Mr. Sanjay Bhausaheb Bhange VS KHUSHBU DYE-CHEM PRIVATE LIMITED
Company Appeal (AT) (Ins) No.621 of 2022
Facts:
1.Agreement was entered into between the Operational Creditor and the Corporate Debtor on 24.06.2019 by which the Operational Creditor was to provide raw materials to the Corporate Debtor including imported Ethanol. For the imported Ethanol, the Operational Creditor was to pay directly to the third parties including custom duty. In return, the Corporate Debtor was to supply Ethyl Acetate as the finished product to the Operational Creditor.
2.Operational Creditor claims to have incurred a total expenditure of Rs.11,17,19,527/- for providing raw material to the Corporate Debtor besides other payments and taxes against which the Corporate Debtor supplied 15,00,635 kg of Ethyl Acetate for an aggregate value of Rs.9,82,22,873/- thus leaving an outstanding amount of Rs.1,34,96,652. Corporate Debtor not being in a position to supply more Ethyl Acetate entered into a Memorandum of Understanding with Operational Creditor on 03.01.2020 by which the Corporate Debtor agreed to pay the said outstanding amount within a period of 18 months i.e on or before 03.07.2021. The Corporate Debtor also handed over 18 cheques for the said amount in terms of the MoU. These cheques were deposited with the bank by the Operational Creditor on 06.07.2021 for encashment. No payment was however received as the cheques were returned by the Bank with the remark “Payment stopped by drawer” on 07.07.2021.
3.Demand notice under section 8 of the Code was sent and no reply was furnished by the Corporate Debtor. An application under section 9 of the Code was filed which was admitted vide ex part order dated 25.04.2022 by the AA after Corporate Debtor neither filed any reply nor made any representation before the Adjudicating Authority.
4.Appellant is challenging the order admitting the application.
Issue: Whether AA rightly admitted the application?
Arguments:
For Appellant:
1.Counsel for the Appellant stated that in terms of Clause 3 of the agreement signed between the two parties regarding conduct of their business, the Corporate Debtor was required to supply the final product of Ethyl Acetate after applying conversion charges at the ratio of 0.65 i.e. 65% and that this entire transaction was quantity-based and not amount-based. Thus the Corporate Debtor was only liable to supply proportionate quantity of Ethyl Acetate as a finished product for each kilogram of raw materials supplied by the Operational Creditor and that having already been done, there was no outstanding dues.
2.Counsel contended that the Operational Creditor supplied raw materials at a higher rate and purchased the final product from the Corporate Debtor at a lower rate and this manipulation led to sale-purchase difference and resultant dispute. It has also been further pointed out that the Operational Creditor did not make payment towards labour charges for the supply of Ethyl Acetate and that labour charges plus GST @ 18% was due from the Operational Creditor towards conversion. It was also stated that the Operational Creditor had been repeatedly evading requests for reconciliation of accounts.
3.It was submitted that MoU of 03.01.2020 was signed by the Corporate Debtor under duress and coercion of the Operational Creditor since the Corporate Debtor for commercial reasons had to maintain ties with long term partners for which it was dependent on the Operational Creditor. Furthermore, as there were no outstanding dues payable to the Operational Creditor, the MoU was not a valid contract there being no consideration amount. On the reasons for stopping the payment of cheques which was stipulated in the MoU, it was explained that since the Corporate Debtor had already supplied more than the proportionate quantity of Ethyl Acetate to the Operational Creditor and there were no outstanding payments to be made in terms of the agreement, the cheque encashment were stopped.
For Respondent:
1.It was contended that Corporate Debtor was required to supply Ethyl Acetate in proportion to the supply of Special Denatured Spirit (SDS) and Acetic Acid by the Operational Creditor and not at the conversion ratio of 0.65 as per the terms of their business transactions founded on the agreement entered into on 24.06.2019. It was also stated that in terms of the agreement, the Corporate Debtor had agreed to supply the Ethyl Acetate at the total cost of Rs.47.61 per kg to the Operational Creditor.
2.Counsel for the Respondent No.1 that since the Corporate Debtor was not in a position to supply the finished product for the outstanding amount, it agreed to enter into a MoU on 03.01.2020 with the Operational Creditor. The MoU clearly recorded the inability of the Corporate Debtor to further supply Ethyl Acetate and their acceptance to pay Rs. 1,34,96,652/- within a period of 18 months in lieu of that. Thus the entire outstanding amount of Rs. 1,34,96,652/- qualifies as a debt under the IBC
3.All the cheques issued by Corporate Debtor pursuant to the MoU had bounced when the Operational Creditor sought to encash them on 06.07.2021. It is also asserted that prior to stopping the payment of the cheques, the Corporate Debtor had not raised any dispute and that cheque payment was stopped with dishonest and malafide intentions. Thus there being an outstanding debt and there being a default in payment by the Corporate Debtor and there being no pre-existing dispute, there was no material irregularity on the part of the Adjudicating Authority in admitting the Section 9 application.
Decision: AA erred in admitting the application.
Rationale:
1.Adjudicating Authority noted that ample opportunity was given to the Corporate Debtor to file its reply, the matter having been listed from time to time on board. However, in spite of these opportunities, the Corporate Debtor did not make any appearance before the Adjudicating Authority nor filed any submissions and hence the matter was set ex-parte by the Adjudicating Authority on 08.02.2022.
2.NCLAT on letter dated 15.06.2021 issued by the Operational Creditor noted that in the said communication addressed to the Corporate Debtor has highlighted the issue of 6 false, baseless and fabricated invoices purportedly raised by them and uploaded on the GST portal. The Operational Creditor in the said letter has further asked the Corporate Debtor to withdraw the said invoices. The authenticity of letter not having been questioned by Respondent No 1 and the very fact that it finds mention in the demand notice, it is clearly indicative that there was a preexisting dispute before the issue of the demand notice.
3.NCLAT noted that contents of the above letter dated 19.07.2021 it is clear that before the issue of demand notice on 30.07.2021 the Corporate Debtor had clearly articulated an array of disputes arising from the fact that their business model was based on conversion cost; that the operational creditor had not released balance conversion payment due to them; that the bills submitted by them were not faulty or fabricated and that the operational creditor has not submitted ledger account statement to settle the accounts
4.The present is not a case where there is an undisputed debt for which insolvency can be initiated against the Corporate Debtor. The Adjudicating Authority having heard the matter ex-parte has failed to appreciate the facts of the case in its entirety and therefore committed an error in admitting the Section 9 application and therefore hold that the impugned order passed is unsustainable.
Order:
