TaxTMI 
TaxTMI 
2026 (3) TMI 1323
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....nal Creditor and is the sole proprietor firm IB Jewels which is engaged in the business of wholesale trade of diamond jewellery and the proprietor of IB Jewels, namely, Indu Jain is the proprietor of two distinct proprietary concerns, namely, IB Jewels (OC) and Brij Ratnam. 3. It is further submitted that while IB Jewels is the wholesale supplier of rough and uncut diamond jewellery, Brij Ratnam is a retail supplier of finished jewellery and both these proprietorship have separate GST registrations and Bank accounts. The IB Jewels sells rough and uncut diamond jewellery among other parties to the Birla Jewels Ltd. (Respondent/CD) and vide three invoices of date 16.06.2019 for Rs. 26,52,781/-, invoice dated 20.06.2019 for Rs. 11,81,272/- and Invoice dated 20.06.2019 for Rs. 11,47,868/-. The uncut diamond jewellery was delivered by the Appellant to the CD/Respondent. 4. It is further submitted that as submitted earlier the CD used to finish goods and sell them to its franchisees including Brij Ratnam. The Agreement between the OC/IB Jewels and CD/Birla Jewels Ltd. is for the sale of goods supply of which has been evidenced by the aforesaid invoices. 5. It is further submitte....
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....roprietorship owned by the proprietor of the Appellant having a different bank account and GST registration and thus was a separate entity and the transaction of the sale of the uncut jewellery to the CD was a separate transaction by a separate entity owned by the proprietor Ms. Indu Jain and therefore, the dispute between the parties which was pertaining to the franchisee agreement between the CD and Brij Ratnam may not be deemed to be a dispute between the Appellant and Respondent and therefore the concept of pre-existing dispute drawn in this case is without any basis. 10. It is further submitted that supply of uncut diamond jewellery was never disputed by the Respondent in its reply to the notice of the OC given under Section 8 of the Code and this argument of non-supply of uncut diamond jewellery with the aforesaid three invoices has been carved out to set a defence to the petition filed by the Appellant subsequently and is an afterthought and thus the Adjudicating Authority has failed to appreciate this fact in right prospective. 11. It is further submitted that a dispute with regard to a distinct and separate contract may not be brought into ambit of another contract a....
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....ced IB Jewels as vendor partner for sale of Mrs. Indu Jain's dead diamond and other jewellery stocks under the brand name of 'BJEWELZ' store. 17. It is further submitted that the operation of both these entities was managed, controlled and carried out by the Appellant from the same premises having common address of both entities and thus the IB Jewel (Appellant) is a part of supply chain for procurement of diamonds by its another entity Brij Ratnam making it a part of composite transactions and thus the supply of uncut diamond to the Respondent/CD by the Appellant and the supply of material by the CD to Brij Ratnam under the franchisee agreement was part of the same transactions and the same cannot be segregated. 18. Ld. Counsel for the Respondent has highlighted the emails written by the Appellant of date 20.06.2019, 02.07.2019 and also the emails dated 04.07.2019, 06.07.2019 and 16.07.2019 in order to show that both context i.e. supply of uncut diamond by the Appellant to the CD and the supply of goods by the CD to the Brij Ratnam under franchisee agreement are interwining transactions closely integrated with each other and could not be separated and thus the dispute with r....
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....y Ltd. Vs. Commissioner of Income Tax (Central) Calcutta 1970 2 SCC 777 (ii) Dogiparthi Venkata Satish v. Pilla Durga Prasad & Ors 2025 SCC OnLine SC 1825 (iii) Impex Services India vs. DBA Enterprises 2018 SCC OnLine NCLAT 337 (iv) Greymatter Entertainment Pvt. Ltd. Vs. Pro Sportify Pvt. Ltd. 2023 SCC OnLine NCLAT 82 (v) Brand Realty Services Ltd. Vs. Sir John Bakeries India Pvt. Ltd. 2022 SCC OnLine NCLAT 290 (vi) Rajratan Babulal Agarwal Vs. Solartex India Private Limited and Ors, 2022 SCC Online SC 1395 (vii) Beacon Cosurier & Cargo India Pvt. Ltd. Vs. Trim India Pvt. Ltd. 2019 SCC OnLine NCLAT 321 (viii) Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (2018) 1 SCC 353 (ix) Mascot Petrochem Pvt. Ltd. vs Midaas Constructions Co. Pvt. Ltd. 2022 SCC OnLine NCLAT 2164 25. We have heard Ld. Counsel for the parties and perused the record. 26. The Hon'ble Supreme Court in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353, which has been relied on by both the parties held as under: "33. The scheme under Sections 8 and 9 of the Code, appears to be that ....
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....spute of the unpaid operational debt and a copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor. Apart from this information, the other information required under Form 5 is also to be given. Once this is done, the adjudicating authority may either admit the application or reject it. If the application made under sub-section (2) is incomplete, the adjudicating authority, under the proviso to sub-section (5), may give a notice to the applicant to rectify defects within 7 days of the receipt of the notice from the adjudicating authority to make the application complete. Once this is done, and the adjudicating authority finds that either there is no repayment of the unpaid operational debt after the invoice [Section 9(5)(i)(b)] or the invoice or notice of payment to the corporate 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 ....
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....jected the application of the Appellant moved under Section 9 of the Code on the following grounds:- (i) It is not established that the goods (diamonds) under the invoices were in fact supplied by OC to CD through courier Jewel Goldi who stated to courier it through sequel global critical logistics (ii) as both the firms i.e. IB Jewels and Brij Ratnam owned by Indu Jain, having the same address and both the businesses were managed by Indu Jain and were interwind and thus the dispute existing between IB jewels and Brij Ratnam cannot be regarded as separate. It is also stated that pre- existing dispute with the CD in relation to the franchisee agreement by Indu Jain in her capacity as sole proprietor of Brij Ratnam has nexus with the business concern IB Jewels also run by Indu Jain (iii) Section 8 demand notice was issued by IB Jewels as proprietary concern while section 8 contemplates issuance of demand notice by the operational creditor, section 5(20) defines operational creditor to be a person to whom operational debt is owned. Section 3(23) of the Code does not list out sole proprietorship as legally recognisable person. Hence, sole proprietorship is not competent to issue demand....
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....m) are part of a one integrated contract and a loss with regard to business damage has occurred to the CD to the tune of Rs. 7,50,00,000/-, the payment of three invoices have been denied. Thus, the reply given by the CD to the demand notice sent by the Appellant would clearly reveal that there is no mention of non-supply of any goods by the Appellant to the CD and also with regard to the alleged forged invoices and in our considered opinion these defences have been carved out subsequently at the stage of filing of reply to the petition filed by the Appellant under Section 9 of the Code before the Adjudicating Authority and thus was a clear after thought. 30. We notice that various submissions have been raised by Ld. Counsel for the Respondent pertaining to various discrepancies allegedly occurring in the invoices, in order to show that the same are forged and have been made subsequently, but we are not impressed by these submissions. It is evident that the goods under invoice Nos. 17 and 19 were stated to be couriered by the appellant through one Jewel Goldi, stated to be a renowned diamond manufacturer, who couriered the same through sequel Global Critical Logistics Courier ser....
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....T 2164 wherein it is held as under: "11. Therefore, we feel that appellant had to submit unimpeachable proof of delivery of goods to establish his case under section 9 of the IBC. Such evidence was also necessary since the respondent had disputed delivery of goods in his reply to the demand notice. " (Emphasis Ours) 32. It may be noted that in the case relied on by the Respondent the delivery of goods was denied in the reply to the demand notice, which is not a case in the case at hand. Thus the Respondent may not get any benefit of this case due to factual difference. Thus, we do not find any merit in the claim of the CD that no goods as claimed by the Appellant/OC has been supplied to it under aforesaid three invoices. 33. Now we come to the crucial issue as to whether there was a pre-existing dispute existing between the parties with regard to the payment of amount as claimed by the Appellant. 34. Ld. Counsel for the Appellant has relied on a case decided by this Appellate Tribunal in Deepak Modi v. Shalfeyo Industries (P) Ltd., 2023 SCC OnLine NCLAT 169 wherein it is opined as under: "13. It is true that under the provisions of Code if Adjudicating Au....
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....te with the amount claimed by the operational creditor or if a suit or arbitration proceedings is pending then the same should also be related to such dispute." 36. Ld Counsel for the Appellant has also referred Jord Engineers India Ltd. v. Valia & Co., 2018 SCC OnLine NCLAT 925 wherein this Appellate Tribunal Opined as under: "7. There was another issue raised by the Corporate Debtor that the goods supplied was of inferior quality, but no such dispute was raised by the Appellant prior to issuance of notice under Section 8(1). The question of quality was raised by the Appellant only when reply under Section 8(2) was filed by the Corporate Debtor. Therefore, that cannot be taken into consideration to annul the initiation of Corporate Insolvency Resolution Process." 37. Ld Counsel for the Appellant has also highlighted Nandamuri Meenalatha v. Quality Steels & Wire Products, 2023 SCC OnLine NCLAT 1757 wherein it is held that the 'Proceedings', under the I & B Code, 2016, are 'Summary in Character', and that an 'Adjudicating Authority', not being a 'Recovery Fora' or 'Court' is not obliged to conduct an elaborate enquiry is like that of a 'Regular Trial' of a 'Civil' cas....
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....erational creditor was apprised of the goods supplied being sub standard and defective." 39. He also relied Union of India v. Raman Iron Foundry, (1974) 2 SCC 231 wherein Hon'ble Supreme Court Opined as under: "11....... A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under clause 18, to recover the amount of such claim by appropriating other sums due to the contractor. " 40. The law propounded by The Hon'ble High Court of Calcutta again in Organon (India) (P) Ltd. v. Martin and Harris (P) Ltd., 2017 SCC OnLine Cal 21500 has also been relied wherein it is stated that a claim in damages cannot be elevated to the status of an immediately enforceable claim to be adjusted or set off against an admitted debt. 41. Ld Counsel for the Respondent on the other hand has relied on Standard Refinery And Distillery Ltd. Vs. Commissioner of Income Tax (Central) Calcutta 1970 2 SCC 777 wherein Honble Supreme Court held as follows : "4. As pointed out by this Court in CIT v. Prithvi Insurance Company Ltd. in determining whether two lines ....
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....prietorship concern is nothing, but a trade name given by an individual for carrying on his business. A proprietorship concern is not a juristic person. It cannot sue, however, in view of Order XXX Rule 10 CPC, it can be sued........ 4.3 It is well settled by series of judgments that proprietorship concern cannot be equated either with a company or with a partnership firm. Order XXX deals with partnership basically, however, Rule 10 thereof refers to proprietorship. It makes very clear that proprietorship concern cannot sue but it can be sued. " 46. Another case i.e. Beacon Courier & Cargo India Pvt. Ltd. Vs. Trim India Pvt. Ltd., 2019 SCC OnLine NCLAT 321 relied on by Ld Counsel for the Respondent in our considered opinion is not having any relevance due to factual difference. 47. Paragraph 51 of the Law propounded by Hon'ble Supreme Court again in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, (2018) 1 SCC 353 has also been highlighted, which is placed below: "51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application ....
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....ee agreement would reveal that various clauses have been provided in this agreement with regard to the smooth execution of the agreement between the parties, however, no where in this agreement any mention of the Appellant, namely, IB Jewels has been made and this contract/agreement appears to be purely between the CD and Brij Ratnam. 51. The termination notice pertaining to the termination of this franchisee agreement given by the Birla Jewels Ltd. on 12.08.2019 would also reveal that it was addressed to Brij Ratnam and the fact of continuous default in fulfilling the alleged obligations of Brij Ratnam has been stated therein with regard to various terms and conditions and clauses of the franchisee agreement dated 05.12.2018 and the other grounds which has been given in the notice for termination of this franchisee agreement are deficiency of fund infusion against agreed opening stock value of gold jewellery and of Rs. 77 lakhs against diamond jewellery stock, which has been allegedly brought to BJEWELZ's notice all of a sudden which has effected profitability of BJEWELZ, delivery failures at last moment by Brij Ratnam, non-delivery of stock to the franchisee within 7 - 28 days....
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....ore, what is evident from the above is that it is on account of dispute which has arisen between the CD and Brij Ratnam the franchisee agreement dated 05.12.2018 was terminated by the CD and the arbitration clause has also been invoked and the termination of franchisee agreement dated 05.12.2018 was solely on account of alleged non-compliances by the Brij Ratnam and the same was not having concern with the supply of material by the Appellant through aforesaid three invoices. 54. Now coming to the issue which has been highlighted by the Ld. Counsel for the Respondent that in various emails written by the parties to each other there is reference of dispute existing between the CD and Brij Ratnam. 55. We have perused the various emails highlighted by Ld. Counsel for the Respondent i.e of date 20.06.2019, 02.07.2019, 04.07.2019, 06.07.2019, 16.07.2019, 26.07.2019 and 05.08.2019. 56. Much emphasis has been given by the Ld. Counsel for the Appellant on the email dated 22.06.2023 which has been written by the Appellant to the CD and it has been stated therein that there has been a confusion between them regarding payment and that they are single person and being viewed as two dif....
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....er the dispute arisen between the CD and Brij Ratnam as a dispute between the Appellant and the CD. 62. We are in complete agreement with the submissions made by the Ld. Counsel for the Appellant that a dispute which has occurred between the same parties with regard to a totally different transaction not having any connection with transaction in question may not be sufficient to term as prior existing dispute in the instant case. 63. In this regard, reference may be taken of the law laid down by the Hon'ble Supreme Court in Deepak Modi (Supra) wherein the Hon'ble Supreme Court has held that genuine pre-existing dispute must exist for rejection of an application Section 9 of the code. Thus the dispute must have substance and must not be a moon shine defence. 64. The Hon'ble Supreme Court in Mobilox Innovations (P) Ltd (Supra) has also held that within a period of 10 days of the receipt of the demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute an....
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....s including an operational creditors authorised agents and lawyer as has been highlighted in form 3 and 5 appended to the Adjudicating Authority rules. 70. In the background of aforesaid law, it is evident that the notice under Section 8 of the Code may very well be given by an advocate/attorney or legal firm on behalf of the OC. 71. Ld. Counsel for the Appellant has relied on para 5 of Unigold System (Supra) wherein this Appellate Tribunal has held as under:- "At the outset we address to the contention raised by the Learned Counsel for the Respondent that the Appellant herein is a propriety concern and therefore does not have a locus standi to initiate CIRP. Section 2(f) of the Code reads as hereunder:- "2. Application.-The provisions of this Code shall apply to- (a) any company incorporated under the Companies Act, 2013 (18 of 2013) or under any previous company law; (b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; (c) any Limited Liability Partnership incorporated under the Limited Liability Partnership....