2021 (7) TMI 1091 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - quantum of outstanding amount - HELD THAT - In this case it is observed that there is no confirmation of counter claim of corporate debtor from operational creditor even in the reply to the demand notice it was unsupported by the invoices delivery challans and GST payments. Truck Number - one of the consignment number is not correct and all the invoices and deliveries are of one day. Simply making GST payment cannot prove that they have supplied the material to the other side. The Corporate Debtor has never raised that they have due recoverable from the operational creditor prior to the issue of the reply to the demand notice. Rule 46 of CGST Rules R/w Rule 48 of CGST Rules permits manual GSTIN Number. For the issues is that the Corporate Debtor invoiced is not supported by the purchase order nor a confirmation of account at a later date from the operational creditor. The Corporate Debtor is a healthy company not substantiated by the corresponding balance sheet of the company as they have not filed the same nor alone this cannot be a sole basis to substantiate that it does not require to go to CIRP. High turnover with positive net worth may reflect good fund flow but it does not substantiate a good cash flow - thus if the corporate debtor is unable to pay its debt while debt is legally due and default has occurred dispute not raised or substantiated prior to the issue of demand notice then the Code can be enforced for timely resolution of Insolvency and Bankruptcy. Thus prima facie the Corporate Debtor needs CIRP and accordingly the impugned order of the Adjudicating Authority invoking the provisions of the Code is in right spirit. Hence it needs to be uphold - the appeal is dismissed

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP).
2. Existence of pre-existing dispute.
3. Validity and authenticity of invoices and delivery challans.
4. Alleged suppression of material facts by the operational creditor.
5. Financial health of the corporate debtor.
6. Applicability of legal precedents and statutory provisions.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order dated 19.04.2021 by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench – VI, which initiated CIRP against the corporate debtor. The Adjudicating Authority observed that the operational creditor had elaborately explained the faulty procedures followed by the corporate debtor, including issues with invoice delivery and material dispatch, which amounted to committing fraud under the CGST Act.

2. Existence of Pre-existing Dispute:
The corporate debtor argued that there was a valid pre-existing dispute, citing a counterclaim of ?1,13,84,168 against the operational creditor’s claim of ?1,12,99,101. The corporate debtor provided invoices, lorry receipts, GST payments, and ledger accounts as evidence. The operational creditor, however, contended that there was no pre-existing dispute and that the corporate debtor had admitted to the debt and default. The Tribunal noted that the corporate debtor did not raise the issue of a pre-existing dispute prior to replying to the demand notice.

3. Validity and Authenticity of Invoices and Delivery Challans:
The corporate debtor questioned the authenticity of the invoices and delivery challans, highlighting issues such as incorrect truck numbers, manual invoices, and improbability of delivering a high volume of goods in a single day. The operational creditor countered that the invoices were genuine and that the corporate debtor's claims were fabricated to mislead the Adjudicating Authority. The Tribunal observed defects in the invoices and noted that the corporate debtor's claims were unsupported by purchase orders or confirmations from the operational creditor.

4. Alleged Suppression of Material Facts by the Operational Creditor:
The corporate debtor accused the operational creditor of suppressing material facts, such as the counterclaim and issues related to GST payments. The operational creditor denied these allegations, stating that the disputes raised by the corporate debtor were afterthoughts and not genuine. The Tribunal found that the operational creditor had not suppressed material facts and that the corporate debtor's claims were not substantiated.

5. Financial Health of the Corporate Debtor:
The corporate debtor claimed to be a solvent company with a net worth of ?72 crores and a turnover of ?400 crores. However, the Tribunal noted that high turnover and positive net worth do not necessarily indicate good cash flow or the ability to pay debts. The Tribunal referred to the Hon’ble Apex Court judgment in Mobilox Innovations Pvt. Ltd Vs. Kirusa Software Private Limited, which emphasized that the inability to pay debts, even if the company appears solvent, could trigger CIRP.

6. Applicability of Legal Precedents and Statutory Provisions:
The Tribunal referred to various legal precedents and statutory provisions, including the CGST Rules and the Insolvency and Bankruptcy Code, 2016. The Tribunal emphasized that if the corporate debtor is unable to pay its debt and no bona fide dispute is raised prior to the demand notice, CIRP can be enforced for timely resolution of insolvency and bankruptcy.

Conclusion:
The Tribunal concluded that the corporate debtor had not substantiated its claims of pre-existing dispute and that the operational creditor's claims were valid. The Tribunal upheld the Adjudicating Authority's order initiating CIRP against the corporate debtor and dismissed the appeal. Pending interim applications were disposed of, and interim orders were vacated. No orders as to costs were made.

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