1. The present application is filed under Section 9 of Insolvency and Bankruptcy Code, 2016 (for brevity ‘IBC, 2016’) read with Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) by M/s Naik Environmental Engineers
Pvt. Ltd. (for brevity ‘Applicant’) through its Managing Director Dr. Shirish Sadanand Naik who is duly authorized vide Board resolution dated
13.12.2017 with a prayer to initiate the Corporate Insolvency process against M/s Lucina Land Development Limited (for brevity
‘Respondent’).
2. The Applicant namely M/s Naik Environmental Engineers Private Limited is a company incorporated on 18.07.1989 under the provisions of
Companies Act, 1956 having CIN No. U74999MH1989PTC052643.
3. The company is having its registered office at A-686, Naik Enviro House, Pavane Industrial Area, Navi Mumbai-400705.
4. The Respondent namely M/s Lucina Land Development Limited is a company incorporated on 25.07.2006 under the provisions of Companies Act,
1956 with CIN No. U70109DL2006PLC151260.
5. The company is having its registered office at M-62 & 63, First Floor, Connaught Place, New Delhi- 110001.
6. The Authorised Share Capital of the respondent company is Rs. 5,00,000/- and Paid Up Share Capital of the company is Rs. 5,00,000/- as per
Master Data of the company.
7. It is the case of the applicant that Respondent company had approached the applicant for supply of Organic Waste Composting Machine and
placed two purchase orders dated 16.11.2016 vide Purchase order no. 3266101302 and Purchase order no. 3266101167 dated 04.10.2016 to the
applicant company for supply of Organic Waste Composting Machine at its site at Greens Panvel, Raigad. It was agreed between the Applicant and
the Respondent that the 70% of payment shall be affected against the delivery of Organic Waste Composting Machines (OWC) along with the
Invoices by the Applicant.
8. After delivery of machines which were duly received by respondent, the applicant raised two invoices dated 25.11.2016 for amount of Rs.
10,60,000/- and an invoice dated 28.04.2017 for amount of Rs. 20,14,000/- which were duly received by the Corporate Debtor on delivery of the
goods. The respondent made part payment of Rs. 6,92,000/- out of total amount payable in respect of the said purchase orders.
9. The applicant has stated that the Respondent failed to make the payments within the agreed time period and therefore the applicant had issued two
separate legal notices dated 21.11.2017 for two separate purchase orders calling upon the Respondent to pay the outstanding dues of Rs. 22,15,621/-
with respect to purchase order dated 16.11.2016 and Rs. 4,32,788/- with respect to purchase order dated 04.10.2016 respectively alongwith interest
@18% within 10 days from the date of the said legal notices.
10. On failure to pay the outstanding dues by the Respondent, the applicant sent a demand notice dated 16.04.2018 under Section 8 of the Insolvency
and Bankruptcy Code, 2016 to the respondent asking them to make the entire outstanding payments of 27,70,576/- (Rupees Twenty- Seven Lakhs
Seventy Thousand Five Hundred and Seventy- Six only) inclusive of interest within 10 days from receipt of the notice, failing which the applicant shall
initiate the Corporate Insolvency Resolution process against the Respondent.
11. The Corporate Debtor vide its letter dated 23.04.2018 replied to the demand notice dated 16.04.2018 issued under Section 8 of the Insolvency and
Bankruptcy Code, 2016 and disputed the amount claimed by the applicant.
12. The applicant has stated that total debt due and payable by the Respondent to the applicant is Rs. 27,70,576/- (Rupees Twenty- Seven Lakhs
Seventy Thousand Five Hundred and Seventy- Six only) which includes principal amount of Rs. 23,82,000/- and interest amount of Rs. 3,88,576/-
calculated @18% p.a. till 31.03.2018.
13. The defence adopted by the Respondent in respect of the first purchase order bearing no. 3266101167 is that the OWC was supplied in three parts
vide three different challans by the applicant and the payment for the said delivery was made immediately to the Applicant where a payment of Rs.
6,92,000/- was paid against a total value of Rs. 10,60,000/. As per the payment clause of the purchase order, the payment was to be made in parts and
the entire consideration was required to be paid by the Respondent after successful installation of machine and testing and commissioning thereof.
However, the applicant has failed to install the machinery and the machinery could never be commissioned, hence the balance amount was retained till
the completion of the work order.
14. The defence adopted by the Respondent in respect of the second purchase order bearing no. 3266101302 is that second time the order was placed
for the supply of the Organic Waste Composting Machine (OWC) and 70% of the order value was to be made against the delivery of OWC.
Whereas the Applicant has delivered incomplete machineries and the Applicant further failed to deliver the VDF Heater, shredder, control panel etc.,
i.e. all the essential components of the OWC. Consequently, the respondent has independently got the OWCs verified through a surveyor Smart
Environ Systems, who have confirmed that the OWCs supplied by the Applicant, does not have its essential components which are required for its
functioning. It is further submitted that Applicant was required to raise the invoices in parts as per the terms of purchase order, however the applicant
has raised an invoice dated 28.04.2017 of the entire value of the purchase order without supplying all the components and without even testing or
commissioning of the OWC.
15. It is further submitted that Respondent vide its email dated 24.06.2017 requested the Applicant to submit the delivery challans and has also
requested the Applicant to supply the balance material. However, the Applicant vide its letter dated 13.10.2017 claimed that OWCs has been supplied
in full. On 06.12.2017, the Respondent asked the Applicant to confirm the delivery of the OWC including all its components and further asked the
Applicant to test the machine. The Respondent in the same mail thread further explained that the Applicant has supplied 3 OWCs in total out of which
1 OWC is complete in all respects and against which the payment was released immediately, but the remaining 2 OWCs were not supplied in full and
also requested the Applicant to supply the remaining components of OWC. The Respondent on multiple occasions has requested the Applicant to
provide all the components of the OWC in terms of the Purchase Order. On 21.12.2017, the Applicant claimed that they have delivered the OWC in
February 2017 and they have maintained their records and challan signed by the Respondent, but they failed to attach any such documents with the
email.
16. It is further submitted by the Respondent that they have filed a complaint dated 09.03.2018 with Senior Inspector of the police against the mis-
conduct of the Applicant by playing fraud and cheating upon the Respondent. Copy of the compliant is annexed with the reply.
17. A rejoinder to the reply has been filed by the Operational Creditor dated 15.10.2018 reiterating the submissions made in the application and
controverting the assertions in the reply.
18. It is pertinent to note that the Operational Creditor has not produced any documents with respect to the full and complete delivery of said OWCs,
as alleged. The basic question arises is that after going proceedings, whether the applicant proved that the claim made by the applicant is covered
under the category of ‘Operational debt’ as defined under Section 5 (21) of the Code,2016 as:
“A claim in respect of the provisions of goods or services including employment or debt in respect of the payment of dues arising under
any law for time being in force and payable to the Central Government any State Government or any Local Authorityâ€.
Nowhere in the application any document has been produced to support that the alleged OWCs has been delivered in full and the payment towards the
same is unpaid as claimed by the applicant in part IV of Form No. 5. The claim made by the applicant is however untenable without any supportive
evidence reflecting the complete supply, installation, testing and commissioning of the OWCs as per the terms of Purchase Orders. The claim made by
the applicant that it being ‘Operational creditor’ as defined under Section 5(20) is totally unacceptable. The question arises as to the supply,
testing, installation and commissioning of the OWCs by the applicant to the Respondent and liability to pay the amount unpaid with respect to the said
Purchase orders cannot be considered as Operational debt.
19. The corporate debtor has further submitted that debt is disputed and not payable as the OWCs delivered by the Applicant are not working
.Considering the submission of both parties, the defense of the ‘Corporate Debtor’ to stave off the Insolvency Resolution Process as sought to
be unleashed by the Applicant, which primarily rests on the ground of a pre-existing dispute prior to the filing of the application and in the
circumstances the application should be dismissed as not maintainable. In view of the above contention, it is necessary to ascertain the definition of
‘dispute’. In relation to Code, 2016, dispute has been defined in Section 5(6) as follows:
Dispute"" includes a suit or arbitration proceedings relating toâ€"(a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the
breach of a representation or warranty.
Further the Hon’ble Supreme of India in Mobilox Innovations Private Limited vs. Kirusa Sortware Private limited has observed that-
“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 payable and has not yet been
paid? and
(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before
the receipt of the demand notice of the unpaid operational debt in relation to such dispute?
If any one of the aforesaid conditions is lacking, the application would have to be rejected.
Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of
Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the
Act.â€
20. As per the reply filed by the Corporate Debtor, it can be inferred & concluded that the dispute raised by the corporate debtor falls well within the
definition of dispute as reproduced above.
21. It is further seen that the demand notice in the present case was issued under Section 8 (1) of the Code on 19.12.2017. Respondents have placed
their earlier correspondences dated 24.06.2017,19.11.2017 and 06.12.2017 which are prior to the Section 8 demand notice issued on 19.12.2017. It is
thus seen that the dispute was brought to the notice of the applicant prior to the issuance of the demand notice dated issued under Section 8 (1) of the
Code.
22. In an application filed under Section 9 of the Code, Tribunal is not supposed to examine the merits of the dispute nor the adequacy of the dispute is
to be seen. However, in matters under Section 9, the tribunal is only to see that a dispute pre-exists and that the dispute is not vague, got up or raised
for the first time to evade the liability. It is not a case of subsequent repudiation of claim only in the reply filed by the respondent. The documents on
record clearly show that the dispute was raised by the respondent prior to the demand notice issued under Section 8 (1) of the Code. Once there is
material to believe that dispute exists in the facts of the case, it is right to have the matter tried out before the axe, in the form of corporate insolvency
resolution process, falls.
23. Section 9 (5) of the Code provides that adjudicating authority shall reject the application if notice of dispute has been received by the operational
creditor or there is a record of dispute in the information utility. As a sequel to the above discussion, this application fails and the same is hereby
rejected and dismissed.
24. It is made clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy and the
right of the applicant before any other forum shall not be prejudiced on account of dismissal of the instant application.
Let the copy of the order be served to the parties.
