AI Drafter 
TaxTMI 
TaxTMI 
2024 (5) TMI 1225
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....abad Bench, Ahmedabad in [(IB)/153/(AHM)/2021]. 2. Nanjing Maohj Information & Technology Co. Ltd.- NMIT - the Operational Creditor had supplied some machineries to the M/s Alliance Embroidery Machine Private Limited through Chirag Impex Limited located at Hong Kong. Corporate Debtor - M/s Alliance Embroidery did not make payment except for some initial advance which was provided to the Operational Creditor. 3. After follow up, the Operational Creditor sent a demand notice to Chirag impex and also to the Corporate Debtor. Since there was no reply to the demand notice by the Corporate Debtor, the Operational Creditor initiated Section 9 proceedings against the Corporate Debtor, which was admitted by the Adjudicating Authority on 10/4/2024. This appeal is against the admission of Section 9 proceedings against the Corporate Debtor. The total debt is about rupees 5.59 crores. 4. Heard the counsel of the Appellant and perused all documents placed on record. Submissions of the Appellant 5. The Appellant is the suspended management of the Corporate Debtor in the matter of C.P.(LB)/153(AHM)2021. It is contended that the original Petitioner i.e. Nanjing Maohj Information & Te....
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....that his father (Director of Corporate Debtor) is trying hard. 10. Adjudicating Authority has observed in the Impugned order that "As regards the various Bills of Entries attached by the Respondent, it appears that in order to evade the Customs Duty on the goods imported certain malpractices were adopted by the Corporate Debtor". This itself prove that if in any matter Adjudicating Authority feels that there are issues like different invoices, different claims and counter claims, malpractices etc. such matter cannot be admitted under IBC. Adjudicating Authority has admittedly stated in the judgement that some malpractices were adopted by the Corporate Debtor and in spite of such observations, admitted the petition contrary to the judgement of Innovative. Adjudicating Authority acknowledges the submissions of malpractices regarding evasion of customs duty, under invoicing etc., which suggests a need for an inquiry rather than admission under the Insolvency and Bankruptcy Code (IBC) contrary to the established law that any such matters require inquiry and investigation and cannot be entertained under IBC. 11. Hon'ble Apex court has time and again decided such matters and few of....
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....d, 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." 14. Finally, it relies on Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors and Cables Ltd. which is extracted as below: "45. The expression "existence" has been understood as follows: "Shorter Oxford English Dictionary gives the following meaning of the word 'existence": (a) Reality, as opp. to appearance. (b) The fact or state of existing; actual possession of being. Continued being as a living creature, life, esp. under adverse conditions. Something that exists; an entity, a being. All that exists. (P. 894, Oxford English Dictionary) XXXXXXXX 51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the Operational Creditor or there is a record of dispute in the information u....
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....Corporate Debtor the Operational Creditor started supplying said Goods to the Corporate Debtor on credit and the Operational Creditor and the Corporate Debtor entered into sales contracts listed hereunder detailing terms and conditions of purchase: Sl. No. Sales contract Bearing No. Date a) MC20190604 04.06.2019 b) MC20190606 06.06.2019 c) MC20190612 12.06.2019 d) MC20190706 06.07.2019 e) MC20190726 26.07.2019 19. The Operational creditor had supplied 13 numbers of machines in total through 8 Bill of Lading to the Corporate Debtor and raised 5 invoices totalling to USD 773,696.90. 20. Pursuant to the sales contracts, the Operational Creditor made available the said Goods that were duly inspected by the Corporate Debtor and the Corporate Debtor issued 'Confirmation letters of quality and payment' vide letters dated 04.06.2019, 20.06.2019, 08.07.2019, 17.08.2019 and 26.08.2019 in favour of Operational Creditor against corresponding sales contract. By way of said Confirmation letter of quality and payment the Corporate Debtor, inter-alia, acknowledged the quality of the said Goods being in line with agreed standards, is....
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.... the respective email addresses of the Corporate Debtor vide email dated 31.03.2020 of the advocate of the Operational Creditor. It is submitted that despite receipt of the demand notice by way email by Corporate Debtor, the Operational Creditor neither received any reply / notice of dispute to the statutory demand notice within the prescribed period under the IB Code, 2016 nor received any payment from Corporate Debtor. 26. The outstanding debt of USD 747,796.90 (United States Dollar Seven Hundred Forty-Seven Thousand Seven Hundred Ninety Six and Ninety Cents) is due and Payable by the Corporate Debtor to the Operational Creditor. 27. Therefore, it was apparent that the Corporate Debtor neither has the intention nor has the ability to repay the outstanding operational debt of the Operational Creditor and are malafidely avoiding to make payment of the legitimate dues of the Operational Creditor. 28. The Corporate Debtor has asserted without any material evidence on record that the Operational Creditor routed different machineries, other than the ones ordered under sales contracts with the Operational Creditor, through one M/s Chirag Impex HK Ltd. and Corporate Debtor purch....
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....on the other hand the Corporate Debtor is misusing its shell company to evade its liability towards admitted debt by relying on the fabricated invoices to make profit out of its own wrong. 31. Further, the Corporate Debtor has relied upon and placed on record some invoices purporting that the said invoices are raised for supply of the machines by M/s Chirag Impex HK Ltd. while as made out in the preceding paragraph none of the machines, contrary to the claim of the Corporate Debtor, have been supplied by the M/s Chirag Impex HK Ltd. to the Corporate Debtor. Also, it can be made out that the invoices and cost of the machines as reflected in the invoices, as placed on record by the Corporate Debtor, are under-priced where none of such machines can be purchased at price as low as to be made out from the invoices placed on record by the Corporate Debtor and is a clear cut case of under-pricing and it appears that it may have been done with an intention to evade customs duty. 32. The demand notice issued by the lawyer of the Operational Creditor is under instructions of the Operational Creditor and delivered by email dated 31st March, 2020 to the then known and published email add....
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....nd M/s. Chirag Impex HK Limited is a Shell Company of Corporate Debtor. From bare perusal of memorandum of association of Chirag Impex HK Ltd. it can be established that Corporate Debtor is the shareholder and founding member of Chirag Impex HK Ltd. It is submitted that the Sales Contracts were executed by the Corporate Debtor, invoices were also raised to the Corporate Debtor and machines/goods were also delivered by the Operational Creditor to the Corporate Debtor and hence, the Demand Notice issued to the Corporate Debtor. The Corporate Debtor has concocted the entire story and made false assertions without even referring to the documents and emails on record with a view to evade its liability towards payment of legitimate dues. 37. M/s Chirag Impex HK Ltd. is shell/related company of the Corporate Debtor and the alleged transaction vide the invoices placed on record by the Corporate Debtor are nothing but fabricated invoices, where the value of the machines are highly undervalued and seems to have been prepared in order to evade liability of customs duty by the Corporate Debtor. It is pertinent to note that the bill of ladings placed on record by the Corporate Debtor along w....
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....ty from its related entity that is Chirag Impex Limited are highly under-priced and are apparently filed with the malafide intent to evade customs duty. The cost of computerized embroidery machine imported by the Corporate Debtor is ranging between USD 33039.32 to USD 74400.00 whereas the similar machines are invoiced between USD 24700 to USD 26240 by the related entity of the Corporate Debtor and disclosed under the bill of entry. Yuemei laser bridge costs USD 165345.60 while the Corporate Debtor under the bill of entry and the invoice from its related entity has priced the same machine at USD 64780 - not even half of the then prevailing price of the machine. The Corporate Debtor while has evaded tax liabilities and has caused a huge loss to the exchequer with its misrepresentation and now is using such made up documents to support its moonshine defense in these proceedings 40. The Corporate Debtor vide letter dated 1/5/2018 had announced to the Corporate Debtor that Chirag Impex Limited is to act as a third party payer which clearly reveals that the Corporate Debtor is the buyer and just to facilitate the payment, the corporate debtor had asked Chirag Impex Limited to make the....
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....m Chirag Impex. The Operational Creditor initiated insolvency proceedings against the Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC. 45. The crux of the matter is whether in the facts of this case the Corporate Debtor can be held liable for the outstanding dues claimed by the Operational Creditor, despite the goods being delivered to and demand notices issued to M/s. Chirag Impex (HK) Ltd. 46. Upon careful consideration of the arguments of both parties, the following points are noted: 46.1. Documented Agreements: Signed sales contracts clearly outline the purchase agreement between the Operational creditor and the Corporate Debtor, all of which have been noted by the Adjudicating Authority. 46.2. Independent Verification: Bills of Lading, official shipping documents issued by a neutral third party, show the Operational creditor- NMIT as the shipper and the Corporate Debtor as the recipient of the machines. This independent verification directly contradicts the Corporate debtor's claims of a different supplier. 46.3. Corporate Debtor's Acknowledgement: The Corporate debtor's signed "Confirmation Letters of Quality and Pa....
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....#39;s accusations of fabricated invoices and a shell company are unsubstantiated. The sales contract, bill of lading, invoices and Confirmation Letters of Quality and Payment remain strong evidence of the legitimate transaction. 46.8. Legal Responsibility and Familial Links: While the Corporate Debtor and M/s. Chirag Impex (HK) Ltd. are separate legal entities, the familial ties between their directors and the transactional flow of goods imply a deeper operational linkage. Both Corporate Debtor and Chirag Impex HK Ltd. have common directors and shareholders. Mr. Chirag, being the son of one of the directors and the purported authorised signatory of the Corporate Debtor, who has affirmed the said reply of Mr. Subhansh N Dawar, has been corresponding with the Operational Creditor from the email address [email protected]. Further, Chirag Impex HK Ltd. is a related entity of the Corporate Debtor and the Corporate Debtor is the shareholder cum founding member of Chirag Impex HK Ltd. Both Corporate Debtor and Chirag Impex HK Ltd. have common directors and shareholders. The link between the Corporate Debtor's director's son and Chirag Impex emails further undermines th....
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....ion of fact unsupported by evidence. It was important to separate the grain from the chaff and to reject a spurious defence which was mere bluster. However, in doing so, the Court did not need to be satisfied that the defence was likely to succeed. The Court did not at this stage examine the merits of the dispute. So long as a dispute truly exists in fact and was not spurious, hypothetical or illusory, the Adjudicating Authority has to reject the application." In this case the comments of the Adjudicating Authority on under invoicing that, in order to evade the Custom Duty on the goods imported certain malpractices were adopted by the Corporate Debtor. Is being relied upon by the Appellant. But there is no pre-existing dispute in the present case. Therefore, The Corporate Debtor doesn't get any support from the above judgement. For the same reasons the judgment relating to S S Engineers (supra) as also Transmission Corporation of Andhra Pradesh Ltd. (supra) will be of no avail to the Appellant. 47. The crux of the dispute lies in the validity of the debt and who truly owes the money. As noted above the Operational Creditor presents a compelling case with documented evidence: ....