Appellant wins appeal against NCLT decision on CIRP initiation, citing pre-existing dispute.

The Appellant appealed against the NCLT's decision to admit a section 9 petition for Corporate Insolvency Resolution Process initiated by the Operational Creditor. The Tribunal found a genuine pre-existing dispute regarding service tax payment, existing before the demand notice was issued. Relying on legal precedent, the Tribunal set aside the NCLT's decision, abated the CIRP against the corporate debtor, and allowed the appeal without costs.

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

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.

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