Mr. Mujahid vs U P Bone Mills Pvt. Ltd.

ORDER

“8.

Further, vide order dated 06.09.2023, this Adjudicating Authority had directed the Applicant and Respondent to file separate affidavits stating therein that the present proceedings are not collusive and the parties i.e., OC and CD are not related to each other.

9.

In compliance of the order dated 06.09.2023, the Applicant has filed its affidavit on 09.09.2023, which read thus –

10.

Similarly, the Respondent has also filed the following affidavit on 12.09.2023, which read thus –

11.

Though the Respondent has clearly admitted the debt and default through the pleadings and as well as during the course of the hearing, it has also filed an Affidavit on record (ibid) stating that the Respondent is not related to the Applicant/ OC in terms of Section 2(24) of IBC, 2016 and the Application is not a collusive one. The Applicant has also filed a similar Affidavit (ibid) on record stating that it is not related to the Respondent in any manner and the Application is not filed in collusion with the other party.”

“4.

The particulars of the Operational Debt claimed by the Applicant including the total amount of default and the date of default are mentioned in Part IV of the application, which is reproduced below –

5.

As per Part IV of the Application (ibid), the Applicant has claimed the Debt of Rs.11,79,86,386/- plus interest of Rs.2,65,46,936/-calculated @18% P.A. equivalent to Rs.45,33,322/- and relied on 26.03.2021 as the date of default.

6.

It is stated by the Applicant that it had sent a Demand Notice dated 04.02.2023 under Section 8 of IBC 2016 to the Respondent. However, no proof of service of demand notice has been annexed by the Applicant.

7.

On issuance of the notice, the Respondent filed the reply admitting receipt of the demand notice and commission of default in making payment –

“5.

That though initially a payment of Rs.4,32,37,146/- (Rs. Four Crore Thirty -Two Lakh Thirty-Seven Thousand One Hundred and Forty-Six only) was made to the Operational Creditor but thereafter the financial position of the company deteriorated and we could not make any further payment despite receiving and a demand notice dated 24.12.2022 and a notice dated 04.02.2023 (in Form-3), from the Operational Creditor, for a payment of Rs. Rs.11,79,86,386/- (Rs. Eleven Crore Seventy-Nine Lakh Eighty-Six Thousand Three Hundred and Eighty-Six Only) plus an interest of Rs.2,65,46,936/- (Rs. Two Crore Sixty-Five Lakh Forty-Six Thousand Nine Hundred and Thirty-Six Only) collectively amounting to Rs. 14,45,33,322/- (Rs. Fourteen Crore Forty-Five Lakh Thirty-Three Thousand Three Hundred and Twenty-Two Only)

6.

The default is not intentional, but the circumstances compelled us to commit the default.”

“2B. Record or evidence of transaction, debt and default by operational creditor.

The operational creditor shall, alongwith application under section 9, furnish copies of relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of the relevant laws relating to Goods and Services Tax and the copy of e-way bill wherever applicable:

Provided that provisions of this regulation shall not apply to those operational creditors who do not require registration and to those goods and services which are not covered under any law relating to Goods and Services Tax.”

“7. Claims by operational creditors.-

[…]

(2)

The existence of debt due to the operational creditor under this Regulation may be proved on the basis of-

(a)

the records available with an information utility, if any; or

(b)

other relevant documents, including –

(i)

a contract for the supply of goods and services with corporate debtor;

(ii)

an invoice demanding payment for the goods and services supplied to the corporate debtor;

(iii)

an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; or

(iv)

financial accounts.

(v)

copies of relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of the relevant laws relating to Goods and Services Tax and the copy of e-way bill wherever applicable:

Provided that provisions of this sub-clause shall not apply to those creditors who do not require registration and to those goods and services which are not covered under any law relating to Goods and Services Tax.”

“[…]

6.

That during the investigation conducted, it was revealed that the Corporate Debtor had shown supply of goods from the five proprietorship firms; that all the said five firms had not supplied any goods to the party; that the said five firms were found to be non-existent and non-working at their declared places of businesses;

7.

That the proprietors (owners) of the said firms had also neither responded to and made their appearances against the summons issued under statutory provisions of the Central GST Act, 2017 nor had they submitted any replies to the said summons;

8.

That the said firms had engaged into transactions only on papers without having supplied any goods or services or both against the tax invoices issued. The total value involved in such fake supply by issuance of paper invoices issued. The total value involved in such fake supply by issuance of paper invoices only without any concomitant supply of goods and services Rs. 247,33,91,403/-including Input tax credit Rs. 37,72,96, 996/-·. That the details of five firms, found to be non-existent, and the purported transactions made by them are annexed herewith and marked as Annexure-A/2.

9.

It is submitted that in respect of the present creditor who has filed the claim before the Hon’ble NCLT, it was observed during the course of the Departmental investigation carried out by the Applicant, that:

i.

That out of the said five non-existent firms, one firm was M/s Moon Traders, Proprietor Sh. Mujahid, who had shown its principal place of business located at opposite Moolchand, Meerut Road, Muzaffamagar, U.P.- 251003, having GSTIN (GST Registration Number)- 09FTSPM6684L1ZE.

ii.

That the said M/s Moon Traders(proprietor sh. Mujahid) had shown purported supply of goods totally valued at Rs. 15,93,73,842, inclusive of tax amount, to the party during the financial year of 2020-2021.

iii.

That the Central Tax Officer on 13.04.2021 visited the principal place of business of M/s Moon Traders (Proprietor sh. Mujahid). During the said visit made, the officers had made inquiries with regard to Moon Traders and recorded it in a Panchnama, drawn on the spot in the presence of two independent witnesses, whereby no business activities had been noticed in the said premises since long, as also witnessed by the local residents. A copy of the said Panchnama is annexed herewith and marked as Annexure-A/3.

iv.

That thereafter, the Central Tax officers of Dehradun Commissionerate had issued two Summons dated 03.11.2022 and 09.01.2023 under the provisions of section 70 of the CGST Act, 2017 to sh. Mujahid, proprietor of M/s Moon Traders, causing his appearances to give evidence and to submit the documents. Copies of the Summons are annexed herewith and marked as Annexure A/4 (Colly).

v.

That the summons dated 09.01.2023, sent by speed post at the • said place M/s Moon traders, was returned undelivered by the Indian Postal Authorities with the remark “kaafi talaash karne par, is naam ka vyakti nahi mila, adhura pataa”. The summons dated 03.11.2022 was also not responded to by M/s Moon Traders (proprietor sh. Mujahid). Thus, the said M/s Moon Traders (proprietor sh. Mujahid) was found to be a non-existent and non-working firm at the declared place of business.

10.

That based on the inquiry conducted by the Central Tax Officers of Dehradun Commissionerate, a conclusion was drawn that the transaction of Rs. 247.34 Crores, including the transaction of Rs 15,93,73,842 shown to be made by M/s Moon Traders (proprietor sh. Mujahid), had been made fictitiously by M/s UP Bone Mills Pvt. Ltd. with a view to defraud the Government Exchequer by way of taking the credit of the said amount in its electronic credit ledger and utilizing the said amount to offset its due tax liability on the outwards supplies of goods. Therefore, the said firms, including M/s Moon Traders (proprietor sh. Mujahid), were created only on papers to show the fraudulent transactions by M/s U.P Bone Mills Pvt. Ltd. Hence, based on the said inquiry made by the Department, it is submitted that M/s Moon Traders (proprietor Sh. Mujahid), as well as the other four firms mentioned hereinabove in the table, had not provided any goods or services or both to M/s U.P. Bone Mills Pvt. Ltd. and were non-existent/paper firms only.

11.

That it is further submitted that the Show Cause Notice was served to the Corporate Debtor, i.e. M/s U.P Bone Mills Ltd on 20.06.2023 by CGST Commissionerate Dehradun while both the operation creditor and corporate debtor have submitted an affidavit to Hon'ble NCLT bench stating that they are not in collusion with each other and intentionally hid the pre-existing dispute with CGST Department vide Show Cause Notice 04/23 dated 16.06.2023 wherein it is clearly alleged that the alleged supplies are made only on paper and without any concomitant supply of goods and services. Reference may be made to Pages 6 and 7 of Hon'ble NCLT order dated 26.10.2023. Copy of the Order dated 26.10.2023 has been annexed herewith and marked as Annexure- A/5.

12.

That further it is humbly submitted that in terms of clauses (8) of Section 3 of the Insolvency and Bankruptcy code, 2016(here in after also referred to as the 'Code'), a "corporate debtor" is to mean a corporate person who owes a debt to any person. Furthermore, as per Clause (21) of the said Section 5, an "operational debt" means a claim in respect of the provision of goods and services. Based on the inquiry conducted by the central tax officers of Dehradun Commissionerate read with the said provisions of the insolvency and Bankruptcy code, 2016, it may be asserted that M/s Moon Traders (proprietor sh. Mujahid), does not have any claim in respect of the provisions of goods or services to M/s U.P. Bone Mills Pvt. Ltd., as no operational debt is owed to the former. It, therefore, appears that the said Sh. Mujahid has filed the application (Registration No.) C.P. (IB)/472/ND/ 2023 before the Hon'ble National Company Law Tribunal, New Delhi in collusion with M/s U.P. Bone Mills Pvt. Ltd. with a prayer to initiate the corporate Insolvency resolution process against the latter.

13.

That in terms of the provision made under sub-section ( 1) of section 65 of the insolvency and bankruptcy code, 2016, if, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the adjudicating authority (Hon'ble NCLT) may impose upon such person a penalty which shall not be less than Rs. One lakh, but which may extent to Rs. One crore.

14.

That the ·dues against the party are pending in respect of the following Show-Cause Notices and Orders-in-Originals: -

A. Show cause Notice no. 04/23 dated 16.06.2023(GST) Tax amount: - Rs. 37,72,96,996/-Penalty: - Rs. 37,72,96,996/-Interest: - Rs. 43,18,55,175/-

B. Order-in- originals No. 134/ AC/ RKE/ 2023 dated 26.12.2023(GST) Tax amount: - Rs. 56,38,977 /-Penalty: - Rs. 56,38,977/-Redemption Fine: - Rs. 1,56,63,825/-Interest: - Rs. 29,61,622/-

C. Order-in-original No. 135/AC/ RKE/2023 dated 26.12.2023(GST) Tax amount: - already appropriated Penalty: - 51,82,230/-Interest: - 44,78,736/-Grand total: - Rs. 1,22,60,13,534/-It is submitted that the interest amount has been calculated upto 08.02.2024. Since tax has not been deposited by the Corporate Debtor, the said interest amount may increase. […]”

“15.

Coming to the first ground that Appellant cannot question the order admitting Section 7 Application which has been affirmed by the Appellate Tribunal. It is on record that admission order was affirmed by this Tribunal by its Judgment and Order dated 06th January, 2023. But when we look into the prayers made in application, Appellant has not prayed for recall of the admission order rather the prayer was that Company Petition be dismissed and penalty be imposed under Section 65 and further to conduct enquiries regarding the collusion. Section 65 of the Code provides as follows:

“Section 65: Fraudulent or malicious initiation of proceedings.-

(1)

If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees.

(3)

If any person initiates the pre-packaged insolvency resolution process—

(a)

fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or

(b)

with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.” 16. The power under Section 65 of the Code can be exercised by the Adjudicating Authority only after satisfying that grounds as mentioned exist, if the Adjudicating Authority come to the conclusion that insolvency proceedings have been initiated fraudulently or with malicious intent for any other purpose other than for the resolution of insolvency of the Corporate Debtor, it can impose penalty as provided in the provision. While exercising jurisdiction under Section 65, the Adjudicating Authority is also fully entitled to close CIRP process and pass all consequential order. The mere fact that Section 7 Application has been admitted does not denude the jurisdiction of the Adjudicating Authority to examine the application under Section 65 of the Code. The observations of the Adjudicating Authority are that the Appellant is opposing the admission of the proceeding which admission has been affirmed by the Appellate Tribunal. The above does not denude the jurisdiction of the Adjudicating Authority to examine the allegations made in the Section 65 Application even after admission of the proceedings under Section 7. 17. Now coming to the question of locus of Appellant, Appellant in the Application has given details of the facts, the transaction which is basis of financial debt by the Financial Creditor. The averments prima facie makes it a case for looking in to the allegations more closely and when such glaring facts have come to the Court, the Court need to examine the allegations. Moreso, Appellant’s case is that GGPPL which is also in CIRP, of which the Appellant admittedly is home-buyer has to receive amount from the Corporate Debtor which chance shall also be adversely affected due to commencement of CIRP of the Corporate Debtor. We are of the view that in the facts of the present case, Appellant has locus to file the I.A. No. 4654 of 2023. Further the facts of the case required a deeper examination by the Adjudicating Authority.

18.

Learned Counsel for the Respondent submitted that Application have been filed belatedly at the stage when Resolution Plan of the Corporate Debtor is under consideration. The mere fact that Application has been filed at the time when plan is under consideration does not take away the jurisdiction of the Adjudicating Authority to consider the allegations and find out the truth, if any. 19. It is well settled that when proceedings have been fraudulently initiated, the appropriate orders can be passed by Court. 20. We thus are of the view that the Adjudicating Authority committed error in rejecting the Application without considering the Application on its merit. In result, the Order dated 01.09.2023 is set aside, the Application I.A. No. 4654 of 2023 is revived before the Adjudicating Authority to be considered and decided in accordance with law. We further observe that Adjudicating Authority shall proceed to consider the Application for approval of the Resolution Plan after deciding I.A. No. 4654 of 2023.”