This tribunal dismissed an application under the Insolvency and Bankruptcy Code for initiating CIRP and for appointing a Chartered Accountant. The court found the petition defective due to lack of proper authorization, existence of a pre-existing dispute, and missing evidence regarding the date of default.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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THE NATIONAL COMPANY LAW TRIBUNAL “CHANDIGARH BENCH, CHANDIGARH” (Exercising powers of Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016)
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
Under Section 9 of the Insolvency and Bankruptcy Code, 2016.
In the matter of IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020 :
Liberty Group Marketing Division
4/42, Punjabi Bagh, New Delhi-110026 …Petitioner-Operational Creditor
Vs.
Liberty Shoes Limited
having its registered office at Liberty Puram, 13th Milestone, G.T. Karnal Road, Kutail, P.O. Bastara, Karnal-132114 (Haryana)
…Respondent-Corporate Debtor
Judgement delivered on: 15.06.2023
Coram: Hon’ble Mr. Harnam Singh Thakur, Member (Judicial) Hon’ble Mr. Subrata Kumar Dash, Member (Technical)
For the Petitioner: 1). Mr. G.K. Jain, PCA Operational Creditor and applicanti in IA No. 547/2021 For the Respondent: 1). Mr. V.K. Sachdeva, Advocate Corporate Debtor 2). Mr. Pulkit Sachdeva, Advocate and respondent in IA No. 547/2021
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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Per: Harnam Singh Thakur, Member (Judicial)
Judgment in CP(IB) No. 198/Chd/Hry/2020
The present petition is filed, under Section 9 of the Insolvency and Bankruptcy Code, 2016 ( for brevity ‘IBC’ / ‘Code’ ) , by Liberty Group Marketing Division through its Chartered Accountant Mr. G.K Jain ( for brevity ‘Operational Creditor’ / ‘Petitioner’ ), with a prayer to initiate Corporate Insolvency Resolution Process ( CIRP ) in case of Liberty Shoes Limited ( for brevity ‘Corporate Debtor’ / ‘Respondent’ ).
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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account pending amount of Royalty towards usage of Trade Mark plus Interest of Rs. 19,92,783/-) plus interest 12% p.a. from 15.03.2020 till date of actual payment. The default occurred on 27.04.2019 as mentioned by the operational creditor, however, no basis for the same has been provided. Copy of invoices (Annexure-A-3), summary of claim (Annexure-A-4), Statement of transactions (Annexure-A-5), Agreement (Annexure-A-6), Bank Statement (Annexure-A-7), Partnership Deed (Annexure-A-9), internal regulation (Annexure-A-10) are attached with the main petition.
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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obligation to pay entire amount of bills and is liable to deduct only TDS. Payment of GST and advance tax is liability of operational creditor.
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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Power of Attorney dated 02.03.2020 is an illegal document. The petitioner has no locus to file the present petition. The invoices/account statements/amounts raised are forged/fabricated documents and figures self-created by Mr. Adarsh Gupta. The date of default mentioned as 27.04.2019 is baseless and the entire amount already stood paid. There is suppression of material facts as the application is filed on forged and fabricated documents. The petitioner is still receiving payments even after filing of the present petition.
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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It is submitted by the corporate debtor that the transactions between the parties are governed by terms/conditions contained in the agreement dated 29.03.2018 between the parties, Mr. G.K. Jain is not authorised to file the present petition and the invoices placed on record are forged and fabricated. The operational creditor has admitted that the transactions were based upon the terms and conditions mentioned in the Agreement dated 29.03.2018. However, it is seen from the records that the power of attorney executed as conferred power upon Mr. G.K. Jain to issue a demand notice, file a present petition and certify any documents on behalf of Adarsh Gupta and the firm. Further, the authorisation of Mr. Adarsh Gupta was withdrawn by the partners of the firm vide letter dated 28.12.2018 and affirmed the same vide letter dated 08.11.2019. The petition is not supported by the authorisation from the other partners of the operational creditor in favour of Mr. Adarsh Gupta to further authorized Mr. G.K. Jain to file the present petition. Moreso, there is suppression of material facts on part of the operational creditor the application is filed on forged and fabricated documents. The petitioner is still receiving payments even after filing of the present petition. It is evident from the averments in reply that there is pre-existing dispute between the parties as there was an internal dispute amongst partners of the firm. The partners had withdrawn the powers of Mr. Adarsh Gupta by letter dated 28.12.2018 and affirmed the same vide letter dated 08.11.2019. Therefore, the dispute existed much prior to the issuance of the demand notice dated 20.03.2020. The reliance can be placed upon the judgment of Hon’ble Supreme Court, Mobilox Innovations Private Limited Vs.
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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Kirusa Software Private Limited (2018) 1 SCC 353 wherein it was held that:
“ 40 . It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. 43. ………….We have seen that a “dispute” is said to exist, so long as there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6).
45. Going by the aforesaid test of “existence of a dispute”, it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability” .
(Emphasis Supplied)
The above instances indicate that there were no debt and default on part of
the operational creditor and Shri. G.K. Jain, Chartered Accountant is not proved to be duly authorised or competent person to file the present petition. The reliance can be placed upon the judgment of Hon’ble National Company Law Appellate Tribunal, New Delhi in the case of Palogix Infrastructure
Private Limited Vs. ICICI Bank Limited wherein it is stated that-
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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“31. As per Section 7 of the 'I & B Code' an application for initiation of 'Corporate Insolvency Resolution Process' requires to be filed by 'Financial Creditor' itself. The form and manner in which an application under section 7 of the 'I & B Code' is to be filed by a 'Financial Creditor' is provided in 'Form-1' of the Adjudicating Authority Rules. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the 'I & B Code' and the Adjudicating Authority Rules recognize that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative". Entry 5 & 6 (Part I) of Form No. 1 mandates the 'Financial Creditor' to submit "name and address of the person authorised to submit application on its behalf. The authorization letter is to be enclosed. The signature block of the aforementioned Form 1 also provides for the authorised person's detail is to be inserted and also includes inter alia the position of the authorised person in relation to the 'Financial Creditor'. Thus, it is clear that only an "authorised person" as distinct from "Power of Attorney Holder" can make an application under section 7 and required to state his position in relation to "Financial Creditor".
32. The 'I & B Code' is a complete Code by itself. The provision of the Power of Attorney Act, 1882 cannot override the specific provision of a statute which requires that a particular act should be done by a person in the manner as prescribed thereunder.
33. Therefore, we hold that a 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'”.
(Emphasis Supplied)
Although, it is pleaded by the operational creditor that there is a default on the part of the corporate debtor with respect to the payment outstanding, however, there is no supporting document placed on record to show the amount due and outstanding. It may be noted that there is lack of authorisation on part of the operational creditor to file the present petition. It is pertinent to note that other IA No. 547/2021 has been filed by operational creditor for appointment of a Chatered Accountant in Chandigarh to determine the total debt due to the operational creditor by the corporate debtor on sale for period 01.04.2019 to 31.03.2020 on basis of audited financials and to determine debt paid by the corporate debtor towards operational creditor as per Agreement interest due payable by
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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corporate debtor, therefore the petitioner/applicant is not sure about the amount claimed.
Thus, default is not established.
IA 547/2021
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
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Creditor’ / ‘Petitioner’), against Liberty Shoes Limited (for brevity ‘Corporate Debtor’ / ‘Respondent’) with a prayer for appointment of a Chatered Accountant in Chandigarh to determine the total debt due to the operational creditor by the corporate debtor on sale for period 01.04.2019 to 31.03.2020 on basis of audited financials and to determine debt paid by the corporate debtor towards operational creditor as per Agreement interest due payable by corporate debtor.
Sd/Sd/(Subrata Kumar Dash) (Harnam Singh Thakur) Member (Technical) Member (Judicial) June 15, 2023 PKA/TB
IA 547/2021 and CP(IB) No. 198/Chd/Hry/2020
3 issues framed by the court
Whether the application under Section 9 of the IBC was complete and within limitation.
Whether a pre-existing dispute existed between the operational creditor and corporate debtor.
Whether the applicant was authorised to file the petition despite internal partner disputes.
Colour shows how this judgement treated each authority
Mobilox Innovations Private Limited Vs. Kirusa Software Private LimitedRelied on¶42
Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (2018) 1 SCC 353 · Who else cites this
Palogix Infrastructure Private Limited Vs. ICICI Bank LimitedRelied on¶45
Palogix Infrastructure Private Limited Vs. ICICI Bank Limited
3 provisions across 1 enactments
Liberty Group Marketing Division
Liberty Shoes Limited
Harnam Singh Thakur
Subrata Kumar Dash
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
