ..... b) That in terms of the Hiring orders, which formed the principal contract between the parties, it was incumbent upon you to provide all the scaffolding material in good quality and further ensure that the technical specifications as required by our ....
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.... days of the receipt of the demand notice. We find that the Corporate Debtor in their above reply on 29.06.2024 to the Section 8 notice dated 18.06.2024 has denied the claim raised by the Operational Creditor inter alia on the grounds of ongoing disputes related to the debt amount that has been claimed besides raising the issue of supply of damaged material. It is clear that the defence which was raised by the Corporate Debtor in its reply to Section 8 Demand Notice cannot be said to be moonshine. The correspondence exchanged between the Corporate Debtor and the Operational Creditor on 01.01.2024, 10.04.2024 and 10.06.2024 prior to Section 8 Demand Notice also clearly establishes that there was real pre-existing dispute. Hence the reliance placed on the judgment of this Tribunal in B.V. Gautam judgment supra by the Appellant is misplaced because in that case the dispute was raised after a prolonged delay post the Section 8 Demand Notice. However, in the present case, the dispute was raised on 10.06.2024 which clearly pre-dated the Section 8 Demand Notice and hence we are of the view that this judgment does not come to the relief of the Appellant. 26. We are of the considered vie....