Page 22 - Banking Finance September 2022

LEGAL UPDATE

jewellery belonged to the family mem- ceeded the deductibles for various creditor. "From a reading of Sections
bers of the assessee of the assessment lapses in work, as per the contract - 8 and 9 of the IBC, it is patently clear
order. Therefore, the AO has erred in such as liquidated damages. that an operational creditor can only
giving effect to the CBDT instruction on trigger the CIRP process when there is
HBL took the matter to the appellate
the gold jewellery belonging to the
tribunal, NCLAT, which reversed NCLT's an undisputed debt and a default in
mother of the assessee while allowing
verdict, saying it should have disal- payment thereof. If the claim of an
the gold jewellery belonging to the
lowed the Corporate Insolvency Reso- operational creditor is undisputed and
mother-in-law of the assessee. The
lution Process (CIRP). the operational debt remains unpaid,
mother of the assessee was staying
CIRP must commence, for IBC does not
with her daughter, who is the only SS Engineers then approached the Su-
countenance dishonesty or deliberate
daughter, and hence the benefit of preme Court against the NCLAT order.
failure to repay the dues of an opera-
CBDT Instruction No. 1916 should also The apex court agreed with the appel-
tional creditor. However, if the debt is
be extended to the mother of the as- late tribunal, saying NCLT had "commit-
disputed, the application of the opera-
sessee. ted a grave error of law by admitting
tional creditor for initiation of CIRP
The department supported the order the application of the operational
must be dismissed."
of the AO but could not controvert the creditor, even though there was a pre-
taxing of excess jewellery belonging to existing dispute".
Post office staff swindled
the mother of the assessee.
It said that under Section 9 of the IBC,
the adjudicating authority would have Rs. 96 crore of public
NCLT not a debt collection to examine (i) whether there was an
money
operational debt exceeding Rs. 1 lakh;
forum, says SC The staff at post offices misappropri-
(ii) whether the evidence furnished
The Supreme Court has categorically ated Rs 95.62 crore of public money
with the application showed that debt
said that in a dispute between an op- between November 2002 and Septem-
exceeding Rs. 1 lakh had not been
erational creditor and a company, the ber 2021, the Comptroller and Auditor
paid; and (iii) whether there was any
operational creditor cannot sue the General has said.
dispute between the parties or a
company for insolvency. It does not
record of pendency of a suit or arbitra- The money may seem small but it is
matter whether there is merit in the
tion proceedings filed before the re- what common citizen invested in post
stand of the operational creditor - af-
ceipt of a demand notice in relation to office savings, the oldest and the larg-
ter all, the Insolvency and Bankruptcy
Code's (IBC) purpose is not to sit in judg- the dispute. If any of the conditions est banking system in the country. The
ment of commercial disputes. was not fulfilled, the application of the system serves the investment needs of
operational creditor would have to be urban and rural clients through
The apex court said this in its verdict
rejected. schemes such as savings bank, recur-
in the SS Engineers vs Hindustan Petro-
ring deposits, time deposits, national
leum Corporation case. They further said that the NCLT, exer-
savings certificates, kisan vikas patras,
cising powers under Section 7 or Sec-
SS Engineers believed it had provided
tion 9 of IBC, "is not a debt collection public provident fund, monthly income
services worth Rs. 38 crore to HPCL
account scheme, sukanya samriddhi
forum". The IBC deals with insolvency
Biofuels Ltd (HBL), a subsidiary of
accounts and senior citizens savings
and bankruptcy. "It is not the object of
HPCL. HBL was not happy with the
the IBC that CIRP should be initiated scheme.
services and refused to pay. A dispute
to penalise solvent companies for non- It also found instances of manipulation
arose. SS Engineers sued HBL for insol-
vency at the National Company Law payment of disputed dues claimed by in the database by opening fake ac-
Tribunal (NCLT), Kolkata. an operational creditor." counts and making fake entries of de-
The NCLT admitted the insolvency pro- The verdict further stresses that there posits into these accounts and subse-
ceedings against HBL, thus favouring are "noticeable differences" in the IBC quent withdrawal of money of Rs
SS Engineers, and held that the between the initiation of CIRP by a fi- 15.98 crore from these accounts in
company's dues from HBL far ex- nancial creditor and by an operational four circles.
22 | 2022 | SEPTEMBER | BANKING FINANCE