NCLAT upholds the Operational Creditor's claim despite the Corporate Debtor's allegations of fabricated invoices and involvement of a shell company.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and held that the NCLT rightly admitted the Section 9 application as the Corporate Debtor's claims of fabricated invoices and involvement of a shell company did not suffice to dispute the Operational Creditor's claim supported by credible evidence, including sales contracts and bills of lading.
In the NCLAT's review of the appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, the Court assessed the challenge to the NCLT's admission of a Section 9 application filed by Nanjing Maohj Information & Technology Co. Ltd. (NMIT) against M/s Alliance Embroidery Machine Private Limited. NMIT, the Operational Creditor, had initiated insolvency proceedings citing non-payment for goods supplied, following a failure to receive a response to their demand notice.
The Corporate Debtor contested the proceedings, arguing that the demand was misdirected and disputed the delivery and proof of supply. The Corporate Debtor also claimed that M/s Chirag Impex HK Ltd., a related entity, was involved in the transaction. However, the NCLAT found that Chirag Impex HK Ltd. was essentially a shell company related to the Corporate Debtor and that the invoices submitted by the Corporate Debtor were fabricated. These invoices significantly undervalued the machinery and were believed to be created to evade customs duties.
The evidence showed that the bill of lading listed the Operational Creditor as the consignor and the Corporate Debtor as the consignee, with no involvement of Chirag Impex HK Ltd. in the export process, contrary to the Corporate Debtor's claims. Additionally, the Corporate Debtor's documents did not substantiate the alleged purchase from Chirag Impex HK Ltd. The discrepancies, such as undervalued invoices compared to market prices and the lack of supporting agreements or contracts, further undermined the Corporate Debtor’s arguments.
The NCLAT found the Corporate Debtor’s allegations unconvincing and noted that the documented evidence, including sales contracts, bills of lading, and confirmation letters, supported the Operational Creditor’s claim. Despite the Corporate Debtor’s claims of fabricated invoices and customs duty evasion, these issues did not suffice to dispute the claim effectively.
The NCLAT upheld the Adjudicating Authority’s decision to admit the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP) and dismissed the appeal. The judgment confirmed that the necessary steps under the Insolvency and Bankruptcy Code should proceed, and no costs were awarded.
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