Pranav B Prem

The National Company Law Tribunal (NCLT), Allahabad Bench comprising Shri Praveen Gupta (Judicial Member) and Shri Ashish Verma (Technical Member), has held that authorities from the Goods and Services Tax (GST) Department cannot be impleaded as parties in proceedings initiated under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), merely on the ground that the invoices relied upon by the Operational Creditor are alleged to be bogus or fictitious.

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The ruling was rendered in IA No.150/2024 filed in CP (IB) No.101/ALD/2022 by the Corporate Debtor, seeking impleadment of certain officers of the GST Department as Respondents No. 2 to 5. The plea was based on allegations that the invoices annexed with the original application under Section 9 were fake and reflected transactions without actual delivery of goods.

The applicant relied on certain documents, including orders in Complaint Case No. 670 of 2021, zimni orders passed by authorities, and translated versions of the same, to support the claim of fraudulent invoicing. It was further submitted that the involvement of the GST Department was necessary in view of these ongoing investigations.

However, opposing the application, the Operational Creditor argued that the GST proceedings were entirely unrelated to the current insolvency case. It was pointed out that the alleged criminal complaint was filed by the director of the Corporate Debtor only after the issuance of a demand notice, indicating that it was an afterthought meant to frustrate recovery under the IBC. The Operational Creditor further submitted copies of GST returns showing that the applicable taxes had already been paid. It was asserted that the investigations referred to by the applicant pertained to a different entity and not to the present matter.

The Tribunal agreed with the objections raised by the Operational Creditor and emphasized that the GST Department is an independent authority tasked with carrying out investigations under applicable tax laws. It held that such authorities are not necessary or relevant parties for adjudication of an insolvency application under Section 9 of the IBC.

The Tribunal clarified that disputes relating to invoices must be resolved between the Operational Creditor and the Corporate Debtor based on available records. Referring to the precedent laid down in Damont Developers Pvt. Ltd. v. Bank of Baroda, the Bench reiterated that at the stage of admission of a Section 9 petition, only the Corporate Debtor has a right to dispute the claim. No third party can intervene at this stage unless adversely affected by an order of admission.

Also Read: NCLT Hyderabad Dismisses Section 9 IBC Petition Due to Non-Receipt of Payment by Corporate Debtor in Subcontracted Work

While the Tribunal allowed the documents submitted by both parties—including those related to the GST proceedings—to be taken on record for the purpose of arguments in the main matter, it firmly declined the prayer for impleadment of the GST Authorities. It held that permitting such impleadment would unnecessarily widen the scope of insolvency proceedings, which are meant to address commercial defaults and not tax disputes. Concluding that there was no merit in the plea for impleadment, the Tribunal dismissed IA No.150/2024, while permitting the parties to rely on all documents submitted during arguments in the main Section 9 proceedings.

Appearance

For Operational Creditor: Ms. Prachi Johri, Adv.  

For Corporate Debtor: Sh. Srijan Mehrotra & Sh. Anuj Kumar, Advs. 

Cause Title: M/S Sunder Engineering Works V. Machinery Limited

Case No: IA No.17/2024, IA No.150/2024 & IA No.345/2024 IN CP (IB) No.101/ALD/2022

Coram: Shri Praveen Gupta [Judicial Member], Shri Ashish Verma [Technical Member]