The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) 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.
The Appeal was filed by Commercial Tax Department challenging the Order passed by the Adjudicating Authority (National Company Law Tribunal (NCLT)). Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Bhagwan Motors Private Ltd., commenced. The Commercial Tax Department issued a Notice under Section 128 of the Madhya Pradesh VAT Act, 2002, upon VE Commercial Vehicles Limited to pay sum of Rs.17,12,094/-. VAT amount due of Assessment Year 2014-15 of M/s. Bhagwan Motors Private Limited in response to Notice issued by Commercial Tax Department, the VE Commercial Vehicles Limited deposited the amount of Rs.17,12,094/- to the Commercial Tax Department.
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The Resolution Professional (RP) filed an IA against the VE Commercial Vehicles Limited, Respondent No. 1 and Commercial Tax Officers as Respondent No. 2 under Section 43 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016, (IBC) for refund of the aforesaid amount from the Commercial Tax Department.
The Adjudicating Authority after hearing the Parties observing that VAT/GST recovered the amount of tax payable by Corporate Debtor as per Notice dated 03.07.2019, whereas CIRP was initiated vide Order dated 21.06.2019. The recovery having been made during Moratorium period, the Commercial Tax Department is liable to refund the amount.
Counsel for the Appellant submitted that Application filed by the RP under Section 43 was misconceived. There was no Preferential Transaction within meaning of Section 43. Payment was not made from the
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Corporate Debtor’s property or asset and transaction was done by third-party M/s. VE Commercial Vehicles Limited in response to statutory demand under the MP VAT Act. For attracting Section 43 of the Code, the Preferential Transaction has to be done by the Corporate Debtor.
Transaction did not involve Corporate Debtor, hence Application under Section 43 was wholly misconceived and not maintainable. Moratorium under Section 14 was also not attracted since it prohibits action against the Corporate Debtor and its asset. Moratorium under Section 14 does not extend to third-party transaction carrying out in accordance with the statutory obligation.
Counsel for the RP opposing the submissions of the Appellant submitted that once Moratorium was imposed by Order dated 21.06.2019, the amount due by M/s. VE Commercial Vehicles Limited to the Corporate Debtor could not have been adjusted by payment of any VAT liability to the Appellant. After imposition of Moratorium it is not open for Appellant to recover any amount on account of the Corporate Debtor nor can it appropriate any amount towards its own dues.
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The two member bench of Justice Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member) 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.
While allowing the appeal, 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. The Tribunal set aside the impugned order.
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