2023 (5) TMI 528 - AT - Insolvency and Bankruptcy

Initiation of CIRP - existence of debt and dispute or not - acknowledgement of debts - amount due to the Operational Creditor has been shown as Trade Payable in the balance sheet - Complaint raised by the appellant for fraud and cheating against the respondents / creditors - NCLT admitted the application - HELD THAT - The Settlement Agreement is signed by the Appellant which is a fact not denied. The settlement agreement contains an acknowledgement of liability by the Appellant towards the Operational Creditor for which adjustment of liability of Rs. 40 Lakhs have been mentioned in the agreement. The Adjudicating Authority has rightly relied on Settlement Agreement to come to the conclusion that debt of operational creditor has been acknowledged by the Appellant, Director of the Corporate Debtor. Appellant cannot take any benefit of Criminal Proceedings initiated by the Appellant by filing an Application under Section 156 of the Cr. PC which proceedings were initiated subsequent to receipt of Demand Notice. Application under Section 9 was to be considered and decided on the basis of material which was brought by the Operational Creditor with regard to its debt and default and the Adjudicating Authority being satisfied that there is debt which remained unpaid, no error has been committed by the Adjudicating Authority in admitting Section 9 Application. There are no error in the order of the Adjudicating Authority admitting Section 9 Application. There is no merit in the Appeal, the Appeal is dismissed.

Issues Involved:
1. Whether the Corporate Debtor owed any amount to the Operational Creditor.
2. Whether the payments made to third parties could be considered as discharge of the debt owed to the Operational Creditor.
3. The impact of criminal proceedings initiated by the Appellant on the Section 9 Application.

Summary:

1. Whether the Corporate Debtor owed any amount to the Operational Creditor:
The Adjudicating Authority found that the Corporate Debtor owed Rs. 65,36,488/- to the Operational Creditor, based on five invoices issued between 11th July 2016 and 9th September 2016. The Operational Creditor's claim was supported by the Corporate Debtor's balance sheet for the financial year ending on 31st March 2017, where the amount was shown under 'Trade Payable'. The Tribunal noted that the Corporate Debtor did not deny the entitlement of the Operational Creditor to the said amount.

2. Whether the payments made to third parties could be considered as discharge of the debt owed to the Operational Creditor:
The Corporate Debtor argued that the amount due to the Operational Creditor was adjusted against payments made to M/s. Shiv Shakti International, Sirsa, and M/s. Harsh Trading Company, entities allegedly managed by the same person as the Operational Creditor. However, the Tribunal observed that the Corporate Debtor's balance sheet showed these amounts as 'Trade Receivables', contradicting the claim of adjustment. Additionally, a Settlement Agreement dated 21.02.2017 acknowledged the liability towards the Operational Creditor, further weakening the Corporate Debtor's defense.

3. The impact of criminal proceedings initiated by the Appellant on the Section 9 Application:
The Appellant contended that criminal proceedings initiated against the Operational Creditor indicated fraud and cheating. However, the Tribunal noted that these proceedings were initiated after the Demand Notice under Section 8 of the Code was served and that the Allahabad High Court had stayed the criminal proceedings. The Tribunal concluded that the criminal proceedings did not affect the merits of the Section 9 Application.

Conclusion:
The Tribunal upheld the Adjudicating Authority's order admitting the Section 9 Application, finding no merit in the appeal. The Corporate Debtor's defenses were not substantiated by the evidence, and the debt remained unpaid. The appeal was dismissed.

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