Advance payments for goods supply qualify as operational debt under IBC; however, Section 9 application must be rejected if plausible pre-existing contractual disputes exist prior to demand notice, without merits adjudication.

ORDER

Per: CMDE SIDDHARTH MISHRA, HON’BLE MEMBER (TECHNICAL):

1. The Court convened via hybrid mode.

2. This is a Company Petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Matashree Mercantile Pvt. Ltd., (Operational Creditor) for initiation of Corporate Insolvency Resolution Process (‘CIRP’) against Sesa International Limited (‘Corporate Debtor’)

3. Factual Matrix:

3.1. The present Petition was filed on 17 October, 2019 before this Adjudicating Authority. The total amount claimed is Rs. 17,73,04,657.53/- (Rupees Seventeen Crore Seventy Three Lakh Four Thousand Six Hundred Fifty Seven Fifty Three Paisa only) plus interest @24% per annum till 01 October, 2019.

3.2. This Adjudicating Authority had dismissed the instant application vide order dated 03.01.2023 on the ground that there are not enough documents on record which shows that the Corporate Debtor failed to supply the material. Therefore, against the said order, an appeal was preferred by the Operational Creditor before the Hon’ble NCLAT. The Hon’ble NCLAT in Company Appeal (AT) (Ins.) No. 415 of 2023, had remanded the matter to this Adjudicating Authority for reconsideration, vide order dated 22.08.2023. In light of the same, this Adjudicating Authority is examining the instant matter once again.

4. Submissions by the Ld. Counsel appearing on behalf of the Operational Creditor:

4.1. It is submitted that the OC deals in iron ore and ferro alloy material and approached the CD, who was a supplier of Iron Ore Fines, for the procurement of material.

4.2. It is submitted that after negotiation and mutual agreement, the Appellant agreed to purchase 1,00,000 MT of Iron Ore Fines from the Respondent and the Sales Contract was executed on 22.02.2019 between the Appellant and the Respondent.

4.3. It is submitted that in pursuance to said Sales Contract, the Appellant paid advances of Rs. 15 Crores to the Respondent in two tranches of Rs. 10 Crores on 25.02.2019 and Rs. 5 Crores on 06.03.2019.

4.4. It is submitted that in terms of Clause 21, it was agreed that a cheque of Rs. 20 Crores would be issued by the Respondent to the Appellant, and the said cheque could be encashed by the Appellant upon non-supply of material by the Respondent.

4.5. It is submitted that on failure of the Respondent to supply the material within three months of the advance payments, the Appellant has been enquiring from the Respondent about shipment, who indicated that due to shortage of supply, the Respondent was not in a position to supply the same.

4.6. It is submitted that the Respondent refunded a token amount of Rs. 1.5 Cores between 01.07.2019 to 10.07.2019 and subsequently, despite several requests, the Respondent did not refund the remaining amount of Rs. 13.5 Crores.

4.7. It is submitted that the CD made a complete somersault from its original position of refunding the amount by addressing a letter dated 7^th August, 2019, asking the OC to take the supply of goods out of nowhere and without any due intimation.

4.8. It is submitted that a bare perusal of the letter establishes malafide intent of the CD as no details regarding the site from which the materials are to be picked were provided, no follow up was made for picking up the materials, and the letter contains a illusionary computation of claims. It is also submitted that no letter to recall the security cheque of Rs 20 Crores has ever made by the CD at any point in time.

4.9. It is submitted that the OC by addressing a reply to the dispute letter dated 26^th September, 2019 rejected the contentions made by the CD in clear terms.

4.10. It is submitted that the CD by filing a reply to the Demand Notice brought up a concoct