NCLT Ahmedabad Rejects Time Barred Insolvency Plea Against Manpasand Beverages Over Fraudulent Circular Trading

The National Company Law Tribunal (NCLT) Ahmedabad has dismissed an insolvency application filed by M/s Do Well Moulds against M/s Manpasand Beverages Limited. The bench, led by Member (Judicial) Mrs. Chitra Hankare and Member (Technical) Dr. Velamur G. Venkata Chalapathy, ruled that the claim was barred by the limitation period and uncovered deeper concerns regarding the authenticity of the alleged debt.

Disputed Debt and Limitation Concerns

The operational creditor, Do Well Moulds, sought the initiation of the Corporate Insolvency Resolution Process (CIRP) to recover dues amounting to ₹34.40 crore. The applicant claimed that invoices remained unpaid since 2018. However, the Tribunal observed that the applicant admitted the default began as early as 2015. Under the Limitation Act, 1963, the three-year window for recovery had long closed before the application was filed in 2019.

Allegations of Circular Trading

Beyond the temporal constraints, the Tribunal scrutinized the business relationship between the parties. Evidence surfaced suggesting that the transactions were not genuine commercial exchanges but rather part of a "circular trading" scheme designed to illicitly harvest input tax credits. The absence of delivery challans or verifiable logistics records further undermined the legitimacy of the invoices presented.

Key Observations

The Tribunal's order highlighted the precarious nature of the transaction:

"Even if the subsequent invoices are within the limitation, the fact that the applicant has not enclosed the Delivery Challans , investigations are being conducted for circular and paper trading... this matter appears to be a fraudulent receivable and payable transaction/s between both the parties."

The Bench further noted:

"Considering the fact that initially invoices were issued since 2015 , though the contract was continued the last date of invoice cannot be taken into consideration to count limitation period. The petitioner itself stated default started from 2015 . Hence the petition is barred by limitation."

Regulatory Intervention

Finding indicators of an attempt to defraud the system, the NCLT took a decisive stance. While rejecting the insolvency plea as non-maintainable, the Tribunal ordered the Registry to forward the case file to the Registrar of Companies (ROC) and Central Goods and Services Tax (CGST) authorities. This directive mandates a thorough investigation into the conduct of both entities to prevent further misuse of tax and accounting provisions.

This ruling serves as a stern reminder that the IBC cannot be used as a tool to recover disputed or fraudulent debts, especially when the statutory period of limitation has lapsed.