2022 (7) TMI 579 - 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 - HELD THAT - It is observed that the so-called debit note issued by the corporate debtor vide e-mail dated 22.5.2018 which is attached at page 182 of the appeal paperbook, does not contain any particulars regarding the date of issue, PAN, GSTIN, UIN of the corporate debtor nor it is signed by any representative of the corporate debtor. The respondent has also not presented any document or brief in support of the fact that the said debit note was actually issued for return of defective goods and that the defective goods were actually returned to the operational creditor - It is found that there is no communication from the corporate debtor regarding any defect or quality of the goods supplied sent to the operational creditor nor there is any evidence of the defective goods being returned to the operational creditor after raising a demur or protest about its quality. It can thus be concluded that there is no material on record to suggest that were not returned for any defect in quality and it was only 2 years later in 2018 that the purported debit note was raised - it does not appear to be a debit note which inspires confidence and which can be taken to indicate pre-existence of dispute regarding the quality of supplied goods. Moreover the three emails sent on dates 2.7.2018, 5.9.2015 and 5.12.2018 are actually internal emails of the corporate debtor and not sent to the operational creditor raising any dispute about the quality of goods supplied by the operational creditor. The Hon ble Supreme Court in the case of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT held that the dispute should actually exist, and it should not be spurious, hypothetical or illusory, for the rejection of the application on the basis of pre-existing dispute - In this case, the dispute is spurious, fabricated and hypothetical. Therefore, the conclusion of the Adjudicating Authority is that the dispute existed before the issue of demand notice under section 8 and thereafter section 7 application is erroneous. Since the section 9 application was rejected only on the ground of pre-existing dispute , the application is admitted for initiation of Corporate Insolvency Resolution Process against the corporate debtor - The matter is sent to the Adjudicating Authority for issuing the necessary orders consequent to admission of section 9 application within 15 days of this judgment.

Summary

Issues Involved:
1. Pre-existing dispute regarding the quality of supplied goods.
2. Validity and authenticity of the debit note issued by the corporate debtor.
3. Compliance with the Central Goods and Services Tax Act, 2017 and Rules.
4. Non-appearance and non-response of the corporate debtor.
5. Adjudicating Authority's conclusion based on the pre-existing dispute.

Issue-wise Detailed Analysis:

1. Pre-existing dispute regarding the quality of supplied goods:
The Appellant, an operational creditor, claimed an outstanding amount of Rs. 4,76,154 due since 28.6.2018, along with interest and applicable taxes, from the Corporate Debtor. The Corporate Debtor denied the demand, citing a defect in the quality of supplied goods for the first time in their reply to the Section 8 notice. The Appellant contested this claim, stating that the issue of defective goods was fabricated and raised as an afterthought to evade payment.

2. Validity and authenticity of the debit note issued by the corporate debtor:
The Corporate Debtor mentioned a debit note in their reply to the Section 8 notice. The Appellant argued that the debit note was fabricated, lacking necessary particulars such as date, PAN, GSTIN, and signature. The Appellant provided a sample debit note issued to another party, highlighting the required details under Section 34 of the Central Goods and Services Act, 2017, and Rule 53(1A) of the Central Goods and Services Tax Rules, 2017. The Appellant argued that the purported debit note was issued two years after the sale, without any goods being returned, indicating it was fabricated to avoid liability.

3. Compliance with the Central Goods and Services Tax Act, 2017 and Rules:
The Tribunal examined the compliance of the debit note with Section 34 of the Central Goods and Services Tax Act, 2017, and Rule 53(1A) of the Central Goods and Services Tax Rules, 2017. The debit note issued by the Corporate Debtor lacked essential details such as date, PAN, GSTIN, UIN, and signature, making it non-compliant with the legal provisions. The Tribunal concluded that there was no material evidence to suggest that the goods were returned due to defects, and the debit note was raised only to avoid payment.

4. Non-appearance and non-response of the corporate debtor:
The Corporate Debtor was served notice but did not appear before the Appellate Tribunal or file a reply to the appeal memo. Despite multiple opportunities, the Corporate Debtor failed to present oral arguments or any supporting documents, leading the Tribunal to proceed in their absence.

5. Adjudicating Authority's conclusion based on the pre-existing dispute:
The Adjudicating Authority, in its Impugned Order, concluded that there was a pre-existing dispute based on the Corporate Debtor's claim of defective goods and the issuance of various debit notes. However, the Tribunal found that the emails presented by the Corporate Debtor were internal and not sent to the Operational Creditor, and the purported debit note did not meet the legal requirements. The Tribunal referred to the Supreme Court's judgment in Mobilox Innovative Private Limited vs. Kirusa Software Private Limited, which stated that the dispute should not be spurious, hypothetical, or illusory. The Tribunal concluded that the dispute raised by the Corporate Debtor was fabricated and hypothetical.

Conclusion:
The Tribunal set aside the Impugned Order, finding it erroneous. The section 9 application was admitted for initiating Corporate Insolvency Resolution Process against the Corporate Debtor. The matter was sent back to the Adjudicating Authority for issuing necessary orders within 15 days of the judgment. There was no order as to costs.