GST Credit Misuse in GAIL Pipeline Project: Orissa HC Quashes FIR Alleging Non‑Payment of Dues in NCLT Liquidation Proceedings [Read Order]

In a recent judgment, the Orissa High Court quashed an FIR registered against officials and the liquidator of Punj Lloyd Ltd. (PLL), which alleged non‑payment of subcontractor dues and misuse of Goods and Services Tax (GST) input credits in connection with the Gas Authority of India Ltd (GAIL) pipeline project.

The FIR, filed by DSP Infracon Pvt. Ltd. at Kamakhya Nagar Police Station, accused PLL’s representatives of withholding ₹3.28 crore payable under a subcontract while availing GST benefits on the same invoices. The complaint invoked Sections 418 and 420 of the IPC, claiming fraudulent intent.

The petitioners, Manoj Mamgaine &Anr, argued that the dispute was purely commercial, arising from a valid subcontract executed during PLL’s Corporate Insolvency Resolution Process (CIRP) and subsequent liquidation under the Insolvency and Bankruptcy Code (IBC). He contended that there was no dishonest inducement or fraudulent intent at the inception of the contract, and that the FIR was being used as a coercive tool for monetary recovery.

The petitioners pointed out that GAIL had already paid over ₹10.71 crore to PLL’s sub‑vendors, including DSP Infracon, as disclosed in filings before the National Company Law Tribunal (NCLT). They maintained that any remaining dues were subject to liquidation proceedings and could not form the basis of criminal prosecution.

Opposing the plea, counsel for the complainant argued that the FIR disclosed elements of cheating, citing GST Department records evidencing wrongful availment of input tax credit amounting to ₹18.74 lakh. It was alleged that the liquidator, Ashwini Mehra, acted beyond his authority by issuing work orders despite GAIL’s contract prohibiting subcontracting.

After examining the record, Justice Sanjeeb K. Panigrahi held that the allegations did not satisfy the ingredients of cheating under Sections 418/420 IPC. The Court observed that the relationship between PLL and DSP Infracon was contractual, and the alleged non‑payment of dues and GST credit issues were civil and commercial matters governed by insolvency law.

The Court noted that criminal law cannot be invoked to settle financial disputes or exert pressure in liquidation proceedings monitored by the NCLT. It concluded that continuing the investigation would amount to abuse of process, and accordingly quashed the FIR and all related proceedings.

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