Allowed

In the matter of Saraf Gartex Ltd. Cp No. (IB)-121-9-JPR-2019

NCLT11 Mar 2022

Case brief

AI extract

What is this about?

This Tribunal allowed the application by an operational creditor under Section 9 of the IBC to initiate CIRP against a corporate debtor. The Debtor raised merits-based disputes regarding quality of goods, but the Tribunal held that without authentic acknowledgment from the Creditor, these claims did not constitute a valid dispute, thereby satisfying the conditions for admission.

What did the court decide?

COP No. (IB)-121/19/JPR/2019 admitted; CIRP commenced; Interim Resolution Professional Mr. Arvind Kaushik appointed; Moratorium invoked under Section 14.

In the matter of Saraf Gartex Ltd. Cp No… — Insolvency and Bankruptcy | NCLT (2022)

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IN THE NATIONAL COMPANY LAW TRIBUNAL JAIPUR BENCH

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CORAM: SHRI DEEP CHANDRA JOSHI, HON'BLE JUDICIAL MEMBER

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SHRI RAGHU NAYYAR, HON'BLE TECHNICAL MEMBER

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CP No.^(IB)- 121/9/JPR/2019

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(Under Section 9 of the Insolvency and Bankruptcy Code, 2016 Read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016)

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IN THE MATTER OF:

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KAMAKSHI KRAFTEX PVT. LTD.

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...Operational Creditor

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Versus

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M/S SARAF GARTEX LTD.

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...Corporate Debtor

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MEMO OF PARTIES

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Kamakshi Kraftex Pvt. Ltd.

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CIN : U7 499 4RI2007PT C024 13 0

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Office: D-12, Corporate Tower,

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A-1, 8th Floor, J.N.L. Marg, Jawahar Circle, Jaipur, Raj asthan -3 020 17

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...Applicant/ Operational Creditor

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VERSUS

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M/s Saraf Gartex Ltd.

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CIN: Ul 8 1 0 1 RI 1 98 IPLC002345

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Office: 115-B, Vishwakarma Industrial Area,

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Road No. 9, Jaipur, Rajasthan-302013

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Respond ent I Corporate Debtor

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CP No. (IB)-121 19 I IPR/20 1 9

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,\r ---

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FortheOperationalCreditor	AjatshatruMina, Adv.
	AishwaryaSharma,Adv.
Forthe CorporateDebtor	AjitMaloo,Adv.

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Order Pronounced On: - 11.03.2022

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ORDER

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Per: Shri Deep Chandra Joshi, Judicial Member

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This Application has been filed under Section 9 of the Insolvency and and Bankruptcy Code, 2016 ('Code' / 'IBC') read with Rule 6 of Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 ('Rules') - Kamakshi Kraftex Private Limited ('Applicant'), claiming to be an Operational Creditor with a prayer for initiation of Corporate Insolvency Resolution Process ('CIRP') against M/s SarafGartex Limited ('Respondent' / 'Corporate Debtor'). 2. The Applicant has its registered office at D-12, Corporate Tower, A-1, 8th Floor, J.N.L. Marg, Jawahar Circle, Jaipur-302017 (Rajasthan); and is involved in manufacturing and distribution of industrial raw materials-fabrics. The Application has been filed in Form 5 as prescribed in Rule 6(1) of (Application to Adjudicating Authority) Rules, 2016.

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The Respondent is a public limited Company incorporated under the Companies Act, 1956 in 1960, duly registered with the Registrar of Companies, Jaipur, bearing CIN: UI8101RI1981PLC002345. The Registered Office of the Respondent is at I 15-B, Vishwakarma Industrial Area, Road No.9, Jaipur-302013

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(Rajasthan). The company's nominal share capital is Rs. 10

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CP No. (lB)-l2l 19 I IPR/20 I 9

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One Crore Eighty^{Lakhs Only), and paid-upshare capital is Rs. 10,800,0001-} (Rupees One Crore Eighty Lakhs Only).

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The facts of the case, briefly,^{as statedin the Application,show that the} Applicant has been conducting^{business with the Respondentfrom time to time,} wherein the Respondent^{approached the Applicant for the supply of various} industrial raw materials-fabrics^{on an} "on^{order" basis.In turn, the Applicant} raised and issued invoices^{dated 26.05.2016 to 12.09.2016(a total of eight} invoices) in favour ofthe^{Respondentagainstthe orders placed.}

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The Applicant submitted that^{the Respondent made part-paymentof Rs.} 14,65,606/- (Rupees Fourteen^{lakhs Sixty-Five ThousandSix Hundred and Six} Only) to the Applicant.^{The Applicant further submitted that the last payment} received from the Respondent^{was on 06.09.2016.Thereafter, the Respondent} has failed to make the balance^{payment for the other invoices amountingto total} debt of Rs. 6,45,886/-.

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The Applicant fuither submits^{that excluding the aforesaid part-payments} made by the Respondent, a sum^{of Rs. 6,45,886/- including interest} @^{l8o/o pet} annum is charged on outstanding^invoices.

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7, The Applicant issued and served^{a DemandNotice dated 28.04.2019to} the Respondent under Section^{8 of the Code as per Form 3 as prescribedunder} Rule 5 of the Rules at its registered^{officedemanding a sum of Rs. 6,45,8861-} along with interest @l8o/o^{per annum on the invoices. The Respondent neither} paid the outstanding debt nor raised^{a dispute regarding the outstandingdebt till}

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.JA ;-I F *IcL

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CP No. (tB)-t2l^{19 I} IPR/20^{I 9}

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the fling of the present petition. The demand notice was accompanied by computation of interest, details of invoices, and relevant dates of default. Copy of Demand Notice dated 28.04.2019 andpostal receipt dated 29.04.2019 sent to the Respondent are annexed at Annexure A-10 of the Application, respectively.

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The Applicant has filed a Statement ofBank Account maintained with State Bank of India from 03.06.2016 to 05.09.2016 at Annexure A-9 of the Application. It is stated that there is no repayment of the unpaid operational debt by the Respondent.

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As claimed by the Applicant, the Respondent is liable to pay an amount of Rs.6,45,886/- (Rupees Six lakhs Forty-Five Thousand Eight Hundred and Eighty-Six Only), as an outstanding amount, as reflected in Part IV of the Form - 5 filed with the Application.

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PART IY

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Particularsof Operational	Debt
Thetotalamountof debt, details Total	deb	tdueisRs.6,45,886/-
oftransactionsonaccountof (Rup	eesS	ixLakhsForty-Five
whichdebtfelldse, and thedate Thou	sand	EightHundredand
fromwhichsuchdebtfelldue Eighty along annum	-Six wit onth	Only),asof06.09.2016, hinterest@18%per e Invoices.
Amountclaimed tobeindefault Total	debt	dueisRs.6,45,886/-
andthedateonwhichthe (Rup	eesS	ixLakhsForty-Five
defaultoccurred Thou Eighty	sand -Six	EightHundredand Only).

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CP No. (IB)-121 19 I JPR/20 I 9

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Notices were issued in the aforesaid Application, and the Respondent filed a reply videDiary No. 210512019 dated 26.09.2019. It has been submitted that the petition is not maintainable as the alleged transactions are disputed. There is a serious dispute between Applicant and Non-Applicant regarding the quality of goods/fabrics.Further, the Sale of Goods Act, 1930 gives the buyer the right to examine the goods then only it is deemed to be accepted by the buyer. Once it is informed that the goods are not accepted due to the same not being of specific quality, the onus to take back the rejected goods is on the seller. Therefore, because of the Applicant's defective goods and delayed fabric supply, the nonapplicant could not,complete its order on time.

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I I " The Corporate Debtor has stated that the statement of account of the Bank that the Applicant has filed is not admissible in evidence and cannot be relied upon. The statements were prepared as if it is a running and current account, whereas the transactions have taken place on a bill-to-bill basis. There is no running and current account between parties. It is also seen that the Respondent has attached various debit notes for the return of the goods purchased at different points intime vide Arnexure R3-Annexure R1 1.

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The Applicant thereby filed a rejoinder vide Diary No.242312019 dated

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17.10.2019 and denied the abovesaid allegations. It has been stated that the Corporate Debtor assessed the quality before issuing the Sales Invoice by the Applicant. Only when the Corporate Debtor affirmed the fabric's quality thereafter, the invoice was issued, and goods were transported to the Corporate Debtor.

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, C.\ s,^1- JCL-

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CP No. (IB)-r2t 19 llPR/20 I 9

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Further, it is stated by the Applicant that the Operational Creditor has never acknowledged the Debit Notes as it is not signed by any person authorized by the Operational Creditor, nor does it bear the seal/stamp of the Operational Creditor, thus are not authentic. Therefore, no deduction was made by the Operational Creditor during the period when these unpaid invoices were issued.

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Additionally, it was mentioned in the sale invoice that there might be a variation of 5- l0o/o on both sides and the condition that the Applicant will entertain no claim for the quality of goods afler seven days of dispatch of goods. Thus, the Corporate Debtorraisedthe dispute regardingthe quality of goods when the Applicant sent a reminder e-mail for the amount outstanding.

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The Applicant has further submitted that the last supply of goods by the Operational Creditor to the Corporate Debtor was made on 12.09.2016 vide invoice No. 1095116-17 for Rs. 2,50,8421-. The Respondent made the last payment on 06.09.2016 as reflected in the Bank statement at Page 33 (Annexure A-9) of the Application. The account of the corporate debtor is a running account, and thus the date of last payment is 0 6.0 9 .20 | 6 and therefore, the present Application is not barred by limitation as per Article 137 of the Limitation Act, 1963. The Applicant has submitted an affidavit under Section 9(3Xb) of the Code in the Application.

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In its surrejoinder, vide Diary No. 2653 dated 13.11 .2019, the Respondent stated that the related debit notes were attached with the respective cheques duly received by the representative of the Operational Creditor as full and final

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CP No. (IB)-t2t 19 I JPR/20 I 9

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payment of the respective invoices.^{The quality of fabric suppliedwas not also at} par with the industrial norm, where^{the maximum difference in the weight of the} material can be 2-3%.However,^{in this regard, no evidencehas been provided by} the Corporate Debtor.

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The Non-Applicant vide^{Diary No.273212021 dated 15.12.2021 filed its} written submission and has relied^{on the following Judgments:}

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(i) Kay Bouvet Engineering Ltd v. Overseas^{Infrastructure} Alliance (India) Private Limited, Civil^{Appeal No. 1137 of} 2019.

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(ii) Transmission Corporation of Andhra Pradesh Limited^vs. Equipment Conductors and Cables^Limited, Civil^{Appeal No.} 9597 of2018"

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(iii) Firm of Shivallingappa Shankarappa Mendse^{at Amraoti by its} agent Channappa Basappa Jainapure v. Joint^{Familyof Ck.} Balakrishna Chettiar and Son, Second^{Appeal No. 906 of} 1959.

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In Kay Bouvet^(supra), while^{dealingwith the existence of a commercial}

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dispute, the Hon'ble Supreme Court^{heldwhetherthere is a plausiblecontention} that requires further investigation and that^{the dispute is not a patently} feeble legal argument or an assertion offact unsupported^{by evidence.It is important} to separate the grainfrom thechaff.

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In Transmission Corporation^{(supra), the Hon'ble Supreme Court again} reiterated that the existence of an undisputed^{debt is a sine qua non of initiating} CIRP. It further states that^{the adjudicating authority shall satisfyitself that there}

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is a debt payable and there is operational^{debt,and the corporate debtoy has not}

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CP No. (lB)-tzl 19 I IPR/20¹ 9

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repaid the same.

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In Firm of Shivallingappa (supra), the Hon'ble Madras High Court emphasized Section 59 of the Sale of Goods Act and held that the buyer is entitled to reject the goods upon and allowed to sue for damages for breach of warranty.

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The Applicant vide Dairy No. 283712021 dated 22.12.2021 filed its written submission and has relied on the following judgments:

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(i) Phoenix Global DMCC v. ANA International Trading P. Lrd., cP/s00 (rB)tc8t2017.

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(ii) H. H Chemicals v. Paramount Impex Private Limited, cPtrBn4S4A{D/18.

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(iii) Greenply Industries Limited v. Southern cooling Tower Private Limited, cp (IB) No. 6ggll(812017.

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(iv) Mobilox Innovations Pvt. Ltd. v. Kirusa Software pvt. Ltd., Civil Appeal No. 9405 12017.

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(u) Prabhat Marketing Co. Ltd., Company Petition No. 04/2012.

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It is seen that as per the terms mentioned in the sales invoice and mutual

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understanding between the parties, no claim for the quality of goods was to be entertained by the Operational Creditor after seven days of dispatch of the goods. Further, the Operational Creditor has supplied a copy of the Test Reports of the fabrics issued by the Textiles Committee, Ministry of Textile, Government of India. In the said report, the material of the Operational Creditor was found to be

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of good quality and approved by the Textile Committee; it is annexed as Annexure A- 4 of Rejoinder.

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sa^,- 5 cLq

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CP No. (IB)-121 l9l IPR/20 I 9

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Therefore, in a^{case where an Independent Analyst certifiedthe products} supplied to be under^{the specification and upon acceptance of such report by the} Corporate Debtor, any^{subsequent claims are not tenable.Further, ifthe} Corporate Debtor^{usedthe goods, laterhe cannot take the defenceof goods being} sub-standard and avoid^{makingthe payment.}

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The Non-Applicant's^{main contention lies in the quality of goodssupplied} and the existence of dispute^{of non-paymentthereof. The same is supported by} issuing the Debit Notes to^{the OperationalCreditor. However, the Debit Notes} or any documents evidencing^{the returnof the goodshave no valueunlessit} countersigned or accepted^{by the Operational Creditor.}

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In the instant case,^the debit^{notes are in possession oftheCorporateDebtor,} and the Operational Creditor^{has not issued Credit Notes to the Corporate.} Moreover, there is no^proof of^{service of debit notes brought on record.There is no} dispute between the^{parties, and such contentionis only raised with a motivation} to avoid debt payment.

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This Adjudicating Authority^{has perused all the relevantpapers and found} them in order. The Registered^{Office of the Respondent is situated in Jaipur,and} therefore this Adjudicating^{Authorityhas jurisdiction to entertain and try this} Application. The matter^{is within the purviewofthe Law oflimitationas the last} payment was made on 06.09.2016 and the^{Application filed on 2l .05.2019. It is a} settled principle, when^{paymenton account ofdebt is made beforethe expiration of} theprescribedperiod,afreshperiodoflimitationshall^{be computed from when the}

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2d-t

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SDL

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CP No. (IB)-121 19 lJPRi20¹⁹

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payment was made. Therefore, the present Application has been filed within the period of limitation.

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The first issue for consideration is whether the demand notice in Form No.3 dated 28.04.2019 was served upon the Respondent. The demand notice was sent via a registered post on 29.04.2019 to the corporate debtor and its directors. The postal receipt is attached on Page 37 (Annexure A-9) of the Application.

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The next issue for consideration is whether the Respondent disputed the operational debt. The Respondent Corporate Debtor has filed a reply and argued that they had been dissatisfied with the goods' supply and quality. However, they have not submitted any authentic communication to substantiate the same. Thus, as per documents placed on record with the adjudicating authority, there is no dispute as to the outstanding liability of the Respondent Corporate Debtor towards the Applicant Operational Creditor.

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We have gone through the contents of the Application filed in Form No.5 and found the same to be complete. As discussed above, there is a total unpaid operational debt (in default) of Rs.6,45,886/- (Rupees Six Lakhs Forty-Five Thousand Eight Hundred and Eighty-Six Only), including the interest @ 18% per annum. It is observed that the Operational Creditor has issued various invoices (Annexure A-1 to Annexure A-8) for goods supplied to the Respondent Corporate Debtor. Applicant Operational Creditor has given demand notice in Form-3 dated 28.04.2016, duly served on the Respondent Corporate Debtor. This Adjudicating Authority has held above that the Operational Creditor correctly

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CP No. (IB)-r2l 19 I JPR/20 1 9

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deliveredthedemandnoticeinFormNo.3,and no pre-existing dispute is proved.

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It has been shown that the Corporate Debtor has failed to make payment of the aforesaid amount due as mentioned in the statutory notice to date. It is also observed that the conditions under Section 9 of the Code stand satisfied. Hence, this Adjudicating Authority is inclined to commence CIRP against the Corporate Debtor as envisaged under the provisions of IBC, 2016.

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Under sub-section (4) of Section 9 of the Code, the Operational Creditor may propose the name of a Resolution Professional to be appointed as Interim Resolution Professional ('IRP'), but it is not obliged to do so. In the instant case, the Operational Creditor has not proposed the name of any person to be appointed as IRP. Hence, this bench will appoint the RP from the pool of RPs empanelled with the IBBI. Therefore, the bench is appointing Mr. Arvind Kaushik, bearing Registration No. IBBI/IPA-OO1/P-P0029112017-18110535 with the e-mail address [email protected] and phone number +gl- 9413972351 as the IRP in the present matter. The said IRP is directed to file the written consent to act as resolution professional in Form-A provided under Regulation 4(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019.

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In this matter, the Interim Resolution Professional appointed herein, Mr. Arvind Kaushik, shall exercise all the powers enumerated under the Code read with Rules made thereunder. He is directed to make recommendations with reasons in writing for acceptance or rejection of this Application within the stipulated time

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SrL -

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CP No. (IB)-lzt /9 I IPR/20 I 9

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as envisaged under the Code. The Interim Resolution Professional shall provide a copy of the report to the Corporate Debtor as soon as filed before this Adjudicating Authority. The Applicant shall provide a copy of the Application, if not provided already, along with this order to IBBI for its records.

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The IRP is directed to take all such steps as are required under the statute, inter-alia interms of Sections 15, 17,18,19,20,and21 of the Code andtransact proceedings with utmost dedication, honesty and strictly under the provisions of the Code, and Rules and Regulations thereunder.

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Consequences of commencement of CIRP shall be inter-alia asfollows:

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(i) The IRP appointed by the Adjudicating Authoriry, Mr. Arvind Kaushik, is directed to take over the affairs of the corporate Debtor and duties as required to be performed by him under the provisions of Code including the issue of a publication in widely circulated Newspapers as contemplated under the provisions of the Code and calling for claims from the creditors of the Corporate Debtor; and collation ofthe same shall be done.

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(ii) Further, as a sequel of admission, moratorium, as envisaged under Section 14 of the Code, is invoked concerning the Corporate Debtor, which will be in vogue during the GIRP of the corporate Debtor. The IRP shall carry out CIRP strictly as per the timelines specified and as envisaged under the provisions of the Code concerning the Corporate Debtor.

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(iii) The said IRP shall act strictly following the provisions of the Code,

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CP No. (IB)-l2t 19 / rPP/20 19

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.-) F JA

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and to defray his expenses to be incurred and fees on the account, the Applicant is directed to deposit a sum of Rs. 2,00,000/-^(Two Lakhs Only) to the account of IRP within three days from the date of this order. The IRP shall duly file a status report apprising this Adjudicating Authority about the progress of CIRP as unfolding concerning the Corporate Debtor. In terms of Section 17 and 19 of the Code, all personnel of the Corporate Debtor including promoters and Board of Directors, whose powers shall stand suspended, shall extend all cooperation to the IRP during his tenure as such and the management of the affairs of the Corporate Debtor shall vest with the IRP.

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(iu) In terms of Section 9 of the Code, this order shall be communicated at the earliest, not exceeding one week from today, to the Applicant, Corporate Debtor, as well asthe IRP appointed by this Adjudicating Authority to carry out CIRP. A copy of this order shall also be communicated to IBBI for its records.

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Copy of this order to be supplied to tre Applicant. The Applicant and his counsel are directed to serve a copy of this order along with a copy of the Application and documents on the Resolution Professional by all modes for information.

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