Citation Codes

Equivalent Citations

citation codes

Case Number

IA - 48/2023

Disposition

allowed

Attorney(S)

Jerin Asher Sojan

Judges

Hon'ble Justice M. Venugopal (Member(Judicial)) Hon'ble Ms. Shreesha Merla (Member (Technical))

Acts

SECTION 9 INSOLVENCY AND BANKRUPTCY CODE 2016
Section 8(2) of I&B Code

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Smart Summary

Summary of Judgment — National Company Law Appellate Tribunal, Chennai

Factual and Procedural Background

This appeal arises from an order dated 05.01.2023 of the Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench‑I) in CP (IB) No.289/9/HDB/2022, whereby a Section 9 petition under the Insolvency and Bankruptcy Code, 2016, was admitted and corporate insolvency resolution process (CIRP) was initiated against the corporate debtor.

The Appellant is Mr. Shahi Md. Karim, the suspended director of the corporate debtor M/s. Lumiford Private Ltd. The primary Respondent (Operational Creditor) is M/s. Kabamy India LLP (Respondent No.1); a second respondent (named individual) appears in the record as Respondent No.2.

The operative factual matrix as set out in the record: the parties entered into a Carrying & Forwarding (C&F) Agreement dated 22.12.2020 (effective from 18.12.2020 to 31.12.2023). The operational creditor deposited Rs. 2,00,00,000 pursuant to a CFA agreement (this deposit was noted as not in dispute by the Adjudicating Authority). Invoices and a claimed outstanding ledger were placed before the Adjudicating Authority. The operational creditor issued a legal/payat notice dated 28.06.2022; the corporate debtor replied on 12.07.2022. The operational creditor alleged outstanding dues (one of the emails demanded Rs.3,12,81,028/-) and filed the Section 9 petition.

Procedural events in the Adjudicating Authority included listing orders dated 28.10.2022 and 21.11.2022 (which record that a copy of the petition and supporting documents was served by speed post and showing service on 02.11.2022), an order that opportunity to file counter stood closed on 21.11.2022, hearing listed for 05.12.2022, and ultimately admission on 05.01.2023. The Appellant challenges the admission order before this Tribunal.

Legal Issues Presented

Whether the Adjudicating Authority erred in admitting the Section 9 application and initiating CIRP against the corporate debtor (i.e., whether existence of operational debt and default was established).
Whether the corporate debtor was denied a fair opportunity to contest the petition because of defects in service/listing (challenge to the orders of 28.10.2022 and 21.11.2022 and the alleged inability to file a counter).
Whether the presence of an arbitration clause in the C&F Agreement barred or should have prevented the operational creditor from filing a Section 9 petition under the IBC.

Arguments of the Parties

Appellant's Arguments

The corporate debtor had a C&F Agreement (22.12.2020) containing an arbitration clause (Clause 32), and disputes should have been referred to arbitration rather than initiating insolvency proceedings.
The operational creditor issued a payment notice dated 28.06.2022 without first availing remedies provided under the C&F Agreement.
The corporate debtor repeatedly requested the operational creditor to dispatch inventory stored in the creditor's Mumbai warehouse; the operational creditor did not comply and allegedly continued to use the warehouse while making demands.
The corporate debtor did not receive proper or timely service of the petition and supporting documents; the copy was allegedly received only on 02.11.2022 and it was not possible to respond within the time given. The corporate debtor was unaware of some listings and therefore could not appear or file a counter in time. Consequently, the corporate debtor sought recall of orders dated 21.11.2022 and 05.12.2022 under Section 60(5).
The corporate debtor contended that the impugned order failed to consider whether services were actually rendered (lack of acknowledgements) and that several invoices said to have been raised were never received by the corporate debtor.

Respondent / Operational Creditor's Position (as reflected in the record)

The operational creditor asserted that the petition and supporting documents were sent by speed post and that the tracking record showed service on 02.11.2022; this position was recorded by the Adjudicating Authority in the orders of 21.11.2022.
The operational creditor placed on record ledger entries and emails evidencing outstanding dues and recurring defaults; it issued communications (including emails dated 02.02.2022 and 29.03.2022) and finally a legal notice dated 28.06.2022 before filing the Section 9 petition.
It was recorded by the Adjudicating Authority that there was no denial of entering into the CFA/C&F Agreement and no dispute with respect to deposit and invoices; no payment was made by the corporate debtor.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal set out a stepwise analysis based on the material on record and the procedural history recorded by the Adjudicating Authority:

The Adjudicating Authority's findings (quoted in the record) were that there was "no denial of entering into CFA Agreement dated 22.12.2020" and that the deposit of Rs.2,00,00,000 by the operational creditor in terms of the CFA Agreement was not in dispute. Invoices raised were also "not in dispute" and "no payment has been made by the corporate debtor." The Adjudicating Authority recorded that "No dispute is contemplated under Section 8(2) of I&B Code has been raised."
On that basis, the Adjudicating Authority concluded that existence of an operational debt and default by the corporate debtor were established (noting the operational debt of over one crore stood due and payable).
On the procedural/service complaint, the Tribunal examined the orders of 28.10.2022 and 21.11.2022. Those orders show the corporate debtor had appeared on 28.10.2022 and the operational creditor's counsel filed a memo stating the petition and supporting documents had been sent by speed post with tracking showing service on 02.11.2022. The Adjudicating Authority closed the opportunity to file a counter on 21.11.2022 because no counter had been filed despite service.
The Tribunal noted that although the right to file a counter was closed on 21.11.2022, the corporate debtor was not set ex parte on that date and thus could have appeared on the final hearing date (05.12.2022). The Tribunal further observed that the corporate debtor's counsel, having been present earlier and being aware of the 05.12.2022 posting, ought to have appeared to submit arguments.
Concerning the arbitration clause, the Tribunal reasoned that the presence of an arbitration clause in the C&F Agreement does not operate as an embargo on an operational creditor filing a Section 9 petition under the IBC. The Tribunal emphasized the Code's objective is "resolution" and not merely a "recovery mode/forum."
Taking the record as a whole (emails, ledger, legal notice, replies and absence of payment), the Tribunal found recurring defaults and that the operational creditor had requested full and final payment of outstanding dues. The Tribunal found no tangible or substantial grounds to interfere with the Adjudicating Authority's admission order.

Holding and Implications

APPEAL DISMISSED.

Direct consequences and orders made by the Tribunal (as recorded in the opinion):

The impugned order dated 05.01.2023 (admission of the Section 9 petition and initiation of CIRP) passed by the Adjudicating Authority in CP (IB) No.289/9/HDB/2022 is upheld; the present appeal is dismissed.
No order as to costs was made.
Connected pending interlocutory applications, if any, are closed.

The opinion does not indicate that it establishes any new legal precedent beyond applying existing statutory principles under the Insolvency and Bankruptcy Code; it records that arbitration clauses do not, per se, bar filing Section 9 petitions and that procedural objections on service were not found to be sufficient to vitiate the admission in the circumstances of this case.

Source document: Judgment of the National Company Law Appellate Tribunal, Chennai — Company Appeal (AT) (CH) (Ins.) No. 16 of 2023 (Judgment dated 25/01/2023 by Members Justice M. Venugopal and Ms. Shreesha Merla). This summary is strictly based on the text of the provided opinion and does not add or infer facts not present therein.

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Shahi Md Karim Suspended Director of the Corporate Debtor v. Kabamy India LLP

NATIONAL COMPANY LAW APPELLATE TRIBUNAL

AT CHENNAI

(APPELLATE JURISDICTION)

Company Appeal (AT) (CH) (Ins.) No. 16 of 2023 For Exemption IA No. 48/2023 For Leave to file IA No. 49/2023 For Stay IA No. 50/2023

Under Section 61 of the Insolvency and Bankruptcy Code, 2016) (Arising out of the `Impugned Order' dated 05.01.2023 in CP (IB) No.289/9/HDB/2022,

passed by the 'Adjudicating Authority' National Company Law Tribunal, Hyderabad Bench - I)

In the matter of:

Mr. Shahi Md. Karim

Suspended Director of the Corporate Debtor M/s. Lumiford Private Ltd.

8-2-594/A, Banjar Hills Rd. Number 10, Syed Nagar, Banjara Hills,

Hyderabad, Telangana 500034 ….. Appellant v.

1. M/s. Kabamy India LLP

B-2406, Raj Grandeur, Behind Hirnandani Hospital, Pawai, Mumbai, Maharashtra - 400076. ….. Respondent No. 1

2. Mr. Pesaladinne Madhusudan Reddy

10-2-401 to 403/502, Tirumala Classic Apts, Road No. 8, Street No. 3,

West Maredpally, Nehru Nagar,

Secunderabad, Hyderabad,

Telangana - 500026. …. Respondent No. 2

Present:

For Appellant : Mr. E. Om Prakash, Senior Advocate For Ms. Priyanka Das, Advocate.

Page 1 of 9

For Respondents : Mr. Asad Hussain, Advocate.

J U D G M E N T

(Virtual Mode) [Per; Ms. Shreesha Merla, Member (Technical)]:

1. Aggrieved by the 'Order' dated 05.01.2023 passed by the Learned 'Adjudicating Authority' (National Company Law Tribunal, Hyderabad Bench - I) in CP (IB) No.289/9/HDB/2022, whereby the 'Adjudicating Authority' has admitted the 'Application' filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'The Code'), the Suspended Director of the 'Corporate Debtor' preferred this Appeal. The 'Adjudicating Authority' while admitting the Section 9 'Application', had observed as follows:

"11. The operational creditor got issued legal notice dated 28.06.2022 which has been received by the corporate debtor. The corporate debtor had sent reply dated 12.07.2022 raising certain contentious pleas.

12. We have carefully examined the record, there is no denial of entering into CFA Agreement dated 22.12.2020 between the parties and it's termination after giving due notice. The deposit of Rs.2,00,00,000/-by the operational creditor in terms of the CFA Agreement is not in dispute. Invoices raised by the operational creditor as referred above are not in dispute. No payment has been made by the corporate debtor. No dispute is contemplated under Section 8(2) of I&B Code has been raised.

Page 2 of 9

13. Therefore, we are fully satisfied that the Operational debt of sum over one crore was due and payable by the corporate debtor stands established and as no material has been placed before us by the corporate debtor discharging the debt, we hold that both existence of a operational debt and its default by the corporate debtor has been established.

The point is answered accordingly."

2. It is the case of the Appellant that the 'Corporate Debtor' executed an 'Agreement' with the Respondent/'Operational Creditor' on 22.12.2020, wherein the 'Corporate Debtor' appointed the Respondent as a Carrying & Forwarding Agent ('C&F Agent') for the purpose of 'sale of products' of the 'Corporate Debtor' with effect from 18.12.2020 till 31.12.2023. It is submitted by the Learned Counsel for the Appellant that without availing the remedy available in the 'C&F Agreement', the 'Operational Creditor' issued a 'Payment Notice' dated 28.06.2022 raising false allegations, which was replied to by the 'Corporate Debtor' on 12.07.2022. Vide email dated 01.02.2021, the 'Corporate Debtor' had requested the 'Operational Creditor', to dispatch the inventory lying in the warehouse of the 'Operational Creditor' based in Mumbai, but there was no response. Despite repeated requests from the 'Corporate Debtor' to vacate the warehouse of the Respondent, the 'Operational Creditor' kept using the same and making frivolous demands on the 'Corporate Debtor'.

Page 3 of 9

Clause 32 of the 'Agreement' mentions 'Arbitration Clause' and it is the case of the Appellant that instead of resolving the dispute, the Respondent filed this Section 9 'Application'.

3. It is submitted that vide 'Order' dated 13.09.2022, the 'Corporate Debtor', was directed to serve a Petition of a copy within 3 days, and the matter was listed on 28.10.2022. It is submitted that on 30.09.2022, at 10:45AM, the 'Corporate Debtor' received an email from the 'Adjudicating Authority' intimating the date of listing of the Petition on the very same date. Therefore, it was not possible for the 'Corporate Debtor' to appear on the very same day. Therefore, on 28.10.2022, the 'Adjudicating Authority' once again directed the 'Operational Creditor' to share a copy of the Petition within 3 days as no 'Proof of Service', has been filed. Subsequently, on 21.11.2022, the 'Adjudicating Authority' while closing the rights of the 'Corporate Debtor' inter alia, recorded as follows:

"Counsel for the Operational Creditor filed a memo stating that copy of the Petition and the supporting documents has been sent through speed post and the track record of the same shows that the same has been served on 02.11.2022. Despite service of the copy, counter not filed thus, the Corporate Debtor has been taken time since 28.10.2022."

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4. It is contended by the Learned Counsel for the Appellant that the copy of the Petition was received only on 02.11.2022 and was completely in dark about any correspondence whatsoever and was not able to reply within time. It was only on 05.12.2022 that the 'Adjudicating Authority' has reserved the Order 'Ex Parte'. It is the case of the Appellant that the 'Corporate Debtor' was not aware that the matter was listed on 05.12.2022 as the Counsel had not intimated about the listing of the matter on the said date. Therefore, the only course left with the 'Corporate Debtor' was to seek recalling of the 'Order' dated 21.11.2022 and 05.12.2022.

5. It is submitted that on 11.12.2022 immediately after passing of the 'Order' on 05.12.2022, the 'Corporate Debtor' preferred an 'Application' under Section 60(5) seeking the 'Recall Order' dated 21.11.2022 and 05.12.2022 thereafter the 'Phone Number' and the 'Email ID' in the e- Filing Portal was changed. Subsequently, the 'Corporate Debtor' received an email that the matter was listed 'For Hearing' on 22.12.2022 but the matter was not there in the 'Cause List'. It is argued that the 'Impugned Order' failed to consider the issue of whether 'services' were actually rendered in the absence of any acknowledgement on behalf of the 'Corporate Debtor' in the alleged documents and also that the pending

Page 5 of 9

invoices alleged to be raised by the 'Operational Creditor' has never been received by the 'Corporate Debtor'.

6. At the outset, it is necessary to reproduce the 'Orders' dated 28.10.2022 and 21.11.2022 and examined whether the Appellants/'Corporate Debtor' was given a fair opportunity to file a 'Counter':

"No representation for the Operational Creditor. Proof of service of notice not filed. However, Mr. Shreyas Hingmire Advocate present and submits that the Corporate Debtor has received an e-mail informing about the listing of the matter today. Hence, he appeared for the Corporate Debtor. On request we grant 3 days' time to the Counsel to file Vakalat if any, and 2 weeks for counter. Meanwhile, the Operational Creditor is directed to share the copy of the petition along with the enclosures if any on Corporate Debtor/Counsel within 3 days from today forthwith and file compliance within 3 days.

Matter adjourned to 21.11.2022."

"Ld. Counsel Mr. Asad Hussain for the Operational Creditor present. Ld. Counsel Mr. Shreyas Hingmire for the Corporate Debtor present.

Corporate Debtor had already appeared. Counsel for the Operational Creditor filed a memo stating that copy of the Petition and the supporting documents has been sent through speed post and the rack record of the same shows that the same has been served on 02.11.2022. Despite service of

Page 6 of 9

the copy, counter not filed thus, the Corporate Debtor has been taken time since 28.10.2022. Therefore, opportunity to file counter stands closed.

List the matter for hearing on 05.12.2022."

7. From the aforenoted 'Orders', it is clear that the 'Corporate Debtor' had appeared on both the dates and that the copy of the Petition and the 'supporting documents' were served on them on 02.11.2022, hence the 'Adjudicating Authority' had closed the opportunity to file the 'Counter' vide 'Order' dated 21.11.2022; the matter was posted 'For Hearing' on 05.12.2022 and thereafter on 05.01.2023, the CIRP was initiated. When the matter came up 'For Hearing' on 05.12.2022, the 'Corporate Debtor' could have been present and submitted his arguments. Though, his right to file the 'Counter' was closed, he was not set 'Ex Parte' as on the date 21.11.2022 and therefore he could have appeared on 05.12.2022 when the matter was posted 'For Final Hearing' and having been present as on 11.12.2022, the Counsel was very much aware that the matter was posted 'For Hearing' on 05.12.2022. Though, the 'Adjudicating Authority' does not have the 'Power of Review' it can, based on the facts and circumstances of the case, `Recall the 'Order'. In the instant case, this `Tribunal', sitting in `Appeal', does not find any `tangible' / `substantial' grounds to interfere with the 'impugned order'.

Page 7 of 9

8. At the cost of repetition, this `Tribunal', pertinently observes that having been present, on 21.11.2022, and being aware of the candid fact that the matter was posted, on 05.12.2022, the Learned Counsel for the 'Corporate Debtor', ought to have been present and submitted his argument.

9. Further, the Appellant, has challenged the 'Admission Order', dated 05.01.2023 on merits, on the ground that there was an 'Arbitration Clause', in the 'C & F Agreement', and that the `Respondent', ought to have invoked this Clause. There is no embargo on the 'Operational Creditor', to file a Section 9 Petition, under I & B Code, 2016, even if there is an 'Arbitration Clause', in the 'Agreement'. The scope and objective of the Code is 'Resolution', and not a 'Recovery Mode / Forum'. In the instant case, the 'Adjudicating Authority', based on the material on record, had arrived at a conclusion that there were 'recurring defaults' on behalf of the 'Corporate Debtor' and that the 'Operational Creditor', has requested for full and final payment of the outstanding dues. The 'Corporate Debtor' vide Reply dated 01.02.2022, requested for dispatch of the inventory stocked in the warehouse in Mumbai. The 'Operational Creditor' in reply to the email, sent an email dated 02.02.2022, highlighting the `outstanding dues', along with the 'Ledger'

Page 8 of 9

attached. But, there was no response and the 'Operational Creditor' sent one more email dated 29.03.2022, demanding the outstanding total dues of Rs.3,12,81,028/- and therefore issued a 'Legal Notice' dated 28.06.2022, for which, the 'Corporate Debtor' sent a 'Reply' dated 12.07.2022, but the amounts were not paid.

10. For all the aforenoted reasons and discussions, this `Tribunal', does not find any `illegality' or `infirmity', in the Order dated 05.01.2023, passed by the 'Adjudicating Authority' (`National Company Law Tribunal', Hyderabad Bench - I), in CP (IB) No.289/9/HDB/2022, and this 'Appeal' is dismissed accordingly. No order as to costs. The connected pending `Interlocutory Applications', if any, are closed.

[Justice M. Venugopal] Member (Judicial) [Ms. Shreesha Merla] Member (Technical)

25/01/2023 HIMANSHU / TM

Page 9 of 9

Shahi Md Karim Suspended Director of the Corporate Debtor v. Kabamy India LLP

Summary of Judgment — National Company Law Appellate Tribunal, Chennai

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent / Operational Creditor's Position (as reflected in the record)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Shahi Md Karim Suspended Director of the Corporate Debtor v. Kabamy India LLP

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