TMI Blog2023 (9) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same. In the instant case, admittedly 97 % of the amount due for the invoices raised by the Appellant was paid and 3 % of the Invoices amount was withheld by the Respondent Company. It is the case of the Appellant that despite service of Notice on the Respondent Company at the address No. 11th, K.M. Hosur Road, Bommanahalli, No. 38/5/B Hyland, Industrial Estate, Bengaluru 68 , there was no reply and hence, a pre-existing dispute cannot be raised subsequent to the filing of the Section 9 Petition - It is not denied by the Appellant that the postal code of the Respondent s Registered Office Company is 560035. Be that as it may, in their Reply to this Section 9 Petition, the Respondent Company has raised a pre-existing dispute for having withheld the 3 % amount towards liquidated damages. It is the consistent stand of the Respondent Company that 97% of the Amount was paid and the balance 3 % was kept on hold only on account of evaluating customer satisfaction and it was established that there was a delay of six weeks on behalf of the Appellant Company in executing the job assigned to them on account of which liquidated damages / Penalty of Rs. 40,56,539/- which is as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is stated that in respect of a project being implemented by M/s Wipro Limited / the Respondent herein, for the Government of India bids were invited and the Appellant was awarded the work of design, manufacture, supply and installation of MV Panels. Pursuant thereto, it is stated that the Respondent had placed the following purchase Orders for a total supply worth Rs. 13,43,08,141/-. 3. The Learned Counsel for the Appellant submitted that the Appellant had supplied the goods in a timely manner and raised various invoices, for which, the Respondent had made a payment of 97 % of the value of the invoices, but 3 % of the total value of the invoices, which is a substantial amount, was kept outstanding and the same was also admitted in their email dated 26/08/2015, wherein it was stated that payment held as we are yet to get final sign-off from the end customer (approx. 3 %) . It is the case of the Appellant that despite several remainders the amount remained unpaid and hence a Demand Notice dated 18/11/2017, under Section 8 of the Code was issued to the Respondent, for which there was no response and thereafter, the Appellant filed an Application under Section 9 of the Code on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a 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. 7. It is submitted that there was no dispute which existed between the Parties and only a clear-cut admission by the Respondent that this 3 % was withheld awaiting the final sign-off from the end customer. Without taking this admission into account, the Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not fulfil the mandatory statutory criteria prescribed under Section 8 of the Code, read with Rule 5 of the NCLT Rules, 2016, as the Demand Notice ought to be served either at their Registered Office or to their Key Managerial Personnel of the Corporate Debtor. It is submitted that the Notice was admittedly sent to No. 11th, K.M. Hosur Road, Bommanahalli, No. 38/5/B Hyland, Industrial Estate, Bengaluru 68 which is one of the warehouses of the Respondent and not the Corporate Office; that the Postal Code of the Respondent s Registered Office is 560035, whereas the Postal Code of the Warehouse premises is 560068. 10. It is also argued that there is a pre-existing dispute between the Parties which is reflected in the emails dated 18/06/2015, 26/08/2015 28/01/2016. Admittedly, the Respondent had paid 97 % of the amounts due and the Appellant had sought to question the basis and the right of the Respondent to levy liquidated damages to the tune of 3 % of the Contract value. It is submitted that the correspondence exchanged between the Parties clearly shows that there is a dispute in existence much before the issuance of the purported Demand Notice. The Appellant cannot use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 read with Form 3 or 4, as the case may be [Section 8(1)]. Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute [Section 8(2)(a)]. What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the selfsame 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor or send an attested copy of the record that the operational creditor has encashed a cheque or otherwise received payment from the corporate debtor [Section 8(2)(b)]. It is only if, after the expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corporate debtor or notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such application if the application is incomplete and has not been completed within the period of 7 days granted by the proviso [Section 9(5)(ii)(a)]. It may also reject the application where there has been repayment of the operational debt [Section 9(5)(ii)(b)], or the creditor has not delivered the invoice or notice for payment to the corporate debtor [Section 9(5)(ii)(c)]. It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility [Section 9(5)(ii)(d)]. Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected [Section 9(5)(ii)(e)]. 34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding Rs 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. 42. This being the case, is it not open to the adjudicating authority to then go into whether a dispute does or does not exist? 43. It is important to notice that Section 255 read with the Eleventh Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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. 13. In the instant case, admittedly 97 % of the amount due for the invoices raised by the Appellant was paid and 3 % of the Invoices amount was withheld by the Respondent Company. It is the case of the Appellant that despite service of Notice on the Respondent Company at the address No. 11th, K.M. Hosur Road, Bommanahalli, No. 38/5/B Hyland, Industrial Estate, Bengaluru 68 , there was no reply and hence, a pre-existing dispute cannot be raised subsequent to the filing of the Section 9 Petition. A perusal of the material on record shows that this address with the Pincode 560068 is that of the warehouse of the Respondent Company. It is not denied by the Appellant that the postal code of the Respondent s Registered Office Company is 560035. Be that as it may, in their Reply to this Section 9 Petition, the Respondent Company has raised a pre-existing dispute for having withheld the 3 % amount towards liquidated damages. 14. At this juncture, we find it apposite to reproduce the relevant em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was an email addressed on 28/01/2016 by the Respondent Company that they are evaluating the work done by the Appellant and the letter dated 28/01/2016 was addressed to the Appellant Company in which it is stated that liquidated damages were being levied because there was a delay of six weeks from the side of the Appellant in executing the job. The said letter is reproduced as hereunder : 16. It is the consistent stand of the Respondent Company that 97% of the Amount was paid and the balance 3 % was kept on hold only on account of evaluating customer satisfaction and it was established that there was a delay of six weeks on behalf of the Appellant Company in executing the job assigned to them on account of which liquidated damages / Penalty of Rs. 40,56,539/- which is as per the terms of the Contract was levied. Therefore, this Tribunal is of the considered view that there is a pre-existing dispute which is not a spurious defence which is a mere bluster. In the aforenoted judgment of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. , (Supra), it is clearly held that the Court does not at this stage examine the merits of the dispute, but as long as a dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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