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TMI Blog2024 (8) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Adjudicating Authority admitted the application filed by Respondent No.1 under Section 9 Code and initiated the Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor. Brief Background of the case 2. The Corporate Debtor was incorporated on 06/12/2010 under the provisions of the Companies Act, 1956 with CIN No. U17119PB2010PTC034482, with its registered office at B-VI-I, Kucha No.1, Madhopuri, Ludhiana, Ludhiana, Punjab, India, 141008. The Appellant / Corporate Debtor, Mr. Gulshan Kumar Ahuja, is a member of the suspended Board of Directors of the Corporate Debtor. 3. The Respondent No. 1 / Operational Creditor is a sole proprietor of Aggarwal Enterprises and is engaged in the business of trading and supplying cotton and the same is registered with the GST Department vide GSTIN 03AAJCA0093R1ZF. 4. The Respondent 2 is the Interim Resolution Professional ("IRP") of the Corporate Debtor appointed by the Hon'ble Adjudicating Authority vide Impugned Judgment dated 12/06/2024 passed in C.P. (IB) 410/CHD/PB/2019. 5. Respondent No.1 and Corporate Debtor were involved in the business of trading and supplying cotton and manufacturing cotton yarn respectively. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit ledger of the GST Department upon their direction. 9. Thereafter, on several occasions from 10/04/2019 to 17/05/2019, the Appellant / Corporate Debtor has been summoned by the Additional Director General, Directorate General of GST Intelligence, 2nd Floor, West Block-8 Wing No.6, R.K. Puram, Sector-1, New Delhi - 110 066. 10. The Appellant / Corporate Debtor, vide email dated 28/05/2019, has called upon Respondent No.1 to provide original documents to prove the genuineness of payment of GST at the time of supply made by Respondent No.1. 11. After the Appellant / Corporate Debtor's email dated 28/05/2019, as an afterthought only, Respondent No.1 issued a purported demand notice dated 27/05/2019 which was received by the Appellant / Corporate Debtor only on 31/05/2019 claiming an amount of Rs.1,91,51,792 (One Crore Ninety-One Lakh Fifty-One Thousand Seven Hundred Ninety-Two Rupees Only) including 18% unilateral interest as an alleged due and payable amount from 13/09/2018. Here, it is pertinent to mention that the amount claimed is under dispute since the very basis of the claimed amount i.e., invoices issued by Respondent No.1 is under investigation by the GST Intelligence Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een found to be non-existent during the investigation conducted by the Department against the Appellant / Corporate Debtor. Moreover, in their reply to the Writ Petition, it has also been categorically averred against the Appellant / Corporate Debtor that before the search operation on 25/02/2019, the GST Department gathered various evidence in support of their search operation during which they found the written submission filed by Respondent No.1 and the Appellant / Corporate Debtor. That the Appellant / Corporate Debtor had shown some bogus purchases either directly from many non-existent traders or through intermediaries. Here, it is pertinent to mention that this list includes the name of Respondent No.1. Thus, when the basis of demand notice i.e., invoices is in dispute and pending adjudication before the Hon'ble High Court, more so before issuance of Purported Demand Notice, there exists a preexisting dispute between the parties with regard to the alleged debt. 15. Thereafter, only on 15/11/2019, Respondent No.1, based on the purported demand notice and alleged invoices, filed an application under Section 9 of the Code seeking initiation of the CIRP against the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the dispute by bifurcating the alleged claim amount and determining the Corporate Debtor's liability. This approach, which involves assessing the dispute's quantum and merits, is contrary to the object of the Code and established legal principles. According to settled law, the court should not evaluate the merits of the dispute at the admission stage of a Section 9 Application. 21. Appellant / Corporate Debtor also contends that the Adjudicating Authority addressed the issue of a pre-existing dispute but did not fully consider the Appellant / Corporate Debtor's argument that the GST-related dispute arose before the demand notice was issued. Although the Adjudicating Authority acknowledged the Appellant / Corporate Debtor's claim, it failed to appreciate it fully. The Appellant / Corporate Debtor had requested original documents to verify GST payments from Respondent No. 1 / Operational Creditor and had been involved in an ongoing GST dispute involving alleged bogus invoices, which led to a WP where the GST Department confirmed the invoices as bogus. Therefore, the Adjudicating Authority erred in concluding that there was insufficient evidence of a preexisting dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "operational debt" as defined exceeding Rs. 1 lakh? 2. Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And 3. Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected." 27. Per contra, Respondent contends that there is no fault in the decision of the Adjudicating Authority. The Appellant / Corporate Debtor has not demonstrated any existing dispute between the parties before the demand notice was issued under Section 8 of the Code. The Appellant / Corporate Debtor did not demonstrate any pre-existing dispute regarding the invoices issued by Respondent No. 1 / Operational Creditor for services provided to the Corporate Debtor, which is central to the current appeal. The proceedings mentioned by the Appellant / Corporate Debtor involving the Additional Director General, Directorate General of GST Intelligence, are betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deepak Modi vs Shalfeyo Industries Pvt Ltd and Anr. in CA (AT) (Ins) No. 1019 of 2022. b) Hon'ble Supreme Court in the matter of M/s. S. S. Engineers vs Hindustan Petroleum Corporation Ltd. & Ors. CA No. 4583 of 2022. c) Appellate Tribunal in the matter of Amroop India Pvt Ltd vs The Hi-Tech Gears Ltd CA (AT) (Ins) No. 1251 of 2023. Analysis 35. Heard counsels of both sides and perused all documents on record. 36. The main issue which emerges is whether in the instant case any preexisting dispute exists which would not allow initiation of Section 9 proceedings under the Code against the Appellant / Corporate Debtor/ Corporate Debtor. 37. The Appellant / Corporate Debtor contends that there is a pre-existing dispute between the parties. This dispute is with respect to payment of GST dues on the alleged invoices. The Appellant / Corporate Debtor has also challenged the genuineness of the invoices issued by Respondent No. 1 / Operational Creditor before the Hon'ble Punjab and Haryana High Court Chandigarh. Appellant / Corporate Debtor further contends that Directorate General of GST Intelligence had conducted a raid on the factory of the Corporate Debtor between 25th February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditor has filed all the GST returns applicable to him. These are available in Appeal Paper Book (APB) from pages 317 to 397. It is also an admitted fact that the intelligence officer of Directorate General of GST Intelligence had raided some cotton suppliers, including the Operational Creditor and also issued summons to it. But it has not initiated any legal case against the Operational Creditor. 41. The Corporate Debtor, is claiming that the burden for payment of tax liability of Rs. 20,00,000/- to the GST authorities fell upon him. Presuming that GST of about Rs. 20,00,000/- was to be paid by the Respondent No. 1 / Operational Creditor and which has been paid by the Appellant / Corporate Debtor, which fact is not established as the Respondent No. 1 / Operational Creditor had filed all its GSTR and are on record, even then, after deducting this amount from the total Rs. 1,69,37,567/- the remaining amount is about Rs. 1,49,37,569/- which is above current threshold of Rs.1,00,00,000/-. This has also been noted by the Adjudicating Authority in paragraph 27, which is extracted as below: "27....... Even for the sake of arguments, Rs. 20 lakhs recovered by the GST department from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to be rejected." XXX XXX XXX 51. It is clear, therefore, that once the Operational Creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(i)(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 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST is a matter of dispute between the parties. The facts of the instant case are distinguishable and we do not find any preexisting dispute between the parties due to the GST. 46. Both the Appellant / Corporate Debtor and Respondent No. 1 / Operational Creditor have also placed their reliance on S.S. Engineers v. HPCL, 2022 SCC Online SC 1385 wherein it is held that proceedings before the Adjudicating Authority under the Code are not intended for debt recovery. The purpose of the Code is not to penalize solvent companies by initiating CIRP for disputed claims made by operational creditors. The Supreme Court held as under: "...31. The NCLT, exercising powers under Section 7 or Section 9 of IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalise solvent companies for non-payment of disputed dues claimed by an operational creditor. 32. There are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Pvt Ltd vs The Hi-Tech Gears Ltd CA (AT) (Ins) No. 1251 of 2023, held that: "12. It is a well settled proposition that for a pre-existing dispute to be a ground to nullify an application under Section 9, the dispute raised must truly be existing at the time of filing a reply to notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application." The abovementioned judgements also weaken the case of the Appellant / Corporate Debtor. Findings 48. Basis above analysis and the facts of the instant case, we don't find that the claim of an operational creditor is undisputed and the operational debt remains unpaid. As a result, our findings are: The Corporate Debtor received goods from Respondent No. 1 / Operational Creditor and has an outstanding debt exceeding Rs. 1 lakh. The Appellant / Corporate Debtor's claims of a pre-existing dispute due to the GST raids and alleged fake invoices are not substantiated with material on record as the correspondence and proceedings involving the GST authorities do not constitute a genuine preexisting dispute between the Corporate Debtor and Respondent No. 1 / Operational Creditor concerning the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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