TaxTMI 
TaxTMI 
2026 (7) TMI 18
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....-Param Dairy Limited and initiated Corporate Insolvency Resolution Process ('CIRP' in short) of the Corporate Debtor-M/s Jhandewalas Foods Limited. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-Suspended Director of the Corporate Debtor. 2. Coming to the brief factual matrix of the case, we notice that M/s Jhandewalas Foods Limited-Corporate Debtor, which was engaged in the manufacture and trading of Butter and Ghee, had entered into business dealings with Param Dairy Limited-Operational Creditor. During the course of their business transactions, the Operational Creditor-Param Dairy Limited had delivered butter and ghee on the basis of valid and confirmed order given by the Corporate Debtor. Since only part payments had been released by the Corporate Debtor to the Operational Creditor, the Operational Creditor sent multiple requests to the Corporate Debtor to clear the outstanding dues. When payments were not received by the Operational Creditor, they issued a Demand Notice dated 02.11.2022 to the Corporate Debtor under Section 8 of the IBC claiming an operational debt of Rs. 3.83 Cr, which included a principal amount of Rs. 3.08 Cr. alo....
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....ion proceedings undertaken under Section 12A of the Commercial Courts Act also established the existence of a genuine pre-existing dispute. Placing reliance on the judgment of the Hon'ble Supreme Court in Innoventive Industries Limited versus ICICI Bank in Civil Appeal No. 8337-8338 of 2017 which had held that where a plausible and bonafide dispute exists prior to initiation of insolvency proceedings, the application under Section 9 is liable to be rejected, it was contended that the impugned order was not sustainable and is liable to be set aside. 4. Rebutting the arguments raised by the Appellant, the Ld. Counsel for Respondent No. 1-the Operational Creditor submitted that the Adjudicating Authority had rightly admitted the Section 9 application by holding that the ground of pre-existing dispute taken by the Corporate Debtor was a spurious and moon-shine defence which had been adopted with a view to obstruct and delay the implementation of CIRP proceedings of the Corporate Debtor. The ledger accounts and financial records of both the parties as also part-payments made towards the outstanding dues by the Corporate Debtor even after service of the Demand Notice clearly indicates....
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....ssary steps for taking control and custody of the records and assets of the Corporate Debtor including opening of CIRP- designated bank account for conduct of the operations of the Corporate Debtor. However, in deference to directions of this Tribunal, it has not proceeded beyond collation and verification of claims and hence Committee of Creditors ('CoC' in short) has not yet been constituted nor have other steps like appointment of valuers, preparation of Information Memorandum or invitation of resolution plans been initiated. It was also submitted that all CIRP expenses and compliances were being maintained transparently and strictly in accordance with the provisions of the IBC and Regulations framed thereunder. 6. We have heard Ld. Counsel for both the parties and perused the records carefully. 7. The short point for our consideration is whether there was any discernible pre-existing dispute surrounding the debt claimed to be due and payable by the Corporate Debtor which exceeded the threshold limit of Rs.1 Cr. 8. To come to our findings, we would like to be guided by the test which has been laid down by the Hon'ble Supreme Court in the celebrated judgment of Mobilox I....
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....the statutory requirement is to furnish a copy of the invoice or demand notice, an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute 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 o....
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....pplication, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act." (Emphasis supplied) 9. It is the case of the Appellant that the Adjudicating Authority had erroneously admitted the Section 9 application without taking into account the fact that substantial and genuine pre-existing disputes existed between the parties in that the Operational Creditor had supplied inferior and substandard quality of ghee/butter between 29.02.2020 and 16.03.2020 against 4 invoices. These defective consignments were confirmed by laboratory test reports. It was also submitted that the Appellant had also returned approximately 67,310 kgs of defective ghee to the Operational Creditor. However, the Operational Creditor had not carried out the necessary adjustment in their ledger to account for the returned stock nor adjusted the payment due against these four invoices. This led to incorrect ledger entries and the receivables recoverable by the Corporate Debtor from the Operational Creditor did not get reflected. Had the proper adjustments been carried out by the Operational Creditor, the accounting statements would have shown that the operational debt claimed by the O....
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....em. There was an operational debt which had become due and payable by the Corporate Debtor towards the Operational Creditor basis invoices, ledger accounts and financial records. It was also asserted that the very fact that the Corporate Debtor had made part-payments towards the outstanding dues even after service of the Demand Notice clearly indicated acknowledgment of debt and admission of liability on the part of the Corporate Debtor. It was further argued that since no complaint, debit note, adjustment entry, rejection memo, or written communication or legal proceedings regarding alleged defective goods were ever taken by the Appellant before the service of the Demand Notice, this defence had now been taken as an after-thought to evade their liability to pay qua the Operational Creditor. It was also submitted that the defence of pre-existing disputes taken by the Corporate Debtor lacks foundational basis as not only were the disputes spurious and moon-shine defence but the disputes had not been raised prior to the issue of Section 8 Demand Notice. In the present case since as there was no real dispute supported by contemporaneous material existing prior to the issue of the Sect....
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.... we look at the reply to the Section 8 Demand Notice, though we find that there is mention of quality issues with regard to four consignments, we find no specific mention therein that the defective goods supplied against four invoices had been sent by the Appellant for laboratory tests. No supporting documents are available on record to show exchange of any sustained correspondence with the Operational Creditor regarding the lab test report prior to issue of demand notice. In the absence of any such previous references to the lab test report, we find credence in the argument of the Operational Creditor that these lab reports were brought into play for the first time after the Section 8 Demand Notice was received as an after-thought with the sole purpose of avoiding their liability to pay the outstanding amount. Neither do we find any proof placed on record by the Appellant of any written communication having been contemporaneously sent by them to the Operational Creditor regarding the supply of inferior quality of goods. Hence, we are inclined to agree with the Operational Creditor that the complaint of defective consignments and related laboratory test report which surfaced after ....
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....not constitute a pre-existing dispute that would prevent the initiation of insolvency proceedings. 16. In our considered view, we have no good grounds to disagree with the Adjudicating Authority that the alleged disputes claimed by the Corporate Debtor are feeble disputes not supported by credible evidence. In sum, no real pre-existing dispute is discernible. 17. On the issue of outstanding operational debt payable by the Appellant, we find that the Adjudicating Authority in the impugned order has observed that the Operational Creditor has annexed the invoices and a computation sheet detailing the invoice amounts and the payments received against the said invoices as well as the ledger account maintained by it in Part IV to substantiate the outstanding liability of the principal amount of Rs. 3.08 Cr. In all fairness, the impugned order has also recorded that the Corporate Debtor had claimed that it had sent emails to the Operational Creditor requesting for reconciliation of accounts and adjustment for the losses incurred due to substandard quality of goods but more pertinently also noted concurrently that the Corporate Debtor had failed to place on record any documentary evi....