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TMI Blog2024 (8) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... a genuine preexisting dispute between the Corporate Debtor and Respondent No. 1 / Operational Creditor concerning the operational debt. The Appellant / Corporate Debtor's contentions that the company is solvent and the matter should be resolved through civil proceedings or arbitration are not relevant to the initiation of CIRP under the IBC. The appeal lacks merit as the Appellant / Corporate Debtor failed to demonstrate a pre-existing dispute as required under Section 9 of the IBC. The Adjudicating Authority rightly admitted the application filed by Respondent No. 1 / Operational Creditor and initiated the CIRP against the Corporate Debtor. Appeal dismissed. - [ Justice Rakesh Kumar Jain ] Member ( Judicial ) And [ Arun Baroka ] Member ( Technical ) For the Appellant / Corporate Debtor : Mr. Anand Chhibbar , Sr. Advocate with Ms. Eshna Kumar , Mr. Lakshmi Kant Srivastava , Advocates For the Respondents : Mr. Abhishek Anand and Mr. Krishna Sharma , Advocates for R - 1 Mr. Karan Kohli , Advocate for R - 2 JUDGMENT ( Hybrid Mode ) [ Per : Arun Baroka , Member ( Technical ) ] The present Appeal is being filed by the Appellant / Corporate Debtor, a member of the suspended board o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No.1, since then those purported invoices are under dispute. 7. The Appellant / Corporate Debtor further contends on 15/02/2019 and 25/02/2019 respectively, the Intelligence Officer, Directorate General of GST Intelligence (DGGI), Chandigarh Zonal Unit raided/searched at the Appellant / Corporate Debtor factories/offices to check the cotton purchased by the Appellant / Corporate Debtor from suppliers including from Respondent No.1 who had supplied cotton to the Appellant / Corporate Debtor without payment of Goods and Servies Tax ( GST ) to the GST Authorities. 8. During the raid, the GST Intelligence Officer took into custody and seized all hard and soft records relating to sales/purchases, returns, payments of taxes, etc. Not only this but the said GST Intelligence Officer also forced the Appellant / Corporate Debtor to debit the GST Credit standing in the books of accounts as well as to deposit the amount in the electronic credit ledger. Moreover, the Appellant / Corporate Debtor had been directed by the GST Intelligence Officer to stop payment to Respondent No.1. Therefore, it suffices to say that under the direction issued by the GST Intelligence Officer, the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 300 Cr. and an export sale of more than 50 Cr. e) There is a pre-existing dispute between the parties vis- -vis payment of GST on the purported invoices raised by Respondent No.1. Moreso, the direction of GST Intelligence Officers is not to pay any amount to Respondent No.1. 13. Further, the Appellant / Corporate Debtor had filed a Civil Writ Petition bearing CWP No. 21444 of 2019 before the Hon ble Punjab and Haryana High Court at Chandigarh, against the Additional Director General, Directorate General of GST Intelligence, 2nd Floor, West Block-8, Wing No.6, R.K. Puram, Sector-1, New Delhi-110 066 and Senior Intelligence Officer, Directorate General of GST Intelligence, 2nd Floor, West Block-8, Wing No.6, R.K. Puram, Sector-1, New Delhi-110 066 with a prayer not to take any coercive action against the Appellant / Corporate Debtor herein and refund of Rs.1,03,80,000 (One Crore Three Lakh and Eighty Thousand Rupees Only) that has been wrongly recovered from the Appellant / Corporate Debtor herein. 14. Pertinently, in response to the Writ Petition filed before the Hon ble High Court, the GST Department filed its reply wherein it has been categorically mentioned and averred that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t / Corporate Debtor contends that the Adjudicating Authority A acknowledged the Appellant / Corporate Debtor's claim that the GST Department had instructed the Corporate Debtor to halt payments to the operational creditor. However, it failed to consider this contention properly and incorrectly noted that the operational creditor had paid the GST Department, citing a GST return document provided by the creditor. This finding was deemed outside the Adjudicating Authority s jurisdiction and contrary to law, as the legitimacy of the invoices and GST payments is under challenge in a pending WP before the High Court. Although the Adjudicating Authority recorded the Appellant / Corporate Debtor's submission that the GST Department's reply to the High Court had indicated that the purchases were made through intermediaries, including Respondent No. 1, it wrongly concluded that this litigation about GST dues was irrelevant to the current petition and that the operational creditor was not involved in it. The Adjudicating Authority overlooked the fact that the invoices upon which Respondent No. 1 s claim is based are disputed, and the GST Department s assertion of their being bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been held as under: ...56. Going by the aforesaid test of existence of a dispute , it is clear that without going into the merits of the dispute, the Appellant / Corporate Debtor has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defence is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterising the defence as vague, got up and motivated to evade liability.... 25. Appellant / Corporate Debtor has also placed his reliance S.S. Engineers v. HPCL, 2022 SCC Online SC 1385 wherein it is held that proceedings before the Adjudicating Authority under the Code are not intended for debt recovery. 26. Per contra Respondent contends that the Hon ble Supreme Court in the matter of Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd Civil Appeal No. 9405 of 2017 laid down three-fold test for admission of application under Section 9 of the Code. The three test is as follows: 25. Therefore, the adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the authenticity of the invoices. However, this email was not included in the pleadings before the Adjudicating Authority. Therefore, no reliance can be placed on this email. 31. It is admitted that the Appellant / Corporate Debtor received services from Respondent No. 1, who provided raw cotton for manufacturing. The Appellant / Corporate Debtor/Corporate Debtor has not denied the debt or default but only claims a pre-existing dispute, which has been disproven as detailed above. 32. The Appellant / Corporate Debtor Corporate Debtor filed IA. No. 528 of 2024 to implead the Directorate General of GST Intelligence in CP. (IB) No.657/CHD/PB/2019 to prove a pre-existing dispute. The ADJUDICATING AUTHORITY, while admitting the Section 9 application from Respondent No. 1, ruled that the GST department was not a necessary party to the proceedings under the Code and dismissed the application as infructuous. 33. The threshold limit of Rs. 1 crore for initiating CIRP was effective from 24.03.2020. However, the present petition was filed and registered on 15.11.2019, when the threshold limit was Rs. 1 lakh. The outstanding operational debt in this case exceeds the Rs. 1 lakh limit. 34. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the invoices. Appellant / Corporate Debtor is raising the raids conducted by Department of GST and questioning the payment of GST. We find that the issue relating to the payment of GST is between the Directorate General of GST Intelligence and the Appellant / Corporate Debtor. Even the proceedings before the Hon ble High Court are between the Appellant / Corporate Debtor and the Directorate General of GST Intelligence and the Respondent No.1/Operational Creditor is not even a party in the proceedings. This has been noted by the Adjudicating Authority also. We cannot equate this to a pre-existing dispute between the parties. 39. Appellant / Corporate Debtor claims that he had issued an e-mail dated 28th May 2019 to the Respondent No. 1 / Operational Creditor asking about the genuineness of the invoices raised. This e-mail was not filed and relied upon in the pleadings before the Adjudicating Authority and we cannot rely upon at this stage. Even then, for argument s sake, its perusal shows that it once again raises the issue of GST which is between the Appellant / Corporate Debtor and the Directorate General of GST Intelligence wherein the Respondent No. 1 / Operational Creditor i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes crystalized. Under Section 9 of the IBC, an Operational Creditor can initiate CIRP against a Corporate Debtor for unpaid operational debts exceeding Rs. 1 lakh (at the time of filing of the CP). 43. Both parties have relied upon Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd Civil Appeal No. 9405 of 2017, with their own interpretation. The Hon ble Supreme Court in the matter of Mobilox Innovations Private Ltd (supra) laid down three-fold test for admission of Application under Section 9 of the Code. The test is extracted as follows: - 25. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding Rs.1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... threefold test is passed for initiation of Section 9 proceedings against the Corporate Debtor. 45. Appellant / Corporate Debtor has placed his reliance on Feng Ji v. Giesecke Devrient MS India (P) Ltd., 2023 SCC Online NCLAT 507 wherein it is held that the issue of GST dues is a valid pre-existing dispute. 26......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..... . But in the instant case all GST Returns (GSTR) have been filed by the Operational Creditor and are available in the Appeal Paper book. The Operational Creditor was also raided by the Directorate General of GST Intelligence, but they were not proceeded against for any violation. Further, neither the Operational Creditor nor the Directorate General of GST Intelligence has even impleaded the Respondent No. 1 / Operational Creditor before the Hon ble High Court. Under these conditions it is difficult to accept the propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led under Section 9 of the Code there is no reason to initiate the same or admit the application. However, law is settled on the point that there must be pure preexisting dispute. Meaning thereby that genuine pre-existing dispute must exist in rejecting un application Section 9 of the code. b) Hon ble Supreme Court in the matter of M/s. S. S. Engineers vs Hindustan Petroleum Corporation Ltd. Ors. CA No. 4583 of 2022, held that: There are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor. However; if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed. c) Appellate Tribunal in the matter of Amroop India Pvt Ltd vs Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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