Dismissed

In the matter of Kumar Printing Inks Pvt. Ltd. [Cp (Ib) No.19-ALD-2019]

NCLT15 Sept 2023CP (IB) No.19-ALD-2019

Case brief

AI extract

What is this about?

The National Company Law Tribunal, Allahabad Bench, examined an application for Corporate Insolvency Resolution Process (CIRP) filed due to non-payment of dues. The Tribunal held that a pre-existing dispute regarding the quality of supplied goods and claimed damages existed since 2016, rendering the insolvency petition inadmissible.

What did the court decide?

The Section 9 application petitioning for initiation of CIRP against the Corporate Debtor was dismissed under Section 9(5)(ii)(d).

In the matter of Kumar Printing Inks Pvt. Ltd. [Cp (Ib)… — Insolvency and Bankruptcy | NCLT (2023)

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IN THE NATIONAL COMPANY LAW TRIBUNAL ALLAHABAD BENCH, PRAYAGRAJ

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CP (IB) No.19/ALD/2019

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An application under Section 9 of the Insolvency & Bankruptcy Code, 2016 read with Rule 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016

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IN THE MATTER OF:

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Swastik Interchem Pvt. Ltd. 19, 1st Floor, Local Shopping complex, F Block, Paschim Vihar (Bhera Enclave),

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New Delhi-110034 ...Applicant/Operational Creditor Versus

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Kumar Printing Inks Pvt. Ltd. 31/63, Lathi Mohal, Kanpur-208001 …Respondent/Corporate Debtor

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Order pronounced on 15^th September, 2023

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CORAM:

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Sh. Praveen Gupta : Member (Judicial) Sh. Ashish Verma : Member (Technical)

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PRESENT-

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Sh. Vaibhav Varma, Adv. : For the Operational Creditor Sh. Praveen Kumar, Adv. : For the Corporate Debtor

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Page 1 of 28

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CP (IB) No.19/ALD/2019

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ORDER

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1. The instant application is filed on 24.12.2018 by M/s Swastik Interchem Pvt. Ltd. (hereinafter referred as ‘Applicant’/ ‘Operational Creditor’) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as the “ I & B Code, 2016 ”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred as “the Rules”). The prayer made therein is to initiate Corporate Insolvency Resolution Process (hereinafter referred as ‘ CIRP ’) in respect of Kumar Printing Inks Pvt. Ltd. (hereinafter referred as ‘ Respondent’/‘Corporate Debtor’ ) due to default in payment of total outstanding amount of Rs.7,97,775/- (Rupees Seven Lakh Ninety Seven Thousand Seven Hundred and Seventy Five only) which includes a principal sum of Rs.4,92,294/- and interest of Rs. 3,05,481/-

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2. Briefly stated facts of the present case as averred by the Applicant/Operational Creditor in its application filed in Form-5 containing part I, II, III, IV & V are that:-

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Page 2 of 28

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CP (IB) No.19/ALD/2019

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i. The Operational Creditor is involved in the business of industrial chemicals, i.e. Dyes and Pigments. The Operational Creditor provided goods to the corporate Debtor from 24.03.2015 to 09.07.2015 and raised invoices for the same. The Respondent made a part payment of Rs.32,617/and thus, an outstanding amount of Rs.7,97,775/(which includes a principal sum of Rs.4,92,294/- and interest of Rs.3,05,481/-) remains unpaid.

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ii. Following this, the Operational Creditor did not receive any further payments from the Corporate Debtor in regard to the pending amounts despite repeated requests. A demand notices dated 23.03.2018 was dispatched to the Corporate Debtor, urging it to settle the outstanding dues, but no response was received.

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iii. On May 16, 2018, a legal notice was sent by the Corporate Debtor to Operational Creditor that a Suit for Damages had been filed against it in the Court of Additional Civil Judge (Sr. Div.)-II. The Applicant replied to the said notice on

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28.05.2018 wherein he stated that it was never served any Page 3 of 28 CP (IB) No.19/ALD/2019

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summon in the said case. As contended by the Operational Creditor, the Corporate Debtor had just instituted the suit to derail the insolvency proceeding initiated by the applicant.

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iv. After considering the reluctance of Respondent in paying the said amount, the Applicant concluded that the Respondent lacks funds to pay the unpaid operational debt and hence, the present application has been filed by the Operational Creditor.

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3. The Respondent/Corporate Debtor has submitted its reply stating that the present Insolvency and Bankruptcy (I.B.) petition has been filed by M/s Swastik Interchem Pvt. Ltd., falsely representing itself as an Operational Creditor of the Respondent in question. The following contentions have been raised in the reply of the Respondent pleading for the dismissal of this petition:

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i. The Respondent claims that the proceedings initiated under Section 9 of the Insolvency and Bankruptcy Code stand to be dismissed since there is an ongoing dispute and the existence of this dispute was concealed by the

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Applicant.

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Page 4 of 28

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CP (IB) No.19/ALD/2019

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ii. The petitioner has provided pigments or coloring agents to the respondent firm for their use in producing ink. This ink is subsequently sold by the respondent company to manufacturers of flexible packaging materials. It's important to note that the ink used for printing on flexible packaging material must meet specific quality standards. Even a minor deviation in its composition could render the ink unsuitable for printing.

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iii. Regarding the supplies made by the petitioner to the respondent company, it is alleged that these supplies were of sub-par quality. Consequently, the ink produced by the respondent using these supplies did not meet the requirements of the respondent's customers, resulting in substantial losses for the respondent.

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iv. Specifically, the respondent received three shipments under invoice no. 80 dated 22.04.2015, invoice no. 135 dated 12.05.2015, and invoice no. 137 dated 12.05.2015 (among others) from the petitioner. These goods were determined to be of significantly inferior quality. Consequently, the respondent returned these goods, as Page 5 of 28 CP (IB) No.19/ALD/2019

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evidenced by their Challan cum invoice numbers 327, 328, and 329, all dated 16.07.2015.

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v. The respondent Corporate Debtor in its reply submitted that the petitioner acknowledged their fault in supplying sub-par goods both through telephonic communication and by inspecting the goods themselves before the respondent. Due to the defect in the pigments or coloring agents supplied by the petitioner, a substantial portion of the ink produced by the respondent company became unusable and had to be discarded.

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vi. As per the respondent Corporate Debtor in its reply, given that the petitioner had been supplying goods to the respondent company for several years, the petitioner approached the respondent with the intention of resolving the matter in a mutually agreeable manner.

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vii. The respondent agreed to the petitioner's request and decided to settle the matter amicably, without resorting to legal action, since the petitioner company expressed its willingness to compensate the respondent company for its losses.

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Page 6 of 28

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CP (IB) No.19/ALD/2019

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viii. However, as further stated by the respondent in its reply, the petitioner Operational Creditor subsequently sent a legal notice dated 17th August 2016 through its counsel Anil Kumar and associates, demanding a payment of Rs.7,89,332/- along with interest. A copy of this notice is also enclosed with this reply

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ix. The respondent promptly sought advice of its legal counsel after receiving the petitioner's notice, and its attorney, Mr. Ved Prakash Agarwal, responded to the notice in a letter dated 8th September 2016. In this reply, the dispute that had arisen on account of quality of goods supplied was explicitly mentioned, and a detailed account of the facts of the case was provided. In para 4 of the reply, it is mentioned that a inspection of material supplied was carried out by the petitioner's representative on 08.02.2016, during which the estimated damages were tentatively assessed at Rs. 5 lakhs. It was further instructed by the petitioner that the respondent could issue a debit note for Rs. 5 lakhs which would be settled subsequently. However, the petitioner requested for the Page 7 of 28 CP (IB) No.19/ALD/2019

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disbursement of some payment for their outstanding invoices. In response to this assurance, an amount of Rs. 2 lakhs was paid through four cheques of Rs. 50,000/- each, all of which have already been encashed.

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x. It is further pointed out that the petitioner did not include a copy of its notice dated 17th August 2016 or the response dated 8th September 2016 with their current petition. This omission in view of the respondent raises suspicions on the intention of the petitioner attempting to conceal crucial facts from the Hon'ble Tribunal.

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xi. Following the submission of the aforesaid reply by petitioner, the petitioner once again approached the respondent, seeking an amicable settlement and requesting additional time to compensate for the losses suffered by the respondent.

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xii. However, in April 2018, the director of the respondent company received a demand notice under the Insolvency and Bankruptcy Code (IB Code) from the petitioner.

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xiii. In response, the deponent (representative of the respondent) filed a civil lawsuit against the petitioner Page 8 of 28 CP (IB) No.19/ALD/2019

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company in the Court of Civil Judge (Sr. Div), Kanpur Nagar. This suit, registered as Original Suit No. 354 of 2018, prompted the issuance of summons to M/s. Swastik Interchem Pvt. Ltd. on 6th April 2018. Notices were sent to the petitioner company, and service was duly made.

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xiv. Thus, in lieu of the pre-existing dispute, this petition filed by Applicant under section 9 is not maintainable and is liable to be dismissed.

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4. The operational creditor filed a rejoinder countering all the contentions raised in the reply filed by the Corporate Debtor and made the following averments:

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i. The Petitioner Operational Creditor states that prima facie its goods are of superior quality and there was never any dispute regarding the quality of goods. The petitioner never supplied inferior quality goods to respondent nor was there any complaint by Respondent regarding the same. All these are false claims made by respondent to avoid payment.

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ii. The Petitioner agrees that there were settlement talks going on between the parties. When the settlement talks failed,

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Page 9 of 28

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CP (IB) No.19/ALD/2019

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the applicant issued legal notice dated 17.08.2016 to the Respondent. The Applicant denies there being any inspection of goods or subsequent part payment of Rs.2,00,000/-. The respondent has only made part payment of Rs.32,617/- with a promise to make the rest of the payment at the earliest.

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iii. The Applicant further avers that the respondent has filed the Civil suit No.354 before Civil Judge (Sr. division), Kanpur Nagar just to delay the CIRP proceedings. The said suit is also barred under Section 10 of Civil Procedure Code, 1908 i.e., Res Sub-judice since CIRP proceedings commence with issuance of demand notice.

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Findings and Conclusion

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5. We have considered the submissions made by the Ld. Counsels for the parties and perused the records.

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6. The issues for consideration before this Tribunal are, whether this petition filed by the petitioner is time barred by limitation and whether there is any pre-existing dispute.

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CP (IB) No.19/ALD/2019

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7. The ledger maintained by Operational Creditor clearly shows that an amount of Rs.50,000/- was paid by the corporate debtor to Operational Creditor on 27.09.2017 within the limitation period of 3 years and an amount of Rs.4,92,294/- remained unpaid.

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8. The same fact is also acknowledged by the Corporate Debtor in its ledger statement filed as Annexure CA-1 on page 15 of the Reply. The said ledger statement also displays that the balance of Rs.4,92,294/- remained unpaid. Therefore, in view of the sections 18 and 19 of the Limitation Act , 1963 as the debt is acknowledged by a part payment in 2017 and the outstanding amount is also found to be mentioned in the ledger account of 2017 by both the Operational Creditor and the Corporate Debtor, the limitation period would be computed from 27.09.2017 .

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9. Thus, even if the invoices were raised from 24.03.2015 to 09.07.2015 and are barred by limitation, the last payment being made on 27.09.2017 and the petition being filed on 24.12.2018,

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makes the petition filed within limitation period, hence the petition is maintainable .

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10. The next issue for consideration is whether the Operational Debt was disputed by the Corporate Debtor and whether there is a pre-existing dispute between the parties. In order to decide this issue, the facts of the case need to be closely scrutinised, which we did after going through all the details and documents presented before us in the pleadings as discussed in succeeding paras.

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11. The Operational Creditor served demand notice u/s 8 of IBC, 2016 to the Operational Creditor on 23.03.2018. After issuance of above demand notice, the Corporate Debtor sent a legal notice dated 16.05.2018 informing to the Operational Creditor that some of the goods supplied by the Operational Creditor were not up to the mark hence, the Operational Creditor was given notice calling upon to it to make the payment of losses suffered by the Corporate Debtor but the same was not paid. Thereafter, as the amount of loss suffered by the Corporate Debtor was not paid by the Operational Creditor, a suit numbered 354 of 2018 M/s Kumar Printing Inks Pvt. Ltd. Vs M/s Swastik Interchem Pvt. Ltd. was filed on 06.04.2018, which is pending in the Court of II-Additional Civil Judge (Sr. Page 12 of 28 CP (IB) No.19/ALD/2019

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Div.), Kanpur Nagar for claiming damage of Rs. 10,00,000/-.

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Against the above notice of the Corporate Debtor, the Operational Creditor replied through its counsel vide letter dated 28.05,2018 contending that the said suit filed on 06.04.2018 is an act clearly to make the Insolvency Resolution Process initiated by the Operational Creditor ( by issuing a demand notice u/s 8 dated 23.03.2018 ) as infructuous. It is also informed in the said reply that no notice was served to the Corporate Debtor in the said suit as mentioned in the above notice of the Corporate Debtor and accordingly, payment of Rs. 7,97,775/- from the Corporate Debtor and withdrawal of suit against the Operational Creditor was demanded. Thereafter, Operational Creditor filed the application u/s 9 of the I & B Code, 2016 on 24.12.2018.

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12. In the reply to the application u/s 9 as already discussed in para 3 of this order, the Corporate Debtor pointed out about the dispute regarding quality of goods supplied by the Operational Creditor and in this regard, three such invoices for supply of inferior quality of goods have been pointed. These invoices as mentioned are Invoice no. 80 dated 22.04.2015, Invoice no 135 dated 12.05.2015 and Invoice no. 137 dated 12.05.2015. As the Page 13 of 28 CP (IB) No.19/ALD/2019

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goods supplied vide above invoices were of inferior quality, they were returned against the Challan cum Invoices nos. 327, 328 and 329 all dated 16.07.2015 issued by the Corporate Debtor. It is specifically mentioned by the Corporate Debtor that the return of goods were made after the petitioner/Operational Creditor themselves accepted their fault before the respondent telephonically as well as after inspecting the goods supplied by the petitioner. It is also mentioned in the reply that a major portion of ink manufactured by the respondent company was rendered useless because of the defect in the pigmentation /color supplied by the petitioner and the same has to be destroyed and because of such lapse, the respondent suffered serious losses, both financially as well as loss of reputation in the business because of the act of the petitioner company. It is also mentioned in the reply that because of the long association between both parties, the petitioner company approached the respondent company to settle the matter amicably as otherwise they would have also suffered in the market.

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As further pointed out in the reply, the Operational Creditor showed willingness to Corporate Debtor to compensate it for Page 14 of 28 CP (IB) No.19/ALD/2019

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losses suffered by it, hence, it decided to settle the matter amicably without going to the Court. However, subsequently, the petitioner company i.e. Operational Creditor sent a legal notice through its counsel dated 17.08.2016 claiming payment of Rs. 7,89,332 along with interest. A copy of this legal notice is attached in the reply as Annexure No. CA-2. This notice was replied by the Corporate Debtor through its Counsel vide letter dated 08.09.2016, specifically mentioning the dispute which crept up along with giving facts of the case. Copy of this reply is also annexed in the reply at Annexure No. CA-3 . As mentioned in para 4 of the said reply, a damage of Rs. 5 lac was tentatively assessed after inspection by the representative of the petitioner for which a debit note was asked to be raised and assurance was given that after discussion with other officials of the clients of the Corporate Debtor, the exact amount of damages would be assessed. Meanwhile, Rs. 2,00,000/- was asked to be paid, which

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the Corporate Debtor paid vide four cheques of Rs. 50,000/each.

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After providing these details of dispute regarding quality of

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goods supplied and notices issued in this regard for payments as Page 15 of 28 CP (IB) No.19/ALD/2019

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well as raising of dispute by the Operational Creditor and Corporate Debtor, it is specifically pointed out by the Corporate Debtor in para no. 19 of the reply that it is pertinent to mention that that the petitioner has neither enclosed a copy of their notice dated 17.08.2016 nor the reply dated 08.09.2016 of the Corporate Debtor along with the present petition u/s 9 hence, alleging the malafide on part of the petitioner to hide the factual aspects from this Tribunal. It is further mentioned that the Corporate Debtor subsequently filed a civil suit against the petitioner Operational Creditor for recovery of loss suffered due to inferior quality of ink supplied by the Operational Creditor after it received the notice u/s 8 of the I&B Code, 2016 in the month of April 2018 . It is also stated in the reply that after filing of suit, notice has been issued and served to the petitioner company, defendant in the suit but they did not appear before the Civil Court till the date of filing of reply. In support filing of the suit, a true certified copy of the order sheet of case no. 354 of 2018 in M/s Kumar Printing Inks Pvt. Ltd. Vs. Swastik Interchem Pvt. Ltd is attached with the reply in Annexure No. CA-5 . After giving these details in reply, it is contended by the respondent that Page 16 of 28 CP (IB) No.19/ALD/2019

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there is clear dispute over the facts of the present case between the petitioner and the respondent and only forum that can decide the said dispute is the learned Civil Court of the original jurisdiction where the suit is pending. It is also contended that the respondent is not liable to make any payment to the petitioner company as they have suffered losses due to supply of the substandard material by the petitioner company, which is evidenced by the civil suit.

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In para no 27 of the reply, the Corporate Debtor submitted pointing out that none of the aforesaid facts were brought to the knowledge of this Tribunal in its petition about issuance of a notice demand way back in August 2016, which was duly replied by making the claim of the respondent about the losses suffered by it due to supply of inferior quality of ink but the petitioner falsely stated in the petition u/s 9 that the corporate debtor had no complaint of either about the quality of goods or the quantity of goods. Therefore, the respondent emphatically denied the claim of outstanding debt made in Part-IV of the application u/s 9 and submitted that the answering respondent has a claim against the

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petitioner in view of supplying substandard material resulting Page 17 of 28 CP (IB) No.19/ALD/2019

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into serious losses to answering respondent. The respondent has also specifically pointed out about the Annexure-5 of the application mentioned in part V as depicting correspondence between the petitioner company and the answering respondent, showing that such correspondences are totally irrelevant and probably relate to correspondence of the petitioner company with some other person

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13. We have verified the facts as presented before us in the reply filed by the respondent and found that the petitioner/Operational Creditor did not mention any thing about the legal notice sent by it through its counsel vide letter dated 17.08.2016 demanding outstanding operational debt amount of Rs. 7,89,332/- in response to which reply dated 08.09.2016 was sent by the respondent/Corporate Debtor through its counsel raising dispute regarding supplying of ink of inferior quality and demanding of Rs. 5,00,000/- as damages in view of losses suffered by the Corporate Debtor due to supply of goods of inferior quality. Rather, the petitioner has mentioned about Annexure-V (pg 54 to 59) in Part V of the application showing

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correspondences between the Operational Creditor and Corporate Page 18 of 28 CP (IB) No.19/ALD/2019

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Debtor, which after going through, we find that these correspondences are in relation to some Light House+Biz Mobile App/Profarma Invoice with one Ashish Jain offering three year services in Rs. 47500+GSTN. Then, there is a complaint to SHO about giving of Rs. 56,050/- to one Mr Kamal but the same is not returned. These correspondences purported to be between Operational Creditor and Corporate Debtor as mentioned Part V of the application as evidence relating to particulars of Operational Debt, is totally irrelevant as alleged by the Corporate Debtor in its reply and the actual correspondences taken place between the Operational Creditor and Corporate Debtor in 2016 (before sending of section 8 notice in 2018) is found to be neither discussed in the application nor the relevant copy of the correspondences are attached.

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14. Then, we examined the details of particulars of operational debt as discussed in the application along with the relevant documents as mentioned in Part V of the application. In this regard, it is stated in para 5 of the petition that the Operational Creditor delivered the chemical and goods ordered by the Corporate Debtor which totally amounted to Rs. 5,24,911/- . The Page 19 of 28 CP (IB) No.19/ALD/2019

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Corporate Debtor has made a part payment of Rs. 32,617/ against the invoices raised by the Operational Creditor on every delivery goods and therefore, the total amount of unpaid dues as on date is Rs. 4,92,294/- and after adding interest of Rs. 3,05,481/-, a total demand of operational debt amount of Rs. 7,97,775/- has been raised in part IV of the application. In support of the amount of the Operational Debt as mentioned in the application, a list of pending bills is attached totaling to Rs. 5,24,911/- out of which against one bill of Rs. 40,290/- (bill no. 0001594 dated 24.03.2015), pending amount is shown Rs. 7,673/- and against another bill of Rs. 40,290/- (000135 dated 12.05.2015) , amount of only Rs. 12,490/- is recorded and thus, against total bill amount of Rs. 5,24,911/- , outstanding amount shown is Rs. 4,92,294/- and accordingly, an impression is tried to be given that the corporate debtor has paid only Rs.32,617/out of total amount bill amount of Rs. 5,24,911/-.

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Against the above details of the Operational Debt provided by the Operational Creditor in the application, the Corporate Debtor in its reply while explaining the dispute arisen between

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the Operational Creditor and the Corporate Debtor on account of Page 20 of 28 CP (IB) No.19/ALD/2019

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inferior quality of goods, stated that it paid Rs. 2,00,000/- in four cheques of Rs. 50,000/- each on the assurance given by the Operational Creditor that after discussion with other officials of the client of the Corporate Debtor, exact amount of damages would be assessed and accordingly, credit notes to clients of the corporate debtor would be issued. In support of its contention of making payment of Rs. 2,00,000/ to resolve the dispute on assurance by the Operational Creditor of issuing of credit notes to clients of the Corporate Debtor to compensate for damages suffered by it, a running ledger account of the Operational Creditor in the books of the Corporate Debtor has also been enclosed in the reply as Annexure No. CA-1 showing payment of Rs.2,00,000/ in four cheques of Rs. 50,000/- each, issued on 27.04.2016, 14.05.2016, 28.05.2016 and 18.06.2016.

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The Operational Creditor in its rejoinder submitted on 05.08.2019 and countered the above reply of the Corporate Debtor stating as being false and categorically denied about receiving any such payment of Rs. 2,00,000/- and went on to state that if the same was true then as stated by it in the para

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no.18 of the Counter Affidavit that if the said amount of Rs. Page 21 of 28 CP (IB) No.19/ALD/2019

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2,00,000/- was paid through cheques, then the same could be easily supported by filing the Corporate Debtor’s Bank Statements and the same having not being filed would fail to establish that any such payments were ever made by the Corporate Debtor in favour of the Operational Creditor. Later, on the limitation matter, it has been submitted by the Ld. Counsel of the petitioner/Operational Creditor that a payment was made to petitioner on 26.09.2017 but this fact was not mentioned in the main petition hence, a request was made to file additional affidavit to bring all these facts in the main petition. In compliance to the same, an additional affidavit was filed on 19.09.2019. In this affidavit, the Ledger maintained by the Operational Creditor for the running account of the Corporate Debtor has been enclosed. In this ledger account, apart from the last payment of Rs. 50,000/- received by the Operational Creditor on 26.09.2017, other four payments of Rs. 50,000/- each totaling to Rs. 2,00,000/- has also been mentioned and this ledger account attached with additional affidavit exactly tallies with the ledger account attached with the reply of the Corporate Debtor,

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showing closing balance of Rs. 4,92,294/- in both ledger account, Page 22 of 28 CP (IB) No.19/ALD/2019

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which is shown as outstanding principal part of the operational debt in the application u/s 9. Though the amount of outstanding debt has been found to be tallying in the ledger account being maintained by both parties but presentation of the Operational Debt by the Operational Creditor in the application u/s 9 is in such a manner that it gives an impression that there is no dispute between the Operational Creditor and the Corporate Debtor as regards the outstanding debt, by simply stating that there was total billing of Rs. 5,24,911/- out of which Rs. 32,617 was paid leaving an outstanding amount of Rs. 4,92,294/without giving any details of correspondences of the year 2016 as discussed in para 12 of this order and for showing the correspondences between both parties, attaching irrelevant email communication in Annexure V of the application, even going to extent of denying the receipt of Rs. 2,00,000/- paid by the Corporate Debtor during the process of dispute resolution and demanding for showing in the bank statement.

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In this regard, it is interesting to note that page nos. 98, 100, 102 and 104 are missing in the application, which are related to bank statement of the relevant period of the year 2016 Page 23 of 28 CP (IB) No.19/ALD/2019

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in which these 4 cheques were received. However, it has not materially impacted our decision as the receipt of Rs. 2,00,000/by the Operation Creditor in the year 2016 is proved from the ledger account . As this payment was claimed to have been made by the Corporate Debtor as a part of the process of resolving the dispute between both parties on account of issue relating to inferior quality of goods supplied on assurance given by the Operational Creditor for assessing the damages and issuing of credit notes to the clients of the Corporate Debtor and now, receipt of this payment by the Operational Creditor being proved despite its denial in the rejoinder by the Operational Creditor as discussed in this para earlier, it proves that there was preexisting dispute since 2016 which remained unresolved which finally culminated in filing of civil suit in the Jurisdictional Court. The one question that can be raised that when the final outstanding amount of Rs. 4,92,294/- is appearing in the ledger account of both parties, why it should not be paid by the Corporate Debtor to the Operational Creditor. In this regard, during the hearing, question was raised to the Ld. Counsel of the

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Corporate Debtor and he replied that there is damage claim of Page 24 of 28 CP (IB) No.19/ALD/2019

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more than the outstanding amount hence, question of payment of outstanding amount does not arise. Initially, damage was estimated to the tune of Rs. 5,00,000/ and now, damage claim in the civil suit has been made for Rs. 10,00,000/-. Therefore, we find force in the argument of the Ld. Counsel of the Corporate Debtor for not paying the outstanding amount as the same being disputed due to damage claimed by the Corporate Debtor on account of supply of goods of inferior quality. In fact, while filing the rejoinder, existence of such dispute has been accepted by the Operational Creditor in para 14 and 17 of the rejoinder. The same are reproduced as under;-

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“Para 14 (rejoinder)

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That it is correct to say that the parties were attending to settle this dispute and as the Operational Creditor wanted to keep his business afloat and running by not having any payment dues to themselves. Therefore, the attempt to resolve above same dispute with the Corporate Debtor.

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Para 17(rejoinder)

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That the Contents of Para No.17 of Counter Affidavit is also absolutely misconceived. It is stated that though a Reply dated 08.09.2016 to our Legal Notice was issued but the same failed to resolve the dispute between the parties herein as no compliance for clearing the pending payments was averred in the said Reply dated 08.09.2016

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against the goods supplied by the Operational Creditor, which was never considered to be of inferior quality till the Operational Creditor began serving notices for pending payments upon the Corporate Debtor and therefore all correspondences between the parties was squarely for clearing pending payments as stated above and no other dispute existed between the parties herein.

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15. In the above paras of the rejoinder, the Operational

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Creditor, specifically in para 14, attending to settle the dispute has been admitted and in para 17, on reference of letter dated 08.09.2016, it is admitted that dispute could not be resolved. Looking to the conduct of the Operational Creditor of not disclosing full facts in its application and presenting the facts in such a manner so as to conceal the fact of pre-existing dispute as discussed in foregoing paras, we find that there is clear cut pre-existing dispute between Corporate Debtor and Operational Creditor on the issue of damage claimed by the Corporate Debtor due to supply of goods of inferior quality by the Operational Creditor raised in 2016 much before the date of issue of notice u/s 8 of the I&B Code, 2016 in March 2018.

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16. It is a settled position of law that if a real pre-existing dispute exists between the Operational Creditor and Corporate

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Debtor as to payment between the parties, the application u/s 9 must be rejected by the Adjudicating Authority as per section 9(5)(ii)(d). The Hon'ble Supreme Court in the case of Mobilox

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Innovations Private Limited v. Kirusa Software Private Limited MANU/SC/1196/2017 : 2018 (1) SCC 353 has inter

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alia held that the Court does not need to be satisfied that the defence is likely to succeed in countering the dispute, the Court does not at this stage examine the merits of the dispute, what really is to be seen is the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties and also the I & B Code, 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardise the financial health of an otherwise solvent company by pushing it into insolvency. It is also pertinent to mention here that the Hon'ble Supreme Court in the case of K.

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Kishan v. Vijay Nirman Company Private Limited clarified that the Petitioners cannot use IBC either prematurely or for extraneous considerations or as substitute for debt enforcement procedures. All the above ingredients of existence of pre-existing

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dispute are present in the instant case under consideration. Page 27 of 28 CP (IB) No.19/ALD/2019

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17. As we found that dispute regarding quality of goods

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supplied by the Operational Creditor resulting into losses suffered by the Corporate Debtor and claim for damages on account of such losses, was raised by the Corporate Debtor before issuance of notice u/s 8, and after issuance of this notice, a notice of dispute for filing of civil suit was also sent and finally, the civil suit was also filed which is pending at present for settling the dispute on claim of damage to finalise the payments between the Operational Creditor and the Corporate Debtor , we are satisfied that there is a pre- existing dispute as to the payment between the parties and hence, this application is liable to be dismissed u/s 9(5)(ii)(d).

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18. Accordingly, the petition CP (IB) No.19/ALD/2019 filed by

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the Operational Creditor u/s 9 of the I & B Code, 2016 is hereby dismissed .

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(Ashish Verma) Member (Technical)

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(Praveen Gupta) Member (Judicial)

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Aditi Kharbanda (LRA)

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