Whether dispute raised by OC is bar for acceptance of petition under IBC

In this flash tabloid, the writer initiates by speak
of the provisions of Insolvency & Bankruptcy Code, 2016 (hereafter referred as ‘IBC’)
in relation to power of NCLT pursuant to admission of petition in case of dispute
raised by the Operational Creditor.
The main drive of the broadsheet, on the other hand,
is upon the ‘Whether Corporate Debtor can bar the NCLT to accept the petition of
Operational Creditor by raising a dispute on the Demand Notice’
Insolvency and Bankruptcy Code, 2016 (the, ‘Code’)
is a crucial legislation passed by the Parliament which has the potential to be
a game changer in the insolvency and bankruptcy regime in India.
As per Section 8(2)of the Code, he corporate debtor
shall, within a period of ten days of the receipt of the demand notice or copy of
the invoice mentioned in sub-section (1) bring to the notice of the operational
creditor- (a) existence of a dispute, if any, and record of the pendency of the
suit or arbitration proceedings filed before the receipt of such notice or invoice
in relation to such dispute;

Case Name

Anil Steels V. A.D. Electro Steel Co.
(P.) Ltd

Operational Creditor (Petitioner)

Anil Steels (Operational Creditor)

Corporate Debtor (Respondent)

A.D. Electro Steel Co. (P.) Ltd

Bench Name


Order No.

C.P. (I.B.) NO. 415/KB/2017




8 & 9 (Operational Creditor)

A. Factual Background:
1. M/s Anil steels who is the petitioner/operational
creditor filed this petition under sections 8 and 9 of the Insolvency and Bankruptcy
Code, 2016 (in short I&BC, 2016) read with Rule 6 (1) of Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 for initiating insolvency resolution
process as against the respondent/corporate debtor A.D Electro Steel Company Pvt.
2. Petitioner………. As per the purchase orders
dated 29.10.2015, 21.12.2015 and 25.2.2016 for the purchase of Buffer Plunger Casting
and Buffer Casting, supplied the same to the corporate debtor which would be valued
for an amount of Rs. 56,94,977.00. .

3. Petitioner………. The corporate debtor made
payment of Rs. 4,44,782/- against the invoice no. M-50 and after that made lumpsum
payments of Rs. 10,00,000/-, Rs. 5,00,000/-, Rs. 13,00,000/- and a cheque bearing
No. 016246 dated 10.05.2016 for Rs. 20,00,000/- drawn on Bank of India. .
4. Petitioner………. The said cheque was presented
for clearing but was returned unpaid with an endorsement “Exceeds Arrangements”.
Petitioner served a legal notice dated 15.06.2016 under section 138 of the Negotiable
Instrument Act, to the corporate debtor. The corporate debtor failed to pay the
amount pertaining to the said dishonoured cheque. Petitioner filed a complaint before
the Metropolitan Magistrate, Kanpur against the corporate debtor for realisation
of the amount on the basis of dishonour of cheque.
5. Petitioner……….Inspite of repeated reminders
sent to the Respondent Company no payments were made to the Applicant. At no stage
Respondent disputed the amounts due and payable by the Applicant. The Board of Directors
of the Respondent Company by a Resolution dated 3.6.2016 resolved that Respondent
is one of the Guarantors in respect of the Working Capital Facility of Rs. 1299
Crores availed by Bhatia Global Trading Ltd., Respondent Company executed Revival
Letters 20th December, 2013, and 25.8.2016 acknowledging liability to the lenders
and other secured parties.
6. Petitioner………. Operational creditor issued
demand notice in Form-3 under section 8(1) of the I&BC, 2016 demanding an amount
of Rs. 25,36,087/-. In reply to the demand notice the corporate debtor raised untenable
contentions and raised unlawful claims against the operational creditor.
Objections by Respondent:
7. Respondent………… The operational creditor
failed to produce English translations of the documents annexed to the petition.
8. Respondent………. The contents narrated by
the operational creditor in the petition is incomplete and therefore the petition
is not maintainable
9. Respondent………. the respondent raised a dispute
regarding the liability to make payment to the petitioner even prior to receipt
of demand notice this Hon’ble Tribunal shall reject the petition
10. Respondent………. As per the terms of the
purchase orders issued to the operational creditor the petitioner should have supplied
the goods with Test Certificates and Guarantee Certificates of which the petitioner
failed to comply and therefore there is breach of contract on the side of the petitioner.
The petitioner failed to supply goods as per the specifications in the purchase
orders issued by the respondent and therefore the respondent is not liable to pay
the amount as demanded by the petitioner.
11. Respondent………. The letter issued by the
respondent through its advocates dated 28.06.2016 as well as letter dated 09.06.2016
raising disputes purposely did not produce by the petitioner before this Tribunal
amounts to suppression of material facts. The contentions raised by the petitioner
in the petition which are not admitted in the reply affidavit filed by the respondent
or denied by the respondent. Upon the above said contentions, the respondent prays
for rejecting the application under section 9(5)(ii).

B. Findings of the NCLT Bench:

• Before going into the question it is significant
to note here that the contentions raised against the non-production of English translation
of certain documents and that some of the documents produced were not readable for
want of legible copies are not sustainable at this juncture because petitioner as
directed produced legible copies and English translation of the documents in Hindi.
• On a reading of the purchase orders and the invoices
issued by the petitioner to the respondent it is understood that though there is
some dissimilarity in regards description of items supplied to the respondent it
has come out in evidence that the respondent received the goods without any protest.
So also it has come out in evidence that cheque has been issued in terms of the
invoices issued by the petitioner by accepting the goods received by the respondent.
• Admittedly on 10.05.2016 a cheque has been issued
by the respondent to the petitioner for an amount of Rs. 20 lakhs and one another
cheque for Rs. 4,50,195/-. Both cheques were presented for realisation of money
to the bank. Both cheques were returned unpaid. This prompt the petitioner to issue
notice under section 138 of the Negotiable Instruments Act (Annexure II-L) on 15.06.2016.
It is pertinent to note hear that on 3.03.2016 petitioner issued a letter to the
respondent reminding him as to non-payment of balance outstanding in the name of
the petitioner from the respondent (Annexure-II-F at P. 058) In reply to that letter
dated 18.03.2016 respondent expressed it’s inability to pay the balance amount.
It is good to read the relevant portion of the reply. It read as follows:-
• “Owing to financial year ending, we are not getting
our payment from our valued customers. This resulted in delay in your payment.
• We are expecting to start receiving of payment
from our client in April, 16 and we shall also clear your dues by April, 2016.”
• A reading of the above referred letter itself is
self- explanatory. At an undisputed time, the respondent did not raise any challenge
against the quality of goods or service. The respondent received the goods, accepted
the goods without any protest and tendered payment by way of cheque. The above said
conduct of the respondent shows that the dispute raised after service of notice
under S.138 of Negotiable Instruments Act was raise with an ulterior motive.
• Upon the above said discussions we are of a considered
view is that the respondent raised the dispute in the instant case is for the sake
of objection to see that petition of this nature is to be rejected. No doubts the
dispute raised by the respondent does not comes under the purview of Section 5(6)
of Insolvency & Bankruptcy Code, 2016. Therefore, we hold that the objections.
In view of the above said discussions this petition
for initiating insolvency resolution process is hereby admitted. Moratorium in terms
of section 14 of the Code comes into effect. The interim resolution professional
is directed to take necessary steps as per sections 15, 17 and 18 and file his report
within the statutory period.
This petition is admitted under the code.
Conclusion: On the basis of above
decided case law it can be opine that ‘Insolvency resolution process IS to be admitted
IF disputes raised in reply notice ARE UNSUSTAINABLE.’

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