TaxTMI 
TaxTMI 
2026 (9) TMI 1289
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....order passed in its petition vide which it had claimed that an operational debt in the sum of Rs. 1,12,37,646/-; and its Demand Notice dated 21.02.2020 had gone unanswered, leading to the filing of the petition. Submissions of the Appellant 2. The Appellant is a Japanese Company that had entered into contracts on 18.06.2018 and 26.03.2019 with the Respondent to purchase the chemicals 1-Bromo Butane (NBB) and Hydro Bromic Acid 48% (HBr) from it. 3. By the Sales Contract dated 18.06.2018 the Appellant placed an order for an aggregate quantity of 140,000 kgs of the chemical named 1-Bromo Butane at USD 3.22 per kg to be delivered at Shanghai-China, being the Port of Discharge, during the period between July 2018 to January 2019. The Respondent successfully delivered the 1st lot of 40,000 kgs (out of the aggregate 140,000 kgs to be delivered). However, when the next quantity was to be delivered, a small portion of the chemical, being 1622 kgs leaked from the container and there was accordingly a proportionate shortfall in the supply. For the leakage that occurred from the drum/s in which the leaked quantity of the perilous chemical was stored, the Appellant also had to pay a su....
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....y was to take place on or before 30.04.2019, but it never actually happened despite receipt of the advance payment by the Respondent. 7. The Appellant submits that in this manner, despite payment of the contracted advance sums, the delivery of 40,000 kgs of the product 1-Bromo Butane (NBB) and sample quantity of 40,000 kgs of the product Hydro Bromic Acid 48% (HBr) was not made by the Respondent and has not been made even until this date. What is highly significant is that the advance amounts paid by the Appellant have not been returned by the Respondent despite its failure to perform its part of the contracts, i.e., supply the contracted chemicals. 8. Consequently, on 21.02.2020, Demand Notice in Forms 3 & 4 was sent by the Appellant to the Respondent, claiming an amount of Rs. 1,12,37,645.54 as being the sum in default. This notice was delivered on 27.02.2020 via FedEx courier service. 9. However, no reply was received from the Respondent, and therefore the Appellant filed its petition under Section 9 of the Insolvency and Bankruptcy Code, which was numbered as C.P. (IB) No. 693/MB/2021. It is noteworthy that in the reply to petition, the Respondent had admitted receipt ....
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.... on record to corroborate the same. It is also significant that the Respondent has faced and is facing other insolvency petitions before the Adjudicating Authority. 14. The appellant claims that the amount claimed vide the Demand Notice which was issued on 21.02.2020 from the Appellant's office at Japan, was a sum of Rs. 1,12,37,645.54 only. This sum remains outstanding to the Appellant from the Respondent. 15. Appellant further claims that without noticing the admission on the part of the Respondent, and noticing various arguments advanced by the Appellant, the impugned order dated 06.09.2024 came to be passed by the Ld. Adjudicating Authority dismissing the petition filed by the Appellant. 16. The Appellant contends that a pre-existing dispute cannot be deemed to exist between a seller and a buyer of goods, when the seller does not dispute that advance payment received by it against goods that were not supplied, was never returned by it to the buyer. The Appellant further claims that an obvious rebate offered on future supplies by a seller, to a buyer on account of leakage of contracted chemical and consequently diminished supply thereof, should not have been taken b....
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....pping the consignment using UN-approved HDPE drums, identical to those used in prior successful shipments. However, due to unavoidable circumstances some drums were damaged. It is pertinent to mention here that the damage admittedly occurred at the consignee's port, and since that falls outside the scope of the Respondent's liability under CFR, which limits the Respondent's liability of arranging for the carriage of the consignment by sea to the destination port. The Respondent has successfully discharged its aforesaid obligation and hence is not liable for any damage to the consignment after it had reached the destination port. Disputes thus arose prior to issuance of the demand notice, and continued thereafter. The Appellant exerted undue pressure on the Respondent and attempted to make the Respondent absorb the losses, coercing a supply at reduced rates and withholding legitimate payments under the guise of damage adjustment. The Respondent informed the Appellant of various bona fide constraints, including rise in raw material prices and governmental restrictions in the MIDC area affecting production. Despite this, the Appellant issued threats, including to take over....
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....ode were only applicable on a minimum default amount of Rs. 1 Lakh, which was subsequently enhanced by amendment to Rs. 1 Crore, with effect from March 04, 2020 vide the Notification No. S.O. 1205(E). The Company Petition under judicial scrutiny in Appeal has been admittedly filed in respect of the advance payment made by the Appellant to the Respondent for the delivery of goods. The payment received by the Respondent from the Appellant only amounts to Rs. 97,19,589/-, which fails to meet the minimum threshold of Rs. 1 Crore. It is argued, that the Appellant, in an attempt to increase the purported operational debt to over Rs. 1 Crore has deliberately attempted to add the disputed amount of US $ 16,766/- to the operational debt, which is admittedly towards the damages during transportation of goods. Even this amount has not been substantiated by any shred of evidence, even after clarification sought by the Respondent vide email dated June 06, 2019. [Annexure R-3 @Pg 55 of the reply]. The consignment in question was admittedly on CFR basis (Cost and Freight) and not on CIF basis (Cost, Insurance and Freight) and therefore the marine insurance for shipping goods was to be borne by th....
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....te of commencement of the action; iii. the date of the decree; iv. the date when the court orders execution to issue; v. the date when the decretal amount is paid or realised; and vi. in cases where a decree is passed by the court in terms of an arbitral award in foreign currency, the date of award." 24. It is also pertinent to mention that aforesaid dates were considered by the court in a case that was arising out of arbitral proceedings, which is altogether procedurally different in nature and the purpose of the insolvency and bankruptcy proceedings under the Code. Therefore, considering the legislative object of the proceedings under the Code, which is not meant for recovery of debt, the aforesaid judgment cannot be applied to the present case with non-application of judicious mind. Thus, the Ld. NCLT was right in dismissing the Petition under Section 9 of the Code filed by the Appellant herein. 25. The Respondent further contends, that the Insolvency and Bankruptcy Code is not a recovery mechanism. The alleged debt, of which the Appellant has sought the payment vide the alleged demand notice is an operational debt and not a financial de....
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....ence of pre-existing disputes, lack of valid service of demand notice as per Rule 5, failure to meet the statutory threshold of Rs. 1 crore, and wrongful application of a belated exchange rate to inflate the alleged operational debt. 30. It is evident that the Appellant has misused the IBC framework, which is not a recovery mechanism, to resolve what is essentially a disputed commercial transaction. The Respondent, being a going concern with a consistent track record, solvent financials, and substantial employment base, cannot be subjected to CIRP in such circumstances. In the facts and circumstances as set out hereinabove, the Respondent most respectfully prays that the instant Appeal may be dismissed with exemplary costs, as the same is devoid of merit, predicated upon a patently disputed claim, and constitutes a misuse of the remedy available under the Insolvency and Bankruptcy Code, 2016. 31. The alleged delivery of the Demand Notice affected by the Appellant was done via private courier partner and the tracking report bear the name of S. Sruti Pureza and P. Patade, i.e. upon the individuals who are neither known to nor employed by the Respondent's. The Appellant also....
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....g Authority) Rules, 2016. According to the Respondent, the Demand Notice was sent through FedEx, which is not one of the recognised modes of service. It is also contended that the persons who acknowledged the delivery were neither employees nor representatives of the Respondent. 35. We are unable to accept this objection. The material on record shows proof of dispatch, proof of delivery and a tracking number. The Demand Notice was issued to the registered office address of the Respondent and was delivered on 27.02.2020. The Respondent has not disputed the correctness of its registered office address. 36. The fact that the Appellant, being a company based in Japan, used a private courier service cannot by itself defeat the proceedings when effective delivery of the Demand Notice is established. The object of Section 8 and Rule 5 is to ensure that the Corporate Debtor is put to notice of the claim and is given an opportunity to make payment or raise a genuine dispute. The object of notice under law is to make aware of the proposed actions likely to be taken; here, the said purpose was served, as the Respondent did get knowledge of the notice because of the admitted service of n....
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....manner. We will delve into this issue that even after excluding the disputed amount, is it still the case that the operational debt exceeds Rs.1 crore? 41. The relevant exchange rate also requires consideration because the payments were made in Japanese Yen and US Dollars. The Appellant relies upon the judgment of the Hon'ble Supreme Court in Forasol versus ONGC, 1984 (SUPP) (SC) 263, delivered on 25th October 1983. The relevant extract at para 70 is as follows: "In such a suit the plaintiff, who has not received the amount due to him in a foreign currency and therefore desires to seek the assistance of the court to recover that amount, has two courses open to him. He can either claim the amount due to him in Indian currency or in the foreign currency in which it was payable. If he chooses the first alternative he can only sue for that amount as converted into Indian rupees and his prayer in the plaint can only be for a sum in Indian currency. For this purpose, the plaintiff would have to convert the foreign currency amount due to him into Indian rupees. He can do so either at the rate of exchange prevailing on the date when the amount became payable for he was enti....
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....rlooked. The Respondent admitted that it had received the advance amounts and had agreed to return them. In its email dated 12.07.2019, the Respondent stated: "We will repay you the advance that you have remitted to us for NBB and HBr. I will ask the accounts for the complete advances we are holding from you and within the next week only we will give you timelines for the repayment of your advance payment. We will repay you the advance that you have remitted to us for NBB and HBr. I will ask the accounts for the complete advances we are holding from you and within the next week only we will give you timelines for the repayment of your advance payment." 46. There is also no denial of receipt of USD 84,060 and Japanese Yen 62,40,000. The material on record shows that the Respondent did not supply the contracted goods against these advances and did not return the advance amounts. 47. We are conscious that there was correspondence between the parties regarding damage to one consignment and the amount of USD 16,766 has been claimed as damages by the Appellant. The Respondent has relied upon the Cost and freight (CFR) terms and has contended that the Appellant was responsi....
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.... and whether a default has occurred, subject to the existence of a genuine pre-existing dispute. Conclusions 53. On a consideration of the entire material, we are satisfied that the Appellant has established the existence of an operational debt and default. The Demand Notice was duly served. The operational debt exceeds the statutory threshold even after excluding the disputed amount of USD 16,766. The Respondent has not established a genuine pre-existing dispute in respect of the admitted advance amounts. The requirements for initiation of proceedings under Section 9 of the Code are therefore satisfied. Order 54. For the reasons stated above, the appeal is allowed. The impugned order dated 06.09.2024 passed by the National Company Law Tribunal, Mumbai Bench-V in C.P. (IB) No. 693/MB/2021 is set aside. 55. The Adjudicating Authority is directed to pass the necessary order for initiation of the Corporate Insolvency Resolution Process against the Respondent under Section 9 of the Insolvency and Bankruptcy Code, 2016, within fifteen days from the date on which a copy of this order is placed before it. 56. The Respondent shall, however, remain at liberty to deposit/pa....