In the matter of Amazon Wholesale (India) Private Limited [IB-757/ND/2023]

NCLT5 Mar 2024IB-757/ND/2023

Case brief

AI extract

What is this about?

The National Company Law Tribunal rejected a Section 9 admission petition filed by an operational creditor against a corporate debtor. The Tribunal held that a pre-existing dispute regarding the genuineness of invoices raised by the creditor justified rejection of the CIRP initiation, citing Supreme Court precedents that define 'dispute' broadly at this stage.

What did the court decide?

Petition for admission of debt under Section 9 of the IBC is rejected; no cost awarded.

In the matter of Amazon Wholesale (India) Private… — Insolvency and Bankruptcy | NCLT (2024)

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IN THE NATIONAL COMPANY LAW TRIBUNAL NEW DELHI BENCH (COURT – II)

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Item No. 201 (IB)-757/ND/2023

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IN THE MATTER OF: Multiplier Brand Solutions Private Limited B1/G3, 2^nd Floor, Mohan Co-operative Industrial Estate, Main Mathura Road, New Delhi-110044

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… Petitioner/ Operational Creditor

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Versus

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Amazon Wholesale (India) Private Limited Block E, 14^th Floor, Unit Nos. 1401 to 1421 International Trade Tower, Nehru Place, South Delhi, New Delhi-110019

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… Respondent/ Corporate Debtor

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Under Section: 9 of IBC 2016

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Order delivered on 05.03.2024

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CORAM:

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SH. ASHOK KUMAR BHARDWAJ, HON’BLE MEMBER (J) SH. SUBRATA KUMAR DASH, HON’BLE MEMBER (T)

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PRESENT:

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For the Applicant

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: Mr. Neeraj Malhotra, Sr. Adv., Adv. Lakshmeesh S. Kamath, Adv. Rajesh Khandelwal, Adv. Samriti Ahuja, Adv. Rohit Patil, Adv. Nimish Gupta

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For the Respondent : Mr. Krishnendu Datta, Sr. Adv., Adv. V.P. Singh, Adv. Raghav Seth, Adv. Arnab Ray, Adv. Ankitesh Ojha, Adv. Varsha

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Hearing Through: VC and Physical (Hybrid) Mode

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ORDER

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Indubitably, an agreement was entered into between the Petitioner viz., Multiplier Brand Solutions Private Limited and Amazon Wholesale (India) Private Limited on 01.05.2019 regarding service provision etc. Clause 1.1 to 1.3 of the agreement reads thus:-

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“ 1.1. Services. Service Provider will provide services to Amazon on non-exclusive basis, in accordance with the terms and conditions of this Agreement ( “Services” ) as the Parties may, from time to time, agree and specify in work orders ( “Work Orders” ) issued or signed by Amazon. The agreed form of Work Order is attached as Exhibit A to this Agreement. Any Affiliate of Amazon will have the right to enter into Work Orders with Service Provider under this Agreement, and with respect to such Work Orders, such Affiliate becomes a Party to this Agreement and references to Amazon in this Agreement are deemed to be references to such Affiliate. With respect to Amazon, each Work Order is a separate obligation of the Amazon entities or entity that execute(s) such Work Order and no other Amazon Affiliate entity has any obligation under such Work Order Amazon makes no promises or representations whatsoever as to the amount of business Service Provider can expect at any time under this Agreement. It is further clarified that nothing in this Agreement prevents Amazon or any of its Affiliates from procuring same or similar Services from any other third party.

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1.2. Work Orders. This Agreement governs each Work Order, except that any conflict between the terms of this Agreement and a Work Order will be resolved in favor of the Work Order, if the Work Order explicitly states that it is intended to modify the conflicting terms of this Agreement. This Agreement does not obligate Amazon to engage Service Provider to perform any Services, or Service Provider to perform any Services, until both Parties have signed a Work Order. Both Parties must sign a Work Order for it to be effective.

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Notwithstanding the aforesaid, a Work Order will be binding on both Parties if Service Provider: (a) signs and returns it to Amazon; (b) begins performance; or (c) acknowledges it by email, facsimile or any other commercially reasonable means. If Service Provider commences Services for Amazon in the absence of a Work Order and Amazon accepts such Services, this Agreement will nevertheless apply, unless the Parties otherwise mutually agree in writing Service Provider will, at no cost to Amazon, promptly and satisfactorily correct any Services or Work Product found to be defective or not in conformity with the requirements of this Agreement and the applicable Work Order.

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1.3. On-Site Services. If Service Provider provides Services on Amazon premises, Service Provider will, and ensure that its Personnel will: (a) abide by all Amazon’s rules, policies, and procedures regarding such matters as safety, security, health, environmental and hazardous

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material management, misconduct, physical aggression harassment and theft (collectively, “Rules” ), and (b) at Amazon’s request, remove and promptly replace any Personnel (defined in Section 6 below) performing Services who behaves in a manner that is unlawful or inconsistent with any Rules.”

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It is also not in question that on 01.04.2021 a Novation and Substitution Agreement was entered into at Bangalore between Amazon Seller Services Private Limited and Amazon Wholesale (India) Private Limited. The agreement was endorsed by the Petitioner before us viz., Multiplier Brand Solutions Private Limited. The relevant excerpt of the agreement reads thus:-

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“ NOW THIS AGREEMENT WITNESSETH THAT:

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1. From and after the Effective Date:

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1.1. The Parties hereby agree that Transferee will replace Transferor in relation to and under the Principal Agreement. All references to Transferor under the Principal Agreement will be construed to be references to Transferee and the Principal Agreement vis-à-vis Transferor will stand novated and transferred in favour of Transferee.

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1.2 Notwithstanding anything contained in the Principal Agreement, Transferor will relinquish and waive all its rights, interests, liabilities and obligations under the Principal Agreement and Transferee will be entitled to all such rights, interests and will discharge all such liabilities, obligations of Transferor under the Principal Agreement (whether arising before or after the Effective Date).

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1.3. All obligations or liabilities arising under this Agreement or the Principal Agreement (whether arising before or after the Effective Date) may only be enforced by Company against Transferee directly, and not against Transferor.

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2. The Principal Agreement and this Agreement will be read and construed as one document and this Agreement will be considered to be part of the Principal Agreement.

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3. The provisions on governing law (at Section 9.2) and dispute resolution (at Section 9.8) of the Principal Agreement will be deemed

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to be incorporated under this Agreement and be applicable to Transferee and Company.”

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It is seen from the novation agreement that the principal agreement and the novation agreement were construed as one document.

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After execution of novation agreement (ibid), a renewal to master services agreement was entered into between the Petitioner and the Corporate Debtor on 01.05.2021.

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Mr. Neeraj Malhotra, Ld. Sr. Counsel for the Petitioner could refer to Page 38, 43, 48, 53, 58, 62, 67 & 70 of the petition to espouse that the corporate debtor had placed it’s purchase orders on the petitioner. He could also make reference to the invoices placed on record at page 77 to 84 of the petition. A reference is also made to certain communications between the petitioner and the corporate debtor to buttress that while raising the invoices, the Petitioner had sought approval from the corporate debtor regarding the cost/price of the services rendered, which was duly approved at the end of the corporate debtor. One of the e-mails placed on record at Page No. 112 & 113 of the petition reads thus:-

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Multiplier Brand Solutions Private Limited vs. Amazon Wholesale (India) Private Limited

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CP(IB)-757/ND/2023

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It is also the submission put forth by Mr. Neeraj Malhotra that the representative of the corporate debtor had admitted the delay in repaying the amount. In this regard he made reference to the e-mail placed on record at Page No. 119 to 120 of the paper book, which reads thus:-

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Mr. Neeraj Malhotra could also take pain to deal with the defence of the corporate debtor. For the purpose, he could make reference to Annexure-H to the reply and submitted that the complaint lodged was regarding the mischief made by the employees of the Petitioner regarding the services provided to Amazon Seller Services Pvt. Ltd. and not qua the Corporate Debtor before us. He could also make reference to the arbitration notice (invocation of arbitration) placed on record at Page 43 of the reply and submitted that the arbitration invoked is again not regarding the amount of the invoices referred to by him, but is in respect of the different amount. For the purpose he made reference to para 6 of the notice dated 01.12.2023 placed on record at Annexure-B to the reply. To conclude the submissions, Mr. Neeraj Malhotra espoused that in terms of the provisions of Section 8 and 9 of IBC, 2016 read with Regulation 7 of IBBI (CIRP)

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Regulations, 2016, while considering the petition filed under Section 9 of IBC, 2016 for admission, what this Tribunal need to see is as to whether there is a contract regarding supply of goods & services entered into between the parties; the invoices raised by the operational creditor; the orders of Tribunal/Courts, if any passed; and the financial accounts or relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of relevant laws relating to GST of e- way bills. According to him, he has already drawn the attention of this Tribunal to the contact, e-mails, purchase orders and the admission of liability by the corporate debtor, thus the present petition need to be admitted. He could also make reference to Annexure-Q to his rejoinder to buttress the plea that the doubt regarding the genuineness of the invoices involved a different brand and different company and not the corporate debtor before us. The Annexure reads thus:-

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To espouse that the novation and the substitution agreement dated 01.04.2021 did not completely bring the corporate debtor in place of Amazon Seller Services Pvt. Ltd., he made reference to the invoices placed on record at Page 37 & 43 of the rejoinder to emphasize that these are the invoices raised after 01.04.2021 i.e. after the date of novation and substitution agreement, thus despite there being novation and substitution agreement entered into between Amazon Seller Services Pvt. Ltd. and Amazon Wholesale (India) Pvt. Ltd., the Petitioner was rendering services to Amazon Seller Services Pvt. Ltd. and the transaction deed entered into by the Petitioner with the two companies need to be looked at differently and there should be no confusion regarding the complaints made by the Petitioner itself against its employees regarding the invoices raised qua Amazon Seller Services Pvt. Ltd., while he is alleging the default committed by the corporate debtor.

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Per contra Mr. Krishnendu Datta, Ld. Sr. Counsel appearing for the Corporate Debtor could refer to the novation and substitution agreement (ibid) and submitted that after 01.04.2021, all the liabilities/rights/interest/ entitlements/obligations inter se the Petitioner and Amazon Seller Services Pvt. Ltd. could be assigned to the corporate debtor and any transaction entered into by the Petitioner with Amazon Seller Services Pvt. Ltd. cannot be looked at in separation from the one entered into between the Petitioner and the Corporate Debtor.

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Referring to his reply, Mr. Datta submitted that the petitioner has time and again admitted the Amazon’s claim that the fake invoices were raised by it. The relevant excerpt of the reply reads thus:-

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“e. On 08.03.2023, Amazon responded to the Petitioner’s email dated 07.03.2023. Amazon did not approve the Petitioner’s cost estimate for February 2023 as the Petitioner had requested approval of salaries for its employees who were suspended by the Petitioner on account of the discrepancies in the sales data for December 2022. A copy of the email dated 08.03.2023 is annexed hereto and marked as Annexure-‘K’.

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f. Pertinently, the Petitioner has time and again admitted and acknowledged Amazon’s claims regarding the fraudulent conduct of the Petitioner in raising false and inflated invoices based on phantom sales and ghost services. The Petitioner, in its email dated 23.03.2023, again confirmed that it had initiated a factfinding investigation at its end to unearth the abuse and fraud to identify the actual culprits. A copy of the email dated 23.03.2023 is annexed hereto and marked as Annexure –‘L’.

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g. Notably, the Petitioner categorically acknowledged that its employees which had provided services to the Respondent are suspects and are being investigated for the fraud and sales data abuse in an email dated 30.06.2023. The Petitioner informed Amazon that a number of its employees deployed by the Petitioner on various Amazon projects, including those providing services to the Respondent, have joined the Petitioner’s competitor. The Petitioner further stated that even back-office staff deployed by the Petitioner for Amazon’s projects have joined the same competitor. Notably, the Petitioner admitted that many “of such team members/back-office staffs as above said are even suspects and are under investigation in the whole gambit of allegations of data abuse and fraud.” This was reiterated by the Petitioner in its email dated 02.08.2023. Consequently, this amounts to a clear admission of ‘fraud’ by the Petitioner and its employees, evidencing the existence of disputed in relation to the services provided under the MSA much prior to the Demand Notice. Copies of the emails dated 30.06.2023 and 02.08.2023 are annexed hereto and marked as Annexure – ‘M’. ”

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According to Mr. Krishnendu Datta, Ld. Sr. Counsel once the Petitioner itself could raise a doubt regarding the genuineness of certain claim/invoices raised by its employees on Amazon Seller Services Pvt. Ltd., the corporate debtor cannot be unjustified in having similar doubts regarding the invoices raised qua it. With reference to the e-mail dated 02.06.2023, which was sent by the Corporate Debtor to the Petitioner much before 03.11.2023 i.e. the date on which the Petitioner issued demand notice, Mr. Krishnendu Datta submitted that the Corporate Debtor has raised the dispute regarding genuineness of the

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claims/invoices raised by the Petitioner right from the year 2017. The e-mail reads thus:-

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He also made reference to certain other missives in this regard, sent by way of electronic means which are on record as Annexure M to the petition to espouse the pre-existing dispute.

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It is stare decisis that as and when there is dispute regarding the amount of claim by operational creditor, which exists prior to issuance of demand notice, the petition instituted for commencement of CIRP may not be admitted. At this stage it would not be out of context to refer to the definition of dispute given in Section 5 (6) of IBC, 2016, which includes the suit or arbitration proceedings relating to the existence of the amount of debt, quality of goods or service or a breach of representation or warrant. The Section 5 (6) of IBC, 2016 reads thus:-

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“ 5. Definitions.

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(6) “dispute” includes a suit or arbitration proceedings relating to—

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(a) the existence of the amount of debt;

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(b) the quality of goods or service; or

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(c) the breach of a representation or warranty;”

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In Mobilox Innovations Pvt. Ltd vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353, Hon’ble Supreme Court ruled that while looking at the dispute raised, it is not open to Adjudicating Authority to satisfy itself regarding the possibility of the success of the dispute and what it need to see is that there is an ex-facie dispute regarding the amount of demand. The para 38 and 51 of the Judgment reads thus:-

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“ 38. It is, thus, clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in the prescribed form. The corporate debtor is then given a period of 10 days from the receipt of the demand notice or copy of the invoice to bring to the notice of the operational creditor the existence of a dispute, if any. We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which “the existence of a dispute” alone is mentioned. Even otherwise, the word “and” occurring in Section 8(2)(a) must be read as “or” keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as “or”. If read as “and”, disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitration proceedings and not otherwise. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case,

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though a dispute may exist, there is no time to approach either an Arbitral Tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an Arbitral Tribunal or a court for up to three years, such persons would be outside the purview of Section 8(2) leading to bankruptcy proceedings commencing against them. Such an anomaly cannot possibly have been intended by the legislature nor has it so been intended. We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties.

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X X X

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51. 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.”

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Also in Rajratan Babulal Agarwal vs. Solartex India Pvt. Ltd. and Others (2023) 1 SCC 115, it could be ruled by Hon’ble Supreme Court that a standard applied with reference to a case of pre-existing dispute under IBC cannot be equated with the principle of preponderance of probability which

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usually guides the Civil Court at the stage of decreeing the suit. The Para 75 and 79 reads thus:-

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“ 75. When we speak about evidence, we must not overlook the law laid down in Mobilox that the court need not be satisfied that the defence is likely to succeed. The standard, in other words, with reference to which a case of a pre-existing dispute under IBC must be employed cannot be equated with even the principle of preponderance of probability which guides a civil court at the stage of finally decreeing a suit. Once this subtle distinction is not overlooked, we would think that NCLAT has clearly erred in finding that there was no dispute within the meaning of the IBC.

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X X X

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79. Here, we must not be oblivious to the limited nature of examination of the case of the corporate debtor projecting a pre-existing dispute. Overlooking the boundaries of the jurisdiction can cause a serious miscarriage of justice besides frustrating the object of the IBC. NCLAT, has clearly erred in not appreciating the issue, bearing in mind the principles in the Act.”

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In the present case certainly regarding the invoices referred to by Mr. Neeraj Malhotra, Ld. Sr. Counsel appearing for the Petitioner, there is no specific and concrete dispute, but once the Petitioner itself could make complaints regarding certain invoices raised by its employees on Amazon Seller Services Pvt. Ltd., we find no callousness or infirmity in the stand taken by the corporate debtor that also the other invoices raised either on the corporate debtor or Amazon Seller Services Pvt. Ltd., (particularly when in terms of the novation agreement (supra) these were the rights/obligation/interest qua Amazon Seller Services Pvt. Ltd. which were transferred to the corporate debtor herein before us) needed to be examined. While observing so, we are not expressing any opinion on entitlement or the claim raised by the Petitioner on the corporate debtor. What we are trying to prosper is that there are reasons to dispute the bona fide of the claim of the petitioner which may not be determined by us. In view of the aforementioned, particularly the dispute raised by the corporate debtor regarding its liability to pay the amount demanded by the Operational Creditor and being bound by the aforementioned Judgment of the Hon’ble

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Supreme Court (supra) we are unable to order commencement of CIRP qua the corporate debtor.

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In the wake, the petition is rejected. No cost.

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Before parting with, we make it clear that nothing observed/recorded herein above should be construed as finding on the claim of the petitioner and it would be open to it to work out the same in accordance with law.

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Sd/-

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Sd/-

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(SUBRATA KUMAR DASH) (ASHOK KUMAR BHARDWAJ) MEMBER (T) MEMBER (J)

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