Parvinder Singla Proprietor Of Ganpati ... vs J V Industries Private Limited

Mr. PARVINDER SINGLA Proprietor of Ganpati Metals ...Appellant

Vs

M/s J V INDUSTRIES PRIVATE LIMITED ...Respondent

(Arising out of Order dated 19.11.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Bench V, New Delhi) in C.P. (IB)/721(ND) 2023)

For Appellant: Mr. R K Bhalla, Mr. Sunil Upadhyay & Mr. Mithilesh Kr. Yadav, Advocates

For Respondents: Mr. Yogendra Aldak & Mr. Agrim Arora, Advocates

JUDGEMENT

Per Justice N. Seshasayee, Member (Judicial)

Challenging an Order rejecting the appellant's petition in C.P. (IB)/721(ND) 2023

filed under Sec.9 IBC by the Adjudicating Authority (National Company Law 2

Tribunal, Bench V, New Delhi) vide its Order dated 19 November, 2024, on the

ground of pre-existing dispute between the parties is the appellant.

Facts

1. The facts which provide a backdrop runs as below:

a) The appellant was a trader in copper scraps and between July, 2020, and

July, 2021, the appellant had supplied copper scrap to the respondent for

which the appellant had raised multiple invoices. The issue pertains to

non-payment of value of the goods supplied during 2021-2022 FY.

According to the appellant, as on 01.04.2021, in its books the appellant

had a debit balance of Rs.3.27,26,178. Till July, 2021, several sales had

taken place and the respondent had been making payments too, which

were adjusted against the amount due on earlier bills. The last of the

payment so made was on 17.07.2021 when the respondent paid Rs.50.0

lakhs. Critically, between 14.06.2021 and 06.07.2021, the appellant had

sold five consignments of goods whose aggregate invoice value was

Rs.3,07,89,249.60/-. The last payment was adjusted against the

outstanding as on that date, which left the balance outstanding payable

by the respondent at Rs. 2,70,83,131/-. According to the appellant it is

entitled to charge interest at 18% p.a. if the invoice-amount is not paid on

the date on which it falls due for payment.

b) Demanding payment, the appellant sent e-mails dated 26.12.2022,

31.12.2022 and 01.08.2022. And, then he issued the statutory notice

dated 25.09.2023 under Sec.8 IBC, demanding payment of Rs.2,70,83,131

with interest amounting to Rs.1,05,71,632, totaling Rs.3,76,54,763.

Company Appeal (AT) (Ins) No. 47 of 2025 3

c) This demand notice was responded to by the respondent vide its reply

dated 04.10.2023, wherein the respondent did not dispute the correctness

of the balance demanded, but raised an issue that it has come to learn

that GST authorities have initiated investigation for 'fake/bogus input tax

credit (ITC)' against the appellant and that the GST Registration of the

appellant has been cancelled with effect from 23.07.2022 and refers to a

certain undertaking given by the appellant on 17.06.2021 that appellant

would take all necessary steps to enable the respondent to avail ITC and

that the appellant would indemnify the respondent vis-à-vis any liability

that may befall on the respondent including rejection/denial of ITC and

promises to pay should the appellant provides a bank guarantee along

with the 100% penalty and interest up to the date of furnishing the bank

guarantee.

d) The appellant in its rejoinder pointed out that the issue of GST violation is

not the concern of the respondent.

e) This was followed by the appellant laying its petition under Sec.9 IBC. And,

the respondent stuck to its position.

2. After examining the materials before it, the Adjudicating Authority has

found that the communications between the parties reflected a continuing

disagreement over the ITC issue and the demand for furnishing a bank guarantee

has been there even prior to the issuance notice under Sec.8 IBC. Relying on the

judgment of the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs

Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353 and Subhash Chandra Goyal v.

K.B. Ispat Pvt. Ltd. [C.A. (AT)(Ins) No. 166 of 2022) the NCLT held that the

Company Appeal (AT) (Ins) No. 47 of 2025 4

existence of even a plausible or a bona fide dispute prior to the issuance of

demand notice is sufficient to reject an application under Section 9 of the Code.

Arguments

3. The learned counsel for the appellant made the following submissions:

a) The appellant / Operational Creditor (OC) supplied goods to the

Respondent (CD) under valid tax invoices for which payments remain

outstanding. The OC issued a demand notice dated 25.09.2023 under

Section 8(1) of the Insolvency and Bankruptcy Code, 2016, demanding

the undisputed outstanding operational debt of Rs. 2,70,83,131/-

along with interest of Rs. 1,05,71,632/-, totaling Rs. 3,76,54,763/-.

b) The Corporate Debtor, in its reply dated 04.10.2023, accepted the

outstanding amount and did not dispute the supply or the quantum of

dues. The CD, however, expressed an apprehension that the Input Tax

Credit (ITC) claimed by it "may possibly be denied" due to the alleged

investigation against the appellant. The said apprehension is

speculative and not supported by any material. No investigation has

been initiated by the GST Department against the OC in respect of the

transactions underlying the present claim. No show-cause notice or

demand has been issued by the GST Department to either the OC or

the CD in relation to the invoices in question.

c) The Corporate Debtor has violated the provisions of Section 16(2)(c) of

the Central Goods and Services Tax Act, 2017, which requires reversal

of ITC where the supplier has not paid the tax to the Government. The

statutory provision contemplates that credit claimed in respect of

Company Appeal (AT) (Ins) No. 47 of 2025 5

supplies where the supplier has not paid tax shall be reversed by the

recipient along with interest; re-availment is permitted only when the

supplier makes payment. Since the Corporate Debtor has not paid the

outstanding amount to the Operational Creditor, it cannot lawfully

claim ITC on such supplies. The CD's plea that the GST Department

might in future disallow ITC is therefore misconceived: the CD's own

failure to pay the appellant is the operative reason for any potential

reversal, and that is a matter concerning the CD's own conduct rather

than an existing dispute with the appellant Section 41(2) of the CGST

Act (as substituted w.e.f. 01.10.2022) and the relevant provisions of the

Finance Act reinforce that entitlement to ITC is subject to actual

payment by the supplier and statutory conditions. The transactions in

question occurred during FY 2020-21 up to 31.07.2021 when the

appellant's registration was active and valid.

d) Even where the seller's registration is cancelled with retrospective effect

does not automatically affect the buying dealer where the transactions

are genuine and tax has been paid. Reliance was placed on State of

Maharashtra Vs Suresh Trading Company [1996 (3) SCALE 536

(SC)]. This would imply seller's (in the instant case, the appellant)

entitlement to claim its dues on past genuine transactions and taxes

paid thereon cannot be nullified by speculative post-facto actions.

e) Alternatively, any arrangement of indemnity is contractual and it

cannot be a unilaterally imposed as a pre-condition as to create a pre-

existing dispute that was never there. Investigation, even if any, which

Company Appeal (AT) (Ins) No. 47 of 2025 6

might arise subsequent to Sec. 8 notice cannot have retrospective effect

as to constitute a pre-existing dispute.

When the existence of an operational debt and default in paying the same

are established and undisputed, the statutory conditions necessary for

initiating a CIRP are satisfied. The Adjudicating Authority therefore, has

erred in countenancing speculative apprehensions. Reliance was placed

on the ratio in Mobilox Innovations case.

4. Per contra, the learned counsel for the respondent submitted that the it is

under a genuine apprehension regarding ITC denial and the same is not

speculative but founded upon actual proceedings before the GST Department,

Kolkata. Placing reliance on Annexure R-2 and Annexure R-3, which are but

show cause notices issued to certain RNT Metals Pvt. Ltd. and another BMW

Industries Ltd., that Input Tax Credit claims involving Ganpati Metals were

disallowed by the tax authorities. This, according to the Respondent, justified its

demand for a bank guarantee and withholding of payment till the matter attained

finality. It has been submitted that the email dated 04.10.2023 cannot be read

as an unqualified admission of liability. The acknowledgment was expressly

conditioned upon the Appellant's compliance with furnishing a security against

the potential tax exposure. The Respondent thus maintains that a genuine

commercial dispute existed prior to the demand notice, thereby excluding the

application of Section 9.

Discussion & Decision

5.1 The bottom line for sustaining a petition under Sec.9 IBC is the existence

of a crystallized debt and its default in payment when the debt has fallen due for

Company Appeal (AT) (Ins) No. 47 of 2025 7

payment. So far as the present case is concerned, the respondent does not

dispute that the appellant has not supplied the goods, nor does it challenge the

quantity and quality of the goods supplied nor does it dispute the value of the

goods so supplied. At least the respondent has not raised any such dispute at

any time either prior to the issuance of statutory demand notice under Sec.8 IBC

or even in its reply to Sec.8.

5.2 The core line of defence which the respondent has taken stems from its

apprehension that given the fact that the appellant faces some issues with the

GST, it faces a possibility of losing on input credit. And it relies on a written

undertaking, dated 17.06.2021 which the appellant has executed. Now, if the

ledger of the appellant pertaining to its transaction with the respondent is

considered, this undertaking was seen to have been given barely couple of days

after the first of the last five sales effected (which was on 14.06.2021) by the

appellant, and after the undertaking the appellant had sold four consignments

of goods. And, there had been few payments made by the respondent till

17.07.2021. The second relevant fact was the allegation of the respondent that

the appellant's GST registration has been cancelled on 23.07.2022. And, the 3rd

relevant fact is regarding the conduct of the appellant: it is particularly silent on

the undertaking dated 17.06.2021, when it is under a duty to speak.

6. The relevant paragraphs of the document of undertaking runs as below:

"4. 1 hereby declare that the Company has deposited and paid the due amount of Goods & Services Tax (GST) for all the invoices raised to the Buyer in respect of supply of the goods made by the Company to the Buyer up to May, 2019 to the

Company Appeal (AT) (Ins) No. 47 of 2025 8

respective Government/GST Authorities under the GST Laws and has also filed all the returns required under the GST Laws in respect of the invoices so raised and in this connection. 1, hereby agree and undertake to furnish the proof of the said payment of GST and proof of filing of returns under the GST Laws to the Buyer.

5. I, on behalf of the company, hereby undertake that the Company shall pay the GST to the respective Government/GST Authorities under the GST laws for all the invoices raised by the Company from 01.07.2017 upto till date and also in respect of invoices to be raised by the Company in respect of future supplies of Goods by the Company to the Buyer and undertake to file all the returns required under GST Laws in respect of the invoices so raised. I hereby agree and undertake to furnish to the buyer the proof of said payment of GST and proof of filing of said returns under the CGST Act/IGST Act.

6. I, on behalf of the company, undertake that the Company shall take all necessary actions to ensure availing of Input Tax Credit (ITC) by the Buyer under the GST Laws on all the invoices already raised or to be raised in future by the company to the buyer for the supply of Goods to the Buyer.

7. In case of rejection/denial of Input Tax Credit to the Buyer by the concerned GST Authorities in respect of Goods & Services Tax (GST) charged on the invoices raised by the Company for the goods supplied to the Buyer till date and/or in respect of Goods & Services Tax (GST) charged on the invoices to be raised for future supply of Goods to the Buyer due to nonpayment of GST under the GST Laws or for any reason whatsoever directly or indirectly attributable to Company, I, on behalf of the company, hereby undertake and agree that the company shall indemnify the buyer in full

Company Appeal (AT) (Ins) No. 47 of 2025 9

against all consequences, liabilities of any kind whatsoever directly or indirectly arising from such rejection/denial of ITC including the GST amount, interest and penalty as may be imposed by the GST Authorities

8. I, on behalf of the Company. hereby agree and confirm that any breach of the above indemnification or undertakings shall be construed as breach of the terms and conditions for reimbursement of GST and the Buyer shall he at liberty to take such action against the Company including recovering of reimbursed GST amount from credit balance of the company, if any, as appearing in the books of accounts of the Buyer and in absence of any outstanding dues/any other form of payments due to the Company, the company shall indemnify all outstanding claims raised by the GST Authorities against the availment of Input Tax Credit by the buyer."

7. Since the respondent's refusal to pay the sum stems from the document

of Undertaking referred to above, if the appellant were to deny it (which it is not

seen to have done), then it will require an enquiry on facts, which is a forbidden

terrain for this tribunal as it falls within the domain of the civil court. If on the

other hand, if the undertaking is admitted then it does sustain the respondent's

apprehension.

8. The appellant defends the contention of the respondent with its contention

that the respondent has not produced any evidentiary material to support that

there has been a GST investigation into its affairs, and even if any, it does not

affect or impact its right to claim any antecedent debt to which it was entitled to,

nor is there a moratorium on its debtors from making payment of their

Company Appeal (AT) (Ins) No. 47 of 2025 10

outstanding dues. This argument is impressive, and could have even persuaded

us, if only the document of undertaking has not intervened.

9. The Undertaking referred to above discloses: (a) that the appellant has paid

the GST dues vis-à-vis its transactions with the respondent and that it will pay

it up to date; (b) that the appellant shall do its best to ensure that the respondent

obtains the ITC benefit; and (c) if respondent's claim of ITC is denied or rejected

then the appellant would indemnify it. In the backdrop of these undertakings,

the appellant could have demonstrated that it had paid the GST dues up to date

as concerning its transactions with the respondent, or could have moved one

more step and established that the respondent has not been denied any ITC

benefits. However, neither of them were seen to have been attempted.

10. The undertaking therefore remains unaffected, and it continue to sustain

the apprehension of the respondent. After all this tribunal is only concerned

with the state of affairs as at the time of filing the petition under Sec.9 IBC. The

rule in Mobilox Innovations case only requires that the existence of a pre-

existing dispute between the parties must at least be a plausibility. This

plausibility having been established by the respondent, we do not find that

approach to the Adjudicating Authority to the issue before it and the outcome of

its consideration are erroneous as to warrant an interference.

11. To conclude, this appeal is dismissed. No costs.

[Justice N. Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical) Company Appeal (AT) (Ins) No. 47 of 2025