NCLAT Dismisses Proceedings Initiated u/s 9 of I & B Code against Kerala Medical Services Corporation based upon a material concealment of fact [Read Order]

“A Person who approaches Judicial forum for adjudication has to approach it with clean hands”, the two member bench of Justice Sharad Kumar Sharma, Member (Judicial), and Jatindranath Swain, Member (Technical) ruled.

M/s. D.J. Laboratries Pvt. Ltd, the appellant is an Operational Creditor (OC), who contended that he was a supplier of drugs and medicines to the Corporate Debtor (CD), that four/tenders, which were awarded by the CD in his favour on 07.01.2010, 10.01.2012, 12.06.2012 & 22.12.2012, that he supplied drugs and medicines against various purchase orders issued by the CD and delivered the same to the designated warehouses, and that the CD had acknowledged the receipt of the same from time to time.

He further contended that, the Corporate Debtor during the subsistence of the tenders, did not raise any objection qua the quality of the goods supplied till he approached MSEFC, Bhopal, that when he, the Appellant applied the Micro and Small enterprises Facilitation Council (MSEFC), Bhopal for payment of unpaid dues, the CD raised quality issues for the supplies made by him for the first time and that in the proceeding M.S.E.F.C./592/2014, MSEFC, Bhopal delivered its award on 16.04.2018 asking the CD to pay him Rs. 2,12,48,146.48, inclusive of the Principal and the interest thereon.

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The Appellant has further stated that owing to the determination of the settled liability, as it has been fastened upon the Respondent by the award of MSEFC, Bhopal dated 16.04.2018, he issued of the Demand Notice in Form-III & Form-IV, to the Corporate Debtor on 05.05.2021, and since the CD failed to make any payment in response to such notice, he filed the Application under Section 9 of I & B Code against the CD. However, the NCLT, Kochi dismissed the application on 11.03.2022 on the grounds of pre-existing disputes with regard to dates & suppression of facts and imposed a cost of Rs. 26,000/-.

The Appellant, that based upon the award dated 16.04.2018 and determination of the liability that had been made, he had preferred an application under Section 9 of I & B Code, 2016, which was numbered as CP(IB)/46/KOB/2021, being the proceedings initiated under Section 9 of I & B Code, 2016, that though the Respondent CD in his reply to the demand notice has stated that the award made by the M.S.E.F.C. dated 16.04.2018, is presently the subject matter pending consideration in Writ Petition is currently subjudice as orders have been passed on the same till date, since in the Writ Petition there operates no Interim Order, therefore, the amount of liability as quantified by the award dated 16.04.2018, will have to be treated as financial debt due and hence drawing of the proceedings under Section 9 of I&B Code, by him was absolutely justified.

It has been the contention of the Appellant that, being an Operational Creditor, there stood a business relationship for the purpose of supply of drugs and medicines by him, which were alleged to have been delivered to the various warehouses of the Corporate Debtor and despite of the invoices being raised, the said amount was not credited into his accounts.

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Further held that though the Respondent has stated that, the basis of demand notice under Section 8 of I & B Code, is a fallacy, for the reason being that the award which was rendered by the M.S.E.F.C. is already a subject matter of consideration in Writ Petition (C) No. 25454/2018, until and unless the quantification made by the M.S.E.F.C. award dated 16.04.2018, is accorded finality by the adjudication,, the same cannot be taken as to be the basis of issuance of the Demand Notice, it will not have any impact on his Application as there is no interior stay.

The logic, assigned by the Tribunal while rejecting the application under Section 9 of I & B Code, is that in the pleading and documentation that was filed by the Applicant/Appellant, there has been substantial concealment of material and vital facts. The Tribunal rejected the application under Section 9 of I & B Code, on the ground that no equity lies in favour of the Appellant, because the proceedings that were drawn under Section 9 of I & B Code, was based upon a concealment of vital materials and facts including the pendency of two Writ Petitions and the reply submitted to the Demand Notice by the Corporate Debtor, and upon a false pleading that, on record the contents of the Demand Notice as such was not replied and controverted by the Respondent, and hence it will be deemed to be true for the purposes of the initiation of the proceedings under Section 9 of I & B Code.

The Appellate Tribunal is of the view that, in the courts of law when a party approaches for adjudication of his grievances or to press any of its legally enforceable rights it is expected to approach the Court/Tribunals with clean hand in the instant case, there have been

The tribunal relied on the observation of Apex Court that, “a person who approaches the judicial forum for adjudication of his rights has to approach it with clean hands and if there is a material concealment of fact or facts, which has got a vital bearing on the merits of the matter, he is not even supposed to be heard.”

In view of the fact that the entire proceedings under Section 9 of I & B Code, as initiated by the Appellant was based upon a material concealment of fact in addition to there being evidence of pre-existing disputes, the bench held that application preferred under Section 9 of I & B Code, was rightly rejected by the Tribunal which does not call for any interference.

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