TaxTMI 
TaxTMI 
2026 (4) TMI 1280
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of Corporate Insolvency Resolution Process ('CIRP' in short) against the Respondent/Corporate Debtor-Amod Stampings Private Limited. Being aggrieved by the dismissal of its Section 9 application and the findings recorded therein, the Appellant has come up in appeal. 2. Coming to the brief factual matrix of the matter at hand, it is relevant to notice that the Appellant-Operational Creditor and the Respondent-Corporate Debtor had entered into a business arrangement since 2021, in pursuance of which the Corporate Debtor had issued a purchase order dated 08.09.2021 to the Operational Creditor for supply of electrical silicon steel sheets. The Operational Creditor thereafter commenced supply of goods which were shipped from abroad and the transactions between the parties were governed by 'CFR INCO TERMS'. Two of these consignments were shipped by the Operational Creditor from China for which supply, payments were also made by the Corporate Debtor. However, the Corporate Debtor defaulted in making payment for the third consignment sent by the Operational Creditor which was covered under invoice dated 16.09.2022 which was for an amount of USD 353,534.50 (approximately Rs. 2.92 Cr.)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sputes could only be raised in respect of the goods against which the Operational Creditor had raised the invoices which also constituted the subject matter of the Section 8 Demand Notice basis which the Section 9 application had been preferred. In the present case, the Corporate Debtor had raised an issue of defective consignments linked to old and unrelated consignments which had nothing to do with the present consignment against the third invoice. It was emphatically asserted that the Adjudicating Authority had also erred in clubbing two independent transactions without appreciating the fact that the quality of the previous consignment of goods had no bearing on the use of goods belonging to a future consignment. In support of their contention, reliance was placed on the judgment of this Tribunal in R.A.J. Krishna Construction Company Pvt. Ltd. Vs Newera Solutions Pvt. Ltd. in CA(AT)(Ins) No. 83 of 2024 wherein it was held that disputes can only be qua goods under Demand Notice and Section 9 application. It was further added that similar view has been taken by the Hon'ble Supreme Court in Transmission Corporation of Andhra Pradesh Ltd. Vs Equipment Conductors and Cables Ltd. (20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther there was any genuine pre-existing dispute surrounding the debt claimed by the Operational Creditor as due and payable to them by the Corporate Debtor warranting the rejection of the Section 9 application. 7. Before dwelling on the facts of the present case, a quick glance at the relevant statutory construct of IBC would be useful. Section 8 of the IBC envisages that the Operational Creditor, on occurrence of a default by the Corporate Debtor, is required to deliver a Demand Notice in respect of the outstanding Operational Debt. Section 8(2) lays down that the Corporate Debtor within a period of 10 days of the receipt of the Demand Notice would have to bring to the notice of the Operational Creditor, the existence of dispute, if any. Section 8 of the IBC reads as follows: "8. Insolvency resolution by operational creditor- (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority." 10. From a plain reading of the above provisions, it is clear that the existence of dispute and its communication to the Operational Creditor by the Corporate Debtor is therefore statutorily provided for in Section 8. The statutory scheme also contemplates rejection of Section 9 application when notice of dispute has been received by the operational creditor or there is a record of default in the information utility. In the present case, it is an undisputed fact that the demand notice was issued by the Operational Credito....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the Adjudicating Authority has to reject the application. It is therefore a well settled proposition that for a pre-existing dispute to be a ground to nullify an application under Section 9, the dispute raised must be truly existing at the time of filing a reply to notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application. 13. In the present factual matrix, we notice that inspite of being in receipt of the notice of dispute, the Operational Creditor had proceeded to file an application under Section 9 of IBC as it did not receive any payment from the Corporate Debtor. 14. Given this backdrop, it will be useful to find out how the Adjudicating Authority has considered the spectrum of facts to arrive at the conclusion that there existed pre-existing disputes. The relevant portions of the impugned order is extracted hereunder: "35. Looking at the facts of the case, at the most, it appears that the applicant is aggrieved by the action of the respondent in not accepting the goods of the 3rd consignment which are lying at the Port of Nhava Sheva, India. The applicant has stated that the liability has transferred as per ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he coils. Supply of such a goods to the Corporate Debtor did not qualify the technical parameters and also were not as per the requirement of the customers. There are numerous communications made between the Corporate Debtor and the Operational Creditor over the supply of defective goods, wherein the Corporate Debtor has disputed the said supply of goods (coils) made by the Operational Creditor. The Corporate Debtor has suffered huge financial loss on commercial part and also impacting the brand/image resulting into reputational loss because of supply of defective goods by the Operational Creditor. ....... There is pre-existing dispute between Corporate Debtor and Operational Creditor. Despite having existence of dispute between the Corporate Debtor and Operational Creditor, the Corporate Debtor has received a demand notice dated 26.06.2023 in Form-3 as per rule-5 of the IBBI (Application to Adjudicating Authority) Rules, 2016, to pay USD 3,99,387.50 to the Operational Creditor. The Corporate Debtor further states that, the unpaid amount of USD 3,99,387.50 as mentioned in the notice is unlawful and demand from the Corporate Debtor is not payable. The said....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f signified the acceptance of goods without any protest. It was emphatically asserted that the Adjudicating Authority had erred in not appreciating the fact that the quality of goods supplied in the previous consignments had no bearing on goods belonging to a future consignment. Moreover, this was a case of two different consignments which were independently useable having distinct unit prices which were independently payable. It was also contended that the Corporate Debtor cannot escape their liability to discharge the claim raised in the third invoice by linking it with disputes pertaining to goods supplied against the earlier invoices since any plea of pre-existing dispute must specifically co-relate with the amount claimed by the Operational Creditor. Denouncing the manner in which disputes of two independent transactions had been clubbed together erroneously by the Adjudicating Authority, attention was adverted to the judgement of the Hon'ble Supreme Court in Transmission Corporation of Andhra Pradesh Limited Vs Equipment Conductors and Cables Limited (2019) 12 SCC 697 and of this Tribunal in R.A.J. Krishna Construction Company Pvt Ltd Vs Newera Solutions Pvt Ltd in CA(AT)(Ins....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Creditor which find mention in the impugned order are as reproduced below: From: Darshan Shah <[email protected]> Sent : 12 October 2022 08:22 To : [email protected] Cc : [email protected] Subject: FW: NON-CONFIRMITY REPORT CRGO MOTHER COILS "Dear Mr. Balaji, Refer to your personal visit to Amod Stampings wherein we briefed you about the rusting and corresponding mail dtd. 10th Oct. 22 giving brief details about the rusting observed in opening up the coils randomly. In continuation to the same we attach herewith the non- conformity report of the two consignments supplied by Ms. Kally where in both the entire lots are found rusted. We are rejecting both the lots as they are rusted and are of no use to us. It is beyond our imagination that such rusted coils has been supplied. Please take up this matter with Ms Kally and principals and advise what procedure to be followed in returning back the said rejected two lots. Mr. Balaji you are requested to take up the matter on a serious note and arrange to issue Credit Note of the amount we paid for the said two containers. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fault on the part of the Adjudicating Authority to have abstained from making any interpretation of CFR INCOTERMS or the applicability of the Sales of Goods Act as this was beyond the remit of the summary jurisdiction of the Adjudicating Authority. 21. It is the case of the Corporate Debtor that what further substantiates that there was dispute between the two with regard to the quality of goods supplied was the Appellant's admission to supply of defective goods and repeated offers of compensation made during negotiation held between them. 22. It may be useful to take notice of the communications from the Appellant dated 08.11.2022 and 28.12.2022 which are as extracted below: "From: kally <[email protected]> Sent: 08 November 2022 13:31 To: Darshan Shah Cc: Jignesh Patel: Tanmay Patel Subject: RE: RE: RE: Re: Fwd: FW: B/L NO. EPIRCHNSHA221664, pending payment Dear. Mr. Darshan Referring to our discussion on the phone, below is our suggestion but best effort too. 1) flood damaged, those are no more claim dispute towards manufacturers but we are also very pity to happened disaster, and we willing to share y....