2023 (8) TMI 663 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Operational Creditors - dispute relating to the operational debt as claimed by the operational creditor is a pre-existing dispute or not - HELD THAT - The four new invoices which relate to the work done as covered in the four old invoices issued in December, 2016 and January, 2017 were fully paid by the corporate debtor and these were in accordance with the GST regime. Therefore, it stands to reason that the operational debt with regard to the work done, which was the subject matter of four old invoices, namely NV No. 3189000123 dated 26.12.2016 for Rs. 5,752,713.00, NV No. 3189000140 dated 28.12.2016 for Rs. 5,572,713.00, NV No. 3189000143 dated 28.12.2016 for Rs. 5,572,713.00 and NV No. 3189010008 dated 25.01.2017 for Rs. 5,572,713.00, were paid by the corporate debtor, and the operational creditor has not raised any issue about the non-payment of related operational debt. It is thus, clear that there is no operational debt due to be paid by the corporate debtor to the operational creditor, but the disputed amount is only regarding the service tax amounting to Rs. 40,37,816/-, which was paid by the operational creditor to the Government. It is thus clear that there is a dispute in relation to the service tax paid by the operational creditor. Clearly, this was a dispute between the operational creditor and the corporate debtor regarding how credit or refund service tax amount could be claimed and by whom - this dispute existed before the issue of statutory demand notice under section 8 and the corporate debtor had clearly mentioned this dispute in its reply dated 1.4.2019 to the section 8 demand notice. Regarding the necessary condition for examining the presence of a pre-existing dispute in relation to an operational debt, we refer to the judgment of Hon ble Supreme Court in the matter of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT , wherein it is held 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. From the judgement, it is clear that it would be sufficient that a dispute that is not hypothetical, illusory or moonshine dispute exists and such a dispute should have arisen on a date prior to the date of issue of section 8 demand notice - In the present situation, it is found that the Adjudicating Authority has erred by not considering the various e-mails communication exchanged between the corporate debtor and operational creditor as evidence of a pre-existing dispute, but vide paragraph 11 of the Impugned Order has gone ahead to adjudicate the said dispute on merits even though the Adjudicating Authority was only required to see whether a dispute existing prior to the issue of section 8 Demand Notice. Thus, a dispute regarding credit/refund of the service tax amount which is claimed to have been paid by the operational creditor to the government existed prior to the issue of demand notice under section 8 and further that such a dispute was a real dispute and not merely an assertion or ploy of the corporate debtor to avoid taking care of his liability. The Corporate Insolvency Resolution Process which was initiated against the corporate debtor as a result of the Impugned Order will abate forthwith and the corporate debtor shall be released from the rigours of CIRP and other effects of moratorium under section 14 of IBC with immediate effect - appeal allowed.

Summary

Issues Involved:
1. Whether the dispute relating to the operational debt as claimed by the operational creditor is a pre-existing dispute?

Summary:

Issue: Pre-existing Dispute

1. Facts of the Case: The appeal was preferred by the Appellant under section 61 of the IBC against the order dated 20.2.2023 passed by the NCLT, Chandigarh Bench, which admitted an application under section 9 of the IBC filed by the Respondent/Operational Creditor, thereby initiating Corporate Insolvency Resolution Process (CIRP) of the corporate debtor.

2. Arguments by Appellant: The Appellant, a suspended Director of the Corporate Debtor, argued that four invoices issued by the Respondent were rejected due to a transition from the Service Tax regime to the GST regime. After mutual discussions, new invoices incorporating GST were issued and paid. The Appellant contended that the operational creditor already deposited 15% service tax and was unwilling to pay an additional 18% GST. The Appellant claimed that the operational debt was disputed and thus the section 9 petition should not be admitted.

3. Arguments by Respondent: The Respondent argued that the NCLT had duly noted the e-mail communications and concluded that the corporate debtor was liable to pay service tax and GST dues. The Respondent contended that the existence of a dispute was hypothetical and illusory, and the section 9 petition was rightly admitted.

4. Tribunal's Analysis: The Tribunal examined the e-mails and documents exchanged between the parties. It noted that the corporate debtor had paid the new invoices under the GST regime. The dispute was regarding the service tax amounting to Rs. 40,37,816/- paid by the operational creditor to the Government. The Tribunal found that this dispute existed before the issue of the statutory demand notice under section 8 and was mentioned in the reply to the demand notice.

5. Legal Precedent: The Tribunal referred to the Supreme Court judgment in Mobilox Innovations Private Ltd. v. Kirusa Software Private Ltd., which held that the adjudicating authority must reject the application under Section 9(5)(2)(d) if there is a pre-existing dispute that is not spurious, hypothetical, or illusory.

6. Conclusion: The Tribunal concluded that there was a real dispute regarding the service tax amount, which existed prior to the issue of the section 8 demand notice. The NCLT erred by not considering the e-mails as evidence of a pre-existing dispute and adjudicating the dispute on merits. The Impugned Order was set aside, and the CIRP against the corporate debtor was abated forthwith. The appeal was allowed with no order regarding costs.