2017 (11) TMI 946 - Tri - Insolvency and Bankruptcy

Application to Initiate Corporate Insolvency Process Rejected Due to Genuine Dispute on VAT Liability

The Tribunal rejected the application to initiate the Corporate Insolvency Resolution Process, emphasizing the existence of a genuine dispute between the ... Corporate Insolvency Resolution Process - proof of admitted dispute - Held that:- In the present matter, the corporate debtor has raised a dispute about the disputed pending tax liability in respect of the work contract which is evident from the MoU, dated 16.06.2017 in which the applicant had itself tried to settle the matter in respect of pending tax liability in a tripartite meeting. It is therefore seen that the respondent had earlier raised dispute and brought to the notice of applicant through various correspondences revealing existence of dispute between the parties much before the receipt of the demand notice issued in the present case under section 8 of the Code. Hence, the amount of claim raised by the operational creditor cannot be said to be admitted and a “dispute” existed between the parties in relation to the amount claimed. For the reasons stated above this petition fails and the same is rejected. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP)2. Existence of Operational Debt and Default3. Dispute Regarding VAT Liability4. Interest Claim on Principal Amount5. Settlement Negotiations and One-Time Settlement OfferDetailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP):The 'Operational Creditor,' M/s Dolphin Offshore Enterprises (India) Ltd., filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, to initiate the Corporate Insolvency Resolution Process against the 'Corporate Debtor,' M/s Instrumentation Limited. The application included a demand notice and a proposal for an Interim Resolution Professional, Advocate Ashok Kumar Juneja.2. Existence of Operational Debt and Default:The Operational Creditor claimed a total debt of Rs. 4.90 crores as the principal amount and Rs. 2,62,55,270 towards interest, supported by invoices dated 20.12.2011, 25.04.2013, and 22.07.2013. The Corporate Debtor acknowledged an amount of Rs. 5.40 crores in a letter dated 29.01.2014, but attributed the delay in payment to delays in receiving funds from government agencies.3. Dispute Regarding VAT Liability:A significant dispute arose concerning a VAT demand notice of Rs. 8,56,35,646 issued by the Government of Maharashtra Sales Tax Department. The Corporate Debtor claimed that the Operational Creditor was liable for Rs. 7,58,23,371 of this amount and requested the Operational Creditor to deposit this sum. The Operational Creditor contested this liability, arguing that the work was performed offshore and thus not subject to Maharashtra VAT.4. Interest Claim on Principal Amount:The Corporate Debtor argued that there was no written or oral agreement regarding the payment of interest on the principal amount. Consequently, the claim for interest by the Operational Creditor was deemed baseless by the Corporate Debtor.5. Settlement Negotiations and One-Time Settlement Offer:Settlement negotiations took place, resulting in a one-time settlement offer of Rs. 3,25,00,000 by the Corporate Debtor, conditional upon resolving the VAT liability and withdrawal of the case filed by the Operational Creditor. The Operational Creditor denied liability towards VAT and pointed out that the Corporate Debtor itself had not considered VAT liability in its contract with ONGC.Judgment:The Tribunal referred to the Supreme Court's decision in Mobilox Innovative (P.) Ltd. v. Kirusa Software (P.) Ltd., emphasizing that the existence of a genuine dispute requires the adjudicating authority to reject the application. Given the disputes over VAT liability and interest claims, the Tribunal concluded that a 'dispute' existed between the parties regarding the amount claimed. Therefore, the petition was rejected. The Tribunal clarified that its observations should not prejudice the Applicants' rights before any other forum.