Section 43 Of IBC Cannot Be Attracted When No Transaction Was Made By Corporate Debtor: NCLAT
Mohd Malik Chauhan
7 Dec 2024 1:00 PM IST
The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member) has held that section 43 of the code can be attracted only when the transaction in question is made by the corporate debtor and not when it is made by the third party in pursuance of a statutory demand. Brief Facts The corporate debtor was admitted into the insolvency on June...
The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member) has held that section 43 of the code can be attracted only when the transaction in question is made by the corporate debtor and not when it is made by the third party in pursuance of a statutory demand.
Brief Facts
The corporate debtor was admitted into the insolvency on June 21, 2019. When the moratorium was in operation, the Madhya Pradesh Commercial Tax Department issued a notice on July 3, 2019 in which VE Commercial Vehicles Ltd, was directed to pay ₹17,12,094 as VAT due on behalf of the corporate debtor.
Thereafter, the Resolution Professional filed an application under sections 43 and 60(5) of the code in which the said amount was sought to be refunded on the ground that recovery was a preferential transaction and violated the moratorium under section 14 of the code.
It is the case of the department that no moratorium was breached. It was also asserted that it was neither a case of a preferential transaction. The Adjudicating Authority directed the refund on the ground that recovery during the moratorium was invalid. Hence, the present appeal has been preferred by the Department against this order.
The appellant submitted that application under section 43 of the code was misconceived as the payment that was made by the VE Commercial, a third party, on behalf of the corporate debtor was not made from the assets of the corporate debtor rather it was made in response to the statutory demand under the MP VAT Act therefore it cannot be categorised as preferential transaction. It also contended that section 14 prohibits recovery of the assets of the corporate debtor but does not extend to third party transactions.
In response, it is the case of the respondent that once the moratorium was imposed, any amount linked to the corporate debtor could not recovered. It further argued that the payment made by the VE Commercial was adjusted towards the VAT liability of the corporate debtor which is impermissible under section 14 of the code.
Observations:
The tribunal observed that the condition precedent for attracting Section 43(1) is whether the Corporate Debtor has at any relevant time given a preference in transaction. The present is a case where no transaction was made by the Corporate Debtor which was questioned in Application filed by the RP.
The tribunal further noted that transaction in question was act of depositing of Rs.17,12,094/- by M/s. VE Commercial Vehicles Limited before the Commercial Tax Department in consequence of the Notice dated 03.07.2019. Thus, clearly Section 43 was not attracted and Application under Section 43 was wholly misconceived.
It further added that present is a case where no recovery has been affected by Commercial Tax Department from the Corporate Debtor, the GST Tax Liability of the Corporate Debtor which was not satisfied by the Corporate Debtor was directed to be discharged by M/s. VE Commercial Vehicles Limited which has taken benefit of input tax without GST dues being deposited by the Corporate Debtor. UnderSection 28 of the MP VAT Act, 2002, the recovery can be from any person who holds any money for on account of such dealer or person.
The tribunal further noted that The transaction which was questioned by the RP before the Adjudicating Authority of M/s. VE Commercial Vehicles Limited depositing the amount of Rs.17,12,094/- before the Commercial Tax Department to reverse the input tax availed by it cannot be in any manner said to be violate provisions of Section 14 of the IBC.
“Commercial Tax Department did not recover any amount from the Corporate Debtor or form its assets, the amount was recovered from an entity, M/s. VE Commercial Vehicles Limited which had taken the benefit of input tax where GST had not been deposited, hence M/s. VE Commercial Vehicles Limited reversed it benefits of input tax taken from Commercial Tax Department” the bench observed.
Finally, the tribunal observed that there was no applicability of Section 14, the transaction in question under which the M/s. VE Commercial Vehicles Limited deposited the amount of Rs.17,12,094/- before the Commercial Tax Department in response of statutory Notice dated 03.07.2019 cannot be said to be in violation of Section 14 of the IBC.
Accordingly, the present appeal was allowed and the impugned order was set aside.
Case Title: Commercial Tax Department Versus Mr. Mangesh Vitthal Kekre and Anr.
Case Number: Company Appeal (AT) (Insolvency) No. 232 of 2024 & I.A. No. 737, 783 of 2024
Order Date: 5/12/2024
