NCLT Hyderabad initiates insolvency process against Trident Sugars Ltd

The Hyderabad bench, National Company Law Tribunal (“NCLT”) in the case NSL Krishnaveni Sugars Ltd v Trident Sugars Limited, the bench comprising of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri Veera Brahma Rao Arekapudi (Technical Member), the bench observed while adjudicating an application filed in NSL Krishnaveni Sugars Ltd v Trident Sugars Limited and has initiated the Corporate Insolvency Resolution Process (“CIRP”) against Trident Sugars Ltd and Mr. Medi Yadaiah has been appointed as the Interim Resolution Professional (IRP).

Facts of the Case:

The operational Debtor, NSL Krishnaveni Sugars Ltd is a a renowned manufacturer and supplier of sugar in South India. Its plant is situated at Ramakrishnapur Village, Wanaprathi District and It is part of NSL Group of Companies

On an agreement dated 14.11.2019, the Operational Creditor had entered into an agreement with the Corporate Debtor, Trident Sugars Ltd for Molasses Purchase and whereby by the end of March 2020, the latter was to supply Molasses to the tune of 10,000 MT. It was obligated on the part of the Operational Creditor to pay the entire sale consideration price in advance by virtue of the terms of Agreement.

An amount Rs. 5,20,00,000/-, along with GST amounting to Rs. 58,24,000/- had been paid by the Operational Creditor to the Corporate Debtor and Subsequently, both parties by modifying few terms of the original Agreement underwent an Addendum Agreement dated 20.11.2019.

In the present case, the Operational Creditor had performed its part of obligation in paying the entire amount where as Corporate Debtor had short supplied Molasses of 5051.715 MT against 10,000 MT. On 14.03.2020, the last supply was made by the Corporate Debtor and despite several reminders the Corporate Debtor failed to supply the balance quantity of Molasses.

It was observed that due to short supply of 5051.715 MT, the Operational Creditor procured 3500 MT from the open market and contended that it had the right to claim from the Corporate Debtor further the additional Cost from the Corporate Debtor.

A demand notice was issued by the Operational Creditor under Section 8 of the Insolvency and Bankruptcy Code, 2016 on 01.08.2020 to the Corporate Debtor for a default of Rs.3,22,17,993/-, to which nor any dispute was raised and neither any response was received. Therefore, a petition was filled by the Operational Creditor under Section 9 of the IBC, seeking initiation of CIRP against the Corporate Debtor.

Contentions Made by the Corporate Debtor:

It was observed that it was contended by the Corporate Debtor was obligated to supply the agreed quantity by the end of the March 2020 and was therefore not liable to the Operational Creditor, any additional amount who had purchased from the open market before March 2020. Therefore, the corporate debtor had supplied 862.975 MT of material, even after the issuance of demand notice and the entire quantity produced from the Corporate Debtor was supplied to the Operational Creditor from the resultant lock down from 22.03.2020 and due to Covid-19 pandemic and. Further, the operations at the factory were completely closed. Therefore, it was argued that the petition has been filed with intent to drag the Corporate Debtor into insolvency, which will be detrimental to the company and its employees. The petition was challenged under Section 10A of IBC, the provision which prohibits initiation of CIRP over a default that occurred between 25.03.2020 to 24.03.2021.

Contentions Made by the Operational Creditor:

It was argued by the Operational Creditor that the petition was not hit by Section 10A of the IBC as the Corporate Debtor was supposed to supply 5000 MT of Molasses in the month of December 2019 to the month of January 2020; and another 5000 MT in the month of February 2020 to March 2020. Moreover, the Corporate Debtor had only supplied a quantity of 3486.17 MT by January 2020. Since the default occurred prior to 25.03.2020 and behind Section 10A, the Corporate Debtor cannot take shelter.

NCLT Decision:

It was observed by the bench that the Petition was filed for a default of Rs.3,22,17,993/-, however, a sum of Rs.1,50,00,000/- had been paid by the Corporate Debtor to the Operational Creditor. However, the present default was Rs.1,72,19,993/-.

Accordingly, the bench observed that the Corporate Debtor had neither paid the balance amount nor raised any dispute in respect of the quantity or the amount at any point of time. There being no pre-existing dispute. Moreover, the bench initiated CIRP against the Corporate Debtor and Mr. Medi Yadaiah, appointed as the Interim Resolution Professional (IRP).

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