TaxTMI 
TaxTMI 
2026 (5) TMI 1169
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....etition No. 141/2018. The Appellant contends that a Technical Guidance Agreement (TG Agreement) was executed between the Appellant and the Respondent on 14.09.2012 as per which the Respondent i.e. Modi Lifecare Industries Ltd. had agreed to pay royalty fees for printing on its labels and cartons that the products were manufactured under the technical guidance of the Appellant i.e. Lyka Labs Ltd. As per Clause 1D of this Agreement, the Respondent would be liable to pay a minimum royalty fees of Rs. 1 Crore per annum or 5% of its total sales value, whichever was higher for the period ending 2013. Furthermore, Respondent was liable to pay a minimum royalty fees of Rs. 2 Crores per annum or 5% of the total sales value, whichever was higher for the period 1st December 2013 till 30th November 2014. The Respondent - Modi Lifecare Industries Ltd. had promised to pay a minimum sum of Rs. 3 Crores to the Appellant for the period 14th September 2012 till 30th November 2014. And if the total sales per annum were higher than the Respondent was liable to pay 5% of the total sales invoices and this agreement was valid for five years from the date of execution of the TG Agreement. 3. Soon there....
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....ged before this Appellate Tribunal and by an order dated 16.03.2023, the matter was remanded back to the Adjudicating Authority for fresh consideration. 7. Once again by the impugned order of the Adjudicating Authority rejected the Company Petition. Submissions of the Appellant 8. The present dispute pertains to the Technical Guidance Agreement ("TG Agreement") dated 14th September 2012 (@ 94-102 of the Appeal) executed between the Appellant (Lyka Labs) and the Respondent (Modi Lifecare). Clause 10 of the TG Agreement explicitly stipulated that the Respondent would be liable to pay a minimum royalty fee to the Appellant. The Respondent severely defaulted on these payments, forcing the Appellant to initiate Corporate Insolvency Resolution Process (CIRP) via a Section 9 application under the Insolvency and Bankruptcy Code, 2016 ("IBC"). Without prejudice to any other argument of the Appellant, it is humbly submitted that the debt towards the Respondent arises in favor of the Appellant from the TG Agreement, and the NCLT cannot go into the question whether by act or omission anything else was agreed or not. It is an admitted fact that the TG Agreement was executed and that th....
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....e Appellant failed to annex invoices to the Demand Notice. It was pointed out that under Rule 5 of the IBC, Form 3 does not mandate the annexing of invoices. Furthermore, the Appellant was not contractually required to issue invoices for the Minimum Guaranteed royalty fee under the TG Agreement. 12. Even for the instances where invoices were actually raised by Lyka Labs (on an actual sales basis), the required payments were still not made by Modi Lifecare. The Respondent cannot use the procedural guise of non-annexation of invoices in Form 3 to evade insolvency when they have demonstrably defaulted on actual invoices raised by the Appellant. The absence of invoices in the demand notice should not have been a basis for dismissing the Application. 13. The existence of an operational debt and a default exceeding Rs. 1 Lakh is an admitted, undeniable position. The Adjudicating Authority overstepped its jurisdiction by delving into the exact quantification of the debt and mistakenly dismissed the petition on the hyper-technical ground of missing invoices, ignoring the settled legal propositions and the unrefuted fact that actual invoices raised were also left unpaid. Submission....
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.... application and sought to proceed on the basis of unsubstantiated claims. In the absence of a clear and undisputed liability, the alleged claim cannot constitute an operational debt capable of triggering insolvency proceedings. 17. In all the letters, there are different demands and no period whatsoever, as claimed by the appellant herein has mentioned in any of the letters. The respondent points out that within a short span of 5 months, the appellant has claimed from the respondent as alleged balance royalty fee 3 different amounts, namely: (a) during the meeting on 03.04.2017 Rs. 63 lakh approx. (b) the in letter dated 18.05.2017, 28.06.2017 and 25.07.2017 Rs. 84,72,740/-; and (c) in the demand notice dated 14.09.2017 and 10.10.2017 Rs. 5,95,04,537/- which is beyond comprehension. 18. The figures as mentioned in letters mentioned in letters at serial (b) above do not match any figure as mentioned in demand notices as mentioned in serial (c). Figure mentioned in serial (a) finds no mention in any of the correspondences, nor in Annexure I of the demand notice. The appellant is just trying to extort money from the Respondent, which he is not entitled to in law. 19. The App....
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....nderlying claim clearly bars the initiation of insolvency proceedings. 23. The present proceedings are therefore nothing but an attempt to convert a contractual dispute into insolvency proceedings for the purpose of recovery. It is well settled that the Insolvency and Bankruptcy Code cannot be invoked as a substitute for recovery proceedings and cannot be used as a pressure tactic to enforce disputed contractual claims. 24. The Insolvency and Bankruptcy Code, 2016, is not intended to penalise solvent and financially sound companies, nor is it meant to be invoked as a coercive mechanism for recovery of disputed dues. The Respondent is a going concern, actively carrying on its business operations, and its financial statements, placed on record, clearly demonstrate that it possesses assets far exceeding the alleged dues claimed by the Appellant. There is no material whatsoever to suggest that the Respondent is unable to pay its debts or is commercially insolvent. In such circumstances, the invocation of insolvency proceedings is wholly misconceived and contrary to the very object of the Code, which is the resolution of insolvency and not recovery or enforcement of disputed claim....
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....its total sales value, whichever was higher. We also note that there were no terms under the technical guidance agreement which made it mandatory for the appellant to raise an invoice at the end of every period/block of 12 months, even for the minimum royalty fees payable. We note that the computation of the royalty fee payable by the respondent emanates from the technical guidance agreement itself. Further, the technical guidance agreement did not cast any liability upon the appellant to raise invoices upon the respondent for making it liable to pay the minimum royalty fees to the appellant. We therefore find that the contention that the demand notice was defective because invoices had not been annexed is incorrect, and the finding of the adjudicating authority relating to this issue cannot be sustained. 29. The Adjudicating Authority has relied upon Rule 5 of the IBBI (Application to Adjudicating Authority) Rule 2016 and has concluded that, since invoices were not enclosed, therefore the application is defective. The relevant rule is extracted as below: "Demand notice by operational creditor (1) An operational creditor shall deliver to the corporate debtor th....
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....ctual sales figures. When the sales figures were not being shared, the appellant had not been able to raise invoices. The main contention of the appellant is that under the technical guidance agreement, the respondent was liable to pay a minimum amount towards royalty fees to the appellant or 5% of its total sales value, whichever was higher. 32. The appellant also brings to our notice that there is a claim that has arisen in favor of the appellant, as understood under the Code. This claim has given rise to an operational debt and this debt is a duly crystallized. It also brings to our notice that the appellant has referred to Section 37 and/or 73 of the Indian Contract in their Section 9 petition. But, this does not alter these incontrovertible conclusions. 33. The appellant has also relied upon Consolidated Constructions Consortium Ltd. versus Hitro Energy Solutions Pvt. Ltd. (2022) 7 Supreme Court cases 164, in which it has been clearly ruled that "..a Demand Notice for an Operational Debt by an Operational Creditor does not necessarily need to be accompanied by an invoice, but it may be sent where such debt arises under a "provision of law or contract or other document" a....