Insolvency and Bankruptcy Code, 2016 – ss.8 and 9 – Insolvency and Bankruptcy (AAA) Rules, 2016 – r.6 – AppellantTransmission Corporation awarded certain contracts to the respondent for supply of goods and services – Some dispute arose and the respondent initiated arbitration proceedings – Respondent filed 82 claims before Arbitral Council – Arbitral Council held that claims made on the basis of Invoice Nos.1-57 were barred by law of limitation and, therefore, no amount could be awarded against the said claims – In respect of Invoice Nos.58-82, the award was passed in favour of the respondent – Respondent filed execution petition seeking execution of amount in respect of Invoice Nos.1-57 and application was entertained – That order was challenged by the appellant by filing Revision petition before the High Court – High Court held that there was no award in respect of claim towards Invoice Nos.1-57 and, therefore, it was not permissible for the respondent to seek execution – Thereafter, respondent filed Company Petition u/s. 9 of IBC r/w. r.6 of Insolvency and Bankruptcy Rules against the Appellant – Petition was dismissed by the National Company Law Tribunal (NCLT) – However, National Company Law Appellate Tribunal (NCLAT) ordered one opportunity to the appellant to settle the claim of the respondent, failing which an order would be passed to initiate Corporate Insolvency Resolution Process (CIRP) against the appellant – On appeal, held: Existence of an undisputed debt is sine qua non of initiating CIRP – Adjudicating authority is required to satisfy itself that there is a debt payable and there is operational debt and the corporate debtor has not paid the same – In instant case, NCLAT had not discussed the merits of the case and also not stated how the amount was payable to the respondent – There was no award of the Arbitral Council or order of any other Court with respect to invoice Nos.1-57 – Further, IBC is not intended to be substitute to a recovery forum and whenever there is existence of real dispute, the IBC provisions cannot be invoked – Therefore, order of the NCLT justified and order of the NCLAT set aside.
Allowing the appeal, the Court
HELD: 1. Section 9 of the Insolvency and Bankruptcy Code, 2016 provides for initiation of corporate insolvency resolution process by operating creditor on the basis of application filed by such a creditor. It, inter alia, states that whenever a notice, demanding the payment as per notice or invoice, under sub-section
(1) of Section 8 of IBC and the operational creditor does not receive payment from the corporate debtor, after the expiry of a period of 10 days from the date of delivery of such notice or invoice demanding payment operational creditor may file an obligation before the adjudicating authority for initiating CIRP. Section 8 deals with insolvency resolution. Sub-section (1) thereof stipulates that an operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. Sub-section (2) puts an obligation upon the corporate debtor to respond to the said demand notice or copy of invoice within a period of 10 days of the receipt thereof by stating that dispute qua the said demand exists between the parties or by repayment of unpaid operational debt and sending proof thereof to the operational creditor. [Para 9][1074-E-G]
2. From the aforesaid, it follows that existence of an undisputed debt is sine qua non of initiating CIRP. It also follows that the adjudicating authority shall satisfy itself that there is a debt payable and there is operational debt and the corporate debtor has not repaid the same. [Para 10][1074-H; 1075-A]
3. Clause (ii) of sub-section (5) of s.9 stipulates the circumstances under which the application filed by the operational creditor can be rejected. Sub-clause (d) thereof stipulates the CONDUCTORS AND CABLES LTD.
eventuality where there is a notice of dispute sent by the corporate debtor to the operational creditor. [Para 11][1076-G-H]
4. Here, the matter was taken up before the Arbitral Council insofar as claim under Invoice Nos. 1-57 is concerned, the same was specifically rejected by the Arbitral Council on the ground that it had become time barred. The respondent challenged the said part of the award of the Arbitral Council, but was not successful. Thereafter, the respondent attempted to recover the amount by filing execution petition before the Civil Court, Hyderabad. However, that attempt of the respondent was also unsuccessful inasmuch as the High Court of Judicature at Hyderabad categorically held that since that particular amount was not payable under the award, execution was not maintainable. After failing to recover the amount in the aforesaid manner, the respondent issued notice to the appellant under Section 8 of the IBC treating itself as the operational creditor and appellant as the corporate debtor. The appellant specifically refuted this claim. In spite thereof, application under Section 9 was filed before the NCLT, Hyderabad which was dismissed. The NCLAT has not discussed the merits of the case and also not stated how the amount is payable to the respondent in spite of the aforesaid events which were noted by the NCLT as well. Notwithstanding, it has given wielded threat to the appellant by giving a one chance, ‘to settle the claim with the appellant (respondent herein), failing which this Appellate Tribunal may pass appropriate orders on merit’. It has also stated that though the matter is posted for admission on the next date, the appeal would be disposed of at the stage of admission itself. There is a clear message in the aforesaid order directing the appellant to pay the amount to the respondent, failing which CIRP shall be initiated against the appellant.[Paras 12, 13][1077-A-F]
5. IBC is not intended to be substitute to a recovery forum. Whenever there is existence of real dispute, the IBC provisions cannot be invoked. On merits, the order of the NCLT is justified. [Paras 15 and 16][1078-B-C; 1083-D]
Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353 – held applicable. Case Law Refrence
(2018) 1 SCC 353
held applicable
Para 15
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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