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in
I. Case Reference
Case Citation : (2023) ibclaw.in 522 NCLAT
Winled (HK) Cables & Wire Products Co. Ltd. Vs. Velankani
Case Name :
Electronics Pvt. Ltd.
Corporate Debtor : Velankani Electronics Pvt. Ltd.
Company Appeal (AT) (CH) (Ins.) No. 280/2021 (Arising out of the
Appeal No. : Impugned Order dated 09/04/2021 in CP(IB) No. 178/BB/2020,
passed by NCLT, Bengaluru Bench)
Judgment Date : 02-Aug-23
Court/Bench : NCLAT Chennai
Mr. E. Om Prakash, Sr. Advocate For M/s. TM Naidu & Co.,
Present for Appellant(s) :
Advocates
Mr. Ramasubramaniam Raja, Advocate For Mr. Ajaykumar,
Present for Respondent(s) :
Advocate
Member (Judicial) : Mr. Justice Venugopal M.
Member (Technical) : Ms. Shreesha Merla
Original Judgment : Download
II. Full text of the judgment
JUDGMENT
(Physical Mode)
[Per: Shreesha Merla, Member (Technical)]
1. Challenge in this Company Appeal (AT) (CH) (Ins) No. 280 of 2021 is to the Impugned Order dated
09/04/2021 passed in CP(IB) No. 178/BB/2020, whereby the Application under Section 9 of the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’) filed by the ‘M/s
Winled (HK) Cable and Wire Product Company Limited’ / ‘Operational Creditor’ / ‘the Appellant’
herein was dismissed by the ‘Adjudicating Authority’ on the ground that the Application was filed
solely with an intention to recover the outstanding amount.
2. The Learned Counsel for the Appellant / Operational Creditor submitted that they supplied high
quality RCA Cables, DC Cables, HDMI Cables to the Respondent / Corporate Debtor to a tune of Rs.
35,78,256/- evidenced by invoices and the said outstanding amount remained due and payable
since May 2018. It is submitted that a letter dated 31/05/2019 was also addressed by the
Respondent admitting the liability of US $50200 amounting to Rs. 35,78,256/-. A statutory Demand
Notice dated 31/08/2019 under Section 8 of the Code issued to the Respondent which did not
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choose to reply, subsequent to which the Section 9 Application was filed and during the course of
proceedings a Settlement Agreement dated 25/03/2021 was circulated by the Corporate Debtor. It
is also submitted that though the Tribunal vide Order dated 12/04/2022 had permitted the
Respondent to file Reply on both modes within two weeks, no reply was received even as on the
date of filing of written submissions. It is submitted that Section 10A has been inserted in the Code
restricting the filing of any Application for initiating CIRP of a Corporate Debtor for any default
arising after 25/03/2020 for a period of 6 months or such further period not extending to one year
from 25/03/2020. It is argued that the said ordinance is not retrospective and the default period in
this case is to be calculated from May 2018 onwards and Section 10A is not applicable to the facts
of this case. It is also denied that since imports were more than 6 months old, an RBI approval is
required and that the Respondent is submitting the details required by the AD Bank to facilitate RBI
Approval and remittances of US$ 50200. It is vehemently denied that any such approvals were ever
tendered.
3. The Learned Counsel for the Respondent submitted that the Respondent was making regular
payments to the Appellant on the invoices raised by it and an amount of $55,107.80 was already
paid. It was only after noticing some shipping defective products that dispute aroused and it was
agreed that the value of the rejections would be deducted from the outstanding payments. It is
stated in the ‘Statements of Objections’ filed before this Tribunal that the Respondent as all along
conveyed that it was willing to settle the actual dues to the Appellant and it even proposed a
payment schedule but the Appellant had rejected the same as it wanted the entire payment to be
released in a single transaction. It is submitted that the very fact that the Respondent had proposed
to make the payments in two tranches clearly shows that the Respondent is a solvent Company and
therefore, initiation of CIRP against a solvent company is against the objective of the Code.
4. It is submitted that RBI’s approval is required in respect of imports made more than 6 months
earlier and the same was paid by the ‘AD Bank’ on 29/06/2022. The said Bank vide email dated
05/07/2022 has devised the Respondent to furnish certain details to enable the ‘AD Bank’ to
recommend to RBI to record approval.
5. The Learned Counsel drew our attention to the letters dated 06/07/2022 and 16/08/2022
addressed to the Branch Manager, SBI stating that the reason for delay in payment towards the
above imports is that there was a quality dispute between the parties and cash flow issues due to
Covid 19 Pandemic. The Learned Counsel for the Respondent submitted that there was no
reconciliation of the accounts and that the disputes were raised much prior to the issuance of
Section 8 Payment Notice. It is submitted that the said dispute was raised in the Reply filed before
the Adjudicating Authority.
6. The Learned Counsel for the Respondent drew our attention to the emails dated 23/05/2018,
24/05/2018, 26/05/2018 and 20/07/2018, in support of his case that there was a dispute between
the Parties regarding quality of the goods. For better understanding of the case, the first email
addressed on 23/05/2018 is reproduced as herein:
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Senthil Kumar T
<[email protected]>
To wang, Mohamed, Sruthi, Mayank, Shrishail,
Supriya, Basavaraj, Nithyashree, Sunil, Eshwaraiah
Hello Vijay Wang
Please see the mail from our quality, which is self explanatory on the issue we are facing with
regard to the recent lot of AV cable.
We are currently facing a 15% rejection rate due to pin breakage, as the picture in the mail trail
reflects.
Please share your response based on the feedback and check on the lots and confirm back.
Regards
T. Senthilkumar
Reply of the Corporate Debtor to the email
Wang vijay <[email protected]>
to senthilkumar, Supriya, Basavaraj, Nirthyashree, Sunil, Eshwaraiah, Suresh, me, Incoming
Dear Senthil,
We checked our finished product in warehouse. No this happen. We 100% inspection before
shipping and there will be at least 2 time QC testing (Semi-finished and Finished testing)
And I try to broken the connector, its hard to snap the pin in one hand, atually this cagro connector
even more better and expensive than before 125K AV Cable
If there has small quanitty broken Maybe cause by Violent handing, then i can Undertand
But now there is 15% rejection its unreasonable that we ship NG product to customer as we will
pay for it
also pls check the approval samples if has this issues?
This is very serious, as this connector also supplying to JIO and dish.tv
Lets work out
Best Regards
Vijay
General Manager
15888303608
7. On a pointed query from the bench regarding the admission of liability as on 31/05/2019
subsequent to the trail emails, the Learned Counsel for the Respondent replied that this amount
was not reflected in the balance sheet. The Learned Counsel for the Respondent placed reliance on
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the Judgment of this Tribunal in the matter of ‘Asset Reconstruction Company (India) Limited Vs.
Uniworth Textiles Limited’ in Company Appeal (AT) (Insolvency) No. 991/2020, in support of his
argument that acknowledgement in balance sheet cannot be a proof of existence of Debt and
Default for initiating CIRP Process and that the overall eco-system of the transaction should be
taken into consideration. In the instant case, what is required to be seen is the letter dated
31/05/2019 which, for ready reference, is reproduced as hereunder:
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8. From the aforenoted letter addressed by the Corporate Debtor to the Appellant / Operational
Creditor, it is clear that the accounts were confirmed showing an amount of US $ 50,200. The
contention of the Learned Counsel for the Respondent that this amount is not shown as due and
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payable in their financials, pales into insignificance, taking into consideration that this letter has
been signed by the Authorised Signatory of the Corporate Debtor and it is clearly stated that the
said amounts have been ‘examined by their Statutory Auditors’ and to ‘confirm’ the said amount.
Further, this Tribunal is of the considered view that having admitted that this amount is due and
payable and having agreed to pay the said amount in two tranches, a sum of $20,000 by the end of
May 2021 and the entire balance by the end of July 2021, the Corporate Debtor cannot now turn
around and say that there was a dispute and that the amounts are not due and payable. Keeping in
view the facts of the attendant case on hand, this Tribunal is of the considered view that the
Judgment of ‘Asset Reconstruction Company (India) Limited Vs. Uniworth Textiles Limited’ (Supra) is not
applicable to the facts of this case. Specifically, since there was a clear acknowledgement of
payment of the amounts in two tranches within specific time periods.
9. The ‘Adjudicating Authority’ while dismissing the Application has observed as follows:
9. The Adjudicating Authority cannot initiate CIRP against solvent company that too in present
pandemic situation prevailing in the Country adversely affected its economy.
10. For the aforesaid reasons and circumstances of the case and the law on the issue, we are of the
considered opinion that the instant Petition is filed solely with an intention to recover the
outstanding amount treating Adjudicating Authority as recovery forum, which is against the object
of Code. Therefore, the Petition is liable to be dismissed.
10. It is settled law that what has to be seen is whether a dispute raised is spurious or genuine.
Keeping in view the documentary evidence on record, this Tribunal is satisfied that the dispute
raised is a spurious one specifically having regard to the admission of liability on 31/05/2019. The
‘Adjudicating Authority’ has erred in observing that ‘Corporate Insolvency Resolution Process’
cannot be initiated against the solvent company in a pandemic situation and that it is a recovery
proceeding. To reiterate, the debt was ‘due and payable’ since May 2018 and therefore Section 10A
is not applicable to the facts of this case
11. This Tribunal is satisfied that there is a debt due and payable and that the ‘Adjudicating
Authority’ has wrongly applied the Judgment of Hon’ble Apex Court in ‘Gujarat Urga Vikas Nigam Ltd.
Vs. Amit Gupta & Ors.’ reported in [(2021) SCC Online SC 194] to the facts of this case.
12. For all the aforegoing reasons, this Company Appeal (AT) (CH) (Ins) No. 280/2021 is ‘allowed’
and the Order of the ‘Adjudicating Authority’ is set aside and the matter is remanded to the
‘Adjudicating Authority’ for initiation of ‘Company Insolvency Resolution Process’ against the
Corporate Debtor Company in accordance with law. Both the Parties are directed to appear before
the ‘Adjudicating Authority’ on 4th August without any further Notice. No Costs.
Connected Pending Interlocutory Applications, if any, are ‘closed’.
[Justice M. Venugopal]
Member (Judicial)
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[Shreesha Merla]
Member (Technical)
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