Chandrashekhar Export Pvt. Ltd vs Babanraoji Shinde Sugar & Allied Industries Ltd.
Hon’ble Shri Kuldip Kumar Kareer, Member (Judicial)
Hon’ble Smt. Anuradha Sanjay Bhatia, Member (Technical)
Petitioner - Chandrashekhar Export Pvt. Ltd.
Corporate debtor - Babanraoji Shinde Sugar & Allied Industries Ltd.
The Insolvency and Bankruptcy Code, 2016 is a landmark piece of legislation. It seeks to consolidate and amend the laws relating to the insolvency resolution of corporate persons, partnership firms, and individuals in India. The Code has been recognized as a major reform to the Indian bankruptcy system, providing an environment that encourages entrepreneurship, investment, and growth. The Code also provides for insolvency resolution and the bankruptcy process. Under the Code, insolvency resolution can be initiated by a debtor, a creditor, or the Insolvency and Bankruptcy Board of India. The insolvency resolution process is conducted by a Resolution Professional and supervised by an Insolvency and Bankruptcy Board.
- Section 9 of the Insolvency and Bankruptcy Code, 2016
- Rule 6 of the Insolvency & Bankruptcy (Application to the Adjudication Authority) Rules, 2016
- Section 138 of the Negotiable Instruments Act
- Chandrashekhar Exports is a private company carrying out trade, and exports agriculture and other products like molasses, sugar, grains, fishmeal, etc.
- The corporate debtor and the petitioner entered into a sale agreement to sell 10,000 Metric Tonnes of Grade “A” Molasses to the Operational Creditor. This was for an advance payment of Rs. 3,00,00,000/-
- A condition was included in the agreement that, if the corporate debtor fails to comply with the agreement terms, he will have to repay an advance of Rs. 3,00,00,000/- along with compensation penalty and other losses suffered by the Operational Creditor.
- Subsequently, the advance amount was paid and the corporate debtor confirmed receipt of payment.
- However, even after repeated follow-ups, the corporate debtor failed to supply molasses. It was conveyed to the petitioner that the corporate debtor was out of stock of molasses.
- In an attempt to settle the contract, compensation, and advance payments were made. Accordingly, the Corporate Debtor made partial payments against the dues on the following dates: 08.03.2018 and 22.03.2018
- Later on, the operational creditor sent a mail to the corporate debtor, requesting molasses delivery. The Corporate Debtor replied to the above by requesting the production of details regarding compensation, interest, and penalty claims.
- The cheque issued by the Corporate Debtor in favor of the Operational Creditor for an amount of Rs. 3,00,00,000/- was dishonored by the bank and returned to the Operational Creditor’s bank with the remark “Fund Insufficient”.
- Following this, a criminal complaint was filed against the corporate debtor under section 138 of the Negotiable Instruments Act.
- Further, the operational creditor issued a demand notice for payment under Rule 5 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016.
- The present petition was filed by the petitioner before the NCLT due to the corporate debtor's default in payment.
- Is the present petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rule 2016) by the petitioner against the corporate debtor for payment default maintainable?
REPLY OF THE CORPORATE DEBTOR
- The corporate debtor has rejected all the contentions made by the petitioner.
- It was submitted that as per the deed agreement entered between the Corporate Debtor and the Operational Creditor and Shivam Indian Cuisine Pvt Ltd, the tribunal has no jurisdiction to hear the present case. This is provided in the arbitration clause of the deed agreement (Clause E).
- It was further submitted that the corporate debtor was willing to supply the agreed amount of molasses. He had even supplied 3000 metric tonnes of molasses, worth Rs. 90,00,000/-
- This amount was deducted from the advance amount of Rs. 3,00,00,000/- owing to delivery.
- It was claimed that the Operational Creditor had rescinded the agreement dated 10.10.2017 by demanding and accepting the amount repaid by the corporate debtor.
- It was argued that the proceedings were not maintainable as the Operation Creditor took a cheque of Rs. 3,00,00,000/- as security and that the security cheque had been misused by the Operational Creditor by initiating proceedings under Section 138 of the Negotiable Instrument Act.
- The corporate debtor also pointed out that there was no interest clause provided in the agreement and hence the operational creditor couldn’t claim the same.
- The National Company Law Tribunal of India dismissed the company's petition.
- The bench consisting of Hon’ble Shri Kuldip Kumar Kareer and Hon’ble Smt. Anuradha Sanjay Bhatia held that the spirit of the Insolvency and Bankruptcy Code, 2016 is to resolve the debts and not its recovery.
- Because the operational creditor has repaid the entire advance money, the petition has been rejected.
- The court noted that along with the entire advance amount, the corporate debtor also paid the balance principal amount of Rs. 2,04,00,000/- via National Electronic Funds Transfer (NEFT) to the creditor.
- The court ruled that the operational creditor's interest claim was unjustified as it was nowhere provided in the agreement.
- Finally, the court held that the Operational Debt claimed by the Petitioner must be crystallized, undisputed, and not something which requires adjudication by a competent authority. In the present case, the claim for compensation of Rs. 1,70,00,000 does not become an Operational Debt until liability is adjudicated and damages are estimated by a competent authority in law.
The Insolvency and Bankruptcy Code, 2016 is a comprehensive piece of legislation that seeks to ensure that all stakeholders' interests are protected. The court reiterated valuable findings regarding the code's spirit. Therefore, we believe that the spirit of the legislation is for 'resolution of debt’ and not for ‘recovery’.