2024 (5) TMI 526 - AT - Insolvency and Bankruptcy

NCLAT sets aside insolvency proceedings after corporate debtor pays full claimed amount before admission

R.B. Singh, Alok Gaur Versus Rashmi Cement Limited, Bhilai Jaypee Cement Limited

NCLAT Principal Bench set aside the Adjudicating Authority's order allowing CIRP initiation under Section 9. The operational creditor claimed ... Admissibility of section 9 application - initiation of CIRP - operational debt claimed by RCL was due and payable or not - if any default thereto was committed by the Respondent No.1/BJCL - As claimed debt were paid before the admission of CIRP application - Respondent claimed the dues of GST are still pending - HELD THAT:- In the case of Section 9 application, it is necessary for the Operational Creditor to indicate the particulars of the crystallised debt qua the Corporate Debtor. From the given particulars in the Section 8 demand notice, it is clear that the total amount of operational debt claimed by RCL is Rs.1,96,96,325/- of which the principal amount for non-supply of cement clinker against advance was Rs.1,83,81,894/-. In addition, interest was claimed at the rate of 18% per annum from 11.04.2022 for 145 days amounting Rs.13,14,431/- only. In the Section 9 application, in Part IV also, the total amount of debt has been similarly shown as Rs.1,96,96,325/- only and interest has been calculated with effect from 11.04.2020 to 02.09.2022. It is therefore an undisputed fact that the crystallised amount of operational debt is Rs 1.96 cr only including interest and we do not find any other sum included in Form 3 or Form 5 submitted by the RCL. It is an undisputed fact that RCL had never sought any GST amount in the Section 8 demand notice or Section 9 application or at any time when the matter was pending adjudication before the Adjudicating Authority. The scheme of the IBC is to ensure that when a default takes place, in the sense that the debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt, once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. On looking into the facts of the present case, there are no hesitation to opine that BGCL had already made payment of the entire operational debt as claimed by RCL in Section 8 Demand Notice and debt as reflected in Form 5 of Section 9 application. In the factual matrix of the case at hand, when the dues in terms of Form 3 and Form 5 have been cleared by BJCL, endeavours on the part of RCL to seek initiation of CIRP by raising claims which do not find place in Form 3 and Form 5 filed by them, clearly manifests the intention of the RCL to invoke the provision of IBC to enforce recovery of debts against the Corporate Debtor. Allowing such claims which never formed part of the claim of operational debt before the Adjudicating Authority to be considered at the appeal stage is not tenable. This cannot be commended as it militates against the spirit and essence of IBC. The Impugned Order of the Adjudicating Authority is set aside - Appeal allowed. Issues Involved:1. Whether the operational debt claimed by Rashmi Cement Limited (RCL) was due and payable by Bhilai Jaypee Cement Limited (BJCL).2. Whether the Section 9 application for initiating Corporate Insolvency Resolution Process (CIRP) was valid despite the alleged settlement of dues by BJCL.3. Whether the Adjudicating Authority erred in not considering the Interim Applications (I.A.s) filed by BJCL regarding subsequent developments.4. Whether the claim for unpaid GST and Input Tax Credit (ITC) by RCL could be considered at the appeal stage.5. Responsibility for payment of fees and expenses incurred by the Interim Resolution Professional (IRP).Summary:Issue 1: Operational Debt Due and PayableThe Tribunal examined whether the operational debt claimed by RCL was due and payable by BJCL. It was found that the total amount of operational debt claimed by RCL was Rs.1.96 crore, including interest. BJCL had already refunded this amount via RTGS on 10.08.2023. Therefore, the alleged operational debt stood satisfied, and no default was found.Issue 2: Validity of Section 9 ApplicationThe Tribunal noted that RCL had issued a Section 8 Demand Notice and filed a Section 9 application. However, since BJCL had paid the entire outstanding amount as claimed in the Section 9 application, the application had become infructuous. The Tribunal held that the Adjudicating Authority should have considered this payment before passing the impugned order.Issue 3: Non-Consideration of Interim ApplicationsBJCL had filed two I.A.s on 11.08.2023 to inform the Adjudicating Authority about the subsequent payment of Rs.1.96 crore. The Adjudicating Authority did not consider these I.A.s before pronouncing the impugned order. The Tribunal found this to be a grave infirmity, as the I.A.s contained critical information about the settlement of the operational debt.Issue 4: Claim for Unpaid GST and ITCRCL contended that BJCL had not paid Rs.65.72 lakhs towards unpaid GST returns, which affected RCL's ITC. However, the Tribunal noted that this claim was not included in the Section 8 Demand Notice or Section 9 application. Therefore, it could not be considered at the appeal stage. The Tribunal emphasized that allowing such claims would go against the spirit of the Insolvency and Bankruptcy Code (IBC).Issue 5: Payment of IRP Fees and ExpensesThe Tribunal directed RCL to pay the IRP fees and expenses amounting to Rs.1 lakh within 15 days. It was noted that no default had been proven on the part of BJCL, and substantial work by the IRP was not evident due to the stay on the impugned order.Conclusion:The appeal was allowed, and the impugned order of the Adjudicating Authority was set aside. The Corporate Debtor, BJCL, was released from the rigours of CIRP and allowed to function independently through its Board of Directors. RCL was given the liberty to seek other legal remedies to recover its dues. No costs were awarded.