2022 (6) TMI 106 - AT - Insolvency and Bankruptcy

Initiation of CIRP - existence of debt and dispute or not - Payment withheld by the respondent corporate debtor on the ground of alert circular issued by the GST department - It is submitted that, they are still willing to pay the amount once they provide the bank guarantee for the GST amount involved - NCLT rejected the application - HELD THAT - It is not in dispute that the Appellant is a Trader and whenever he used to get any order from any source, he used to put corresponding order on the supplier/manufacturer of that particular goods and used to directly ask them to make direct supply to the concerned source/CD - the Respondent has raised the dispute on the issue of the Input Tax Credit in the reply to the demand notice itself. Although they have not replied within 10 days which is directory in nature but has replied in a very short period (Demand notice is dated 01st July, 2019. Reply received from CD by Appellant on 22nd July, 2019). Hence, it meets the criteria of Section 9 of the Code for raising the dispute. As in the circumstances stated, this is not a moonshine defence. The IBC is a summary proceeding. The role of the Code is limited to Insolvency Resolution to Corporate Persons in a time bound manner in case of initiation of CIRP by Operational Creditor, the Operational debt must be undisputed. As far as the GST dispute is concerned, he is free to approach Appropriate Forum under Chapter V of the Sale of Goods Act, 1930 for redressal of its grievance - I B Code clearly provides for the requirements of following three criteria s before admission of a petition under Section 9 of the Code for initiation of CIRP by Operational Creditor (i) the Debt must be due and payable in law (ii)there must be occurrence of default (iii) the Debt must be undisputed. It is very much clear that the amount is outstanding. But the amount is not due and payable in the law as is very much evident from the facts that one of the supplier of the Appellant has on the basis of intelligence input and investigation conducted by anti invasion branch of the Commissionerate of GST has revealed that the concerned supplier has taken registration under GST Regime is nonexistent and fictious, resulting into perceived loss of more than two times of the outstanding amount loss to the CD without any mistake on the part of the CD - it can be concluded that it is not meeting the criteria of either debt is due and payable in law or the Debt must be undisputed which are the pre-requisite for the admission of case under Section 9 of the Code. The Appellant is not even meeting the criteria as enunciated in Section 9(5)(d) as no notice of dispute has been received by the Operational Creditor. The Operational Creditor has raised the issue with a dispute that the Appellant is not providing bank guarantee. The Appellant /OC has factually failed to communicate that there is no existence of dispute. The Hon ble Supreme Court in TRANSMISSION CORPORATION OF ANDHRA PRADESH LIMITED VERSUS EQUIPMENT CONDUCTORS AND CABLES LIMITED 2018 (10) TMI 1337 - SUPREME COURT has already held that IBC is not intended to be a substitute to a recovery forum and also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked. The Code cannot be used whenever there is existence of real dispute and also whenever the intention is to use the Code as a means for chasing of payment or building pressure for releasing the payments. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the debt claim by the Appellant.
2. Existence of a genuine dispute regarding the debt.
3. Compliance with the requirements under the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

1. Validity of the Debt Claim by the Appellant:
The Appellant, a trader of iron and steel, supplied goods to the Corporate Debtor (CD) and raised invoices amounting to Rs. 30,21,749/-. After accounting for debit notes raised by the CD for quality issues, the Appellant claimed an outstanding amount of Rs. 26,89,290/-. The Appellant argued that this amount became due and payable on 05.05.2019 and that the CD has defaulted in making the payment despite multiple reminders and a demand notice issued on 01.07.2019.

2. Existence of a Genuine Dispute Regarding the Debt:
The CD raised a dispute regarding the input tax credit (ITC) involved in the transactions. The CD cited a circular issued by the Commissioner of CGST Tax and Central Excise, Kolkata, which identified one of the suppliers, M/s. Rathank Retails Pvt. Ltd., as a non-existent and fictitious company involved in issuing fake invoices. The CD expressed concern that if the ITC availed by the Appellant from this supplier is disallowed, it would result in a significant financial liability for the CD. The CD requested the Appellant to provide a bank guarantee for the GST amount involved, which the Appellant refused.

3. Compliance with Requirements under the IBC for Initiating CIRP:
The Adjudicating Authority analyzed whether the debt was due and undisputed, as required under Sections 8 and 9 of the IBC. The Authority noted that the CD had raised a genuine dispute regarding the ITC issue within a reasonable period, even though the reply was received after the statutory period of ten days. The Authority found that the dispute was real and not spurious, as the CD's apprehensions about the ITC were legitimate. The Authority also observed that the CD was willing to pay the outstanding amount upon the provision of a bank guarantee by the Appellant, which indicated a bona fide dispute.

Conclusion:
The Adjudicating Authority concluded that the debt was not undisputed and that a genuine pre-existing dispute existed between the parties. The Authority emphasized that the IBC is not intended to serve as a recovery forum and that the presence of a real dispute precludes the initiation of CIRP. The Authority upheld the CD's position and dismissed the Appellant's petition for initiating CIRP, citing the principles laid down by the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd., and Transmission Corporation of Andhra Pradesh Limited Vs. Equipment Conductors and Cables Limited. The appeal was dismissed with no order as to costs.