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NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
IA No. 23 of 2023
in
Company Appeal (AT) (CH) (INS.) No. 11 of 2023
(Application for Leave to Prefer an Appeal filed by the

Petitioner / Appellant in respect of the Impugned Order dated 28.11.2022,
passed by the Àdjudicating Authority’, National Company Law Tribunal,
Amaravati Bench in CP (IB) No.51 / 9 / AMR / 2021)
In the matter of:

Nandamuri Meenalatha
Erstwhile Director of
Vantage Machine Tools Pvt. Ltd.
D.No.895, R.S.No.50 and 53/2,
Hanuman Junction Road, Gollapalli
Nuzividu, Andhra Pradesh – 521111 …. Petitioner / Appellant
v.
M/s. Quality Steels and Wire Products
Registered Office at Survey No.118,
Duvvadu Station Road,
Kurmannapalem, Vishakapatnam ….. 1st Respondent /
Operational Creditor
Mr. Immaneni Eswara Rao
Interim Resolution Professional
of M/s. Vantage Machine Tools Pvt. Ltd.
D. No.2-48, Gollapalli,
Nujivedu Mandal,
Krishna District – 522111. ….. 2nd Respondent / Interim
Resolution Professional
IA Nos. 23, 24 & 25 / 2023 in Comp. App (AT) (CH) (INS) No. 11 / 2023 & Comp. App (AT) (CH) (INS) No. 11 / 2023
Page 1 of 59
Present:
For Petitioner / : Mr. P.H. Arvindh Pandian, Senior Advocate

Appellant For Mr. Avinash Krishnan Ravi, Advocate
For Respondent No. 1 / : Mr. Arjun Suresh, Advocate

ORDER
(Physical Mode)
Justice M. Venugopal, Member (Judicial):
IA No. 23 / 2023 in Comp. App (AT) (CH) (INS.) No. 11 / 2023:
According to the Petitioner / Appellant, being a `Promoter’ /
`Shareholder’ of the `Corporate Debtor’ / `M/s. Vantage Machine Tools
Private Limited’, is Àggrieved’, against the ìmpugned order’, dated
28.11.2022, passed by the Àdjudicating Authority’, `National Company
Law Tribunal’, Amaravati Bench, in CP (IB) No. 51 / 9 / AMR / 2021,
whereby and whereunder, the `Corporate Debtor’, was àdmitted’, into
the `Corporate Insolvency Resolution Process’, in an Àpplication’, filed
under Section 9 of the I & B Code, 2016, r/w Rule 6 of Insolvency and
Bankruptcy (Application to Adjudicating Authority), Rules 2016, by the
`1st Respondent / Operational Creditor / Petitioner’.
2. It is represented on behalf of the Petitioner /Appellant, as `Third
Party’, the `Petitioner / Appellant’, has preferred the IA No. 23 / 2023 in
Comp. App (AT) (CH) (INS.) 11 / 2023, seeking `Leave’, to file the
Page 2 of 59
instant Comp. App (AT) (CH) (INS.) 11 / 2023, before the Àppellate
Tribunal’.
3. It is the version of the Petitioner / Appellant, that numerous
`contentious points’ / `controversies’, exists between the ìnter se
Parties’, including (a) Non production of test certificates; (b) Non
submission of self inspection reports; (c) Poor quality of goods and the
consequent non lifting of goods by BGR Energy Systems Ltd; (d) Legal
Notice dated 27th April 2019 and corresponding Reply Notice dated 12th
May 2019, which Reply Notice clearly disputed any liability to the 1st
Respondent much prior to the date of Issuance of Notice under Section 8
of the Code and (e) No contractual obligation for interest and
corresponding compensatory nature of `damages’ in the form of ìnterest’
sought. But, the Àdjudicating Authority’ / `Tribunal’, without noticing
and not appreciating the factual and legal position, had proceeded to
admit the Àpplication’, filed under Section 9 of the Code, by the 1 st
Respondent.
4. The Learned Counsel for the Petitioner / Appellant, submits that the
`Petitioner / Appellant’, as per dicta, laid down by the Hon’ble Supreme
Court of India (vide Civil Appeals No. 8337 – 8338 of 2017 dated
31.08.2017), in the matter of Innoventive Industries Ltd. v. ICICI Bank
Page 3 of 59
& Another, wherein, it I observed that a `Promoter’ / a `Shareholder’ of a
`Corporate Debtor’, may prefer an Àppeal’, challenging an Òrder of
Admission’, into `Corporate Insolvency Resolution Process’.
5. In this connection, this `Tribunal’, aptly points out the decision of
the Hon’ble Supreme Court of India, Innoventive Industries Ltd. v. ICICI
Bank & Another, reported in (2018) 1 SCC Page 407, wherein at
Paragraph 11, it is observed as under:
11. ``Having heard learned counsel for both the parties, we find substance in
the plea taken by Mr. Salve that the present appeal at the behest of the
erstwhile directors of the appellant is not maintainable. Dr. Singhvi stated that
this is a technical point and he could move an application to amend the cause
title stating that the erstwhile Directors do not represent the company, but are
filing the appeal as persons aggrieved by the impugned order as their
management right of the company has been taken away and as they are
otherwise affected as shareholders of the Company. According to us, once an
insolvency professional is appointed to manage the company, the erstwhile
Directors who are no longer in management, obviously cannot maintain an
appeal on behalf of the company. In the present case, the company is the sole
appellant. This being the case, the present appeal is obviously not
maintainable. However, we are not inclined to dismiss the appeal on this score
alone’’.
6. At this juncture, this `Tribunal’, worth recalls and recollects the
Judgment of this `Tribunal’, in Comp. App (AT) (INS) No. 51 of 2017
dated 29.08.2017, between Steel Konnect (India) Pvt. Ltd. v. M/s. Hero
Fincorp Limited, wherein, at Paragraphs 18 to 20 and 22, it is observed as
under:
Page 4 of 59
18. `Ònce the application under Section 7 or 9 is admitted, the 'Corporate
Insolvency Resolution Process' starts in such case one of the aggrieved party
being the 'Corporate Debtor' has a right to prefer an appeal under Section 61,
apart from any other aggrieved person like Director(s) of the company or
members, who do not cease to be Director(s) or member(s), as they are not
suspended but their function as 'Board of Director(s)' is suspend.
19. The 'Corporate Debtor' if represented before the Adjudicating Authority

through its Board of Directors or any person authorised by Board of Director
or its officers, for the purpose of preferring an appeal, no objection can be
raised that the 'Corporate Debtor' cannot appear through its Board of
Directors or authorised person or officer through whom 'Corporate Debtor'
represented before the Adjudicating Authority.
Once a 'Corporate Debtor' appeared before the Adjudicating Authority

through its Board of Director(s) or its officers or through authorised person
and is heard before admission of an application under 'I & B Code', being
aggrieved such 'Corporate Debtor' cannot prefer an appeal under Section 61
on the ground that the 'Corporate Debtor' appeared through another person
'Interim Resolution Professional', though he had not appeared before the
Adjudicating Authority.
20. Though the Board of Directors or partners of 'Corporate Debtor', as the

case may be is suspended and their power can be exercised by the 'Interim
Resolution Professional', but such exercise of power is limited to the extent to
sub-section (2) of Section 17 of the 'I & B Code' and not for any other purpose.
If the matter is looked from another angle, it will be clear as to why 'Corporate
Debtor' should not be represented through 'Interim Resolution Professional'
for preferring an appeal under Section 61 of the 'I & B Code'. The Role of
'Interim Resolution Professional' starts after initiation of 'Corporate
Insolvency Resolution Process' against the 'Corporate Debtor'. The 'Interim
Resolution Professional' once given consent to function directly or indirectly
he cannot challenge his own appointment, except in case where he has not
given consent. If the 'Corporate Debtor' is left in the hands of 'Interim
Resolution Professional' to raise his grievance by filing an appeal under
Section 61, it will be futile, as no 'Interim Resolution Professional' will
challenge the initiation of 'Insolvency Resolution Process' which ultimately
result into the challenge of his appointment.
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22. At this stage, it is desirable to notice that though pursuant to Section 17,
the Board of Directors of a 'Corporate Debtor' stand suspended (for a limited
period of 'Corporate Resolution Process maximum 180 days or extended
period of 90 days i.e. 270 days), but they continued to remain as Directors and
members of the Board of Directors for all purpose in the records of Registrar
of Companies under the Companies Act 2013.’’
7. In reality, when the Petitioner / Appellant (he being a `Promoter’ /
`Shareholder’ of the `Corporate Debtor’ / `M/s. Vantage Machine Tools
Pvt. Ltd.), raises triable points for `rumination’, in the instant Comp. App
(AT) (CH) (INS) No. 11 of 2023, as an Àggrieved Person’, (obviously
his `Right of Management of the Company’, being taken away, by means
of the ìmpugned order’, coupled with the fact, being otherwise affected
as `Shareholder’ of the `Company’), `Leave’, can be granted as `Third
Party’, on an Ìnterlocutory Application / Petition’ , filed by him, as per
Rule 31 of the NCLAT Rules, 2016, by the Àppellate Tribunal’,
exercising its `Discretion’ and Ìnherent Power’, in terms of Rule 11 of
the NCLAT Rules, 2016. Viewed in that perspective, the filing of IA No.
23 / 2023 in instant Comp. App (AT) (CH) (INS.) 11 / 2023 (seeking
`Leave’, to prefer the instant Àppeal’, by the `Promoter’ / `Shareholder’
of the `Corporate Debtor’ / `Third Party’, is perfectly `maintainable’ in
the èye of Law’, and the same is àllowed’, for meeting the ènds of
Justice’. No costs.
Page 6 of 59
Company Appeal (AT) (CH) (INS.) No. 11 of 2023
(Filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016)
(Against the Order dated 28.11.2022, passed by the

Àdjudicating Authority’, `National Company Law Tribunal’,
Amaravati Bench, in CP (IB) No. 51 / 9 / AMR / 2021)
In the matter of:

Nandamuri Meenalatha
Erstwhile Director of
Vantage Machine Tools Pvt. Ltd.
D.No.895, R.S.No.50 and 53/2,
Hanuman Junction Road, Gollapalli
Nuzividu, Andhra Pradesh – 521111 …. Appellant
v.
M/s. Quality Steels and Wire Products

Registered Office at Survey No.118,
Duvvadu Station Road,
Kurmannapalem, Vishakapatnam ….. 1st Respondent /
Mr. Immaneni Eswara Rao
Interim Resolution Professional
of M/s. Vantage Machine Tools Pvt. Ltd.
D. No.2-48, Gollapalli,
Nujivedu Mandal,
Krishna District – 522111. ….. 2nd Respondent / Interim
Resolution Professional
Present:
For Appellant : Mr. P.H. Arvindh Pandian, Senior Advocate

For Mr. Avinash Krishnan Ravi, Advocate
For Respondent No. 1 / : Mr. Arjun Suresh, Advocate

Page 7 of 59
JUDGMENT
(Physical Mode)
Justice M. Venugopal, Member (Judicial):
Comp. App (AT) (CH) (INS.) No. 11 / 2023:
The Àppellant / Promoter / Shareholder’ of the `Corporate Debtor’
/ `M/s. Vantage Machine Tools Private Limited’, has preferred the instant
Comp. App (AT) (CH) (INS.) 11 / 2023, as an Àggrieved Person’, in
respect of the ìmpugned order’, dated 28.11.2022, passed by the
Àdjudicating Authority’, `National Company Law Tribunal’, Amaravati
Bench, in CP (IB) No. 51 / 9 / AMR / 2021.
2. The Àdjudicating Authority’ / `Tribunal’, while passing the
ìmpugned order’, in CP (IB) No. 51 / 9 / AMR / 2021 (Filed by the 1st
Respondent / Operational Creditor / Petitioner), at Paragraph Nos. 6 to 10,
had observed the following:
6. `Ìt can be seen that the Petition is filed on 28.09.2022. A demand notice
was sent by the OC for which no reply was issued. The Counsel for the CD
submits that the notice was served on the watchmen of the CD and they did not
know about the notice, which does not at all seem to be cogent. The account
statement of the OC shows that an amount of Rs.10,00,000/- was transferred to
the CD on 03.10.2017 and Rs.20,00,000/- was transferred on 13.12.2017.
There is no denial of the fact that there was a contract between the parties for
supply of structural steel by the OC.
7. The Counsel for the CD submits that with the steel they purchased from the
OC, they supply finished goods to BGRESL. The only contention raised on
behalf of the CD is that the material supplied by the OC is defective and hence,
Page 8 of 59
the BGRESL did not lift the material supplied by the CD due to which they
sustained loss and consequently they are not liable to pay the amount to the
OC. But he does not succeed in showing that there was any condition imposed
at the time of entering into the contract that test certificates are to be supplied
by the OC for the material supplied by them. It is true that there was a request
to send the test certificates on 04.10.2017 and there is a letter dated
19.04.2019 issued to the OC that they have prepared and supplied material as
per the request of BGRESL; however, due to inferior quality of raw materials
supplied by the OC, the BGRESL rejected the materials and they are not lifting
the balance of materials, due to which they incurred a loss of Rs.82,60,000/-
and that they are also black listed by the MNC Company. Except mentioning
all these facts in the letter addressed to the OC, the CD did not furnish any
material to the Tribunal with regard to their black listing and with regard to
the BGRESL rejecting the materials on the ground that the quality of raw
materials is of inferior quality.
8. The Counsel for the OC contends that the rejection if any might also be due
to the defectiveness in the making of goods by the CD, which is possible.
Hence, unless any concrete evidence is produced with regard to the BGRESL
rejecting the materials in the first place and rejecting the material on the
ground of the defective raw material in the second place, it cannot be said that
the quality of the material was the reason for the BGRESL not lifting the
material from the CD. Apart from that, a letter addressed by the CD to the
Chairman and Managing Director APGENCO does not anywhere spell that
the BGRESL has refused to lift the material on the ground of defective raw
material. Moreover, it says that the CD executed works as a sub-contractor to
M/s. BGR Energy Systems Limited for the works allotted by APGENCO. It is
stated that the CD has to receive an amount of Rs.4.25 Lakhs towards
settlement of bills for executed and completed works and that they have
contacted M/s.BGR Energy Systems Limited, but there was no positive
response. It is mentioned that they are facing severe liquidity crises as most of
the funds were stuck up in the bills. It is only mentioned that material worth
Rs.40 tonnes for which they have completed the allotted works is waiting for
lifting from the end to M/s.BGR Energy Systems Limited. It is requested that
the APGENCO advises and directs the officials of M/s.BGR Energy Systems
Limited to lift the same and settle their bills immediately. Nowhere in the said
letter is it indicated that the BGR Energy Systems Limited did not lift the
material due to defective raw material.
9. A letter dated 18.10.2019 issued to the APGENCO also does not spell
anything about the defect in the raw material. Except saying that the BGRESL
is not responding with regard to the settlement of amount, nothing is stated
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about the defect in the raw material. Though, the Counsel for the CD contends
that the BGRESL did not lift the material on the ground of defective raw
material, he does not place on record any correspondence by the BGRESL to
that effect. Hence, without any supporting material for the contentions of the
Counsel for the CD that the material was defective, no finding can be given on
the same. With help of the fact that the CD has acknowledged the debt by
virtue of the mail dated 02.11.2017 in which the payment schedule is given in
three instalments admitting their liability with regard to the amounts
mentioned therein, it can be held that there is a clear acknowledgement of debt
by the CD. The mails calling upon the OC to furnish test certificates is dated
04.10.2017. But a part payment was made just one day prior to the said mail
for Rs.10,00,000/- and even after the said mail for Rs.20,00,000/- which is on
13.12.2017. If really the quality issue was there by then, he would not have
paid the amounts just for the sake of good relations.
10. The contention of the Counsel for the CD that the cheque was issued with a
condition not to present it also does not have any basis and support. The
cheque is dated 04.04.2019 which is much after the last invoice. The
contention that the cheque was issued to maintain good relations with the OC
is not at all tenable. Moreover, the cheque was dishonoured on the ground of
insufficient funds and not because of the instructions given by the CD to the
Bank not to honour the cheque as submitted by the Counsel for the CD. In the
light of the part payments made under the invoices the contention that they do
not bear the signature does not stand to merit, so also in the light of the mail
dated 03.11.2017 acknowledging the debt. Hence, in view of the above there
need not be any demur in concluding that the CD acknowledged the debt and
has failed to discharge the debt.’’
and finally admitted the `Company Petition’, and appointed a Ìnterim
Resolution Professional’, and declared `Moratorium’, etc.
Appellant’s Submissions:
3. According to the Learned Counsel for the Appellant, the ìmpugned
order’, dated 28.11.2022, passed by the Àdjudicating Authority’,
`National Company Law Tribunal’, Amaravati Bench, in CP (IB) No. 51
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/ 9 / AMR / 2021, in admitting the Section 9 Application, filed by the 1 st
Respondent / Operational Creditor / Petitioner, is an ìllegal’ one, because
of the fact that numerous `Pre-existing Disputes’, between the `Parties’,
were not taken note of in proper and real perspective.
4. The Learned Counsel for the Appellant submits that there is `no
evidence on record’, to exhibit that the `Test Certificates’, were given to
the `Corporate Debtor’, in compliance with the conditions in the
`Purchase Order’, but, this vital fact was not taken into consideration, by
the Àdjudicating Authority / Tribunal’, at the time of passing the
Ìmpugned Order’.
5. The Learned Counsel for the Appellant proceeds to point out that
the emails dated 26.09.2017 and 04.10.2017 of the Corporate Debtor
wherein, a request was made for `Test Certificates’, but, they were not
considered by the Àdjudicating Authority’ / `Tribunal’, at the time of
passing of the ìmpugned order’.
6. Advancing his argument, the Learned Counsel for the Appellant
takes a stand that the `Corporate Debtor’, through `Notice dated
19.4.2019, had `Disputed’, then `Quality of Goods Supplied’, thereby,
proving a `Pre-Existing Dispute’, as per the ingredients of I & B Code,
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2016, but this was not considered by the Àdjudicating Authority’ /
`Tribunal’, at the time of passing of the ìmpugned order’.
7. The other contention advanced on behalf of the Appellant, is that,
the `Corporate Debtor’, had `Disputed’ the `Debt’, through `Reply
Notice’ dated 12.05.2019, which was issued in response to the Notice
under Section 138 of the Negotiable Instruments Act, 1881.
8. The Learned Counsel for the Appellant, projects an argument that
àny Claim for damages, in the form of Interest, as per Section 61 of the
Sale of Goods Act, 1930, is essentially a `Disputed Question of Fact’,
which requires evidence, to be led before a Competent Civil Court and in
the absence of any such determination, there can be `no Order’,
determining `Default’, in respect of an Ùndetermined Claim’, for
`Damages’.
9. The Learned Counsel for the Appellant submits that the
Adjudicating Authority / Tribunal, had failed to consider that there was
`no Interest Clause, in the Contract’ and hence, the Interest of 24%
claimed in the Application (under Section 9 of the I & B Code, 2016), is
uncrystallised and in the nature of unliquidated damages, for which, an
Àpplication’, under Section 9 of the I & B Code, 2016, does not lie.
Page 12 of 59
10. The Learned Counsel for the Appellant contends that the
ìmpugned order’, passed by the Àdjudicating Authority’ / `Tribunal’,
seeks to determine `Liability’, as per Section 73 of the Indian Contract
Act, 1872, and consequently seeks to decide `Default’ of the said
`Damages’ itself, in gross Violation of the `Judgment’ of this `Tribunal’
dated 05.11.2022 (vide Comp. App (AT) (INS) 474 / 2020), in the
decision in Sanjeev Kumar v. Aithent Technologies Pvt. Ltd. & Ors.,
reported in MANU/N/0420/2020.
11. The Learned Counsel for the Appellant comes out with a plea that
some random `Test Certificates’, were produced, for the first time in
`Rejoinder’, before the Àdjudicating Authority’ / `Tribunal’, which, on
mere perusal show that they relate to some `Parties’ named `Sri
Vijayalakshmi Steel Traders’; `M/s Shine Steels’, `M/s. WHM
Visakhapatnam’; and `M/s. BM BSO’, Vishakapatnam, and they were
dated before the `Dates of Purchase Order’, thereby, showing that they do
not relate to the `Corporate Debtor.
12. It is pointed out on behalf of the Appellant that the main
Contractor, namely BGR Energy Systems Limited, had lifted only 85 MT
out of 300 MT of Steel ordered, as BGR Energy System Ltd was
unwilling to lift steel for which Test Certificates were not produced.
Page 13 of 59
Moreover, BGR Energy Systems Limited were of the view that the
material supplied, by the 1st Respondent had not matched the `quality
standards’, prescribed by them, which were back-to-back applicable to the
1st Respondent and were set out in the `Purchase Orders’, issued to the 1 st
Respondent.
13. Continuing further, on behalf of the Appellant, it is pointed out that
the 1st Respondent, had approached the `Corporate Debtor’, with a
promise that they would produce the `Test Certificates’, that were due and
requested the `Corporate Debtor’, to issue a Post Dated Cheque for a Sum
of Rs.50 Lakhs, so as to enable them, to finalise their Accounts, for the
Financial Year 2018-19, and believing the said Proposal, the Corporate
Debtor, had issued a Cheque dated 04.04.2019 (Bearing No. 148405) to
the 1st Respondent and violating the promise, the 1st Respondent, had
failed to produce the `Test Certificates’ and further proceeded to seek
realisation of the Cheque, without satisfying the conditions precedent of
producing the `Test Certificates’.
14. The Learned Counsel for the Appellant brings it to the notice of
this `Tribunal’, that the `Corporate Debtor’, was perforced to issue a
`Letter’, dated 19.04.2019, wherein, it was communicated to the 1 st
Respondent / Operational Creditor, that because of the inferior quality of
Page 14 of 59
the raw materials, applied by it, the Employer / BGR Energy Systems
Limited, had rejected the finished goods and refused to lift the balance
material. That apart, the Corporate Debtor, because of the Ìnferior
Quality of Goods’, supplied by the 1st Respondent / Operational Creditor,
had suffered a loss of Rs.82,60,000/-, which was brought to the
knowledge of the 1st Respondent.
15. According to the Learned Counsel for the Appellant, the 1 st
Respondent / Operational Creditor, had initiated proceedings under
`Section 138 of the Negotiable Instruments Act, 1881, for which, a
`Statutory Demand Notice’, dated 27.04.2019, was issued to the
`Corporate Debtor’, and that the Corporate Debtor, issued a `Reply’,
dated 12.05.2019, disputing the `Claim’, to the amount claimed under the
Cheque.
16. The Learned Counsel for the Appellant emphatically points out that
the 1st Respondent / Operational Creditor, had issued a `Notice’, under
Section 8 of the I & B Code, 2016, claiming a Sum of Rs.3,04,76,004/-
comprising of Rs.1,53,16,611/- as `Principal’, and Rs.1,51,59,393/-
towards Ìnterest’, which was followed by an Àpplication’, under the I &
B Code, 2016, and it was objected on variety of reasons and ultimately
the Àdjudicating Authority, had admitted the Àpplication’, filed by the
Page 15 of 59
1st Respondent / Operational Creditor, under Section 9 of the I & B Code,
2016.
Appellant’s Decisions:
Hon’ble Supreme Court’s Decisions:
17. The Learned Counsel for the Appellant, refers to the `Judgment’ of
the Hon’ble Supreme Court of India dated 21.09.2017, in Mobilox
Innovations Pvt. Ltd., v. Kirusa Software Pvt. Ltd. (vide Civil Appeal No.
9405 of 2017), wherein at Paragraph 40, it is observed as under:
40. `Ìt is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority must
reject the application under Section 9(5)(2)(d) if notice of dispute has been
received by the operational creditor or there is a record of dispute in the
information utility. It is 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 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.’’
18. The Learned Counsel for the Appellant, relies on the `Judgment’ of
the Hon’ble Supreme Court of India dated 21.09.2017, in K. Kishan v
Page 16 of 59
Vijay Nirman Company Pvt. Ltd. (Civil Appeal No.21824 & 21825 of
2017), wherein at Paragraphs 13 to 16 and 19, it is observed as under:
13. ``Following this judgment, it becomes clear that operational creditors

cannot use the Insolvency Code either prematurely or for extraneous
considerations or as a substitute for debt enforcement procedures. The
alarming result of an operational debt contained in an arbitral award for a
small amount of say, two lakhs of rupees, cannot possibly jeopardize an
otherwise solvent company worth several crores of rupees. Such a company
would be well within its rights to state that it is challenging the Arbitral Award
passed against it, and the mere factum of challenge would be sufficient to state
that it disputes the Award. Such a case would clearly come within para 38 of
Mobilox Innovations (supra), being a case of a pre-existing ongoing dispute
between the parties. The Code cannot be used in terrorem to extract this sum
of money of Rs. two lakhs even though it may not be finally payable as
adjudication proceedings in respect thereto are still pending. We repeat that
the object of the Code, at least insofar as operational creditors are concerned,
is to put the insolvency process against a corporate debtor only in clear cases
where a real dispute between the parties as to the debt owed does not exist.
14. Mr. Banerji referred us to certain judgments of the English and Singapore
Courts. In Re A Company - Victory House General Partner Ltd. vs. RGB P &
C Ltd. [2018] EWHC 1143 (Ch), the Chancery Division of the High Court, in
a situation where a debt has to be “bona fide” disputed in order to attract the
winding up jurisdiction of the Courts in the UK, made it clear that even in a
case where a judgment debt is no longer a disputed debt, as it has been finally
adjudicated upon, yet if there be a cross-claim which is being adjudicated
upon, or which may not even have reached the adjudicatory process at all,
would be sufficient to stave off a winding up order. The learned Judge referred
to the judgment in Re Bayoil SA [1999] 1 WLR 147 as follows, and
concluded:-
“27. This, of course, is not a case of a disputed debt. There is a

judgment debt and it can be enforced immediately. However, Mr.
Chivers draws attention to Re Bayoil SA [1999] 1 WLR 147, which
deals with a case not involving a disputed debt but involving a cross-
claim by the company, the subject of the petition or the intended
petition, where the amount of the cross-claim exceeds the petition debt.
The headnote to Re Bayoil recites the essential facts. The petitioner
claimed for freight. The established law is there is no defence of set-off
available in relation to a claim to freight. The claim went to
Page 17 of 59
arbitration and the arbitrators made an award in favour of the
petitioner. The petitioner then presented a petition on the basis of the
sum determined by the arbitration award. The company applied for the
petition to be dismissed or stayed on the ground that it had a genuine
and serious counterclaim in an amount which exceeded the petition
debt. It was a matter of detail in that case, which the company put
forward to advance its case, that it had not been able to litigate that
counterclaim. Later cases discussing Re Bayoil make it clear that the
ability, or inability, to litigate the counterclaim is not of the essence of
the principle in this case. So I put that on one side……”
“32. I therefore have to ask whether the nascent cross-claim, the claim
in restitution which Mr. Chivers has explained to me, is a bona fide
cross-claim on substantial grounds. I have no doubt it is a bona fide
claim. I have also no doubt it is on substantial grounds. At the moment
it seems to me that it is a claim that would succeed but I need not go
that far……”
“34. Nothing which I have said detracts in any way from the binding
character of the judgment which has been made. It may appear to be a
strong thing to say that the employer, having failed to comply with a
judgment against it, should nonetheless escape the consequences
involved in a winding up, but it seems to me that that is the very thing
which was considered to be appropriate in the Bayoil case and, on the
facts of this case, I also consider it is a more just result that the
alternative contended for by the petitioner.”
15. A recent judgment of the Singapore High Court, contained in Lim Poh
Yeoh (alias Lim Aster) and TS Ong Construction Pte Ltd.
MANU/SGHC/0068/2016 : [2016] SGHC 179, was also referred to by Mr.
Banerji. Again, in a situation which demands a far higher threshold that has to
be crossed before the Insolvency Law can be said not to apply, the Singapore
High Court referred to Rule 98(2)(a) of the Rules made under the Bankruptcy
Act. The said Rule states that where a debtor appears to have a valid counter
claim or cross-demand which is equivalent to or exceeds the amount of debt,
the insolvency process will not be put against such debtor. It also referred to
the Supreme Court Practice Directions to the same effect. (see paras 43 & 45
of the said judgment)
16. We now come to some of the judgments referred to by learned counsel for
the respondent. It is important to note that both the Practice Directions
referred to in the U.K. judgment and the Singapore High Court judgment,
referred to in LKM Investment Holdings Pte Ltd. vs. Cathay Theatres Pte Ltd.
Page 18 of 59
[2000] SGHC 13, are in situations where the debt needs to be bona fide
disputed, which is not the situation under our Code. For this reason, it is not
possible to agree with learned counsel for the Respondent that a pending
proceeding challenging an award or decree of a tribunal or Court would not
make the debt contained therein a debt that is disputed.
19. We may hasten to add that there may be cases where a Section 34 petition
challenging an Arbitral Award may clearly and unequivocally be barred by
limitation, in that it can be demonstrated to the Court that the period of 90
days plus the discretionary period of 30 days has clearly expired, after which
either no petition under Section 34 has been filed or a belated petition under
Section 34 has been filed. It is only in such clear cases that the insolvency
process may then be put into operation.’’
19. The Learned Counsel for the Appellant, adverts to the Òrder’ of
this `Tribunal’, dated 13.01.2022, in the matter of Sherbahadur D. Yadav
v. Rohan Dyes and Intermediates Ltd. (vide Comp. App (AT) (INS.) No.
472 of 2021), wherein, at Paragraphs 8 and 9, it is observed as under:
8. ``When the allegations against each other are serious allegations including
allegations of offence against each other, we are not convinced by the
Appellant that police complaint do not evidence any dispute between the
parties. It is to be noted that all the aforesaid complaints are much before
initiation of proceedings u/s 9 by the Appellant. The Adjudicating Authority
has not committed any error in relying of the facts and materials on record to
come to the conclusion that there was pre-existing dispute between the parties.
9. We are of the view that IBC proceedings are not for the purposes of
adjudicating such dispute between the parties and are not the recovery
proceedings to recover the unpaid amount by the official creditor whose claim
is disputed by the ‘Corporate Debtor’.’’
20. The Learned Counsel for the Appellant, falls back upon the Òrder’
of this `Tribunal’, dated 03.11.2017, in the matter of Siddharth Nahata v.
Page 19 of 59
Billets Elektro Werke (P) Ltd. (vide Comp. App (AT) (INS.) No. 199 of
2017), wherein, at Paragraphs 1 and 6, it is observed as under:
1. ``The present appeal has been filed in view of the admission of Insolvency
proceedings filed under Section 9 of the Insolvency & Bankruptcy Code, 2016
(Code-In brief) by the Adjudicating Authority- NCLT, New Delhi Bench in
Insolvency Proceeding (IB-257(ND)/ 2017), vide orders dated 8th September,
2017. The respondent claimed to be an Operational Creditor & initiated the
insolvency resolution process against the appellant (original respondent)
Corporate Debtor on the grounds of default. The respondent claimed
outstanding debt of Rs. 33.78 lakhs including of overdue interest.
6. Similar dispute has been raised by the appellant in reply to the Section 8
notice. Learned counsel for the appellant is submitting that the understanding
between parties about the business was violated and thus dispute had arisen. A
prior existing dispute was there before Section 8 notice was sent and thus
according to him the respondent could not have resorted Insolvency
Proceeding.’’
21. The Learned Counsel for the Appellant, brings it to the notice of
this `Tribunal’, in regard to the `Judgment’ of this `Tribunal’, dated
05.11.2020, in Sanjeev Kumar v. Aithent Technologies Private Limited
and Ors. (vide Comp. App (AT) (INS.) No. 474 of 2020), wherein, at
Paragraphs 34 and 36, it is observed as under:
34. ``The applicant has further stated that the lease deed was not properly
terminated, as part termination was in breach of the Lease Agreement. The
security deposit given by the Corporate Debtor for phase II was forfeited to
realise the rent on the basis of the deemed continuation of lease deed. It is also
contended that the Corporate Debtor vacated the ground floor without any
intimation to the Operational Creditor, and moved out their computers and
other official equipments overnight. Thereafter, on inspection of the premises,
damages to the property were noticed for which the Operational Creditor is
claiming damage charges from the Corporate Debtor for the damage caused
Page 20 of 59
to articles such as AC, Chairs and Tables, false roofing, flooring, plumbing
and carpet based on estimated repair charges.
36. In this case, the question, 'whether lease Rent falls under the category of
'operational debt' or not', loses its significance when the alleged lease rent
itself is disputed. The undisputed claim is the sine qua non for initiating CIRP
U/S 9 of the Code.’’
22. The Learned Counsel for the Appellant, refers to the `Judgment’ of
this `Tribunal’, dated 24.02.2020, in the matter of Neeraj Jain v. Cloud
Walker Streaming Technologies Private Limited (vide Company Appeal
No. 1354 of 2019), wherein, at Paragraphs 74 and 75, it is observed as
under:
74. ``The claims in the heads mentioned above, seeking damages on account
of Custom Charges; interest charges; interest amount; and loss on account
non-taking of delivery of items imported based on the order and assurance of
the Corporate Debtor has not been crystallized, and the Adjudicating
Authority under summary jurisdiction cannot adjudicate and determine the
claim amount payable to the Operational Creditor.
75. It is pertinent to mention that before issuance of Demand Notice under
Section 8(1) of the Code, the Operational Creditor issued a notice against the
Corporate Debtor for making the payment within 30 days, failing which the
Operational Creditor threatened to refer the dispute to Arbitral Tribunal. On
perusal of the records, it appears that there is a pre-existing dispute, but the
Operational Creditor withdrew the Notice issued by it on the pretext that the
corporate debtor would try to settle the dispute amicably. After that, the
Operational Creditor issued Notice under Section 8(1) of the Code and
initiated action against the Corporate Debtor under Section 9 of the Code.
Withdrawal of the said Notice does not mean that the dispute ceased to exist.
The entire claim of the Operational Creditor is based on the loss caused to it
on account of not taking delivery of 21,808 LED TVs which were imported and
shipped on the assurance of the Corporate Debtor. Resultantly, Operational
creditor suffered a huge loss and had to pay customs charges in addition to the
normal customs duty and also suffered losses due to clearance of stock of
uncollected LED TVs at heavily marked down prices. The loss to the
Page 21 of 59
Operational Creditor is not crystallized. The Adjudicating Authority exercising
summary jurisdiction cannot determine the claim amount and initiate the
corporate insolvency resolution process, as per law laid down by the Hon‘ble
Supreme Court in the case of ― Mobilox Innovations (P) Ltd. v. Kirusa
Software (P) Ltd., MANU/SC/1196/2017 : (2018) 1 SCC 353: (2018) 1 SCC
(Civ) 311’’.
In the above case, the Hon‘ble Supreme Court has held that:
``37. It is now important to construe Section 8 of the Code. The
operational creditors are those creditors to whom an operational debt
is owed, and an operational debt, in turn, means a claim in respect of
the provision of goods or services, including employment, or a debt in
respect of repayment of dues arising under any law for the time being
in force and payable to the Government or to a local authority. This
has to be contrasted with financial debts that may be owed to financial
creditors, which was the subject-matter of the judgment delivered by
this Court on 31.08.2017 in Innoventive Industries Ltd. vs. ICICI Bank
[Innoventive Industries Ltd. vs. ICICI Bank, MANU/SC/1063/2017 :
(2018) 1 SCC 407) (Civil Appeals Nos. 8337 - 38 of 2017).
``29. The scheme of Section 7 stands in contrast with the
scheme under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate
debtor can, within a period of 10 days of receipt of the demand
notice or copy of the invoice mentioned in sub-section (1), bring
to the notice of the operational 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.
51. It is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority
must reject the application under Section 9(5)(2)(d) if notice of dispute
has been received by the operational creditor or there is a record of
dispute in the information utility. It is clear that such notice must bring
to the notice of the operational creditor the `èxistence’’ 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
Page 22 of 59
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.’’
23. The Learned Counsel for the Appellant, cites the `Judgment’ of this
`Tribunal’, dated 11.01.2022, in Pitti Coal Company v. Mahalaxmi
Continental Ltd. and Ors., (vide Comp. App (AT) (INS.) No. 943 of
2020), wherein, at Paragraphs 44 and 45, it is observed as under:
44. `` To be noted, as per Section 73 of the Indian Contract Act, 1872 which
deals with 'compensation for loss or damage caused by breach of contract',
this Section can be pressed into service by the concerned party only when a
contract was broken and a violation of the said Agreement/Contract ought to
be established before proceeding about the issue of 'damages'.
45. Suffice it, for this Tribunal to make a pertinent mention that whether there
was a violation of the 'Agreement'/'Contract' is to be determined and further
the same is to be established under the 'Violations' is to be proved before a
'Competent Civil Court'. It cannot be gainsaid that that in a Civil Suit to
enforce a contract, it is essential to find out what the terms of the
Contract/Agreement are, with a view to decide about the breech as per
decision 'BiBi Durga Devi Vs. Shivram' AIR 1932 Lahore 148.’’
24. The Learned Counsel for the Appellant, refers to the Òrder’ of this
`Tribunal’, dated 06.10.2017, in A.D. Electro Steel Co. Pvt. Ltd. & Anr.
Page 23 of 59
v. Anil Steels (vide Comp. App (AT) (INS.) No. 194 of 2017), wherein,
at Paragraphs 4 to 6, it is observed as under:
4. ``The question about existence of a dispute fell for consideration before the
Hon'ble Supreme Court in "Mobilox Innovations Private Ltd v. Kirusa
Software Private Ltd, MANU/SC/116/2017’’. Taking into consideration the
provisions in the 'I&B Code', the Hon'ble Supreme Court observed and held as
follows: -
"33. The scheme under Sections 8 and 9 of the Code, appears to be that
an operational creditor, as defined, may, on the occurrence of a default
(i.e, on non-payment of a debt, any part whereof has become due and
payable and has not been repaid), deliver a demand notice of such
unpaid operational debt or deliver the copy of an invoice demanding
payment of such amount to the corporate debtor in the form set out in
Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 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 self-same 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 of dispute, that the operational creditor may
trigger the insolvency process by filing an application before the
adjudicating authority under Sections 9(1) and 9(2). This application is
to be filed under Rule 6 of the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016 in Form 5, accompanied with
documents and records that are required under the said form. Under
Rule 6(2), the applicant is to dispatch by registered post or speed post,
a copy of the application to the registered office of the corporate
Page 24 of 59
debtor. Under Section 9(3), along with the application, the statutory
requirement is to furnish a copy of the invoice or demand notice, an
affidavit to the effect that there is no notice given by the corporate
debtor relating to a dispute of the unpaid operational debt and a copy
of the certificate from the financial institution maintaining accounts of
the operational creditor confirming that there is no payment of an
unpaid operational debt by the corporate debtor. Apart from this
information, the other information required under Form 5 is also to be
given. Once this is done, the adjudicating authority may either admit
the application or reject it. If the application made under sub- section
(2) is incomplete, the adjudicating authority, under the proviso to sub-
section 5, may give a notice to the applicant to rectify defects within 7
days of the receipt of the notice from the adjudicating authority to
make the application complete. Once this is done, and the adjudicating
authority finds that either there is no repayment of the unpaid
operational debt after the invoice (Section 9(5)(i)(b)) or the invoice or
notice of payment to the corporate debtor has been delivered by the
operational creditor (Section 9(5)(i)(c)), or that no notice of dispute
has been received by the operational creditor from the corporate
debtor or that there is no record of such dispute in the information
utility (Section 9(5)(i)(d)), or that there is no disciplinary proceeding
pending against any resolution professional proposed by the
operational creditor (Section 9(5)(i)(e)), it shall admit the application
within 14 days of the receipt of the application, after which the
corporate insolvency resolution process gets triggered. On the other
hand, the adjudicating authority shall, within 14 days of the receipt of
an application by the operational creditor, reject 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)).
Page 25 of 59
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 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?"
39. It is now important to construe Section 8 of the Code. The

operational creditors are those creditors to whom an operational debt
is owed, and an operational debt, in turn, means a claim in respect of
the provision of goods or services, including employment, or a debt in
respect of repayment of dues arising under any law for the time being
in force and payable to the Government or to a local authority. This
has to be contrasted with financial debts that may be owed to financial
creditors, which was the subject matter of the judgment delivered by
this Court on 31.8.2017 in Innoventive Industries Ltd. v. ICICI Bank
(Civil Appeal Nos. 8337-8338 of2Ol 7). In this judgment, we had held
that the adjudicating authority under Section 7 of the Code has to
ascertain the existence of a default from the records of the information
utility or on the basis of evidence furnished by the financial creditor
within 14 days. The corporate debtor is entitled to point out to the
adjudicating authority that a default has not occurred; in the sense that
a debt, which may also include a disputed claim, is not due i.e it is not
payable in law or in fact. This Court then went on to State:
"29. The scheme of Section 7 stands in contrast with the scheme

under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate
debtor can, within a period of 10 days of receipt of the demand
notice or copy of the invoice mentioned in sub-section (1), bring
to the notice of the operational creditor the existence of a
Page 26 of 59
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."
40. It is, thus, clear that so far as an operational creditor is concerned,

a demand notice of an unpaid operational debt or copy of an invoice
demanding payment of the amount involved must be delivered in the
prescribed form. The corporate debtor is then given a period of 10
days from the receipt of the demand notice or copy of the invoice to
bring to the notice of the operational creditor the existence of a
dispute, if any. We have also seen the notes on clauses annexed to the
Insolvency and Bankruptcy Bill of 2015, in which "the existence of a
dispute" alone is mentioned. Even otherwise, the word "and" occurring
in Section 8(2)(a) must be read as "or" keeping in mind the legislative
intent and the fact that an anomalous situation would arise if it is not
read as "or". If read as "and", disputes would only stave off the
bankruptcy process if they are already pending in a suit or arbitration
proceedings and not otherwise. This would lead to great hardship; in
that a dispute may arise a few days before triggering of the insolvency
process, in which case, though a dispute may exist, there is no time to
approach either an arbitral tribunal or a court. Further, given the fact
that long limitation periods are allowed, where disputes may arise and
do not reach an arbitral tribunal or a court for upto three years, such
persons would be outside the purview of Section 8(2) leading to
bankruptcy proceedings commencing against them. Such an anomaly
cannot possibly have been intended by the legislature nor has it so
been intended. We have also seen that one of the objects of the Code
qua operational debts is to ensure that the amount of such debts, which
Page 27 of 59
is usually smaller than that of financial debts, does not enable
operational creditors to put the corporate debtor into the insolvency
resolution process prematurely or initiate the process for extraneous
considerations. It is for this reason that it is enough that a dispute
exists between the parties."
5. In the present case, we find that there was an "existence of dispute" between
the parties. Learned Counsel for the Respondent-'Operational Creditor' while
did not dispute the aforesaid fact and submits that the amount due to the
'Operational Creditor' have already been paid.
6. In view of the fact that there was a dispute between the parties and the
decision of the present case is covered by the Hon'ble Supreme Court in
"Mobilox Innovations Private Ltd v. Kirusa Software Private Ltd" we have no
other option but to set aside the impugned order dated 7th September, 2017
passed in CP (IB) No. 415/KB/2017. The said order is accordingly, set aside.’’
25. The Learned Counsel for the Appellant, cites the Òrder’ of this
`Tribunal’, dated 22.11.2019, in the matter of P.M. Mahendran v.
Tharuvai Ramachandran Ravichandran & Ors. (vide Comp. App (AT)
(INS.) No. 642 of 2019), wherein, at Paragraphs 9, 12 & 13, it is observed
as under:
9. ``From the documents at page 128, Annexure-A7, a letter from Factum Law
Advocates to King and Partridge, Advocates dated 13.11.2018 whereby the
Lawyers of Corporate Debtor i.e., M/s A.M. Clean Air Engineering Private
Limited replied to the notice dated 25.10.2018 issued by the Operational
Creditor under Section 138 of the Negotiable Instruments Act. However, from
the letter dated 13.11.2018 at paragraph-7, it is stated that the Operational
Creditor did not complete the supply of RTU as agreed. It is further stated that
even as on date, 22 RTU are to be supplied to the Corporate Debtor failing to
supply it has caused great hardship to the Corporate Debtor. Further at
paragraph-9 of the letter it is stated that Operational Creditor yet to complete
supply all 65 RTU as ordered by the Corporate Debtor, although the
Corporate Debtor had been diligently making payments to the Operational
Creditor for the work done.
Page 28 of 59
12. From all the correspondences between the Corporate Debtor and the
Operational Creditor it is clear that there is a pre-existing dispute raised by
the Corporate Debtor prior to issuance of Demand Notice dated 04.12.2018. It
is a settled law that where there is an existence of dispute prior to the issuance
of Demand Notice, the Adjudicating Authority must reject the application as
held by the Hon'ble Supreme Court in "Mobilox Innovations Pvt. Ltd. Vs.
Kirusa Software (P) Limited – MANU/SC/1196/2017’’
C) Precedents:
...
"The Hon'ble Supreme Court in "Mobilox Innovations Pvt. Ltd. Vs.
Kirusa Software (P) Limited - MANU/SC/1196/2017 : (2018) 1 SCC
353’’ it is held that the 'existence of 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 and
observed.
"33. The scheme under Sections 8 and 9 of the Code, appears
to be that an operational creditor, as defined, may, on the
occurrence of a default (i.e. on non-payment of a debt, any part
whereof has become due and payable and has not been repaid),
deliver a demand notice of such unpaid operational debt or
deliver the copy of an invoice demanding payment of such
amount to the corporate debtor in the form set out in Rule 5 of
the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 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. .....’’
At paragraph 51 it is held:
"51. ..... 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
Page 29 of 59
patently feeble legal argument or an assertion of fact
unsupported by evidence." ....
[Emphasis supplied]
13. From the aforesaid correspondences it is clear that there is pre-existence
dispute with regard to quality and service prior to issuance of Demand
Notice. In view of the decision of the Hon'ble Supreme Court and this
Appellate Tribunal in the matter of R.S Cottmark (India) Pvt. Ltd. Vs. Rajvir
Industries Ltd. in Company Appeal (AT) (Insolvency) No. 653 of 2018, dated
5th August, 2019 the appeal needs to be allowed.’’
1st Respondent’s Contentions:
26. The Learned Counsel for the 1st Respondent / Operational Creditor
/ Petitioner, submits that the Appellant, had secured a `Sub-Contract’,
through Purchase Order Bearing No.350000008275 dated 17.08.2017, for
a Sum of Rs.2,12,40,000/- plus GST from BGR Energy Systems Ltd. for
supply of 300 MT of `Fabricated Structural’, as per BGRESL technical
specifications, required for executing works to APGENCO.
27. It is represented on behalf of the 1st Respondent / Operational
Creditor / Petitioner that, it approached the `Corporate Debtor’ / `M/s.
Vantage Machine Tools Private Limited’, to supply `Structural Steel’ and
that the `Corporate Debtor’, had agreed for this Àrrangement’, and later
all supplies were made by the `1st Respondent’, to the Àppellant’, as per
18 Invoices, from 20.09.2017 to 24.10.2017, and that the total value of
the supply is worth Rs.1,83,16,611/-.
Page 30 of 59
28. Furthermore, according to the 1st Respondent, the aforesaid
`Goods’, were consumed and completely utilised by the `Corporate
Debtor’, without `raising any issues’, relating to the `Quality’ of `Goods’
supplied, and that the Ìnvoices’, had not contained any `stipulations’ or
`conditions’.
29. The Learned Counsel for the 1st Respondent, points out that the
`Purchase Order’s 2nd Condition, related to `Payment’, which must be
made within 30 days from the receipt of the `Goods’, and the 4 th
Condition was concerned with the Ìssuance of Test Certificate’, and it
mentioned that `Test Certificates’, were to be issued with the `Goods’, at
the time of delivery. Indeed, the Corporate Debtor, had requested for the
`Test Certificates’, on 26.09.2017 and 04.10.2017 and in fact, some `Test
Certificates’, were already given, prior to the communication and
remaining said Certificates were subsequently handed over to the
`Corporate Debtor’s Representative’.
30. The Learned Counsel for the 1st Respondent, brings it to the notice
of this `Tribunal’, that the `Corporate Debtor’, had made a payment of
Rs.10,00,000/- on 03.10.2017 and another part payment made on
13.12.2017, amounting to Rs.20,00,000/- and there was a Sum of
Rs.1,53,16,611/-, being the balance, to be paid to the 1st Respondent,
Page 31 of 59
together with interest @ 24% per annum. Also that, the `Corporate
Debtor’, through email dated 02.11.2017, had confirmed the Òutstanding
Sum’, and a `Schedule’, to make `balance payment(s)’, was / were also
mentioned in the said email.
31. The grievance of the 1st Respondent / Operational Creditor /
Petitioner is that, the `Corporate Debtor’, had not followed the `Payment
Schedule’, envisaged and in the meanwhile the 1st Respondent’s
`Composition of Partnership’, was also changed and `5 out of the 7
Original Partners’, were resigned. As a matter of fact, on 30.07.2018, the
change in `Composition’, was `registered’, and that the Corporate Debtor,
had decided to make further part payment of Rs.50,00,000/- through
Cheque dated 04.04.2019 and on 11.04.2019, the 1 st Respondent had
presented the Cheque and the Cheque `got returned’, on 12.04.2019, with
an endorsement ìnsufficient funds’.
32. The Learned Counsel for the 1st Respondent submits that the 1st
Respondent, had issued a Legal Notice on 27.04.2019, under Section 138
of the Negotiable Instruments Act, 1881, to the Corporate Debtor, and a
`Reply’, was sent to the 1st Respondent by the `Corporate Debtor’, on
12.05.2019, mentioning that there is `no Debt payable’, since the `Test
Certificates’, were not produced. In fact, the Corporate Debtor had
consumed the entire lot of `Goods’, supplied by the 1 st Respondent and
Page 32 of 59
that the 1st Respondent, issued a `Demand Notice’, on 30.07.2021, as per
Section 8 of the I & B Code, 2016, and later, the 1 st Respondent the
CP(IB) No. 51 / 9 / AMR / 2021, before the Àdjudicating Authority’ /
`Tribunal’.
33. The core contention advanced on behalf of the 1 st Respondent /
Operational Creditor / Petitioner is that, the entire alleged `Dispute’, is a
smokescreen, invented by the `Corporate Debtor’, to avoid `prosecution’.
34. According to the 1st Respondent, a reading of the `Clause in
Purchase Order’, will show that the `Test Certificates’, were related only
to the Àcceptance of Delivery’, and at no `Correlation to the Payment’.
That apart, the letter dated 19.04.2019, was not related to only 40 MT of
Steel and whereas 85 MT, was already lifted and nothing was placed on
record, relating to the remaining 175 MT.
35. The Learned Counsel for the 1st Respondent takes a stand that the
Ùndisputed Principal Sum’, is over the `threshold limit’ of Rs.1 Crore,
and hence, the `permissibility of interest’, over and above the `Principal
Sum’, is immaterial. Continuing further, the definition of `Claim’, as per
Section 3(6) of the Code, will include, within its purview, ìnterest’ that
can be awarded, under Section 61 of the Sale of Goods Act, 1930.
Page 33 of 59
36. The Learned Counsel for the 1st Respondent, submit that the 1st
Respondent purchases the `Steel’, `from different Manufacturers’, and
`Sells’ it, to the `Buyers’, and that the àctual testing’ of the `Steel’, is
done by the concerned Manufacturers and that the `Corporate Debtor’,
was fully aware of the same, which inturn is quite clear, upon perusal of
the email dated 04.10.2017, relied on by the Àppellant’, to show that
there was a `Pre-existing Dispute’.
37. Advancing his argument, the Learned Counsel for the 1 st
Respondent comes out with a plea that the subject line in the email dated
04.10.2017, clearly proceeds to the effect `TEST CERTIFICATES
SENDING FROM SHINE STEEL’, and as such, the Àppellant’, was
aware of the fact that the `Test Certificates’, would only be sent by the
`Manufacturers’, and hence request was made taking into account of the
same.
38. According to the 1st Respondent, the self-serving `Report on
Structural Elements’, made at the Workshop of M/s. Vantage Machine
Tools Pvt. Ltd., dated 26.09.2022, was much after filing of `Rejoinder’, in
Section 9 Application of I & B Code, 2016, and the document, being a
self-serving one, prepared by an Ìndividual of an Unknown
Qualification’, with the main intention of `Defrauding’ the `Tribunal’.
Page 34 of 59
39. The Learned Counsel for the 1st Respondent, adverts to the
conditions annexed to the `Purchase Order’, which runs as under:
Terms and Conditions:
a. Freight and Loading Charges : At your scope (@ Quality Steel

and Wire Products)
b. GST : 18% Extra
c. Delivery : Immediately as per material
priority list
d. Payment : 30 days credit after receiving the
material
e. Inspection : Self Inspection Report signed by
you.
f. Test Certificate : The above material should be
delivered along with test
certificate, and in each test
certificate you need to mention
Heat number, chemical properties
and mechanical properties in
`test certificates’.
40. The Learned Counsel for the 1st Respondent, submits that the last
Invoice was dated 24.10.2017, and that the `Period of Limitation’ for
filing any `Suit’, is `three years’, from the `Date of Violation of Contract’,
and hence, any action, sought to be ìnvoked’, by the Àppellant’, is
`barred by Limitation’.
41. According to the 1st Respondent, email dated 08.02.2019 from
`BGRESL’ to the `Corporate Debtor’, reliance being placed by the
Page 35 of 59
Àppellant’, was not `produced’, before the Àdjudicating Authority’ /
`Tribunal’, and no reasons were furnished, as to why it was not
`produced’, and hence, the said `Document’, may not be taken on record,
and to be discarded.
42. The Learned Counsel for the 1st Respondent, points out that the
àlleged Letter’, dated 19.04.2019, filed by the Appellant, merely
mentions that some amount of Steel was `not lifted by BGRESL’, and it
does not amount to `Dispute’, and further it does not endeavour to affix
any `liability’, in the proceedings.
43. The Learned Counsel for the 1st Respondent, submits that
according to the Àppellant’, the 1st Respondent, is not entitled to `Factor
Interest’, in its calculation and that the `Claim’ for Ìnterest’, by the `1st
Respondent / Operational Creditor / Petitioner’, was on account of failure
to effect payment, within the period aggrieved between the `Parties’, and
the moment there is `Default’, interest would automatically follow under
Section 61 of the Sale of Goods Act, 1930. As such, there is no
prohibition to include interest in Section 9 Application (Filed under I & B
Code, 2016) and in this regard, a reliance is placed on the decision of this
`Tribunal’, in Mr. Prashant Agarwal v. Vikash Parasrampuria (vide
Comp. App (AT) (INS) 690 of 2022 dated 15.07.2022).
Page 36 of 59
44. The Learned Counsel for the 1st Respondent, contends that the
Judgments relied on, by the Àppellant’, does not cover situations where
Ìnterest’, is sought to be levied and further that this would not require
àny determination’ / `disputed question of fact’, as the case may be.
1st Respondent’s Citations:
/ Petitioner, relies on the decision of the Hon’ble Supreme Court of India,
in Mobilox innovations (P) Ltd. v. Kirusa Software (P) Ltd., reported in
(2018) 1 SCC 353, wherein, at Paragraphs 33, 34 and 51, it is observed as
under:
33. ``The scheme under Sections 8 and 9 of the Code, appears to be that an
operational creditor, as defined, may, on the occurrence of a default (i.e, on
non-payment of a debt, any part whereof has become due and payable and has
not been repaid), deliver a demand notice of such unpaid operational debt or
deliver the copy of an invoice demanding payment of such amount to the
corporate debtor in the form set out in Rule 5 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016 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 self-same 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
Page 37 of 59
(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 of dispute, that the operational creditor may trigger the
insolvency process by filing an application before the adjudicating authority
under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016 in Form 5, accompanied with documents and records that are required
under the said form. Under Rule 6(2), the applicant is to dispatch by
registered post or speed post, a copy of the application to the registered office
of the corporate debtor. Under Section 9(3), along with the application, the
statutory requirement is to furnish a copy of the invoice or demand notice, an
affidavit to the effect that there is no notice given by the corporate debtor
relating to a dispute of the unpaid operational debt and a copy of the
certificate from the financial institution maintaining accounts of the
operational creditor confirming that there is no payment of an unpaid
operational debt by the corporate debtor. Apart from this information, the
other information required under Form 5 is also to be given. Once this is done,
the adjudicating authority may either admit the application or reject it. If the
application made under sub- section (2) is incomplete, the adjudicating
authority, under the proviso to sub-section 5, may give a notice to the
applicant to rectify defects within 7 days of the receipt of the notice from the
adjudicating authority to make the application complete. Once this is done,
and the adjudicating authority finds that either there is no repayment of the
unpaid operational debt after the invoice (Section 9(5)(i)(b)) or the invoice or
notice of payment to the corporate debtor has been delivered by the
operational creditor (Section 9(5)(i)(c)), or that no notice of dispute has been
received by the operational creditor from the corporate debtor or that there is
no record of such dispute in the information utility (Section 9(5)(i)(d)), or that
there is no disciplinary proceeding pending against any resolution
professional proposed by the operational creditor (Section 9(5)(i)(e)), it shall
admit the application within 14 days of the receipt of the application, after
which the corporate insolvency resolution process gets triggered. On the other
hand, the adjudicating authority shall, within 14 days of the receipt of an
application by the operational creditor, reject 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
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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 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.
51. It is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority must
reject the application under Section 9(5)(2)(d) if notice of dispute has been
received by the operational creditor or there is a record of dispute in the
information utility. It is 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 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.’’
Page 39 of 59
46. The Learned Counsel for the 1st Respondent, refers to the Judgment
of this `Tribunal’, dated 11.11.2022 (vide Comp. App (AT) (INS) No.
662 – 663 of 2022), between Suzlon Synthetics Ltd. v. Stressed Asset
Stabilization Fund (2022) 145 taxmann.com 594 (NCLAT-New Delhi),
wherein, at Paragraph 14, it is observed as under:
14. ……. ``There is no requirement in the adjudication of Section 7 application

to calculate and fix the exact amount of debt in default of repayment. It is only
to be seen whether the amount in default is more than the minimum or
threshold value that is prescribed in Section 4 (1) of the IBC.’’
Sale of Goods Act, 1930:
47. It is pertinent to point out that to constitute a `Transaction of Sale’,
there should be an Àgreement’, between the `Parties’, for the purpose of
`Transferring Title’ in `Goods’. Further, `Right to reject the Goods’, is not
equivalent to `Right for cancelling the Contract’.
48. As a matter of fact, `Price’, means `Money Consideration’, for the
`Sale of Goods’, is a `prime element’, in a `Transaction of Sale’.
Moreover, the `measure’ of `compensation’, is the `difference between
the `Contract Price’, and the `Price’, at which, the `Goods’, were finally
`Sold’, and ìncidental expenses’.
49. A `Seller’, can `Claim’ as `Damages’, the `difference between the
`Contract Price’, and the Sum `realised’, on `Resale of Goods’, where he
has a `Right to Resale’.
Page 40 of 59
50. However, in case of `Breach’, by a `Seller’, the `Buyer’ might have
sued for `Money’ and `Damages’ or for `Shares’ and `Damages’ or for
Ìnterest’ of `Money’ or `Damages’.
Adjudicating Authority / Tribunal:
51. An Àdjudicating Authority’ / `Tribunal’, under the I & B Code,
2016, is not a `Court of Law’, and it does not determine a `Money Claim’
or `Suit’. Admittedly, an Àdjudicating Authority’ / Tribunal’, is not a
`Recovery Forum’ or `Court’.
52. Section 5 (20) of the I & B Code, 2016, defines Òperational
Creditor’, meaning, à person to whom an operational debt is owed and
includes any person to whom such debt has been legally assigned or
transferred’.
53. Section 5 (21) of the I & B Code, 2016, defines òperational debt’,
meaning, à claim in respect of the provision of goods or services
including employment or a debt in respect of the repayment of dues
arising under any law for the time being in force and payable to the
Central Government, any State Government or any local authority’.
54. Once, the `Debt’, is shown as `Due’, it is for the `Corporate
Debtor’, to establish that there are `No Outstanding Dues’, to be paid to
an Òperational Creditor’.
Page 41 of 59
55. An Àdmission’ of an Àpplication’ / `Petition’ (under the I & B
Code, 2016), on èxplicit acknowledgement of liability’, by a `Corporate
Debtor’, is just a `Fair’ and a `Proper’ one.
56. No wonder, a `Resolution of Dispute’, is not the function of an
Àdjudicating Authority’ / `Tribunal’, it is the function of `Civil Court’.
Also that, an Àdjudicating Authority’ / `Tribunal’, is not to conduct full
trial of the matter, since `Corporate Insolvency Resolution Process’, is
`not a Litigation’.
Evaluation:
57. Before the Àdjudicating Authority’ / `Tribunal’, the 1st
Respondent / Operational Creditor / Petitioner, in Form 5 of the
Àpplication’, in CP (IB) No. 51 / 9 / AMR / 2021 (Filed under Section 9
of the Code, r/w Rule 6 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, under Part IV - `Particulars of
Operational Debt’, at Paragraph 4, has mentioned ``.….. that Creditor has
supplied the total structural Steel worth of Rs.1,83,16,611/- out of which
the Debtor has paid Rs.10,00,000/- on 03.10.2017; and on 13.12.2017
Debtor paid Rs.20,00,000/-. Debtor, is liable to pay the balance amount of
Rs.1,53,16,611/- along with interest at 24% per annum which was
confirmed by debtor to operational creditor by email on 02.11.2017’’, and
Page 42 of 59
also at Paragraph 6, had observed that ``the debt has accumulated to the
tune of Rs.3,04,76,004/-, as on 22.07.2021’’.
58. In fact, in Form 3, `Demand Notice’ / Ìnvoice’, demanding
payment, under I & B Code, 2016, as per Rule 5 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016, dated
30.07.2021, addressed to the `Vantage Machine Tools Private Limited’,
represented by Mr. Pothluru Mohana Murali Krishna, Krishna District,
under `Particulars of Operational Debt’, the `Total Debt’, as on
22.07.2021, was mentioned as Rs.3,04,76,004/-, and the `Principal
Outstanding’, was mentioned as Rs.1,53,16,611/-. The interest
outstanding, as on 22.07.2021, was Rs.1,51,59,393/-, and that the total
Outstanding as on 22.07.2021, was Rs.3,04,76,004/-.
59. Before the Àdjudicating Authority’ / `Tribunal’, the `Corporate
Debtor’ / `M/s. Vantage Machine Tools Private Limited’, in its `Counter’
to CP (IB) No. 51 / 9 / AMR / 2021, had averred among other things that
the 1st Respondent / Operational Creditor / Petitioner, had supplied
structural Steel on credit basis, under 18 Invoices from 20.09.2017 to
24.10.2017, for Rs.1,83,16,611/-, with such assurance that the 1st
Respondent will share `Test Certificates’, in due course of time, trusting
the same, the `Corporate Debtor’, had accepted the material. Also that, the
Page 43 of 59
1st Respondent / Petitioner, had enclosed `Test Certificates’, only to
Invoice No.2192 & 2207 dated 20.09.2017 and 21.09.2017, respectively
and failed to produce `Test Certificates’, for remaining Invoices.
Moreover, the Corporate Debtor, to maintain cordial relationship with the
1st Respondent / Petitioner, had paid Rs.10,00,000/- and Rs.20,00,000/- on
03.10.2017 and 13.12.2017, respectively, to the 1 st Respondent /
Petitioner.
60. According to the Corporate Debtor, through Letter dated
19.04.2019, it had communicated to the 1st Respondent / Petitioner, due to
ìnferior quality of raw materials, supplied by it’, the BGRESL, had
rejected the `finished goods’, and also they refused to lift the remaining
material. Besides this, the 1st Respondent / Petitioner, was informed that
on account of conversion of 413 Tonnes Structural Steel into Finished
Goods, the Corporate Debtor, had suffered a loss of Rs.82,60,000/- as
`Conversion Charges’, at Rs.20,000/- per Tonne. Apart from that, the
BGRESL, had blocked the Corporate Debtor / Company, thereby the 1st
Respondent / Petitioner, had spoiled the carrier of the Corporate Debtor,
and committed `Breach of Trust’.
61. The Corporate Debtor, in its `Counter’, before the Àdjudicating
Authority’, had averred that the àlleged Principal Amount’, claimed by
the `1st Respondent / Operational Creditor / Petitioner’, and Ìnterest’,
Page 44 of 59
claimed thereon, as `consequential damages’, is completely àrbitrary’
and `baseless’, which cannot be relied upon in the absence of
àdjudication’, and further that the àlleged Claim’, was not adjudicated,
by any `Competent Authority’, in `Law’, and therefore, such a `Claim’,
cannot be described as Òperational Debt’.
62. Proceeding further, the Corporate Debtor, in its `Counter’, to the
main Petition, filed by the 1st Respondent / Operational Creditor /
Petitioner, had taken a clear stand that the 1st Respondent, had violated the
`Terms of Contract’, and as such, the `Corporate Debtor’, is entitled, to
claim `Damages’, from the 1st Respondent / Petitioner, in terms of the
ingredients of Section 73 of the Indian Contract Act, 1872, for the losses
suffered by it, in lieu of ìnferior quality material supplied by the 1 st
Respondent / Petitioner.
63. As a matter of fact, the `Corporate Debtor’, before the
Àdjudicating Authority / Tribunal’, in its `Reply’, had referred to the
decision of the Hon’ble Supreme Court of India, in the matter of Union of
India v. Raman Iron Foundry, reported in AIR 1974 at Page 1265,
wherein, it is observed and held as under:
`À claim for unliquidated damages does not give rise to a debt until the
liability is adjudicated upon and damages assessed by an adjudicatory
authority. When there is a breach of contract, the party who commits the
Page 45 of 59
breach does not eo instanti incur any pecuniary obligation nor does the party
complaining of the breach becomes entitled to a debt due from the other party.
The only right which the party aggrieved by the breach has is the right to sue
for damages and this is not an actionable claim.’’
64. The Corporate Debtor, before the Àdjudicating Authority’ /
`Tribunal’, took a stand that the àlleged Claim’, of the 1st Respondent /
Operational Creditor / Petitioner, was based on `misconstruction of facts’,
`devoid of merits’, and as such, the `Company Petition’, was not
`maintainable in Law’, and the same was `liable’ to be `dismissed’.
65. Before the Àdjudicating Authority’ / `Tribunal’, the 1st
Respondent / Operational Creditor / Petitioner’, in main CP (IB) No. 51 /
9 / AMR / 2021, had averred that it never gave any assurances to the
`Corporate Debtor’, to issue `Test Certificates’ and that the `whole
transactions and the documents’, pertaining thereto, do not indicate, that it
was transpired between the `Corporate Debtor’ and the 1 st Respondent /
Operational Creditor that a `Test Certificate’, shall be issued as `condition
precedent’. In reality, the `Test Reports’, were collected by the
Representative of the `Corporate Debtor’, personally.
66. The 1st Respondent / Operational Creditor / Petitioner in its
`Rejoinder’, before the Àdjudicating Authority’ / `Tribunal’, at
Page 46 of 59
Paragraph 4(i), had mentioned that upon `Receipt of Supply of Structural
Steel’, and the Ìnvoices’, the `Corporate Debtor’, had made `Part
Payments’, and the balance amounts remained `Due’ and Òutstanding’,
from the `Corporate Debtor’, along with Ìnterest’.
67. According to the 1st Respondent / Operational Creditor, the 2nd
Email dated 04.10.2017, does not indicate that `Test Certificate’, was
agreed to be part of the `Contract of Sale of Goods’, between the
`Parties’, and it is not relevant for the purpose of present Petition under
the I & B Code, 2016. Also that, if `Part Payments’, were made `without
raising protests’, it amounts to `Waiver’ by the `Corporate Debtor’, its
òbjections’, if any, relating to `Non-issuance of Test Certificates’.
68. Besides the above, the 1st Respondent / Operational Creditor,
before the Àdjudicating Authority’, took a stand that the `Corporate
Debtor’, had never initiated the Ènforcement of Purported Terms of
Contract’, either by `Claiming Damages’ or òtherwise’, and such a
`Counter Relief’, cannot be taken as `Defence’, in a `Proceeding’, under
Section 9 of the I & B Code, 2016.
69. According to the 1st Respondent / Operational Creditor, an
Àdjudicating Authority’, is not a `Common Law Fora’, to adjudicate
upon the Èntitlement of the Corporate Debtor’, for `Loss’ or `Damages’.
Page 47 of 59
Hence, such a `plea’, is ìmpermissible’, to be raised as a `Defence’, to
the initiation of `Corporate Insolvency Resolution Process’.
/ Petitioner points out that the `Corporate Debtor’, had not `denied’ the
Email address [in email dated 02.11.2017) , through which, the `Balance
Confirmation’, had originated was vantagemachinery@gmail.com and
when the email was not disputed and it belong to the `Corporate Debtor’
only, and it was not significant the `Person’, who sent that email, was
describing himself in what capacity, because his capacity in the Office of
the Corporate Debtor, was not known to the Operational Creditor and it
should be within the exclusive knowledge of the `Corporate Debtor only).
In any event, if there was `no Chief Executive’, it is for the `Corporate
Debtor’ to explain, how the `Balance Confirmation’, was generated by a
person, describing himself as `Chief Executive’ of the Corporate Debtor,
through the email of the `Corporate Debtor’.
71. At this juncture, this `Tribunal’, points out that the 1st Respondent /
Operational Creditor / Petitioner, through its Advocates, had issued a
`Registered Legal Notice’, dated 27.04.2019, with Àcknowledgment
Due’, to the `Corporate Debtor’ / `M/s. Vantage Machine Tools Private
Limited’, Sri Potlru Mohana Murali Krishna, Managing Director of
Page 48 of 59
Corporate Debtor, Sri Somasekhar Potluru, Director of Corporate Debtor /
M/s. Vantage Machine Tools Private Ltd. and Smt. Nandamuri Meena
Latha, Director of M/s. Vantage Machine Tools Pvt. Ltd. (Corporate
Debtor), wherein, at Paragraph 3, it was mentioned among other things
that the `Corporate Debtor’, was liable to pay the remaining balance Sum
of Rs.1,53,16,611/- with interest at 24% per annum, for a Sum of
Rs.18,25,320/- and in total, the Company was liable to pay
Rs.1,71,41,931/-, as on 26.04.2018. In fact, the 1st Respondent /
Operational Creditor / Petitioner in the `Legal Notice’, dated 27.04.2019,
had mentioned that the `Corporate Debtor Company’, had paid
Rs.10,00,000/- on 03.10.2017 and another payment of Rs.20,00,000/- on
13.12.2017. Indeed, the 1st Respondent / Operational Creditor / Petitioner,
had supplied the total structural Steel worth of Rs.1,83,16,611/-, and
ultimately, through the said `Notice’, the 1st Respondent / Operational
Creditor’s Advocates, had called upon the Corporate Debtor, represented
by its Managing Director and three Others, to pay the Cheque Sum of
Rs.50,00,000/- to the 1st Respondent’s Firm, within 15 days from the
`Date of Receipt of the said Notice’.
72. The `Corporate Debtor’ / `Vantage Machine Tools Private
Limited’, Mr. Potlru Mohana Murali Krishna, and Nandamuri Meena
Page 49 of 59
Latha, had issued a `Reply’, dated 12.05.2019, through Advocate to the 1st
Respondent / Operational Creditor / Petitioner’s Advocate, wherein, it
was averred that, there was `no Legally Enforceable Debt’, payable to the
1st Respondent / Operational Creditor, and that the `Debt’, was failed to
be established, after a lapse of one and half years.
73. A perusal of clear copies of Purchase Orders and Invoices (vide
Page 145 to 171 of the Appeal Paper Book – vide Diary No.1132 dated
14.12.2022), exhibit that there was `no mention’ of àny Interest
percentage’, to be paid by the `Corporate Debtor’. But, the 1st Respondent
/ Operational Creditor’s side, takes a stand, that there is `no fetter’, to
include interest in the Section 9 Application of the I & B Code, 2016.
74. Be it noted, that Ìnterest’, is not a `Penalty’ or `Punishment’, at all,
but, it is the normal accretion on `Capital’, as per decision of the Hon’ble
Supreme Court of India, in Alok Shankar Pandey v. Union of India,
reported in AIR 2007, Supreme Court at Page 1198.
75. In this connection, this `Tribunal’, aptly points out the decision of
the Hon’ble Supreme Court of India in Secretary, Irrigation Department,
Government of Orissa & Ors., v. G.C. Roy, reported in 1992, 1 SCC at
Page 508, wherein, it is held that, à `Person’, deprived of the use of
money, to which, he is legitimately entitled, has a right to be compensated
Page 50 of 59
and such compensation, may be called ìnterest’, `compensation’ or
`damages’.
76. Ìnterest’, can be àllowed’, by Court, if there is an Àgreement’, as
to interest or usage of `Trade’, having force of `Law’, permits to grant it.
77. It cannot be gainsaid that like `grant of interest’, `rate of interest’, is
also, in the `discretion of the `Court’, in a reasonable manner, and the
èxercise of discretion’, is to be a `sound and prudent’ one, and not based
on any àrbitrariness’ or `capriciousness’, as the case, may be.
78. It is to be remembered that the `Proceedings’, under the I & B
Code, 2016, are `Summary in Character’, and that an Àdjudicating
Authority’, not being a `Recovery Fora’ or `Court’, (no elaborate enquiry
is conducted like that of a `Regular Trial’ of a `Civil’ case, and also, it
does not determine, a `Money Claim’ or `Civil Suit’, this `Tribunal’, is of
the earnest opinion, that the `Controversy’ / `Dispute’ / `Claim’, in respect
of Ìnterest’, based on `Privity of Contract’ or òtherwise’, has no
relevance / significance, if the `Debt’, payable is more than the `threshold
limit’ of Section 4 of the I & B Code, 2016, considering the fact that the
`Principal Outstanding’, as mentioned in Form 3 of the Demand Notice
dated 30.07.2021, was Rs.1,53,16,611/- (which is more than Rs.1 Crore),
Page 51 of 59
to be paid by the `Corporate Debtor’ / `M/s. Vantage Machine Tools
Private Limited’.
79. Also that, the `Dispute’, relating to `Violation of Agreement’ /
`Contract’, between the Ìnter se Parties’, in the instant Àppeal’, before
this `Tribunal’, does not constitute a `Pre-existing Dispute’, qua the
`Sum’, payable in `Law’.
80. It must be borne in mind that an Èxact Sum of Claim’ of an
Òperational Creditor’, is not relevant for an Àdmission’ of an
Àpplication’, ofcourse, during the course of `Corporate Insolvency
Resolution Process’, the exact `Claim Amount’, can be determined, by an
Ìnterim Resolution Professional’ / `Resolution Professional’, and in the
instant case, `Parties’, are free to approach the Ìnterim Resolution
Professional’ / `Resolution Professional’, in the course of `Corporate
Insolvency Resolution Process’.
81. Furthermore, the point / aspect, whether a `Corporate Debtor’, is a
`Going Concern’, becomes ìrrelevant’, to the admission of an
Àpplication’, under Section 9 of the `Code’.
Page 52 of 59
82. In `Law’, once the `Debt’, shown as `Due’, it is for the `Corporate
Debtor’, to establish that, there are `no Outstanding Dues’, to be paid to
an Òperational Creditor’.
83. In this connection, it is not out of place, for this `Tribunal’, to make
a significant mention that the `Corporate Debtor’, had not filed any `Suit’
or any `Legal Proceeding’, before the `Competent Court’, against the `1st
Respondent / Operational Creditor / Petitioner’, claiming `Damages’,
seeking redressal of its grievances.
84. It is brought to the fore on behalf of the 1st Respondent /
Operational Creditor / Petitioner, that `Transfer Certificates’, are sent
from `Shine Steels’, and the email dated 08.03.2022, was much after the
initiation of `Proceedings’, commenced by the `1st Respondent /
Operational Creditor / Petitioner’. Moreover, in a `Transaction’, between
the `1st Respondent / Operational Creditor / Petitioner’, and the
`Corporate Debtor’, `Shine Steels’, is an Àlien’. Besides these, there is
nothing to point out in a convincing manner, to the subjective satisfaction
of this `Tribunal’ that `Transfer Certificates’, found part and parcel of
`Sale of Goods Transaction’, between the `Parties’.
Page 53 of 59
85. When the `Delivery of Goods, were taken delivery by the
`Corporate Debtor’, without any meandic mumbling and grumbling, then,
it unerringly, points out that the `Test Certificate’, is not a `prerequisite
factor’, in the earnest opinion of this `Tribunal’.
86. Going by the last Invoice date, being 24.10.2017, the final
`Violation’, would be on 24.10.2017, and at this distant point of time, if
the Àppellant’ initiates any `Legal’ action, it will be clearly barred by
time, in the considered opinion of this `Tribunal’. That apart, even, in
respect of the `Test Certificates’, and the `Quality of Steel’, supplied was
not proper, and there is alleged `Deficiency’, admittedly, `no steps were
taken’, by the `Corporate Debtor’, to get it `decided’, by the Àppropriate
Forum’. In the absence of the same, the `Dispute’, at best, if it exists,
then, at the maximum, it only pertains to a Òut-of-date Claim’, and as
such, it is only an Òtiose’ one, as opined by this `Tribunal’.
87. In regard to the email dated 08.02.2019 (the plea of the 1 st
Respondent / Operational Creditor is that, it was not produced, before the
Àdjudicating Authority’ / `Tribunal’, and it relates to 40 MT, out of 300
MT, which could not be lifted and that too, for the reason that `Goods
Manufactured’, by the Àppellant’, was not upto the `Specifications’ of
`BGRESL’, it is the stand of the `1st Respondent / Operational Creditor’,
Page 54 of 59
is that 75 MT of Steel using the same `raw material’, was accepted by
`BGRESL’, and in any event, the Àppellant’, had not filed any material /
communication, to exhibit any `Dispute’, in regard to the balance 185 MT
Steel.
88. In the present case, there is no second opinion of a primordial fact
that there was a `Contract’, between the `Parties, for supply of structural
Steel by the Òperational Creditor’. A mere perusal of the Email dated
02.11.2017, issued by the `Corporate Debtor’ / `M/s. Vantage Machine
Tools Private Limited’ (signed by Rajababu Dasari, Chief Executive of
the Company), shows that the total Invoices value was
Rs.1,83,16,952.00/-, advance paid was Rs.10,00,000.00/-, balance amount
was shown as Rs.1,73,16,952.00/- and further it was mentioned that as
per `Mutual Agreement’, the Ist Payment Schedule was Rs.30,00,000/- on
15.11.2017, IInd Payment Schedule was Rs.1 Cr. on 20.11.2017 and IIIrd
Payment Schedule Balance was Rs.43,16,952.00/- on 30.11.2017.
89. Therefore, it is quite evident from the contents of the aforesaid
email dated 02.11.2017, in and by which, the `Payment Schedule’, was
provided in three Instalments, wherein, the Corporate Debtor, had
admitted its `Liability’, in regard to the Sum(s), specified therein, and as
such, it is a `Tacit’ acknowledgment of `Debt’, by the `Corporate Debtor’,
Page 55 of 59
in the considered opinion of this `Tribunal’. In this connection, this
`Tribunal’, aptly points out that just a day before the said email, a `Part
Payment’ of Rs.10,00,000/- dated 03.10.2017, and a further Sum of
Rs.20,00,000/- on 13.12.2017, were made by the `Corporate Debtor
(ofcourse, after the said email).
90. Section 3(11) of the I & B Code, 2016, defines `Debt’, meaning, à
liability or obligation in respect of a claim which is due from any person
and includes a financial debt and operational debt’.’’
91. Section 3(6) of the I & B Code, 2016, defines `Claim’, meaning;
(a) a right to payment, whether or not such right is reduced to

judgment, fixed, disputed, undisputed, legal, equitable, secured or
unsecured;
(b) right to remedy for breach of contract under any law for the
time being in force, if such breach gives rise to a right to payment,
whether or not such right is reduced to judgment, fixed, matured,
unmatured, disputed, undisputed, secured or unsecured;
92. At this stage, this `Tribunal’, points out that the aspect of
determining a `Claim’, which may include the interest by an
Àdjudicating Authority’ / `Tribunal’, does not arise for the purpose of
triggering the `Corporate Insolvency Resolution Process’, because of the
fact that an initiation of `Corporate Insolvency Resolution Process’, under
Page 56 of 59
Section 7 or 9 of the I & B Code, 2016, will not amount to a `Recovery
Proceeding’.
93. It cannot be lost sight off that it is incumbent upon the `Corporate
Debtor’, to show that its `Liability’, is in `Dispute’, as to the `Debt’, and
not a just demand, made by it, to satisfy certain obligations, on the part of
the `1st Respondent / Operational Creditor / Petitioner’.
94. As far as the present case is concerned, the `Corporate Debtor in its
`Reply’, before the Àdjudicating Authority’ / `Tribunal’, took a plea, that
it was not in receipt of the `Demand Notice’, dated 30.07.2021, issued by
the 1st Respondent / Operational Creditor / Petitioner. But, the 1st
Respondent / Operational Creditor / Petitioner’s stand was that the
`Notice’, was addressed to the `Corporate Debtor’ / `Company’, as per
`MCA Portal’, and as such, this `Tribunal’, holds that the `Notice’, served
at the `Company’s Registered Office Address’, was a `Sufficient Service’,
as per ingredients of `Section 12 of the Companies Act, 2013’.
95. Dealing with the aspect of cheque dated 04.04.2019, issued by the
`Corporate Debtor’, `got bounced’ / `dishonoured’, this `Tribunal’, points
out that because of ìnsufficiency of funds’, the `cheque’ got `bounced’ /
`dishonoured’.
Page 57 of 59
96. In the instant case on hand, this `Tribunal’, considering the
contentions advanced on the respective sides, taking into account of the
`Part Payments’, made by the `Corporate Debtor’, under Ìnvoices’, and
keeping in mind of the Email dated 02.11.2017, whereby the `Debt’
confirmation, was made by the `Corporate Debtor’, and the same being
received by the `1st Respondent / Operational Creditor / Petitioner’, on
03.11.2017, considering the fact that the `Part Payment’ of Rs.10,00,000/-
and another payment for Rs.20,00,000/-, by the `Corporate Debtor’, was
made, one day earlier, on to the mail dated 03.10.2017, and keeping in
mind of the facts and circumstances of the instant case, in an encircling
manner, comes to a consequent conclusion that the `Debt’ and `Default’,
committed by the `Corporate Debtor’, were established, by the `1st
Respondent / Operational Creditor / Petitioner’, and hence, the
Òutstanding Debt’, is due and payable in `Law’, by the `Corporate
Debtor’, to the `1st Respondent / Operational Creditor / Petitioner’, and
that the Àdmission’ of the `CP(IB) No.51 / 9 / AMR / 2021’, by the
Àdjudicating Authority’ (`National Company Law Tribunal’, Amaravati
Bench), is a just, `Valid’ and `Proper’ one, in the èye of Law’. Viewed in
that perspective, the instant Àppeal’ fails.
Page 58 of 59
Result:
In fine, the instant Comp. App (AT) (CH) (INS.) No.11 of 2023, is
`Dismissed’. No costs. IA No. 24 of 2023 (`For Stay’) and IA No. 25 of
2023 (`For Exemption’), are `Closed’.
[Justice M. Venugopal]
Member (Judicial)
[Shreesha Merla]
Member (Technical)
04 / 07 / 2023
SR / NG
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NATIONAL COMPANY LAW APPELLATE TRIBUNAL

(Application for Leave to Prefer an Appeal filed by the

In the matter of:

For Petitioner / : Mr. P.H. Arvindh Pandian, Senior Advocate

For Respondent No. 1 / : Mr. Arjun Suresh, Advocate

Justice M. Venugopal, Member (Judicial):

IA No. 23 / 2023 in Comp. App (AT) (CH) (INS.) No. 11 / 2023:

According to the Petitioner / Appellant, being a `Promoter’ /

`Shareholder’ of the `Corporate Debtor’ / `M/s. Vantage Machine Tools

Private Limited’, is `Aggrieved’, against the `impugned order’, dated

28.11.2022, passed by the `Adjudicating Authority’, `National Company

Law Tribunal’, Amaravati Bench, in CP (IB) No. 51 / 9 / AMR / 2021,

whereby and whereunder, the `Corporate Debtor’, was `admitted’, into

the `Corporate Insolvency Resolution Process’, in an `Application’, filed

Bankruptcy (Application to Adjudicating Authority), Rules 2016, by the

`1st Respondent / Operational Creditor / Petitioner’.

2. It is represented on behalf of the Petitioner /Appellant, as `Third

Party’, the `Petitioner / Appellant’, has preferred the IA No. 23 / 2023 in

3. It is the version of the Petitioner / Appellant, that numerous

`contentious points’ / `controversies’, exists between the `inter se

Parties’, including (a) Non production of test certificates; (b) Non

Respondent much prior to the date of Issuance of Notice under Section 8

of the Code and (e) No contractual obligation for interest and

corresponding compensatory nature of `damages’ in the form of `interest’

sought. But, the `Adjudicating Authority’ / `Tribunal’, without noticing

admit the `Application’, filed under Section 9 of the Code, by the 1 st

`Petitioner / Appellant’, as per dicta, laid down by the Hon’ble Supreme

31.08.2017), in the matter of Innoventive Industries Ltd. v. ICICI Bank

`Corporate Debtor’, may prefer an `Appeal’, challenging an `Order of

Admission’, into `Corporate Insolvency Resolution Process’.

5. In this connection, this `Tribunal’, aptly points out the decision of

the Hon’ble Supreme Court of India, Innoventive Industries Ltd. v. ICICI

Bank & Another, reported in (2018) 1 SCC Page 407, wherein at

Paragraph 11, it is observed as under:

6. At this juncture, this `Tribunal’, worth recalls and recollects the

Judgment of this `Tribunal’, in Comp. App (AT) (INS) No. 51 of 2017

Fincorp Limited, wherein, at Paragraphs 18 to 20 and 22, it is observed as

19. The 'Corporate Debtor' if represented before the Adjudicating Authority

Once a 'Corporate Debtor' appeared before the Adjudicating Authority

20. Though the Board of Directors or partners of 'Corporate Debtor', as the

7. In reality, when the Petitioner / Appellant (he being a `Promoter’ /

`Shareholder’ of the `Corporate Debtor’ / `M/s. Vantage Machine Tools

(AT) (CH) (INS) No. 11 of 2023, as an `Aggrieved Person’, (obviously

his `Right of Management of the Company’, being taken away, by means

as `Shareholder’ of the `Company’), `Leave’, can be granted as `Third

Party’, on an `Interlocutory Application / Petition’ , filed by him, as per

Rule 31 of the NCLAT Rules, 2016, by the `Appellate Tribunal’,

exercising its `Discretion’ and `Inherent Power’, in terms of Rule 11 of

23 / 2023 in instant Comp. App (AT) (CH) (INS.) 11 / 2023 (seeking

`Leave’, to prefer the instant `Appeal’, by the `Promoter’ / `Shareholder’

of the `Corporate Debtor’ / `Third Party’, is perfectly `maintainable’ in

(Against the Order dated 28.11.2022, passed by the

In the matter of:

M/s. Quality Steels and Wire Products

For Appellant : Mr. P.H. Arvindh Pandian, Senior Advocate

For Respondent No. 1 / : Mr. Arjun Suresh, Advocate

Justice M. Venugopal, Member (Judicial):