2022 (5) TMI 716 - AT - Insolvency and Bankruptcy

Appellate Tribunal overturns decision on Section 9 Application under Insolvency and Bankruptcy Code

The Appellate Tribunal set aside the Adjudicating Authority's decision to admit the Section 9 Application under the Insolvency and Bankruptcy Code, 2016. ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - assignment of Trademark - existence of debt and dispute or not - Dishonor of cheque - existence of legally enforceable debt or not - rebuttal of presumption - HELD THAT:- In the present case, a post-dated Cheque was given by the Appellant bearing date 15.03.2018 and before 15.03.2018 could arrive or the Cheque was presented, Respondent No.1 was communicated by letter dated 12.03.2018 that the Appellant does not accept any liability to make payment of GST and instructions are being issued to the Bank to Stop Payment - further by letter dated 19.10.2018 Respondent No.1 demanded payment of GST amount of Rs.52,80,000/- by the Appellant which was denied by the Appellant by its reply dated 24.10.2018. In the reply it was clearly mentioned that fraud was committed on the Appellant. It is clear that there is pre-existing dispute with regard to the Operational Debt claimed by the Respondent No.1 in its Section 9 Application. The Notice under Section 8 was replied and in the reply pre-existence of dispute has been claimed and referred which was neither spurious nor illusory, hence, the Adjudicating Authority was obliged to reject the application. The Adjudicating Authority relying on the post-dated Cheque dated 15.03.2018 observed that the said Cheque prove that the Corporate Debtor has accepted his liability and agreed to pay GST additional over amount of consideration, which observation is erroneous. Even before the date of the post-dated Cheque i.e. 15.03.2018, the Corporate Debtor informed to the Respondent No.1 on 12.03.2018 that there is no liability to pay GST by the Corporate Debtor and instruction of Stop Payment is being issued to the Bank. Thus, the issue of issuing Cheque became redundant and further when Cheque was presented in June, 2018 it was dishonoured as per instructions dated 13.03.2018 - The preexisting dispute was demonstrated in correspondence and complaints filed by the Corporate Debtor against the Respondent No.1. The Adjudicating Authority has committed error in admitting the application under Section 9 there being pre-existing dispute between the parties which dispute was in existence even prior to the date of issue of Notice under Section 8. The impugned order passed by the Adjudicating Authority is unsustainable and is hereby set aside - Appeal allowed. Issues Involved:1. Validity of the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Existence of a pre-existing dispute regarding the payment of GST amount.3. Interpretation of the Assignment Deed and the liability to pay GST.4. Impact of criminal proceedings and communications between the parties on the insolvency proceedings.5. Relevance of the post-dated cheque issued by the Corporate Debtor.Issue-wise Detailed Analysis:1. Validity of the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016:The Appeal was filed by a Suspended Director of the Corporate Debtor challenging the order dated 14.12.2021 passed by the Adjudicating Authority (NCLT), New Delhi, which admitted the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 filed by Respondent No.1. The Appellate Tribunal noted that the Adjudicating Authority admitted the Section 9 Application on the grounds that the Corporate Debtor issued a cheque for payment of the GST amount to the applicant and failed to prove that GST was not payable.2. Existence of a pre-existing dispute regarding the payment of GST amount:The Corporate Debtor contended that there was a pre-existing dispute regarding the GST payment. The Corporate Debtor had issued a post-dated cheque dated 15.03.2018 as security, which was later stopped by instructions to the bank on 13.03.2018. The Corporate Debtor communicated to Respondent No.1 that there was no liability to pay GST and initiated criminal proceedings against Respondent No.1 and others on 21.05.2018. The Tribunal found that there were multiple correspondences and criminal complaints indicating a pre-existing dispute.3. Interpretation of the Assignment Deed and the liability to pay GST:The Deed of Assignment dated 19.01.2018 stated that the consideration of INR 4.40 Crores was the full and final purchase consideration. The Corporate Debtor argued that this amount included all liabilities, and no additional GST payment was required. The Respondent No.1, however, issued an invoice on 06.02.2018 and claimed GST payment of Rs.52,80,000/-. The Tribunal noted that the Assignment Deed and the receipt issued by Respondent No.1 indicated that the consideration was full and final, and there was no mention of additional GST payment.4. Impact of criminal proceedings and communications between the parties on the insolvency proceedings:The Corporate Debtor had filed a criminal complaint on 21.05.2018, which was directed to be filed before EOW, Police Station. Additionally, the Corporate Debtor sent a letter on 12.03.2018 and a reply on 24.10.2018 denying any liability to pay GST and alleging fraud by Respondent No.1. These actions and communications were considered by the Tribunal as evidence of a pre-existing dispute.5. Relevance of the post-dated cheque issued by the Corporate Debtor:Respondent No.1 argued that the issuance of the post-dated cheque was an admission of liability. However, the Tribunal noted that the cheque was issued as security and was stopped before its due date. The Corporate Debtor had communicated the stop payment and denied any liability to pay GST. The Tribunal concluded that the issuance of the cheque did not constitute an admission of liability, especially given the pre-existing dispute and the stop payment instructions.Conclusion:The Tribunal concluded that there was a pre-existing dispute regarding the GST payment, which was evident from the communications and criminal complaints filed by the Corporate Debtor. The Adjudicating Authority erred in admitting the Section 9 Application. The impugned order was set aside, and the Application filed under Section 9 by Respondent No.1 was rejected. The amount deposited by the Appellant was ordered to be returned. The Appeal was allowed, and the parties were directed to bear their own costs.