IN THE NATIONAL COMPANY LAW TRIBUNAL

MUMBAI BENCH

C.P. No. 2501/I&BP/2019

Under section 8 & 9 of the IBC, 2016
In the matter of
Jain Sales
BLK-E, House No. 108, 2nd Floor, Pkt-15,
Sector-8, Rohini, North West Delhi-110085

.... Petitioner
V/s.
Mswipe Technologies Pvt. Ltd.
Astral Centre 9th Floor, N.M Joshi Marg,
Mumbai-400011
…. Corporate Debtor

Order delivered on: 07.11.2019

Coram: Hon’ble Smt. Suchitra Kanuparthi, Member (Judicial)

Hon’ble Shri V. Nallasenapathy, Member (Technical)

For the Petitioner: Adv. Vijay Sharma

For the Corporate Debtor: Adv. Chitrangada Singh i/b Clove Legal

Per: Suchitra Kanuparthi Member (Judicial)

ORDER
Order pronounced on 22.10.2019
1. This company Petition is filed by Jain Sales (hereinafter called "Petitioner")
seeking to set in motion the Corporate Insolvency Resolution Process (CIRP)
against Mswipe Technologies Private Limited (hereinafter called "Corporate
Debtor") alleging that Corporate Debtor committed default in making payment of
Rs. 34,66,549/- by invoking the provisions of Section 8 and 9 of the Insolvency &

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Bankruptcy Code (hereinafter called "Code") read with Rule 5 and 6 of Insolvency
& Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

2. The Petition reveals that, the Petitioner herein is a sole proprietor availed
the Corporate Debtor POS machine and transaction processing services vide a
telephonic contract. In consideration of the transaction processing services
provide by the Corporate Debtor, the Petitioner agreed to pay fees and merchant
discount rate (MDR) in respect of the transaction process through a POS machine
and thus bound by the terms and conditions of the agreement for usage of the
said POS machine.

3. As per the terms and conditions of the agreement, the Corporate Debtor
would send statement of account to the Petitioner, wherein after deducting the
charges payable for the services availed by the Petitioner, the Corporate Debtor
will pay the amount collected through the swipe machines to the Petitioner.
Accordingly, the Petitioner kept on swiping the swipe machine given by the
Corporate Debtor and the Petitioner has been getting back the amount from the
Corporate Debtor after deduction of fees levied by the Corporate Debtor.

4. The Petitioner submits that the Corporate Debtor was not deducting
Merchant Discount Rate (MDR) from the amount collected through swipe
transactions from the amount collected through swipe transactions from the
beginning till 23.09.2018 but all of sudden on 26.09.2018, the Corporate Debtor
deducted an amount of Rs. 12,45,351/- and Rs. 22,21,197/-(totally
Rs.34,66,549/-) without any terms and conditions and without any prior notice to
the Petitioner.

5. The Petitioner sent the statutory demand notice under section 8 of IBC
dated 19.12.2018 to the Corporate Debtor demanding payment of unpaid
operational debt amounting to Rs.34,66,549/- as on 26.09.2019 within a period
of ten days.

6. The Corporate Debtor by reply through an advocate dated 28.01.2019

denied the liability and inter-alia among other things contended as below:

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“Prior to dealing with your allegations made in the notice paragraph wise, we wish
to apprise you of the fact and place the same on record as under:
(a) Our client is inter alia engaged in the business of providing transaction
processing services through its point of sale (POS) machines, mobile
applications or payment gateways used to facilitate credit card, debit
card and other digital payments to its merchants.
(b) Our client states that Jain Sales, sole proprietorship of Mr. Chandan Jain,
having address at BLKE, house no. 108, 2ndfloor, PKT-15, Sector-8,
Rohini, north West, Delhi-110085 (hereinafter referred to as “your
client”) has agreed to avail our client’s POS machine and transaction
processing services by signing the merchant terms and conditions on
December 26, 2017 (“Agreement”). As per the terms of the Agreement,
in consideration of the transaction processing services by our client, your
client had agreed to pay fees and merchant discount rate (“MDR”) with
respect to each transaction processed through the POS machine in
accordance with the terms of the Agreement.
(c) Our client states that inter alia your client has agreed to certain
provisions as are provided in the agreement which are reproduced
herein below:
“In consideration of the transaction processing services the merchant
agrees to pay to Mswipe, the Merchant Discount Rate as mentioned in
the application and any further charges as detailed in the application and
or these terms and conditions, which shall be deducted by Mswipe from
the amounts payable to the merchant in respect of a transaction
amount.”
“Mswipe will be entitled at any time to set-off and adjust outstanding of
the merchant, against all payments due to the merchant and such set-
off and/or adjustments shall be final and binding on the merchant.”
“Neither the receipt by Mswipe of any transaction information nor any
payment by or any act of omission by Mswipe (other than an express
written acknowledgement or waiver thereof by Mswipe) shall constitute
or be deemed to constitute any acknowledgement or waiver of

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compliance by the merchant with any of the warranties specified in this

application.”
(d) It is pertinent to state and clarify that by virtue of the terms of the
Agreement and pursuant to the understanding hereinabove that your
client has authorized our client to deduct such MDR due and payable,
from the transaction amounts to be remitted to your client, without any
further notification or intimation. Our client further states that, due to a
technical error in its system, our client was unable to recover the entire
amounts of MDR due to it from your client for a period between January
2018 to September 2018. Upon discovery of the glitch in the system,
our client had deducted an amount of Rs. 34,66,549/- (Rupees Thirty-
Four Lakhs Sixty-Six Thousand Five Hundred and Forty-Nine only)
(“Deducted Amount”) from the transaction amounts remitted to your
client and demanded vide its emails dated October 11,2019 an
aggregate amount of Rs. 18,79,029/- (Rupees Eighteen Lakhs Seventy-
Nine Thousand and Twenty-Nine Only) being outstanding amount of
MDR payable by your client (“Outstanding Amount”).
(e) However, to our client’s utter shock and surprise, your client has denied
the legitimacy of our client’s claims as per the terms of the agreement,
and denied any payment to be made to our client on a false, frivolous
and baseless pretext that amounts were due to be paid by our client to
your client. Our client states that MDR is applicable on all transactions
made through our client’s point of sale machines. All transactions have
been managed and facilitated in accordance with our client’s standard
terms and conditions to which all the merchants of our client agrees to
be bound with including your client as evidenced from paragraph 3 of
the notice. Therefore, the monies deducted from the transaction amount
are towards legitimate fee in accordance with terms of the agreement.”

7. The Corporate Debtor filed reply to the Petition and the following are the
contentions:
a. The Petitioner agreed to pay fees and MDR in consideration of the
transactions processed through the POS machines provided by the

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Corporate Debtor in accordance with the terms of the agreement. Further

the amount of MDR chargeable on a particular valid card has been stated
under the application made by the Petitioner to the Corporate Debtor read
along with the merchant terms and conditions.

b. The Petitioner is bound by the provisions of the agreement regarding

payment and the same are as below:
“16.1 “in consideration of the transaction processing services the Merchant
agrees to pay to Mswipe, the MDR (Merchant discount rate) as mentioned in
the Application and any further charges as detailed in the application and or
these terms and conditions, which shall be deducted by Mswipe from the
amounts payable to the Merchant in respect of a transaction amount.”
17.8 “Neither the receipt by Mswipe of any transaction information nor any
payment by or any act of omission by Mswipe (other than an express written
acknowledgment or waiver there if by Mswipe) shall constitute or be deemed
to constitute any acknowledgment or waiver of compliance by the Merchant
with any of the warranties specified in this Application.”
18.1 “Mswipe will be entitled, at any time to set-off and adjust outstanding
of the Merchant, against all payments due to the Merchant and such set-off
and/or adjustments shall be final and binding on the Merchant.”

c. By virtue of the terms of the agreement stated supra, the Petitioner has
authorized the Corporate Debtor to deduct such MDR due and payable from
the transaction amounts to be remitted to the Petitioner in due course
without any prior intimation or notification.

d. Due to a technical error in its system, the Corporate Debtor had not
recovered the entire amounts of MDR due from the Petitioner for a period
between January 2018 to September 2018. Upon discovery of the glitch in
the system, the Corporate Debtor deducted an amount of Rs. 34,66,549/-
(Rupees Thirty-Four Lakhs Sixty-Six Thousand Five Hundred and Forty-Nine
Only) (“Deducted amount”) from the transaction amounts remitted to the

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Petitioner. Further the Corporate Debtor is yet to recover a sum of Rs.

18,79,029/- from the Petitioner.

e. The MDR is applicable on all transactions made through the Corporate

Debtor’s POS machines, all transactions were managed and facilitated in
accordance with Corporate Debtor’s standard terms and conditions to which
all merchants agreed to be bound by including the Petitioner, therefore the
amount deducted from the transaction amount are towards legitimate fees
arising out of contractual obligations.

f. The Corporate Debtor submits that the MDR deducted by the Corporate
Debtor from the amount payable to the Petitioner is not a claim as defined
under the Code, since there is no liability or obligation on the part of the
Corporate Debtor to pay such amount to the Petitioner. It is further
submitted that the Petitioner is a merchant who is recipient of service
provided by the Corporate Debtor for which he is liable to pay and hence
the amount deducted cannot be categorized as an operational debt.

g. The amount deducted is in terms of agreement entered into between the

parties and the Corporate Debtor is well within its rights under the terms of
the agreement to deduct the un-deducted MDR and authorized to deduct
such MDR amount from the transaction amount to be remitted to the
Petitioner.

h. The Corporate Debtor submits that there is a pre-existing dispute in respect

of claims made by the Petitioner and the Corporate Debtor has made its
claim prior to the issue of the demand notice and in fact the amount has
already been deducted and hence the Petition is not maintainable.

8. The counsel for the Petitioner vehemently argued that the Corporate Debtor
is not entitled to deduct MDR charges and accordingly was not deducting the MDR
charges from the very beginning till 26.09.2018 but all on a sudden deducted an
amount of Rs. 12,45,351/- and Rs. 22,21,197/- in violation of the terms and

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conditions without any prior notice to the Petitioner. It is further submitted that,
even otherwise, the Corporate Debtor could not have deducted MDR after two
days of settlement, in view of the fact that the Corporate Debtor imposed a
disclaimer on the Petitioner while sending the statement of accounts that the
Petitioner has to inform the discrepancy in the accounts within two days of receipt
of statement sent by the Corporate Debtor to the Petitioner. Hence the two days’
time limit will ipso facto apply to the Corporate Debtor also and the deduction
made herein after a long period of settlement is not in order and the Petitioner is
entitled to get back the amount wrongly deducted from the receivable by the
Petitioner.

9. The above submissions of the counsel for the Petitioner is diagonally

opposite to the terms and conditions of the agreement wherein it is specifically
stated that the Corporate Debtor is entitled to charge MDR charges.

10. The counsel for the Petitioner further submitted that the Corporate Debtor
has neither provided the copy of the agreement nor the Petitioner has signed the
agreement. To counter this submission the counsel for the Corporate Debtor
submits that the terms and conditions of the agreement are executed through an
telephonic Contract and in fact only when the terms and conditions are agreed by
the Petitioner the next step will happen and accordingly the parties entered into
the terms and started doing business, hence the submissions of the Petitioner are
false and misleading.

11. The Claim made by the Petitioner in the present application is not a ‘Claim’
under the Code since there is no right to payment in respect of the amount which
is the MDR deducted by the Corporate Debtor in the present case. Therefore, such
claim is not debt in terms of the Code since there is no liability or obligation on
part of the Corporate Debtor to pay such amount to the Petitioner. Since, there is
no debt due towards the Petitioner by the Corporate Debtor, there is no question
of default on the part of the Corporate Debtor.

12. In the light of the above narration and in view of the pre-existing dispute
raised by the Corporate Debtor by an email dated 08.10.2018 claimed that the

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Corporate Debtor rightly withheld that the Amount of Rs 22,21,197/- and also
demanded further amount of Rs 8,25,112/- and Rs 10,53,917/- from the
Petitioner and this is much prior to the demand notice dated 19.12.2019 issued
by the Petitioner herein. Therefore, this bench is of the view that there is a
plausible dispute raised by the Corporate Debtor and the petition is liable to be
dismissed.

13. It is appropriate to cite the decision of the Hon’ble Supreme Court in the
case of Mobilox Innovations Pvt. Ltd. V/s Kirusa Software (P) Limited 2017 (SCC
Online SC 1154) held as below: -
“40…… Therefore, all the adjudicating authority is to see 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 defense which is mere bluster. However, in doing so, the
Court does not need to be satisfied that the defense is likely to
succeed. 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”

14. When the law laid down by the Hon’ble Supreme Court in the above case is
applied to the facts of the present case it is established that there is a clear dispute
as to the amount claimed by the Corporate Debtor as provided u/s 5(6)(a) of the
Code.

15. In the case on hand the contentions raised by the Corporate Debtor are
neither spurious nor hypothetical nor illusory and in fact there is a dispute as to
existence of the debt payable by the Corporate Debtor.

16. In the light of the above discussions, the Petition is dismissed with liberty
to the Petitioner to proceed accordance with law. No cost. If the Petitioner

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approaches an appropriate forum for the redressal of its grievance the same may
be decided uninfluenced by our observations herein.

Sd/- Sd/-
V. Nallasenapathy Suchitra Kanuparthi
Member (Technical) Member (Judicial)