TaxTMI 
TaxTMI 
2026 (2) TMI 564
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....o as 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-III) in C.P. (IB) No. 2616/MB/2019. By the impugned order, the Adjudicating Authority has admitted Section 9 application filed by the Respondent-Operational Creditor for initiation of CIRP against the Corporate Debtor-Tradco India Private Limited. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant who is the suspended Director of Corporate Debtor. 2. Coming to the factual matrix of the case at hand, there was a business arrangement between Sonal Trading Company-Operational Creditor and the Corporate Debtor-Tradco India Pvt. Ltd. by which the Operational Creditor supplied maize through two brokering entities to Yashwant Glucose Karkhana ("YGK" in short) on the directions of the Corporate Debtor who in turn got the maize processed to make forward supply of the maize and its derivatives to other end users/customers. As per this business relationship the Corporate Debtor had issued five purchase orders during the period 16.07.2017 to 19.08.2017 to the Operational Creditor for supply of maize and the Operational Creditor had delivered the produ....
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....this mishappening in Chitale Dairy, YGK had issued a debit note to the Appellant-Corporate Debtor. The Corporate Debtor thereafter aborted the fifth purchase order of 500 MT midway and the delivery was limited to 273 MT with further supplies stopped. It was vehemently contended that the very fact that the delivery against the fifth supply order was discontinued by them midway substantiates pre-existing dispute between the parties. Submission was also pressed by the Appellant that due to this defective supply, a debit note had been issued to them by YGK on 25.10.2017 and in turn they had issued a debit note on 31.03.2018 to the Operational Creditor which again clearly signified pre-existing dispute. To further buttress their argument that the debit note had actually been issued, it was added that these debit notes were also reflected in the income tax returns of the Corporate Debtor well before the Section 8 Demand Notice. Reliance was placed on the judgement of the Hon'ble Supreme Court in Mobilox Innovations Vs Kirusa Software Ltd. (2018) 1 SCC 353 to contend that the Adjudicating Authority is only required to see whether a plausible dispute has been raised which requires further ....
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..... Reliance has also been placed on certain notarised affidavits issued by various entities also show that pre-existing disputes existed between the parties. DTC in their affidavit mentions the issue of debit note and settlement talks between the Operational Creditor and the Corporate Debtor. Another affidavit was by a relative of the Operational Creditor, namely, Shri Sanjay Patni which mentions about settlement talks between the Operational Creditor and Corporate Debtor. The third affidavit by an employee of the Corporate Debtor attested that the lab test reports showed contamination of fibre and husk causing sickness of the cattle at Chitale Dairy. Another affidavit by one Mr. Vikas Chowgule testified that the Operational Creditor had visited the factory of YGK and Chitale Dairy alongwith DTC in view of the cattle sickness caused by the supply received. The veracity of the contents of these affidavits would entail the need to forward evidence in a trial in a civil suit which lay beyond the remit of the Adjudicating Authority. 6. Refuting the contentions made by the Appellant-Corporate Debtor, Shri Aslam Ahmed, Ld. Counsel for Respondent No.1-Operational Creditor submitted that....
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....e Operational Creditor that the said dispute having been contrived with a view to resist the insolvency resolution proceedings, the Adjudicating Authority for good reasons has admitted the Section 9 application. 7. We have also heard Shri Sanjiv Sen, Ld. Sr. Counsel for the Intervenor- SBI. It was submitted that the Corporate Debtor was indebted to SBI and that in case the impugned order is upheld, they would like to file their claims before the Resolution Professional and in case the impugned order is set aside, they would like to initiate CIRP proceedings against the Corporate Debtor as they are liable for financial debt qua SBI. 8. We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully. 9. The short question which needs to be answered is whether there was any pre-existing dispute between the parties within the meaning of Sections 8 and 9 of the IBC and whether the Adjudicating Authority had committed any infirmity in passing the impugned order admitting the Section 9 application filed by the Operational Creditor. In this endeavour, we will be guided by the well settled proposition of law laid down by the H....
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....ty contracted in the five purchase orders for 2100 MT, only 1873 MT had been delivered and the remainder supply was stopped because of sub-standard and contaminated material supplied by the Operational Creditor. It is also the contention of the Appellant that they had never taken direct physical delivery of the maize from the Operational Creditor. The maize was to be supplied by DTC, an agent of the Operational Creditor with the delivery address of the supply being that of YGK and the invoices clearly depicted this position as placed at pages 89 to 121 of APB. In turn, YGK acting as the agent of the Appellant supplied the maize as cattle feed to Chitale Dairy. Since several cattle in Chitale Dairy had died because the husk and fibre delivered by YGK was contaminated, YGK had issued a debit note to the Appellant-Corporate Debtor and the latter had in turn issued a debit note to the Operational Creditor and also put a stop to the fifth purchase order midway. The fact that the delivery against the fifth supply order was discontinued midway by them besides issue of a debit note clearly evidenced pre-existing dispute between the parties. 11. Per contra, it is the case of the Operatio....
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....etween the parties and the subsequent narrative raised with regard to supply of substandard material therefore did not carry credibility. 12. Coming to our analysis and findings, when we look at the material placed on record, we find that a debit-note had been issued to the Corporate Debtor by YGK on 25.10.2017 as placed at page 193 of Appeal Paper Book ("APB" in short). In turn the Corporate Debtor had issued a debit-note on 31.03.2018 to the Operational Creditor for Rs. 2 Cr. which is placed at page 202 of APB. This entry clearly depicts that the amount was debited against the party as "Quality Compensation" deduction. The same is also reflected in the ledger account of the Operational Creditor maintained by the Corporate Debtor as may be seen at pages 233-234 of the APB. That the debit note had actually been issued is also evidenced by the fact that the Corporate Debtor had reflected the debit-note in their income tax returns as is placed at page 209 of the APB. The income tax returns had been filed by the Corporate Debtor on 29.10.2018 which was well before the Section 8 Demand Notice. That the Corporate Debtor paid higher income tax on account of income enhancement as a res....
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....le Industries group and Yashwant Industries. Due to the same, since we use to get quality corn husk from you, we started to use the same in our Cattle Farm. On 19.8.17 and 20.8.17, your corn husk is supplied through Kadam Enterprises, Nadivans Mali Galli, Miraj. As there is defect in both these supplies, all the animals of our Farm suffered trouble of the same and in this, 7 buffaloes are died. Similarly, 8 buffaloes and 4 he buffaloes are not giving response to medicines. Possibility of their recovery is less. At the same time while this incident was on, when we sent a letter to your supplier Kadam Enterprises' Proprietor Shri Vikas Kadam and Shri Rahul Dange (copy of the same is attached for your information), both of them had personally come to our Farm on 2.9.17. They have personally seen that one buffalo is died on that day also. Still the series of animal death is continued. In consideration of our business relation of several years, we have not taken any action. But, we have suffered and are still suffering loss of cattle wealth of lakhs of rupees, the expenditure of more than lakh incurred on medicine and treatment and the loss of lakhs of rup....
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.... order. 16. It is also a well settled legal proposition that for pre-existing dispute to be a valid ground to nullify an application under Section 9, the dispute raised must be truly existing at the time of filing a reply to the notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application. In the present case, we notice that reply was furnished on 01.07.2019 by the Corporate Debtor in response to the Section 8 Demand Notice dated 20.06.2019. The relevant excerpts of the said Notice of Dispute are as extracted below: "Date: 1st July, 2019 Re: Demand Notice dated 20th June, 2019 issued by you on behalf of Sonal Trading Company. ..... 2. At the further outset, Tradco states that no amount is due or payable by Tradco to your client Sonal Trading Company ("Sonal"). On the contrary Sonal is liable to pay a sum of Rs.96,71,081/-(Rupees Ninety Six Lacs Seventy One Thousand Eighty One Only) and other amounts to Tradco, for the losses and damages suffered by Tradco on account of supply of inferior quality of U.P. Crop Maize Grain by Sonal as against the agreed High Grade Maharashtra- Maize Grain, which Sonal....
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....nal, whose Mr. Rajendra Baijatia, proprietor of Sonal, had also visited Yashwant's factory at Sirala alongwith with Mr. Mohan of Dinesh, in light of the aforesaid events. n) Yashwant addressed various letters/notices to Tradco and issued a Debit Note of Rs. 2,00,00,000/-(Rupees Two Crores Only) and deducted the said -amount of Rs. 2,00,00,000/-(Rupees Two Cores Only) from the amount payable by Yashwant to Tradco owing to losses and damages suffered by Yashwant, copies of which have been forwarded to Mr. Mohan of Dinesh and Mr.Rajendra Barjatia of Sonal. A copy of the Debit Note of Rs. 2,00,00,000/-(Rupees Two Crores Only) issued by Yashwant to Tradco is enclosed herewith and marked as Annexure "A" and a copy of one of the letters sent by email i.e. letter dated 25th October, 2017 addressed by Yashwant to Tradco is enclosed herewith and marked as Annexure "B". .... q) Tradco has already debited a sum of Rs.1,03,28,919/-(Rupees One Crore Three Lacs Twenty Thousand Nine Hundred and Nineteen Only) out of the sum of Rs. 2,00,00,000/- (Rupees Two Crores Only), and Sonal is bound and liable to make payment of the balance sum of Rs. 96,71,081/-(Rupees Ninety ....