1. This Company petition is filed by Adaqi Infra Private Limited (hereinafter called “Operational Creditor”) seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Naaptol Online Shopping Pvt. Ltd. (hereinafter called “Respondent”) by invoking the provisions of Section 9 Insolvency and Bankruptcy Code, 2016 (hereinafter called “Code”) read with Rule 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for resolution of an Operational Debt of Rs. 1,99,73,825/- (Rupees One Crore Ninety Nine Lakhs Seventy three Thousand Eight Hundred and Twenty Five only).

2. The submissions by the Operational Creditor are as follows:

a. The Operational Creditor is engaged in the business of trade, distribution and other allied activities. The Corporate Debtor is engaged in the business of providing order processing services and web portal for online comparison shopping, and through various publications like newspapers, magazines, credit card statements, online websites, emails, television channels and other public or private media which Naaptol uses to reach out to customers;

b. The Operational Creditor was appointed as Carrying and Forwarding Agent (CAF) for Corporate Debtor for the State of Karnataka. The business start date for the Andhra Pradesh location was 19 August 2014 while Corporate Debtor terminated business on 13 July 2018. However, the last lot of the stock as per the Operational Creditor was moved on 24 September 2018.

c. The total amount outstanding to be recovered as per the Operational Creditor is Rs. 1,99,73,825/- and interest @18% p.a. till the date of realization.

3. The submissions of the Respondent/Corporate Debtor are as follows:

a. The Respondent submits that the moot question of law involved in the present petition does not involve any valid or bonafide grounds that may be the basis of invoking the jurisdiction of this Hon’ble Tribunal. It is a matter of fact that the case of the parties admittedly involves prior existing dispute arising from a commercial agreement for carrying and forwarding resulting into a commercial transaction which has been executed between the parties for their commercial gains and objectives.

b. The Respondent Company is an ongoing concern having regular business and employment of employees. The Respondent Company, directly and indirectly, employs 650 workers and staffs.

c. The Petitioner/Operational Creditor is not even an existing entity in the eyes of law and have been struck of from the records of the ROC before the filing of this claim or issuing of the Demand Notice to the Respondent. Also, the registered office address of the Petitioner is different than what is mentioned in the cause title. The Petitioner therefore no longer is a corporate body and hence cannot ask for the claims under the garb of representing to be a corporate body under the Code or as a party to any agreement between the parties. The Petitioner was engaged in business of trade, distribution and other allied activities and was appointed as Carrying and Forwarding Agent for the state of Andhra Pradesh & Karnataka for the Vendors using the platform of the Respondent.

d. In or around 2014 the Petitioner approached the Respondent with a desire to be appointed as the carrying forwarding agent for the Vendors using the platform of the Respondent for the marketing, sale and promotion of the products manufactured by the vendors. That in pursuance of the said intent the Petitioner entered into various tripartite Agreements with the Vendors who were using the Platform of the Respondent and the Respondent was only a Confirming Party to the tripartite Agreements. These tripartite agreements were executed and entered into for the purpose of carrying and forwarding goods and services of the vendors of the Respondent as agreed upon in the state of Andhra Pradesh and Karnataka.

e. From the bare perusal of the CFA Agreement, as per the Respondent, it is crystal clear that the Petitioner had categorically agreed to discharge its functions and duties and be bound by the terms and conditions under the CFA Agreement which it is has miserably failed to do as more particularly enumerated below. The relevant extract to this effect to this effect is reproduced herein below:

Clause 2.5 “by agreeing to participate as a “Agent”. Agent agrees to be bound by terms and conditions contained in this Agreement, Agent, agrees that any of Agent’s representatives, employees, affiliate or any person or entity acting on its behalf, shall be bound by and shall abide by, the Terms and Conditions of this Agreement. All parties agrees to abide by all conditions as set out herein below.”

f. The Respondent mentions that the claims of the Petitioner under the present Petition is two-fold under the CFA Agreement. This arises out of the alleged non-payment of Service/Commission fees and the Security Deposit which is wrongly termed as Investment Deposit. It is to be noted that that the Petitioner was in clear breach of its obligations under the CFA Agreement which was time and again brought to the notice of the Petitioner. In addition to the same the Petitioner also misplaced and/ or lost and/ or misappropriated the Inventory lying with it of the Vendors Products and till date has not returned the same. Under the Agreement the primary obligation for payment of any tax and statutory dues was of the Petitioner and not of the Vendor or the Respondent. Once the said statutory dues and taxes have been paid by the Petitioner, the Petitioner has to submit the F forms and other documents and challans acknowledging the payment of tax and statutory dues by the Petitioner to the appropriate authorities within a specified period to time. After submitting such relevant documents, it is then the duty of the Vendor to reimburse the amount paid by the Petitioner towards Tax and other statutory dues. It will not be incorrect to mention here that the Respondent had to only facilitate the process between the Petitioner and the Vendor and was under no obligation to pay or reimburse the amount towards Tax and other statutory dues as alleged by the Petitioner. Also, the Service fees of the Commission as alleged to be remained unpaid to the Petitioner under the Agreement was also to be paid by the Vendor and the Respondent has no role to play in the payment of such Service Fees/Commission Fees as the Petitioner was the Agent of the Vendor and the Respondent was only a confirming Party to the Agreement who had no role to play in the payment of the Service Fees/Commission Fees. In addition to the above, the Security Deposit was taken from the Petitioner to secure the Inventory of the Products of the Vendor lying with the Petitioner. The Security Deposit which was to be returned to the Petitioner as alleged was withheld by the Respondent as the Petitioner misplaced and/ or lost and/ or misappropriated of the Inventory lying with the Petitioner and has failed to return the same to the Respondent.

g. Under the terms of the Agreement the liability towards payment of statutory dues inclusive of the VAT was expressly laid down on the Petitioner under clause 6 of the Agreement. In addition to this the clause categorically reads that the relevant tax payable to the Petitioner is to be sent by the Vendor to the Petitioner and not the Respondent.

h. From the bare perusal of the above clause the Agreement had to perform his obligations under the contract and was obligated to pay timely VAT and Sales Tax and submit the appropriate F forms and challans to the Vendor and the Corporate Debtor. It is an admitted position that the Petitioner failed to pay the VAT and Sales Tax to the appropriate authorities and thereby further failed to submit the relevant F forms to the Vendor and the Respondent. This act of the Petitioners was constantly affecting the Vendor and the Respondent as they were unable close and complete their accounting in the absence of the F Forms. Also making them susceptible for action under applicable statutory authorities of tax.

i. The Petitioner was given umpteen reminders to comply with this obligation however, the Petitioner paid a deaf ear to the repeated request of the Respondent. The Petitioner in fact in haste to receive money gave false information of F forms to the Respondent and the form F details so tendered were having same numbers.

j. Further the Petitioner has continued to commit breach of the contract by not returning the inventories in its possession in good condition to the Merchant which it was obligated to post termination of the Agreement pursuant to which the Respondent would make refund of the security deposit. The relevant clauses for the obligation of the Petitioner to return the inventory are reproduced hereinbelow:

Clause 2.4: The termination of this Agreement will also cause refund of the security Deposit to be made payable to the Agent after proper reconciliation of the stocks and/or Products remaining unsold is returned back to the Merchant in a saleable condition.

Clause 10.2: Agent shall return all Inventories in its possession to merchant in good condition within seven days from the date of notice of termination. Agent will not have any claims whatsoever on such Inventory and it will not hold or delay in returning the Inventory for whatsoever reason once merchant has given instructions to return the Inventory.

k. The Respondent mentions that it was only a facilitator between the Vendor and the Petitioner and both the Vendor and the Petitioner were using the Respondent’s platform for sale and distribution of the Vendor’s products. A bare perusal of clauses 12.3 of the Agreement brings out that the Respondent does not have any ownership interest, no financial interest in, and no control over the Vendor of the Petitioner. Thus, the Respondent was only a facilitator and under the garb of the Agreement the Petitioner instead of filing a case for its dues if any against the Vendor has malafidely sought to mislead this Tribunal by initiating a frivolous Section 9 Petition against the Respondent.

l. The Respondent despite all these issues and disputes between parties as a facilitator reached out to the Vendors to give clearance for closure of the balances claimed by the Petitioner. However, Vendors were not keen in closing the balances of the petitioner due to pending F Forms and pending stocks and/ or Products of the Vendors.

m. The Petitioner knowing its breaches and the malafide committed on its behalf was not able to provide all the F forms or due to its misappropriation of products was not able to provide the missing Inventory till date and thus tried to create false claims under assured income which was never ever assured to the Petitioner and could not have been assured in the case of the breaches committed by the petitioner. It is then that the Petitioner after 3 years from the termination sent a claim Rs. 199,73,825/- as a pure afterthought in its preparation to invoke the Code after 3 years from the prior existing dispute. The Respondent vide its email has subsequently replied to such a frivolous claim which were raised for the first time.

n. Thus even prior to issuance of the notice under the Code by the Petitioner, the Respondent had already invoked arbitration to adjudicate the disputes with the Petitioner and thus the Petitioner could not have invoked the process under the Code, 2016 by issuing any Demand Notice to the Respondent. The Respondent had with respect to the prior existing disputes in terms of non-submission of pending F Form and non-return of the Inventory issued a detailed claim under the Arbitration Notice. Even after the receipt of the Arbitration Notice, the Petitioner as an after though went ahead and issued a demand notice through a back dated notice under the Code, 2016 dated 11.01.2019 which was only received by the Respondent on 21.01.2019 claiming an amount of Rs. 199,73,825/- and an interest of 18% p.a.

o. The Respondent provided an interim reply dated 06.02.2018 to the Petitioner clearly disputing the claim in the light of the prior existing dispute. However, the same was also returned with remark wrong address.

p. In addition to the above the Respondent has already issued a notice of Arbitration to the Petitioner even before the Petitioner issued the Demand Notice. Also, the Petitioner is no longer a corporate body and has represented to be company even after its name is struck off from the RoC. Therefore, as per the Respondent and the director is guilty of committing an offence under Section 248(7) of the Companies Act.

q. For the reason set out, the respondent submits that the present petition under section 9 of the Code should be dismissed against respondent in interest of justice.

FINDINGS

4. This Company Petition has been filed by Operational Creditor, Adaqi Infra Pvt. Ltd. under Section 9 of IBC, 2016 against Corporate Debtor, Naaptol Online Shopping Pvt. Ltd. seeking recovery of Operational Debt of Rs.1,99,73,825/-. This Bench notes that this Operational Debt has arisen out of a tripartite agreement entered between M/s Corgifts (“Merchant / Vendor”), the Petitioner (“Agent”), and the Respondent. The Respondent provided a shopping platform and logistical and warehousing support. The Petitioner in question is essentially a carrying and forwarding agent of Marchant/Vendor for sales of goods using online shopping platform of the Respondent in the State of Karnataka and Andhra Pradesh.

5. The Bench here notes that in terms of tripartite agreement, description of engaging parties has been provided at the beginning of the Agreement as well as at para 9.1 of the Agreement. The Respondent i.e. Naaptol is a “confirming party” and further in terms of para 12.3 the Respondent has no ownership interest in, no financial interest in, and no control over the Merchant or the Agents. Here, again it is clarified that Merchant in the Tripartite Agreement is M/s Corgift, M/s Adaqi Infra Pvt Ltd is the Carry and Forwarding Agent and M/s Naaptol Online Shopping Pvt. Ltd. as the “Confirming Party”.

6. As per the Tripartite Agreement, the Petitioner was obliged to maintain sufficient inventory of the Marchant Products; store the same in its warehouse; and forward/dispatch them, as directed by the Merchant. As per the Petitioner, the debt claimed is essentially arising out of the following:

The Petitioner has claimed an amount of Rs. 90,00,000/- towards refund of security deposit. Such security deposit was an interest fee deposit furnished by the Petitioner to the Respondent for the limited purposes of securing the inventory of the merchant’s product lying with the Petitioner.

7. The Bench would like to refer to clause 2.4 and 10.2 of the Tripartite agreement which states as under:

“2.4- The termination of this Agreement will also cause upon the refund of Security Deposit to be made payable to the Agent by Naaptol after proper reconciliation of the stocks and/or project remaining unsold is returned back to the Merchant in saleable condition”

“10.2- Agent shall return all the Inventories in its possession to Merchant in good condition within seven days from the date of notice of termination. Agent shall not have any claims whatsoever on such inventory and it will not hold or delay in returning the Inventory for whatsoever reason once Merchant has given instructions to return the Inventory.”

8. It is the claim of the Petitioner that subsequent to termination of the tripartite agreement on July, 13, 2018 the remaining inventory was returned in September 2018. The Petitioner also mentions that remaining security deposit has not been returned by Respondent to the Petitioner. However, the Respondent side mentions that it is a pre-condition for the refund of the security deposit that the same would be done after proper reconciliation of stock and return of the unsold inventory in saleable condition back to the Merchant. The Bench notes that between October 2017 till December 2018 several letters and emails addressed to the Petitioner has been written/ issued by respondent which essentially calls upon the petitioner to return the unsold inventory and thereafter reconciliation and settle the account. However, the Bench notes that the petitioner side has not put before the Bench even a single letter, mail or communication which can confirm that it had returned the inventory and reconciled the amount. Therefore, the Bench feels as per clause 2.4, the Respondent has correctly withheld the security deposit as the unsold inventory was not returned to the merchant after proper re-conciliation of account.

9. The petitioner has claimed service fee/commission from the Respondent. The claim of Rs. 88,25,365/- as the service fee/commission payable by the Respondent is admittedly premised on the formula contained in Clause 2 of Annexure “B” of the tripartite agreement which reads as under:

“Commercials

1. In consideration of the services being rendered by Agent pursuant to the terms of this Agreement, it shall be entitled to receive carrying and forwarding service fees (Hereinafter referred to as Service fees) from commencement of their respective carrying and forwarding operations. Agent shall submit its invoice of service charges monthly on an actual basis and the same will be paid by the Merchant by 20th of the following month.

2. The merchant agrees to offer service fees of 3% on net sales turnover of the Merchant excluding taxes managed by the Agent as per the logins made into the internet accessible online portal system. Service tax as applicable would be borne by the Merchant only. The above mentioned service fees may be modified as per the business needs or the scale of transactions being undertaken by the Agent and would be communicated to the Agent in writing from time to time. All invoices raised upon distributors by Merchant through agent shall carry commission percentage to the Agent.

3. Naaptol endeavors to provide CFA business turnover equivalent to 12 times the Deposit, in a financial year. Such deposit shall be monitored quarterly and revised (i.e. increased or decreased as the case may be) as mutually agreed between the parties.

4. The Agent shall raise an Invoice for the service fees of the previous month on the 1st of the Subsequent month and the merchant would pay the same vide Real Time Gross Settlement (RTGS) or Account Payee cheque by 20th of that month”. [Emphasis Supplied]

A plain reading of the above clause makes clear to the Bench that liability of payment of such service fee/commission is on the Merchant and not on the Respondent. As far as the Respondent is concerned it would only endeavour to increase the business turn over equivalent to 12 times the deposit amount. It is clear that it is not binding on the Respondent as alleged by the Petitioner. The said clause says that the Respondent would ‘only endeavour’ to provide. In fact, the Respondent, even though the clause was not binding nature, have already paid an amount of Rs. 52,59,635 to the Petitioner under this clause.

It is clear to this Bench that as per the clause of the Agreement, the Respondent has merely endeavoured and not assured to pay towards service fee/commission from time to time. In fact, it was for the Merchant to pay service fee of Rs. 3% on the net turnover regarding payment of VAT/GST as well as taxes."

10. In this regard, the Bench would refer to clauses 4,5 and 6 of the annexure “B” of the agreement which reads as under:

4. The Agent shall raise an Invoice for the service fees of the previous month on the 1st of the Subsequent month and the merchant would pay the same vide Real Time Gross Settlement (RTGS) or Account payee Cheque by 20th of that month.

5. The VAT (Value Added Tax Act) liability payable within the Sate shall be reimbursed by the Merchant. Such amount shall be paid in advance to Agent by merchant 3 working days before the due date.

6. The Merchant shall deduct from service charges payable to the Agent any expenses incurred by the Merchant on behalf of or for the Agent and any applicable tax or any related amounts require to be deducted under statutory provisions as mutually agreed. (Emphasis supplied)

11. As per the above clauses of the Tripartite Agreement, it is the Merchant and not the Confirming Party, i.e., the Respondent, who is under obligation to reimburse the VAT payable to the Petitioner. The Merchant is also liable to reimburse to the Petitioner in respect of all associated Government levies, taxes as paid or payable by the Petitioner. The Bench notes that the petitioner, for seeking payment from Respondent has relied upon clause 8.5 of the tripartite Agreement which reads as under:

“Merchant confirms and warrants that in the event that the service fees or VAT reimbursement of the Agent is not paid to the Agent before the respective due date for each month, Naaptol shall deduct the required amounts of VAT, service fees from the monthly settlement of the Merchant and pay the same to the Agent before the due date of the same month”.

However, the reference by the Petitioner to the above clause is erroneous and misplaced as payment by the Respondent only on the warranty and confirmation by the merchant the Respondent can deduct the required amount of debt. However, the Bench notes that no such Merchant confirmation or warrant has ever been issued by the Merchant and, therefore, any deduction of the required amount of VAT etc based on mere submission of petitioner, is not admissible. The Bench also notes that in all these matters the Respondent role is in the capacity of the “Confirming Party” to the Tripartite Agreement, merely undertaken to communicate with the Merchant for timely release and disbursement of Service Fee and VAT.

12. The Bench, after reading holistically and harmoniously with Clause 6 and Clause 8.3 of the Tripartite agreement is of the clear view that the Respondent is under no obligation to make payment of the VAT/Sales Tax to the Petitioner, as it is basic responsibility of the Merchant and not the “Confirming Party” to make such payment. Even the Merchant only after proper reconciliation of inventory and after forwarding of Form ‘F’ on a monthly basis by the Petitioner was to consider any payment due.

13. While on this, the Bench notes that issue date of demand notice by Petitioner to the Respondent is 11.01.2019. However, during hearing it was submitted by the Respondent that demand notice was actually issued through courier by the Petitioner only on 16.01.2019 and delivered on 21.01.2019. This, the Bench notes, is important to note since by that date that the Respondent, in terms of clause 12.8 of the Tripartite Agreement, had already issued a notice to the Petitioner regarding various default in breach on the part of the Petitioner of the tripartite agreement. Therefore, the Bench notes that the Demand Notice was effectively sent on 16.01.2019 whereas the invocation of arbitration regarding breach of contract as per the Tripartite Agreement was issued on 14.01.2019. A bare perusal of the track report reveals that demand notice came to be dispatched only on 16.01.2019 i.e. 2 days after the issuance and receipt of the arbitration notice by the Petitioner from the Respondent.

14. The bench in a nutshell notes that there are plethora of disputes existing between the parties. The Petitioner has failed to comply with the obligation set out under the Tripartite Agreement, subsequent to the termination of the agreement on 13.07.2018. This includes non-providing of pending Form ‘F’ and return of unsold inventory. With the result reconciliation of account could not take place and therefore the issue of refund of security deposits could not be finalized and decided. It is well settled proposition of law that for a petition under Section 9 of the Code, if there is a prior dispute existing between the parties, the petition cannot be admitted as it is not maintainable. In this case the Hon’ble Supreme Court in its Order in the matter of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited makes it clear that: 51. it is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must the 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 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 success. 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.

15. Keeping in view that there are real and palpable pre-existing disputes between the parties, the Bench does not have any option except to reject the above Company Petition. Accordingly, the above Company Petition bearing no. 470 of 2019 is ‘DISMISSED’.