TMI Blog2022 (2) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons. Section 9 of the Code entitles an Operational Creditor to file Application after 10 days of the delivery of notice or invoices demanding payment. The argument, which has been raised is that in view of the arbitration clause contained in Clause 8 of the Agreement, Section 9 Application ought not to have been entertained and the matter ought to have been referred to arbitration. During the course of submission, learned the Counsel for the Appellant has also sought to raise a submission that Operational Creditor being a foreign entity, Section 9 of the Code could not have invoked. The said submission has no locus to stand and admittedly, the Corporate Debtor is a company registered under the Companies Act, 1956 and is fully covered with the definition of Section 3, sub-section (7) of the Code, which defines corporate persons , which clarifies that Application under Section 9 is fully maintainable. The question that a foreign supplier can invoke Section 9 of the code has no more res-integra in view of the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated under Section 9, which may be basis for rejecting an Application under Section 9 has to be genuine dispute. A dispute, which is invented for the purpose of case to get away from liabilities to pay debt, cannot be a dispute, on the basis of which the Application has not to be rejected. It is satisfying that there was no dispute at all prior to issuance of Section 8 notice by the Operational Creditor and there is overwhelming evidence that Corporate Debtor always acknowledged outstanding dispute and never disputed the debt or its liability to pay and now to only get away from its liability to pay its debt is making submission before us that there was pre-existing dispute between the parties - there are no substance in the contention of the learned Counsel for the Appellant that there was dispute regarding the default, hence, the Application under Section 9 ought not to have been admitted. Whether in the facts of present case, the Application under Section 9 was not maintainable, since the Corporate Debtor was a solvent Company? - HELD THAT:- The details of correspondence exchanged between the parties, which we have noticed while considering Question No.2, clearly indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Doors for fruits and vegetables processing units for an amount of Euros 275,410/-. The Operational Creditor delivered the materials to the Corporate Debtor in the month of July 2012 and thereafter completed its installation work in April, 2013 at premises located at Nagpur, state of Maharashtra. The Operational Creditor raised invoices dated 28th May, 2012 for an amount of Euros 94,103.86; invoice dated 1st June, 2012 for an amount of Euros 19,791.85; and invoice dated 17th June, 2012 for an amount of Euros 24,900. The Corporate Debtor gave its provisional installation certificates dated 2nd March, 2013. (iii) By letter dated 15th June, 2013, the Corporate Debtor acknowledged outstanding payment of Euros 246,940.70 and sought some more time to clear the outstanding. The Corporate Debtor also stated that it will try to release at least Euros 10,000 every month starting from September 2013. The Operational Creditor on 25th April, 2014 informed the Corporate Debtor that first installment as promised has not been received. On 14th November, 2014, the Corporate Debtor wrote the Operational Creditor to re-confirm its consent for acceptance of instalments in part payment. The Opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted by Corporate Debtor in payment of outstanding dues. The Corporate Debtor had admitted default unequivocally. Regarding the submission of the Corporate Debtor that there being arbitration Agreement, Application under Section 9 was not maintainable and was to be rejected, it was held by the Adjudicating Authority that registered office of the Corporate Debtor being in the territorial jurisdiction of National Company Law Tribunal, Section 9 Application was fully maintainable. The Application was admitted. Interim Resolution Professional was appointed and Moratorium was declared by the Adjudicating Authority. (vii) Aggrieved by the judgment and order dated 26th May, 2020, this Appeal has been filed by the Suspended Director of the Corporate Debtor - Hasan Shafiq. 3. Notice was issued in Appeal, in response to which, detailed reply has been filed by Respondent No.1 Operational Creditor on 14th December, 2020. The Resolution Professional (RP) has also filed Status Report on 17th December, 2020. Although, time for the rejoinder affidavit was granted to the Appellant, but no rejoinder has been filed. 4. We have heard Shri Anil Kaushik, learned Counsel for the Appellant. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that company is a solvent company and the Counsel for Respondent No.2 has no authority to address submission on the merits of the Application. 9. Although, no one has appeared on behalf of Respondent No.1, but they have filed their detailed reply in the appeal on 14th December, 2020. We have perused the reply of Respondent No.1 and the documents filed along with the reply. 10. From the submissions and the pleadings on record, following are the questions, which arise for consideration in this Appeal: (1) Whether in view of Clause 8 of the Agreement between the parties dated 25th March, 2012 for settlement of dispute by the Court of Arbitration of Switzerland, Application under Section 9 could not have been entertained by Adjudicating Authority. Further, in view of Section 45 of the Arbitration and Conciliation Act, 1996, whether Adjudicating Authority was obliged to refer the dispute between the parties to the Arbitration as per Agreement? (2) Whether there was any pre-existing dispute between the parties on account of which, the Application under Section 9 was liable to be rejected? (3) Whether in the facts of present case, the Application under Section 9 was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity Interest Act, 2002 and the Companies Act, 2013. These statues provide for creation of multiple for a such as Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual bankruptcy and insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with the Courts. The existing framework and insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. 2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such debt has been legally assigned or transferred . 16. In the Macquarie Bank Ltd., the Corporate Debtor was the corporate person within the meaning of Code and the Operational Creditor was assignee from foreign entity. The submission of Shri Kaushik that Section 9 Application was not maintainable in view of Clause 8 of the Agreement also has no merit. The Code has been given an overriding effect on other laws including any instrument having effect by virtue of such law. The Section 238 of the Code is as follows: 238. Provisions of this Code to override other laws. - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 17. Section 45 of the Arbitration Act, which Section 45 is invoked on the basis of Agreement dated 25th March, 2012 containing an arbitration clause, shall also be overridden by provision of Section 238 of the Code. The submission of learned Counsel for the Appellant that Section 9 may be overridden in respect of domestic arbitration, but shall not affect any international arbitration Agreement also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being a timeline for the consideration to be made by the adjudicating authority, the process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. In that view, even if an application under Section 8 of the 1996 Act is filed, the adjudicating authority has a duty to advert to contentions put forth on the application filed under Section 7 of IB Code, examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. While doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. If the irresistible conclusion by the adjudicating authority is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause. 18. The above pronouncement makes it clear that if an Application under Section 9 of the Arbitration and Conciliation Act is filed before the Adjudicating Authority, the Adjudicating Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25th March, 2012, under which Corporate Debtor was to purchase PUF Sandwich Panels, installation accessories, PRV and Doors for fruits and vegetables processing units. The Operational Creditor delivered the material to the Corporate Debtor and completed the installation work in April 2013. The three invoices were also issued, duly supported with relevant packaging details and bills of lading. The Corporate Debtor himself has given a provisional installation certificate dated 2nd March, 2013, which certificate contain following We whereby confirm that the job has been performed as per above mentioned contract and has been taken over as of today . The Operational Creditor had issued three invoices, where total amount claimed was Euros 245,451. The Corporate Debtor had made payment under three installments of Euros 5,000 9th June, 2015; Euros 5,000 on 28th July, 2015 and Euros 19,960 on 4th January, 2016 and thereafter no payments were made by the Corporate Debtor. The Corporate Debtor vide letter dated 15th June, 2013 acknowledged the outstanding payment of Euros 246940.70 and in the said letter further stated that they shall release Euros 10,000/- every month starting from Septemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt Ltd 1 982 303 4461 www.byagroinfra.com 22. On July 14, 2015, after remitting 5000 Euros, the Corporate Debtor by email again acknowledged the debt and assured to speed the payments in bullet installments. The email dated 14th July, 2015 stated: Til: Carsten Thorsen Cc: Hasan Shafiq B.Y. Agro Infra Pvt. Ltd.; Sarah Shafiq B.Y. Agro Infra Pvt. Ltd. Emne: Re: Payment of installments Dear Mr Carsten, We are happy to inform that today we have remitted 5000 Euros to your account as part payment. Please be informed that for another 4 months we will be making installments of 5000 Euros till the time our cash flows get stabilized and we get some relief from our bankers and after that we will try and speed the payments in bullet installments. As regards to your request for 8% interest from Aug 2015 on unpaid amount we request you to kindly consider our request for charging interest from Jan 2016 and the same will be paid to you in cash as we have already given in writing to Reserve Bank of India that no interest will be charged hence not going in the legal matter we will settle it in cash. Regards Hasan Shafiq On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding dues. It shall be useful to notice only paragraph 2, 4 and 13 of the reply to the following effect: 2) Yes in the year 2012 our company approached your clients seeking quotation for design, supply, and installation of PUF sandwich panels, installation accessories, PRV Doors and fruit and vegetables processing unit. Thereafter a quotation no.173.02.12.b dated 16march 2012 was received, subsequently we and your client entered into a contract dated 25th March 2012 ( Contract ) where under you client undertook to design, deliver and install PUF sandwich panels, installation accessories, PRV and Doors as specified in the quotation dated 16 march 2012 for a contract value of Euro 246940 (for materials) and Euro 28470 (for installation) 4) In compliance with the terms of contract your client delivered and installed the materials at site as per contract specifications. 13) Yes we are in the process of making payments to your clients and the same fact is acknowledged and accepted by your client during our meeting with him in Cologne Germany on 10th October 2017 at Anuga Food Exhibition at our Stall. We have been upraised your client about our restructuring of debt p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of a dispute under section 8(2)(a) of the Insolvency Bankruptcy Code, 2016. 27. Section 9 Application was filed, copy of which has been brought on record along with Appeal. In Section 9 Application Operational Creditor has filed all correspondence, all relevant documents, which are referred to in Item No.8 of Part V. All e-mails and correspondence exchanged between the parties from 2012 to 2018 were filed along with Section 9 Application. It is relevant to notice that Corporate Debtor did not file any reply to Section 9 Application despite opportunities granted to it by the Adjudicating Authority. The Adjudicating Authority in its judgment in paragraph 6 has referred to opportunities given to Corporate Debtor and order dated 15th July, 2019, by which opportunity to file reply was closed. The emails and letters as notified above contain acknowledgement of debt and liability has been reiterated by the Corporate Debtor as noticed above, an unescapable conclusion can be drawn that Corporate Debtor at all times accepted its outstanding debt and always requested some more time for repayment. The request for Corporate Debtor to make payment in installments was also acceded to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 30. When we apply the ratio of above judgment, we have no doubt that the dispute sought to be raised by the Appellant is patently feeble legal argument, unsupported by any evidence. The evidence is rather to the contrary that Corporate Debtor at all time in all correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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