Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLT) 5503

NATIONAL COMPANY LAW TRIBUNAL
Mr. Praveen Gupta, Member (Judicial), Mr. Ashish Verma, Member (Technical)
M/S. EVERLIGHT ELECTRONICS CO. LTD. – Appellant
Versus
HQ LAMPS MANUFACTURING CO. PVT LTD – Respondent
Insolvency and Bankruptcy Code, 2016 | REF: IA No. 618/2023 | CP (IB) No.17/ALD/2020

Advocates:
For the Appellants/Petitioners: Sh. Venamra Mahaseth
For the Respondents: Sh. Alok Dhir, Ms. Varsha Banerjee, Sh. Kanishk Khetan, Sh. Zain Abbas

A pre-existing dispute regarding the quality of goods supplied negates the initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016, necessitating undisputed debt for admission.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 9 - Corporate Insolvency Resolution Process - Application filed by operational creditor for initiation due to default in payment of outstanding amount of USD 12,84,566.30 - Existence of pre-existing dispute regarding quality of goods supplied prevented admission of application. (Paras 49, 62, 65, 66)

(B) Corporate Debtor claimed defective quality of LED chips leading to rejection of products supplied - Operational Creditor's failure to demonstrate non-existence of dispute precluded CIRP initiation - Evidence of mediation proceedings prior to demand notice raises substantial questions of fact regarding product quality. (Paras 55, 61, 63)

Facts of the case:
The operational creditor and corporate debtor had a trading relationship since 2012, where the corporate debtor failed to pay outstanding dues after raising issues concerning the quality of LED chips provided, leading to rejection of products. Several invoices and a demand notice preceded the initiation of the application under the IBC.

Findings of Court:
Pre-existing dispute established due to quality issues raised by the corporate debtor prior to demand notice issuance - Therefore, CIRP initiation denied as the demand was disputed, not undisputed.

Issues: Existence of pre-existing dispute concerning quality of goods supplied and whether disputes were settled through mediation before demand notice initiation.

Ratio Decidendi: The tribunal found that a plausible dispute existed, supported by a history of mediation attempts, justifying rejection of the application for CIRP under Section 9(5)(2)(d). This aligns with judgements emphasizing the need for undisputed debts to initiate CIRP processes.

Result: Petition under Section 9 dismissed, CIRP not initiated.

Table of Content
1. application for corporate insolvency resolution process. (Para 1 , 2 , 3 , 4 , 5)
2. operational creditor's actions and responses. (Para 6 , 7 , 8 , 9)
3. corporate debtor's defense regarding product quality. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17)
4. claims of defective products leading to disputes. (Para 18 , 19 , 20 , 21 , 22)
5. legal definitions of commercial disputes in context. (Para 23 , 24 , 25 , 26)
6. mediation and its implications in disputes. (Para 27 , 28 , 29 , 30 , 31)
7. further contestations by operational creditor. (Para 32 , 33 , 34 , 35 , 36)
8. acknowledgment and disputes regarding rejections. (Para 37 , 38 , 39 , 40 , 41)
9. operational creditor's denial of corporate debtor's claims. (Para 42 , 43 , 44 , 45)
10. hearing proceedings and legal context. (Para 46 , 47 , 48)
11. court findings on disputes and evidence. (Para 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60)
12. conclusion on pre-existing disputes and corporate solvent status. (Para 61 , 62 , 63)
13. final order on dismissal of application. (Para 64 , 65 , 66 , 67 , 68 , 69)

ORDER

1. This application has been filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as the “I&B Code, 2016”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred as “the Rules”) on 17.12.2019 by M/s Everlight Electronics Co. Ltd. (hereinafter referred as ‘Applicant/Operational Creditor’). The prayer made therein is to initiate Corporate Insolvency Resolution Process (hereinafter referred as ‘CIRP’) against M/s H.Q. Lamps Manufacturing Co. Pvt. Ltd. (hereinafter referred as ‘Respondent/Corporate Debtor’) due to default in payment of total outstanding amount of USD 12,84,566.30 (USD Twelve Lakhs Eighty Four Thousand Five Hundred and Sixty Six Only) along with interest calculated @ 18% p.a. from 31.07.2017 till the date of filing of this Petition/Application. On conversion in rupees term, the outstanding debt comes to Rs.12,67,73,848/- at the rate of Rs. 71.00 per USD (Principal amount Rs. 9,12,04,207/- and interest amount Rs. 3,55,69,640/-). The date of default mentioned in Part-IV of the application is from 31.07.2017 to 30.11.2017 till present date.

2. Facts are stated in Part-IV of the Application, wherein it is mentioned that Operational Creditor is registered in Taiwan and has its registered office located at no. 68, Zhonghua Road, Shulin District, New Taipei City-23860, Taiwan is engaged in the business of manufacturing and supply of LED Chips and other various LED Components.

3. The Corporate Debtor is registered under the Companies Act, 2013 with ROC Kanpur having CIN U2925UP2014PTC066739, engaged in the business of manufacturing, trading export and import of wide range of LED Lights, Lamps, Compact Fluorescent Lamps, having its registered office at A-77, 1st Floor, Sector- 2 Noida, Gautam Budh Nagar - 201301, U.P.

4. It is stated in the Application that Corporate Debtor and Operational Creditor have trading relationship since 2012, for the purpose of purchasing LED Chips. Corporate Debtor approached Operational Creditor in March 2017 for which the Operational Creditor issued separate purchase orders from 06.03.2017 to 28.07.2017 for a sum of USD 19,04,120.80/- (USD Nineteen Lakhs Four Thousand One Hundred Twenty approx.). Nine Invoices from 31.07.2017 till 30.11.2017 were raised totaling to Rs. 19,04,120.80. The Corporate Debtor repaid a sum of USD 6,19,554.50 on different dates i.e USD 5,11,662.70 before 16.8.2018, USD 50,000 on 13.8.2018 and USD 57,891 on 27.9.2018. The remaining balance dues were USD 12,84,566/- as on 19.11.2018.

5. As per the Ledge Account of the Operational Creditor, a sum of USD 12,84,566.30 including interest at 18% per annum from 06.03.2017 to 06.10.2019 is due from the Corporate Debtor.

6. It is also stated in the application that an application was filed before the Delhi State Legal Service Authority at New Delhi bear

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2024 Supreme(Online)(NCLT) 5503

NATIONAL COMPANY LAW TRIBUNALMr. Praveen Gupta, Member (Judicial), Mr. Ashish Verma, Member (Technical)M/S. EVERLIGHT ELECTRONICS CO. LTD. – AppellantVersusHQ LAMPS MANUFACTURING CO. PVT LTD – RespondentInsolvency and Bankruptcy Code, 2016 | REF: IA No. 618/2023 | CP (IB) No.17/ALD/2020

A pre-existing dispute regarding the quality of goods supplied negates the initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016, necessitating undisputed debt for admission.

NATIONAL COMPANY LAW TRIBUNAL
Mr. Praveen Gupta, Member (Judicial), Mr. Ashish Verma, Member (Technical)
M/S. EVERLIGHT ELECTRONICS CO. LTD. – Appellant
Versus
HQ LAMPS MANUFACTURING CO. PVT LTD – Respondent
Insolvency and Bankruptcy Code, 2016 | REF: IA No. 618/2023 | CP (IB) No.17/ALD/2020