2022 Supreme(SC) 1044

SUPREME COURT OF INDIA
K.M. JOSEPH, HRISHIKESH ROY, JJ.
Rajratan Babulal Agarwal – Appellant
Versus
Solartex India Pvt. Ltd. and Others – Respondents
Civil Appeal No. 2199 of 2021
Decided On : 13-10-2022

Headnote:

Whether the appellant has raised a dispute which can be described as ‘a pre-existing dispute’ as understood by this Court in the decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, (2018) 1 SCC 353.

Fact of the Case:

On 24.09.2016, there were two High Seas Sale Agreements. One was between respondent No. 2 and one Rawalwasia Textile Industries Private Limited. The other, was between the same seller and one company, the name of which is shortened as STDPL. STDPL, according to the appellant, is a sister concern of the second respondent. This arrangement, which was essentially made on the representation of one Mr. Sameer Agrawal, was not honoured. Mr. Sameer Agrawal offered to supply 500 Metric Tonnes of coal each to the second respondent and its sister concern through the first respondent. The purchase order in respect of STDPL was dated 11.10.2016. The purchase order in respect of second respondent is dated 27.10.2016. The purchase order contemplated Gross Calorific Value of 5400. The total moisture content was put as less than 40% +/- 2%. Out of 500 Metric Tonnes, the second respondent was supplied 412 Metric Tonnes. The supply began from 28.10.2016 and ended on 02.11.2016. According to the appellant, the coal was to be used in boilers which manufactures starch and allied products. The coal is placed over the boilers in silos which are nearly 15 feet in height and hold upwards of 200 metric tonnes of coal at once. The appellant lays stress on certain lab reports of tests, which were actually conducted allegedly at its own labs indicating that the quality of coal did not conform to what was promised and what was more, allegedly it led to the malfunctioning of the boiler. On 30.10.2016, an e-mail was sent to the first respondent. It reads as follows: “Dear Sir, With reference to 5400 gcv imp coal supply to (stdpl) dhule and (Hdpl) jammer, following issues are to be shared. For dhule plant: high moisture and powder percentage is to be found, already discussed to you. For jammer plant: recently supply include high level of powder percentage and moisture too. Kindly consider the issues and please make us assure about quality of coal should not be down the level. Pics attached for your reference.” Hdpl referred to in the communication is the second respondent. On 03.11.2016, an e-mail was sent to the first respondent by the second respondent. It reads as follows: “M/s. Sortex India Pvt. Ltd. 105, Raghuvir Textile Mall, Aai Mata Chowk, Dumbhal Parvat Patiya, SURAT-395010 Kind Attn: Mr. Samirji Sub: Inferior/poor quality of Indonesian Coal. Dear Sir, We have placed an order for 500 MT Indonesian Coal to you vide our P.O. No. HDPL/2016-17/586 dated 27.10.2016 for 5400 GCV and Moisture condition is 38-40%. But, on receiving the coal we found that GCV less than 4000 and size of coal is 0mm 50% and maximum size is 5mm to 6 mm only and moisture is 48-50%. It seems if we receive such type of coal we are facing the cleaning problem of boiler and due to that nozzle bent and boiler become damaged. This will occur heavy production losses. Hence, please stop delivery of the material/coal and advise us what to do this loss. If any more losses occurred due to poor/inferior quality of coal, we may debit the same amount in your account, which may please be noted. Thanking you, Yours faithfully, For Honest Derivativeds Pvt. Ltd. Ravi Jajodia Vice President (Operation)." Pursuant to the same, further supply was stopped. The first respondent, on 04.11.2016 issued the requisite notice under the IBC and raised a claim for Rs. 1573279 + 30 per cent interest totaling to Rs. 2,157,700.38. The second respondent furnished a reply on 17.02.2018. Under the reply, it demanded a total amount of Rs. 4.44 crores consequent on the coal not being of the quality promised. Respondent No. 2 also has filed two civil suits, one against Rawalwasia Textile Industries Private Limited and the other, against the first respondent claiming damages. It is pointed out that court fee of Rs. 3 lakhs was deposited.

Finding of the Court:

The NCLAT has erred in finding that there was no dispute within the meaning of the IBC.

Issues: Whether the appellant has raised a dispute which can be described as ‘a pre-existing dispute’ as understood by this Court in the decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, (2018) 1 SCC 353.

Ratio Decidendi: The court held that the NCLAT erred in finding that there was no dispute within the meaning of the IBC. The court found that the appellant had raised a plausible contention that the goods supplied by the first respondent were not of the quality agreed upon, and that this contention was supported by evidence. The court also found that the appellant had not waived its right to reject the goods, and that the appellant had filed a suit against the first respondent within the limitation period. The court therefore held that the appellant had raised a pre-existing dispute, and that the application under Section 9 of the IBC should have been rejected.

Final Decision: The appeal is allowed. The impugned order will stand set aside. The application filed by the first respondent against the second respondent under Section 9 will stand rejected.