TaxTMI 
TaxTMI 
2026 (7) TMI 247
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....ional Creditors have been admitted by the Adjudicating Authority. The first appeal vide Company Appeal No. 1833 of 2025 filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('IBC' in short) by the Appellant arises out of the Order dated 19.11.2025 (hereinafter referred to as the 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench-I) in CP(IB) 595/9/(AHM) 2019. By the said impugned order, the Adjudicating Authority has admitted the application filed under Section 9 of the IBC by Rajaram Food Products India Ltd.-Operational Creditor admitting the Corporate Debtor into the rigours of Corporate Insolvency Resolution Process ('CIRP' in short). Aggrieved by the impugned order, the first appeal has been preferred by the Appellant-Corporate Debtor. The second appeal vide Company Appeal No. 105 of 2026 has been filed under Section 61 of IBC by the Appellant arises out of the order dated 12.01.2026 (hereinafter referred to as the "Second Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad) in CP(IB) 812 of 2019 read with IA/953(AHM)2025 and IA/1184 (AHM)2025. By the said impugned orde....
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.... on behalf of the Appellant, Shri Abhijeet Sinha, Ld. Sr. Counsel for the Appellant, submitted that the Adjudicating Authority had admitted the Section 9 petition erroneously without any independent determination of the essential jurisdictional facts of debt, default and dispute by relying on the invoices, delivery challans, and ledger entries produced by the Operational Creditor which were not genuine. It is the contention of the Corporate Debtor that in the ledger statement of the Operational Creditor there is clear evidence of 80 entries of payments received by the Operational Creditor from the Corporate Debtor during the period 26.03.2018 and 30.03.2019 totalling Rs. 7.49 Cr. It was contended that when the Corporate Debtor had admittedly paid Rs. 7.49 Cr to the Operational Creditor during the same invoice window, the Operational Creditor cannot claim any incidence of default on the part of the Corporate Debtor, particularly so, when the account maintained between the two parties was in the nature of a running account and there were no instructions for specific appropriation done with respect to specific invoices. It was asserted that the statutory investigative findings of the ....
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....ods to the Corporate Debtor. Towards payment for such supply of goods, the Corporate Debtor had also paid cheques to the Operational Creditor which bounced leading to the filing of Section 138 petition under the Negotiable Instruments Act. It was submitted that the claim made by the Operational Creditor in Part 'IV' in the Section 9 application is Rs. 4.44 Cr towards principal amount and an interest amount of Rs. 61.72 lakhs for invoices for the period 21.03.2018 to 25.03.2019 aggregating to a total operational debt of Rs. 5.05 Cr. Moreover, as the Corporate Debtor had failed to pay the Operational Creditor the amount due towards the value of supply made along with tax payable, the GST authorities on noticing the violations committed under the GST Act passed recovery proceedings for Rs 8.21 lakhs as output tax liability. As regards communications/documents raising quality disputes by the Corporate Debtor also lacked substance since the purported emails/communications/ minutes of meetings basis which quality issues/short-supply/non-supply/defective supply were raised pertained to invoices belonging to a period which do not correlate to the period of invoices against which the Sectio....
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.... is as reproduced below: "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)(i)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and i....
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....red to follow the mandate prescribed in Section 9(5) of the IBC to admit or reject the Section 9 application, as the case may be. 10. Having noted the legal propositions delineated in the Mobilox judgement with regard to test that has to be applied in deciding the admission or rejection of a Section 9 application and also the contours of Sections 8 and 9 of IBC, we now propose to answer whether in the present factual matrix there is pre-existing dispute surrounding the operational debt and when seen from this perspective, whether the impugned order passed by the Adjudicating Authority admitting the Section 9 application is sustainable in the eyes of law. 11. It is the case of the Appellant that merely because the Operational Creditor had raised invoices and shown ledger entries, that was not sufficient to establish operational debt under Section 9 of the IBC. There is specific documentary evidence founded on contemporaneous documents, statutory findings and admitted communications placed on record which show that the debt claimed by the Operational Creditor was riddled with pre-existing disputes. The Adjudicating Authority had failed to appreciate that once genuine, pre-exist....
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....s. 14. The next set of email and attachment thereto leading to corresponding debit notes to which our attention has been adverted to is as follows: From: NITESH SHARMA <[email protected]> Date: Fri, Jun 19, 2015, 12:15 Subject: CAPRICORN FOODS PRODUCTS INDIA PVT LTD REJECTION LETTAR To: mahesh chauhan <[email protected]>, <[email protected]> Cc: <ashok [email protected]>, Vijay Panchal <vijay [email protected]> ..... PLZ FIND THE ATTACHED FILE THANKS & REGARDS NITESH KUMAR SHARMA Manpasand Beverages Pvt Ltd Attachment to email of 19.06.2015 DATE-02-06-2015 This is to certify that 1000 cartons of tmp supplied by m/s Capricorn food Products India Ltd vide inv no-560 dated-31-03-2015 and l.r no-1773 date-03-04-2015 form-38 no-1719672 were rejected on quality reasons. Our debit note no-02 dt-09-06-2015 issued towards return of goods. (Emphasis supplied) 15. There were disputes between the two parties even on the supply of goods and expiry of shelf-life. From: ashok.pandey <[email protected]> Se....
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....perational Creditor. These emails conclusively establish that there existed serious disputes regarding quality, quantity, and supply of goods much prior to the issue of Section 8 Demand Notice. We are therefore not persuaded by the plea taken by the Operational Creditor that these emails and communications were self-serving emails. 18. Further, when we look at the minutes of the meeting of 10.02.2017 where the representatives of both parties were present, we find that the minutes clearly record the rejection of material supplied by the Operational Creditor on account of quality issues. The minutes as recorded are as reproduced below: Date: 10th Feb 2017 Minutes of Meeting Capricorn Representative Mr. Dinkar Mahajan Visited Varanasi Unit to resolve the 'Quality Hold Issue of TMP Batch no 06TMP09A001 manufacture date 08.06.16. Shown earlier Two cut drum which were kept in Cold store Observed Lumps. Taken Another two drums from Hold Vehicle. & Opened in front of Capricorn representative & AM (Manpasand Beverages, Varanasi) Quality Executive & Batch Blending Operator (Manpasand Beverages Ltd. Varanasi) found Lumps in both drums. (Color & Ta....
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....ricated. This is further buttressed by the fact that the Operational Creditor had voluntarily reversed and paid an amount of Rs. 1.54 Cr towards wrongful availment of input tax credit. Such reversal of payment of input tax credit by itself constitutes a clear admission by conduct that the transactions were fraudulent in nature. In support of their contention that sham and collusive transactions cannot constitute valid debt under the IBC, attention was adverted by the Corporate Debtor to the judgement of the Hon'ble Supreme Court in Phoenix ARC Pvt Ltd Vs Spade Financial Services Ltd. in Civil Appeal No. 2842 of 2020. 21. Per contra, it is the case of the Operational Creditor that the statements which were recorded in the GST proceedings go to show that the goods had actually been supplied and qua these goods, payments still remain outstanding. It was vehemently contended that the Corporate Debtor has tried to rely selectively on the GST proceedings which are not relevant for the present insolvency proceedings. In any case, the GST findings cannot be relied upon, especially when such proceedings are already under challenge before the High Court of Gujarat. 22. At this stag....
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....of the GST dated 26.08.2019 as placed at page 467 of APB which specifically records the statements of C. Arugadas who is an officer of the Operational Creditor which is extracted hereunder for easy reference: Q.7 Please state the reason why there are no entries of goods received from M/s. Leon Food products private limited, Puttur are present in your inward register for the above said period? Ans. The supplies shown by M/s. Leon Food products private limited, Puttur for the months of March 2018 and March-2019 to our unit M/s. Capricorn Food Products Limited are mere paper transactions. Since, there is no actual supply of goods from M/s. Leon Food Products Private limited, Puttur to our unit, the entries of goods received has not been made in our inward register. Q.8 Please elaborate what do you mean in stating- "no actual supply of goods from M/s. Leon Food Products Private limited, Puttur to our unit" Ans. Based on our request and mutual understanding with M/s. Leon Food Products Private limited, Puttur, they have issued only supply invoices in the name of M/s. Capricorn Food Products Limited without any physical movement/supply of goods. After ....
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.... by the Operational Creditor that the GST findings are not relevant because the GST proceedings have been challenged before the High Court of Gujarat does not cut much ice since in the present case the GST findings have admittedly not been set aside or stayed. We are of the considered opinion that in view of the summary jurisdiction of the Adjudicating Authority, in the face of such evidence of pre-existing dispute, the insolvency jurisdiction under the IBC could not have been invoked for recovery of disputed claims. 26. This brings us to another limb of pre-existing dispute raised by the Corporate Debtor in that the records of the Operational Creditor clearly show that the operational debt amount of Rs. 4.36 Cr claimed by them had been written off in their books of accounts which amount directly correspond to the invoices raised by the Operational Creditor and that this write-off has been confirmed by the CBI in its communication. The Operational Creditor was now trying to enforce the very receivables which had already been treated as withdrawn. It was asserted that a write-off is a clear acknowledgement that the amounts were irrecoverable by the Operational Creditor and that n....
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.... being oblivious of an important facet of another pre-existing dispute which ought not to have been overlooked. 30. This brings us to the issue raised by the Operational Creditor that the reply of the Corporate Debtor to the Demand Notice constituted an admission of liability. Per contra it has been contended by the Corporate Debtor that in their reply to the Demand Notice sent to the Operational Creditor on 13.06.2019, it was clearly mentioned that liability, if any, would be payable subject to verification and reconciliation which did not amount to them having admitted any debt. It was emphatically asserted that a qualified and a conditional statement issued in the midst of investigation proceedings cannot be construed as an admission of debt. 31. We would like to have a look at the reply of the Corporate Debtor to the Section 8 Demand Notice which reads as under: Sub: Reply to your notice legal Notice dated 08.06.2019 We acknowledge the receipt of your demand notice under the Insolvency and Bankruptcy Code, 2016 In reference to the same, we wish to state that due to GST Search and Seizure that has taken place at the Head office and other location....
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....porate Debtor cannot be said to be moonshine. That pre-existing dispute was very much there is amply supported by material on the record. It is not the remit of IBC to investigate all related contractual disputes or look into their merits as long as it suffices that a plausible defence has been raised as has been done in the present case. 34. In the present factual matrix, the defence raised by the Corporate Debtor cannot be held to be moonshine, spurious, hypothetical or illusory. And for such disputed amounts, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. In our considered view, the impugned order admitting the Section 9 petition therefore suffers from infirmities and deserves to be set aside. 35. We now propose to take up the second appeal for our consideration. Coming to the brief factual matrix of Company Appeal No. 105 of 2026, we find that the Adjudicating Authority vide second impugned order passed on 12.01.2026 had admitted the Section 9 petition filed by the Operational Creditor-Tetra-Pak India Pvt. Ltd. against the Corporate Debtor-Manpasand Beverages Ltd. on the grounds of debt and default. Aggrieved by this order,....
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....espondent that the second impugned order had been rightly passed by the Adjudicating Authority since the CIRP admission order of the Corporate Debtor in Company Petition No. 595 of 2019 dated 19.11.2025 had been stayed vide order dated 24.11.2025 passed by this Appellate Tribunal in Company Appeal No. 1833 of 2025. This order of 19.11.2025 had put the moratorium in abeyance, hence, the Adjudicating Authority could always have adjudicated on the Section 9 application filed by the Operational Creditor. Furthermore, the IRP had not taken charge and control of the Corporate Debtor and the previous management of the Corporate Debtor had continued to run and manage the functioning of the Corporate Debtor as if no CIRP admission order had been passed. Thus, the character of 'proceedings in rem' was not triggered in view of the interim stay order dated 24.11.2025 of this Appellate Tribunal and the proceedings continued to be in personam. While admitting that the Hon'ble Apex Court and this Tribunal have held that proceedings are in rem following a CIRP admission order, however, it was contended that in rem proceedings arise only when the IRP/RP takes over control of the management of the C....
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....ebtor. However, once the petition is admitted and CIRP is initiated, several significant changes take place, including the transfer of the management of the affairs of the corporate debtor to the IRP, the declaration of the moratorium, and the collation of the claims against the corporate debtor. Therefore, the proceedings now change character - they become in rem and are no longer the preserve of only the applicant creditor and the corporate debtor and even creditors who were not the original applicants, become necessary stakeholders. It is contended by the Respondent that in the present case when the IRP had not taken over the charge of the Corporate Debtor and the Corporate Debtor was still functioning under the previous management, 'the significant changes' as pointed out in the above Byju judgment having not taken place, the proceedings were not in rem. Hence, the Adjudicating Authority enjoyed jurisdiction to adjudicate on the Section 9 application which had been filed by the Respondent-Operational Creditor. 42. Attention was also adverted to the judgment of this Tribunal in Axis Bank Ltd. Vs. Asset Reconstruction Company India Ltd., 2025 SCC OnLine NCLAT 1224 in which ....
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.... Hence applying the ratio of the above Axis Bank judgment to the facts of the present case where the CIRP admission order of 19.11.2025 was subsequently stayed by this Tribunal on 24.11.2025, the moratorium stood suspended and hence there was no statutory embargo on the Adjudicating Authority to proceed with adjudication of the Company Petition No. 812 of 2019 and its admission. 43. Attention was also adverted to the decision of the Hon'ble Supreme Court in Mars Remedies Pvt. Ltd. Vs. BDH Industries Ltd. 2023 SCC OnLine SC 2551 wherein the Supreme Court had held that the Corporate Debtor cannot be allowed to have benefit of best of both worlds of seeking a stay of a CIRP admission order while using the stay of that CIRP to shield it from all other insolvency proceedings. The relevant excerpt of the above judgment is as reproduced below: "8. As a result of the above order, the proposed intervenor is stuck. The CIRP initiated at the behest of the respondent in the above Civil Appeal is put on hold by this Court and the CIRP initiated by the proposed intervenor is put on hold by the NCLT. Therefore the intervenor is caught in the middle and hence he seeks appropriate direc....
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....on of proceedings against the Corporate Debtor would be in violation of Section 14 and hence non-est in law. It would be useful to extract the relevant para of the said judgment which is as extracted below: "4. The Mandate of the new IBC is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section proceedings 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against corporate debtors. 5. This being the case, we are surprised that an arbitration proceeding has been purported to be started after the imposition of the said moratorium and appeals under Section 37 of the Arbitration Act are being entertained. Therefore, we set aside the order of the District Judge dated 6-7-2017 and further state that the effect of Section 14(1)(a) is that the arbitration that has been instituted after the aforesaid moratorium is non est in law." 46. We are of the view that the grant of interim stay by this Tribunal did not result in the extinction, termination, quashing or obliteration of the CIRP proceedings or the attendant moratorium. Even if the CIRP admission order is stayed, the moratorium u....