KAY BOUVET ENGINEERING LTD. versus OVERSEAS INFRASTRUCTURE ALLIANCE (INDIA) PRIVATE LIMITED on 10 August 2021

[2021] 8 S.C.R. 109

KAY BOUVET ENGINEERING LTD.

v.

OVERSEAS INFRASTRUCTURE ALLIANCE (INDIA)PRIVATE LIMITED

(Civil Appeal No. 1137 of 2019)

AUGUST 10, 2021

[R. F. NARIMAN and B. R. GAVAI, JJ.]

Insolvency and Bankruptcy Code, 2016: ss. 8 and 9 –Corporate Insolvency Resolution Process – Application for initiationof CIRP by operational creditor – Maintainability of – Held: Whena dispute truly exists in fact and is not spurious, hypothetical orillusory; and if a notice has been received by “Operational Creditor”,the adjudicating authority rejects the application for initiation ofCIRP – It is required that the notice by the “Corporate Debtor”must bring to the notice of “Operational Creditor” the existence ofa dispute or the fact that a suit or arbitration proceedings relatingto a dispute is pending between the parties – At this stage theadjudicating authority is to see, whether there is a plausiblecontention which requires further investigation and that the disputeis not a patently feeble legal argument or an assertion of factunsupported by evidence – However, the court is not required to gointo the merits of the case or be satisfied as to whether the defenceis likely to succeed or not – On facts, application u/s. 9 filed byrespondents, claiming to be Operational Creditor – NCLT rightlyrejected the application filed by respondents seeking initiation ofCIRP against the appellants after finding that there existed a disputebetween the appellant and the respondents and as such, an orderu/s. 9 would not have been passed – NCLAT patently misinterpretedthe factual as well as legal position and erred in reversing the orderof NCLT and directing admission of petition u/s. 9 of the Code –Thus, the order passed by NCLAT is quashed and set aside.

Allowing the appeal, the Court

HELD: 1.1 Perusal of the ss. 8 and 9 of the Insolvency andBankruptcy Code, 2016 would reveal that an “OperationalCreditor”, on the occurrence of default, is required to deliver a“Demand Notice” of unpaid “Operational Debt” or a copy of

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Ainvoice, demanding payment of amount involved in the default tothe “Corporate Debtor” in such form and manner as may beprescribed. Within 10 days of the receipt of such “Demand Notice”or copy of invoice, the “Corporate Debtor” is required to eitherbring to the notice of the “Operational Creditor” “existence of adispute” or to make the payment of unpaid “Operational Debt”Bin the manner as may be prescribed. Thereafter, as per theprovisions of Section 9 of the IBC, after the expiry of the periodof 10 days from the date of delivery of notice or invoice demandingpayment under sub-section (1) of Section 8 and if the “OperationalCreditor” does not receive payment from the “Corporate Debtor”Cor notice of the dispute under sub-section (2) of Section 8 of theIBC, the “Operational Creditor” is entitled to file an applicationbefore the adjudicating authority for initiating the CorporateInsolvency Resolution Process. [Para 13][120-B-E]

1.2 It is clear that once the “Operational Creditor” hasDfiled an application which is otherwise complete, the adjudicatingauthority has to reject the application under Section 9(5)(ii)(d) ofIBC, if a notice has been received by “Operational Creditor” orif there is a record of dispute in the information utility. What isrequired is that the notice by the “Corporate Debtor” must bringto the notice of “Operational Creditor” the existence of a disputeEor the fact that a suit or arbitration proceedings relating to adispute is pending between the parties. All that the adjudicatingauthority is required to see at this stage is, whether there is aplausible contention which requires further investigation and thatthe dispute is not a patently feeble legal argument or an assertionFof fact unsupported by evidence. It is important to reject aspurious defence which is a mere bluster. However, at this stage,the Court is not required to be satisfied as to whether the defenceis likely to succeed or not. The Court also cannot go into themerits of the dispute except to the extent indicated hereinabove.So long as a dispute truly exists in fact and is not spurious,Ghypothetical or illusory, the adjudicating authority has noother option but to reject the application. [Para 17][126-E-H;127-A-B]

1.3 It can be seen that the claim of the respondent Companyis that in the reply filed to its Notice of Motion by appellantCompany, it has admitted that M Company has, as a replacementof Overseas, appointed appellant as the Contractor. As such, theTripartite Agreement dated 18th December 2010, stands vitiatedand superseded. As such, appellant cannot perform under thesaid Tripartite Agreement. According to appellant, thus, in viewof the admission in the reply, appellant is liable to refund theadvance amount forthwith. [Para 20][128-C-E]

1.4 It can be seen that in reply addressed by appellant tothe respondents, the appellant has clearly stated that the saidamount of Rs.47,12,10,000/- was received as advance money onbehalf of M Company. It has been specifically stated that in theagreement entered into between M Company and the appellanton 5th July 2017, the said advance payment of hasbeen duly considered. It is stated that the execution of the freshcontract in favour of appellant in no manner creates an automaticliability on appellant. As such, appellant has pressed into servicethe “existence of dispute” for opposing the demand made byrespondents. [Para 22][129-D-F]

1.5 A perusal thereof would clearly reveal that M Companywas to release payment of two invoices of respondent’s for USD10.5 Million (USD 9.00 Million + USD 1.50 Million). It wouldfurther reveal that respondent was to release payment of USD10.62 Million to appellant on submission of Advance BankGuarantee and Performance Bank Guarantee to M Company andits confirmation and acceptance by M Company. [Para 25][130-F-G]

1.6 It is abundantly clear that the case of appellant that theamount of Rs.47,12,10,000/- which was paid to it by respondent’s,was paid on behalf of M Company from the funds released torespondent by Exim Bank on behalf of M Company, cannot besaid to be a dispute which is spurious, illusory or not supportedby the evidence placed on record. The material placed on recordamply clarifies that the initial payment which was made to appellantas a sub-Contractor by respondent who was a Contractor, wasmade on behalf of M Company and from the funds received by A

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Arespondent from M Company. It will also be clear that when anew contract was entered into between M Company and appellantdirectly, M Company had directed the said amount ofRs.47,12,10,000/- to be adjusted against the supplies to be madeto M Company for the purpose of completing the Project. On thecontrary, the documents clarified that the termination of theBcontract with respondents would not absolve respondents of anyliability for the balance of the LoC 1st tranche of 25 Milliondisbursed to them other than USD 10.62 paid to Kay Bouvet.[Para 31][134-C-F]

1.7 In these circumstances, the NCLT had rightly rejectedCthe application of respondents after finding that there existed adispute between the appellant and the respondents and as such,an order under Section 9 of the IBC would not have been passed.NCLAT has patently misinterpreted the factual as well as legalposition and erred in reversing the order of NCLT and directingDadmission of petition under Section 9 of the Code. [Para 32][134-F-G]

Mobilox Innovations Private Limited v. Kirusa SoftwarePrivate Limited (2018) 1 SCC 353 : [2017] 10 SCR1006 – relied on.

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Case Law Reference

[2017] 10 SCR 1006

relied onParas 15, 16

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1137 of2019.FFrom the Judgment and Order dated 21.12.2018 of the NationalCompany Law Appellate Tribunal at New Delhi in Company Appeal(AT) (Insolvency) No. 582 of 2018.

Jayant Bhushan, Sr. Adv., Akshat Kumar, Ajay K. Jain, AtanuMukherjee, Yash Karan Jain, Advs. for the Appellant.

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C.A. Sundaram, Sr. Adv., Amir Arsiwala, V. Siddharth, P. N. Puri,Advs. for the Respondent.

The Judgment of the Court was delivered by

B. R. GAVAI, J.

1. This appeal challenges the judgment and order passed by theNational Company Law Appellate Tribunal (hereinafter referred to asthe “NCLAT”) dated 21[st] December 2018, thereby allowing the appealfiled by respondent herein. The respondent herein had preferred anappeal being Company Appeal (AT) (Insolvency) No. 582 of 2018,challenging the order passed by the National Company Law Tribunal(hereinafter referred to as the “NCLT”) dated 26[th] July 2018, therebyrejecting the petition being C.P. (IB)-20(MB)/2018, filed by the respondentherein under Section 9 of the Insolvency and Bankruptcy Code(hereinafter referred to as the “IBC”). By the impugned order dated21[st] December 2018, the NCLAT while allowing the appeal, has remittedback the matter to the NCLT with a direction to admit the petition filedby the respondent herein under Section 9 of the IBC after giving limitednotice to the appellant herein so as to enable it to settle the claim.

2. The facts in brief giving rise to the present appeal are as under:- The Government of India extended Dollar Line of Credit(hereinafter referred to as the “LoC”) of USD 150 Million to the Republicof Sudan through Exim Bank of India (hereinafter referred to as the“Exim Bank”) for carrying out Mashkour Sugar Project in Sudan. Thiswas in two tranches of USD 25 Million and USD 125 Million. On 26[th]January 2009, the first tranche of USD 25 Million was executed betweenRepublic of Sudan and Exim Bank for financing the Mashkour SugarProject. On 11[th] October 2009, Mashkour Sugar Company Limited, Sudan(hereinafter referred to as the “Mashkour”) entered into an agreementwith the respondent-Overseas Infrastructure Alliance (India) PrivateLimited (hereinafter referred to as the “Overseas”) for USD 149,975,000to be financed by Exim Bank. As per the said agreement, Mashkourwas to nominate a sub-contractor. A subsequent agreement was enteredinto on 14[th] April 2010, between Mashkour and Overseas for paymentof USD 25 Million to Overseas towards “design and engineering packageand plant civil package including site mobilization”. In response to theinvitation by Mashkour, the appellant-Kay Bouvet Engineering Limited(hereinafter referred to as the “Kay Bouvet”) submitted its bid as a sub-contractor for supply, erection and completion of the Sugar Plant at Sudan,which was accepted by Mashkour. On 18[th] December 2010, a A

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AMemorandum of Understanding (hereinafter referred to as the “MoU”)was entered into between Mashkour, Overseas and Kay Bouvet atKhartoum, Sudan. The said MoU provided that the contract has to begoverned by the laws of Sudan. The same MoU also defined roles andresponsibilities of each of the parties. On the same date, a TripartiteAgreement was also executed between all the three parties vide which,BKay Bouvet was appointed as a sub-contractor for executing the wholework of designing, engineering, supply, installation, erection, testing andcompletion of Factory Plant for Mashkour Sugar Company for an amountof USD 106.200 Million.

3. On 29[th] March 2011, Overseas vide an e-mail sent to MashkourCconfirmed that under the Tripartite Agreement, Mashkour was to releasepayment of first tranche of LoC to Overseas and the Overseas in turnwas to release payment of USD 10.62 Million to Kay Bouvet onsubmission of Advance Bank Guarantee and Performance BankGuarantee by Kay Bouvet to Mashkour. Vide letter dated 21[st] AprilD2011, Exim Bank informed Overseas that an amount of Rs.46.58 Crorehad been remitted to its bank account. Overseas vide letter of the samedate confirmed to Mashkour about receipt of funds and further informedthat it will release USD 10.62 Million to Kay Bouvet on submission ofrequisite bank guarantees. On 28[th] July 2011, Kay Bouvet informedOverseas that it had submitted necessary Guarantees to Mashkour. OnEthe advice of Mashkour, Overseas paid an amount of Rs.47,12,10,000/-to Kay Bouvet. There were certain disputes with regard to exchangerate, on account of which, Kay Bouvet informed Mashkour that it oughtto have been paid more amount in Indian Rupees.

4. After execution of second tranche of USD 125 Million on 24[th]FJuly 2013, between Republic of Sudan and Exim Bank, an agreementwas executed between Mashkour and Overseas on 9[th] February 2014,for balance amount of USD 124,975,000 for financing the final part ofthe Sugar Factory Project. On 30[th] October 2014, Overseas informedExim Bank to transfer partial amount of USD 95,580,000 in favour ofGKay Bouvet from the funds to be received under the LoC in relation toSugar Project.

5. It appears that in the meantime, there was certain exchange ofcommunications between the Ministry of External Affairs, Governmentof India (hereinafter referred to as the “GoI”) and the Sudan Government.HIn pursuance to such exchange of communications, on 17[th] April 2017, the Ambassador of Sudan to India addressed to the Minister of State ofExternal Affairs, GoI and advised to terminate the contract of Mashkourwith Overseas and in turn to appoint Kay Bouvet as a Contractor. Inresponse thereto, the Ministry of External Affairs informed theAmbassador of Sudan that it will be necessary to execute an agreementwith Kay Bouvet in order to enable Exim Bank to release funds to KayBouvet. Vide communication dated 25[th] April 2017, the Ambassador ofSudan informed Mashkour to enter an agreement with Kay Bouvet as adirect contract for unutilized portion of GoI’s LoC for USD 150 Million.It was also informed that the advance amount of Rs.47,12,10,000/-received by Kay Bouvet from the first tranche of USD 25 Million wasto be adjusted against supplies to be made to Mashkour for completingthe project.

6. On 15[th] June 2017, Mashkour terminated the contract withOverseas for failure on its part to perform the duties. Overseas filed aCivil Suit being No. 785 of 2017 before the High Court of Bombay seekingspecific performance of contract and an order of injunction fromappointing Kay Bouvet as a Contractor in the Mashkour Project. Noticeof Motion No. 1314 of 2017 was also moved for injunction. Vide orderdated 27[th] June 2017, prayer for ad interim relief made by Overseascame to be rejected by the Bombay High Court.

7. Vide communication dated 5[th] July 2017, Mashkour informedKay Bouvet about the developments and termination of contract andfurther informed that the advance payment of Rs.47,12,10,000/- receivedby Kay Bouvet from Overseas, was to be adjusted against supplies tobe made to Mashkour for completion of the Project. It was furtherinformed that Overseas will not claim back the said amount from KayBouvet. Accordingly, on the same day an agreement came to be executedbetween Mashkour and Kay Bouvet. The same was informed by theAmbassador of Sudan to the Ministry of External Affairs on 11[th] July2017.

8. A Demand Notice under Section 8 of the IBC was served uponKay Bouvet by Overseas alleging default under the Tripartite Agreementand claiming an amount of USD 10.62 Million, paid by Overseas to KayBouvet. Kay Bouvet vide communication dated 6[th] December 2017,denied the claim of Overseas. It was specifically pointed out that theamount which was paid to Kay Bouvet by Overseas, was received onbehalf of Mashkour and it was only routed through Overseas and the AB

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Asame stands adjusted under new agreement. On 27[th] December 2017,Overseas claiming itself to be an Operational Creditor, filed a petitionunder Section 9 of the IBC before NCLT, Mumbai being CP (IB)No.20(MB)/2018. Vide order dated 26[th] July 2018, the NCLT dismissedthe petition. Overseas carried the same in an appeal being CompanyAppeal (AT) (Insolvency) No. 582 of 2018 before the NCLAT. By theBimpugned order dated 21[st] December 2018, NCLAT allowed the appealas aforesaid. Being aggrieved thereby, the appellant-Kay Bouvet hasapproached this Court.

9. Shri Jayant Bhushan, learned Senior Counsel appearing on behalfof the appellant-Kay Bouvet submitted that by no stretch of imagination,Cthe claim made by Overseas could be considered to be an “OperationalDebt” and as such, Overseas cannot be an “Operational Creditor”,enabling it to invoke the jurisdiction of NCLT under Section 9 of theIBC. Shri Bhushan further submitted that Kay Bouvet could not havemoved as a Financial Creditor and as such, by stretching the definitionDof “Operational Creditor”, though it does not fit in the same, has filed theproceedings under Section 9 of the IBC. The learned Senior Counselsubmitted that no amount is receivable by Overseas from Kay Bouvet inrespect of the provisions of goods or services, including employment ora debt in respect of the payment of dues and as such, it will not fit in thedefinition of “Operational Debt” as provided under sub-section (21) ofESection 5 of the IBC. The learned Senior Counsel submitted that by thesame analogy, Overseas would also not fall under the definition of“Operational Creditor”.

10. Shri Bhushan further submitted that as a matter of fact, thepayment which was made to Kay Bouvet by Overseas, was from theFamount received by it from Mashkour. He submitted that the materialplaced on record would clearly fortify this position. The learned SeniorCounsel submitted that, in any case, perusal of Clause 14.1 of theTripartite Agreement would clearly show that the amount so paid, waspaid by Mashkour to Overseas. It is submitted that in any case, theGmaterial placed on record and specifically the Demand Notice and replythereto, clearly showed that there was an “existence of dispute” and assuch, the NCLT had rightly dismissed the petition. It is submitted that,however, the NCLAT has misconstrued the provisions and allowed theappeal and directed admission of Section 9 petition. It is submitted thatthe jurisdiction of the adjudicating authorities under IBC is limited and itHcan adjudicate only on the limited areas that are delineated in the Statute.

11. Shri C.A. Sundaram, learned Senior Counsel appearing forrespondent–Overseas, on the contrary, asserts that the amount whichwas paid to Kay Bouvet, was the amount paid from the funds of Overseasand not from Mashkour. He submitted that perusal of material placed onrecord would reveal that Kay Bouvet has admitted of receiving the amountfrom Overseas and once the party admits of any claim, the same wouldcome in the definition of “Operational Debt” as defined under sub-section(21) of Section 5 of the IBC and enable the party to whom admission ismade to file the proceedings under Section 9 of the IBC being an“Operational Creditor”. The learned Senior Counsel therefore submittedthat NCLAT rightly considered the provisions and allowed the appeal ofOverseas and directed admission of Section 9 petition. He thereforesubmitted that the present appeal deserves to be dismissed.

12. Though, elaborate submissions have been made on behalf ofboth the parties, we are of the considered view that the present appealcan be decided on a short ground without going into the other aspects ofthe matter. It will be relevant to refer to Sections 8 and 9 of the IBC:- “8. Insolvency resolution by operational creditor.—(1) An operational creditor may, on the occurrence of a default, deliver ademand notice of unpaid operational debtor copy of an invoicedemanding payment of the amount involved in the default to thecorporate debtor in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of thereceipt of the demand notice or copy of the invoice mentioned insub-section (1) bring to the notice of the operational creditor—

(a) existence of a dispute, [if any, or] record of the pendencyof the suit or arbitration proceedings filed before the receipt ofsuch notice or invoice in relation to such dispute; (b) the [payment] of unpaid operational debt—

(i) by sending an attested copy of the record of electronictransfer of the unpaid amount from the bank account of thecorporate debtor; or

(ii) by sending an attested copy of record that the operationalcreditor has encashed a cheque issued by the corporatedebtor.

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Explanation.—For the purposes of this section, a “demandnotice” means a notice served by an operational creditor tothe corporate debtor demanding [payment] of the operationaldebt in respect of which the default has occurred.

9. Application for initiation of corporate insolvencyresolution process by operational creditor.—(1) After theexpiry of the period of ten days from the date of delivery ofthe notice or invoice demanding payment under sub-section(1) of Section 8, if the operational creditor does not receivepayment from the corporate debtor or notice of the disputeunder sub-section (2) of Section 8, the operational creditor mayfile an application before the Adjudicating Authority for initiatinga corporate insolvency resolution process.

(2) The application under sub-section (1) shall be filed in suchform and manner and accompanied with such fee as may beprescribed.

(3) The operational creditor shall, along with the applicationfurnish—

(a) a copy of the invoice demanding payment or demandnotice delivered by the operational creditor to the corporatedebtor; (b) an affidavit to the effect that there is no notice given bythe corporate debtor relating to a dispute of the unpaidoperational debt;

(c) a copy of the certificate from the financial institutionsmaintaining accounts of the operational creditor confirmingthat there is no payment of an unpaid operational debt [bythe corporate debtor, if available;]

[(d) a copy of any record with information utility confirmingthat there is no payment of an unpaid operational debt bythe corporate debtor, if available; and]

[(e) any other proof confirming that there is no payment ofan unpaid operational debt by the corporate debtor or suchother information, as may be prescribed.]

(4) An operational creditor initiating a corporate insolvencyresolution process under this section, may propose a resolutionprofessional to act as an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days ofthe receipt of the application under sub-section (2), by an order—

(i) admit the application and communicate such decision tothe operational creditor and the corporate debtor if,—

(a) the application made under sub-section (2) iscomplete; (b) there is no [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporatedebtor has been delivered by the operational creditor; (d) no notice of dispute has been received by theoperational creditor or there is no record of dispute inthe information utility; and (e) there is no disciplinary proceeding pending againstany resolution professional proposed under sub-section

(4), if any.

(ii) reject the application and communicate such decisionto the operational creditor and the corporate debtor, if—

(a) the application made under sub-section (2) isincomplete; (b) there has been [payment] of the unpaid operationaldebt;

(c) the creditor has not delivered the invoice or noticefor payment to the corporate debtor; (d) notice of dispute has been received by the operationalcreditor or there is a record of dispute in the informationutility; or (e) any disciplinary proceeding is pending against anyproposed resolution professional:

Provided that Adjudicating Authority, shall before rejectingan application under sub-clause (a) of clause (ii) give a A

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Anotice to the applicant to rectify the defect in his applicationwithin seven days of the date of receipt of such notice fromthe Adjudicating Authority.

(6) The corporate insolvency resolution process shallcommence from the date of admission of the applicationBunder sub-section (5) of this section.”

13. Perusal of the aforesaid provisions would reveal that an“Operational Creditor”, on the occurrence of default, is required to delivera “Demand Notice” of unpaid “Operational Debt” or a copy of invoice,demanding payment of amount involved in the default to the “CorporateCDebtor” in such form and manner as may be prescribed. Within 10 daysof the receipt of such “Demand Notice” or copy of invoice, the“Corporate Debtor” is required to either bring to the notice of the“Operational Creditor” “existence of a dispute” or to make the paymentof unpaid “Operational Debt” in the manner as may be prescribed.Thereafter, as per the provisions of Section 9 of the IBC, after the expiryDof the period of 10 days from the date of delivery of notice or invoicedemanding payment under sub-section (1) of Section 8 and if the“Operational Creditor” does not receive payment from the “CorporateDebtor” or notice of the dispute under sub-section (2) of Section 8 ofthe IBC, the “Operational Creditor” is entitled to file an application beforeEthe adjudicating authority for initiating the Corporate Insolvency ResolutionProcess.

14. The issue is no more res integra. It will be relevant to refer toparagraph 38 of the judgment of this Court in the case of MobiloxInnovations Private Limited v. Kirusa Software Private Limited[1]:-F“38. It is, thus, clear that so far as an operational creditor isconcerned, a demand notice of an unpaid operational debt or copyof an invoice demanding payment of the amount involved must bedelivered in the prescribed form. The corporate debtor is thengiven a period of 10 days from the receipt of the demand noticeor copy of the invoice to bring to the notice of the operationalGcreditor the existence of a dispute, if any. We have also seen thenotes on clauses annexed to the Insolvency and Bankruptcy Billof 2015, in which “the existence of a dispute” alone is mentioned.Even otherwise, the word “and” occurring in Section 8(2)(a) must KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTUREALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]

be read as “or” keeping in mind the legislative intent and the factthat an anomalous situation would arise if it is not read as “or”. Ifread as “and”, disputes would only stave off the bankruptcy processif they are already pending in a suit or arbitration proceedings andnot otherwise. This would lead to great hardship; in that a disputemay arise a few days before triggering of the insolvency process,in which case, though a dispute may exist, there is no time toapproach either an Arbitral Tribunal or a court. Further, given thefact that long limitation periods are allowed, where disputes mayarise and do not reach an Arbitral Tribunal or a court for up tothree years, such persons would be outside the purview of Section8(2) leading to bankruptcy proceedings commencing against them.Such an anomaly cannot possibly have been intended by thelegislature nor has it so been intended. We have also seen thatone of the objects of the Code qua operational debts is to ensurethat the amount of such debts, which is usually smaller than thatof financial debts, does not enable operational creditors to put thecorporate debtor into the insolvency resolution process prematurelyor initiate the process for extraneous considerations. It is for thisreason that it is enough that a dispute exists between the parties.”

15. It could thus be seen that this Court has held that one of theobjects of the IBC qua operational debts is to ensure that the amount ofsuch debts, which is usually smaller than that of financial debts, does notenable operational creditors to put the corporate debtor into the insolvencyresolution process prematurely or initiate the process for extraneousconsiderations. It has been held that it is for this reason that it is enoughthat a dispute exists between the parties.

16. It will further be apposite to refer to the following observationsof this Court in Mobilox Innovations Private Limited (supra), whereinthis Court has considered the terms “existence”, “genuine dispute” and“genuine claim” and various authorities construing the said terms:- “45. The expression “existence” has been understood as follows:

“Shorter Oxford English Dictionary gives the following meaningof the word “existence”:

(a) Reality, as opp. to appearance.

(b) The fact or state of existing; actual possession of being.Continued being as a living creature, life, esp. under adverseconditions.

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Something that exists; an entity, a being. All that exists. (P.894, Oxford English Dictionary)”

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46. Two extremely instructive judgments, one of the AustralianHigh Court, and the other of the Chancery Division in the UK,throw a great deal of light on the expression “existence of adispute” contained in Section 8(2)(a) of the Code. The Australianjudgment is reported as Spencer Constructions Pty Ltd. v. G &M Aldridge Pty Ltd. [Spencer Constructions Pty Ltd. v. G &M Aldridge Pty Ltd., 1997 FCA 681 (Aust)] The Australian HighCourt had to construe Section 459-H of the Corporations Law,which read as under:

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(a) that there is a genuine dispute between the companyand the respondent about the existence or amount of a debtto which the demand relates; D(b)***”

47. The expression “genuine dispute” was then held to mean thefollowing:

“Finn, J. was content to adopt the explanation of “genuinedispute” given by McLelland, C.J. in Eq in Eyota PtyLtd. v. Hanave Pty Ltd. [Eyota Pty Ltd. v. Hanave Pty Ltd.,(1994) 12 ACSR 785 (Aust)] ACSR at p. 787 where his Honoursaid:

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‘In my opinion [the] expression connotes a plausiblecontention requiring investigation, and raises much the samesort of considerations as the “serious question to be tried”criterion which arises on an application for an interlocutoryinjunction or for the extension or removal of a caveat. Thisdoes not mean that the court must accept uncritically asgiving rise to a genuine dispute, every statement in anaffidavit ‘however equivocal, lacking in precision,inconsistent with undisputed contemporary documents orother statements by the same deponent, or inherently andprobable in itself, it may be not having ‘sufficient primafacie plausibility to merit further investigation as to [its] truth’(cf Eng Mee Yong v. Letchumanan [Eng Mee Yong v.

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Letchumanan, 1980 AC 331 : (1979) 3 WLR 373 (PC)]AC at p. 341G), or ‘a patently feeble legal argument or anassertion of facts unsupported by evidence’: cf SouthAustralia v. Wall [South Australia v. Wall, (1980) 24SASR 189 (Aust)] SASR at p. 194.’

His Honour also referred to the judgment of Lindgren, J.in Rohalo Pharmaceutical Pty Ltd. [Rohalo PharmaceuticalPty Ltd. v. RP Scherer, (1994) 15 ACSR 347 (Aust)] where,at p. 353, his Honour said:

‘The provisions [of Sections 459-H(1) and (5)] assume thatthe dispute and offsetting claim have an “objective”existence the genuineness of which is capable of beingassessed. The word “genuine” is included [in “genuinedispute”] to sound a note of warning that the propoundingof serious disputes and claims is to be expected but mustbe excluded from consideration.’

There have been numerous decisions of Single Judges in thisCourt and in State Supreme Courts which have analysed, indifferent ways, the approach a court should take in determiningwhether there is “a genuine dispute” for the purposes of Section459-H of the Corporations Law. What is clear is that inconsidering applications to set aside a statutory demand, a courtwill not determine contested issues of fact or law which havea significant or substantial basis. One finds formulations suchas:

‘… at least in most cases, it is not expected that the courtwill embark upon any extended enquiry in order to determinewhether there is a genuine dispute between the parties andcertainly will not attempt to weigh the merits of that dispute.All that the legislation requires is that the court concludethat there is a dispute and that it is a genuine dispute.’

See Mibor Investments Pty Ltd. v. Commonwealth Bank ofAustralia [Mibor Investments Pty Ltd. v. CommonwealthBank of Australia, (1993) 11 ACSR 362 (Aust)] ACSR at pp.366-67, followed by Ryan, J. in Moyall Investments ServicesPty Ltd. v. White [Moyall Investments Services PtyLtd. v. White, (1993) 12 ACSR 320 (Aust)] ACSR at p. 324.

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Another formulation has been expressed as follows:

‘It is clear that what is required in all cases is somethingbetween mere assertion and the proof that would benecessary in a court of law. Something more than mereassertion is required because if that were not so then anyonecould merely say it did not owe a debt.…’

See John Holland Construction and Engg. PtyLtd. v. Kilpatrick Green Pty Ltd. [John HollandConstruction and Engg. Pty Ltd. v. Kilpatrick Green PtyLtd., (1994) 12 ACLC 716 (Aust)] ACLC at p. 718, followedby Northrop, J. in Aquatown Pty Ltd. v. Holder Stroud PtyLtd. [Aquatown Pty Ltd. v. Holder Stroud Pty Ltd., FederalCourt of Australia, 25-6-1996, Unreported]

In Morris Catering (Australia) Pty Ltd. [Morris Catering(Australia) Pty Ltd., In re, (1993) 11 ACSR 601 (Aust)]ACSR at p. 605, Thomas, J. said:

‘There is little doubt that Div 3 is intended to be acomplete code which prescribes a formula that requiresthe court to assess the position between the parties, andpreserve demands where it can be seen that there is nogenuine dispute and no sufficient genuine offsettingclaim. That is not to say that the court will examine themerits or settle the dispute. The specified limits of thecourt’s examination are the ascertainment of whetherthere is a “genuine dispute” and whether there is a“genuine claim”.

It is often possible to discern the spurious, and to identifymere bluster or assertion. But beyond a perception ofgenuineness (or the lack of it) the court has no function.It is not helpful to perceive that one party is more likelythan the other to succeed, or that the eventual state ofthe account between the parties is more likely to be oneresult than another.

The essential task is relatively simple — to identify thegenuine level of a claim (not the likely result of it) and toidentify the genuine level of an offsetting claim (not thelikely result of it).’

In Scanhill Pty Ltd. v. Century 21 Australasia PtyLtd. [Scanhill Pty Ltd. v. Century 21 Australasia Pty Ltd.,(1993) 12 ACSR 341 (Aust)] ACSR at p. 357 Beazley, J. said:

‘… the test to be applied for the purposes of Section 459-His whether the court is satisfied that there is a seriousquestion to be tried that the applicant has an offsetting claim.’

In Chadwick Industries (South Coast) PtyLtd. v. Condensing Vaporisers Pty Ltd. [ChadwickIndustries (South Coast) Pty Ltd. v. Condensing VaporisersPty Ltd., (1994) 13 ACSR 37 (Aust)] ACSR at p. 39, Lockhart,J. said:

‘… what appears clearly enough from all the judgments isthat a standard of satisfaction which a court requires is nota particularly high one. I am for present purposes contentto adopt any of the standards that are referred to in thecases…. The highest of the thresholds is probably the testenunciated by Beazley, J., though for myself I discern noinconsistency between that test and the statements in theother cases to which I have referred. However, theapplication of Beazley, J.’s test will vary according to thecircumstances of the case.

Certainly the court will not examine the merits of the disputeother than to see if there is in fact a genuine dispute. Thenotion of a “genuine dispute” in this context suggests to methat the court must be satisfied that there is a dispute that isnot plainly vexatious or frivolous. It must be satisfied thatthere is a claim that may have some substance.’

In Greenwood Manor Pty Ltd. v. Woodlock [GreenwoodManor Pty Ltd. v. Woodlock, (1994) 48 FCR 229 (Aust)]Northrop, J. referred to the formulations of Thomas, J.in Morris Catering (Australia) Pty Ltd., In re [MorrisCatering (Australia) Pty Ltd., In re, (1993) 11 ACSR 601(Aust)] ACLC at p. 922 and Hayne, J. in Mibor InvestmentsPty Ltd. v. Commonwealth Bank of Australia [MiborInvestments Pty Ltd. v. Commonwealth Bank of Australia,(1993) 11 ACSR 362 (Aust)], where he noted the dictionarydefinition of “genuine” as being in this context “not spurious… real or true” and concluded (at p. 234):

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‘Although it is true that the Court, on an application underSections 459-G and 459-H is not entitled to decide a questionas to whether a claim will succeed or not, it must be satisfiedthat there is a genuine dispute between the company andthe respondent about the existence of the debt. If it can beshown that the argument in support of the existence of agenuine dispute can have no possible basis whatsoever, inmy view, it cannot be said that there is a genuine dispute.This does not involve, in itself, a determination of whetherthe claim will succeed or not, but it does go to the reality ofthe dispute, to show that it is real or true and not merelyspurious’.

A

B

C

In our view a “genuine” dispute requires that:

(i) the dispute be bona fide and truly exist in fact;

(ii) the grounds for alleging the existence of a disputeare real and not spurious, hypothetical, illusory ormisconceived.

D

We consider that the various formulations referred toabove can be helpful in determining whether there is agenuine dispute in a particular case, so long as theformulation used does not become a substitute for thewords of the statute.””

E

17. It is thus clear that once the “Operational Creditor” has filedan application which is otherwise complete, the adjudicating authorityhas to reject the application under Section 9(5)(ii)(d) of IBC, if a noticeFhas been received by “Operational Creditor” or if there is a record ofdispute in the information utility. What is required is that the notice bythe “Corporate Debtor” must bring to the notice of “Operational Creditor”the existence of a dispute or the fact that a suit or arbitration proceedingsrelating to a dispute is pending between the parties. All that theadjudicating authority is required to see at this stage is, whether there isGa plausible contention which requires further investigation and that thedispute is not a patently feeble legal argument or an assertion of factunsupported by evidence. It is important to separate the grain from thechaff and to reject a spurious defence which is a mere bluster. It hasbeen held that however, at this stage, the Court is not required to besatisfied as to whether the defence is likely to succeed or not. The CourtH

also cannot go into the merits of the dispute except to the extent indicatedhereinabove. It has been held that so long as a dispute truly exists in factand is not spurious, hypothetical or illusory, the adjudicating authority hasno other option but to reject the application.

18. In the light of the law laid down by this Court statedhereinabove, we will have to examine the facts of the present case. Weclarify that though arguments have been advanced at the Bar with regardto the questions as to whether the so-called claim made by Overseaswould be considered to be an “Operational Debt” and as to whetherOverseas could be considered to be an “Operational Creditor”, we donot find it necessary to go into said questions, inasmuch as the presentappeal can be decided only on a short question as to whether Kay Bouvethas been in a position to make out the case of “existence of dispute” ornot.

19. For considering the rival submissions, it will be appropriate torefer to the Demand Notice/Invoice dated 23[rd] November 2017,addressed to Kay Bouvet by Overseas:- “7. Due to termination of the EPC contract by Mashkour, thetripartite sub-contract also came to an automatic end by virtue ofthe clause 15.2 of the Particular Conditions of the said sub-contract.

8. On or about 14[th] July 2017, the Corporate Debtor filed itsaffidavit dated 14[th] July 2017 in the Notice of Motion (L) No.1314 of 2017 in Suit (1) No. 382 of 2017 in reply to the saidNotice of Motion (hereinafter referred to as the “said Reply”).In the said reply, the Corporate Debtor has categorically statedand admitted that Mashkour has now, in replacement of theOperational Creditor, appointed the Corporate Debtor itself as itsEPC Contractor for the said Project under and the EPC Contractdated 5[th] July 2017. Consequently the tri-partite contract dated18[th] April 2010 between Mashkour, the Corporate Debtor and theOperational Creditor stands vitiated and superseded by the freshContract executed between Mashkour and Corporate Debtor. Inview thereof the Corporate Debtor can no longer perform underthe said tri-partite contract dated 18[th] April 2010 betweenMashkour, the Corporate Debtor and the Operational Creditor asthe same stands superseded by the fresh contract dated 5[th] July2017 executed between Mashkour and the Corporate Debtor.

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SUPREME COURT REPORTS

A9. The Operational Creditor therefore states that in the light ofthe Corporate Debtors admission in the said reply, the CorporateDebtor is liable to refund the said Advance Amount forthwith tothe Operatinal Creditor. The Operational Creditor further statesthat the said Advance Amount became due and payable as andby way of refund to the Operational Creditor by the CorporateBDebtor on or about 5[th] July 2017 i.e. the date on which theCorporate Debtor was appointed as an EPC Contractor byMashkour.

A

10. The Corporate Debtor has, therefore, defaulted in refundingthe said Advance Amount”C

20. It can thus be seen that the claim of Overseas is that in thereply filed to its Notice of Motion by Kay Bouvet, it has admitted thatMashkour has, as a replacement of Overseas, appointed Kay Bouvet asthe Contractor. As such, the Tripartite Agreement dated 18[th] December2010, stands vitiated and superseded. As such, Kay Bouvet cannotDperform under the said Tripartite Agreement. According to Overseas,therefore, in view of the admission in the reply, Kay Bouvet is liable torefund the advance amount forthwith.

21. It will be relevant to refer to the Reply dated 6[th] December2017, addressed by Kay Bouvet to Overseas as per the provisions ofEClause (a) of sub-section (2) of Section 8 of the IBC:-

“3. We state that Key Bouvet expressly denied the claim of 10.62million of equivalent to Rs.47,12,10,000/- (Rupees 47 CroresTwelve Lakhs Ten Thousand Only). We state that Key Bouvethad received advance monies on behalf of Mashkour SugarFCompany Limited (hereinafter Mashkour) as per the Agreementexecuted between the parties. We state that thereafter Mashkourhas terminated an agreement with you vide their letter dated17.05.2017 and therefore Kay Bouvet has monetary liabilitytowards OIA.

G

4. We state that on 05.07.2017 Mashkour has entered into a freshcontract with Key Bouvet. In the said Agreement Mashkour hasconsidered the earlier Advance Payment of USD 10.62 Millionequivalent to Rs.47,12,10,000/- (Rupees 47 Crores Twelve LakhsTen Thousand Only) made to Key Bouvet from Mashkour. Theexecution of the fresh contract in favour of Kay Bouvet in no H

manner creates an automatic liability on Kay Bouvet to refundany amount. There is no such legal and contractual monetaryliability between the OIA and Kay Bouvet. The very perusalof the definition of “debt” and “operational Creditors” wouldestablish that termination of contract by Mashkour with youdoes not create any debt due from Key Bouvet towards OIA.It expressly denied that Kay Bouvet is an Operational Creditortowards OIA.

5. We state that, as per the pleadings in the Suit (L) No. 382 of2017, you have sought a relief of release of the amount of USD10,745,000/- under the letter of agreement of 2th March 2014.Thereafter there is an existence of dispute of the existence ofsuch amount of debt claimed by you. In such event your demandnotice is erroneous, illegal and bad in law considering provisionsof Insolvency and Bankruptcy Code, 2016 and more particularlySection 5(6), Section 9(5)(i)(d) and Section 9(5)(ii)(d).”

22. It can thus be seen that Kay Bouvet has clearly stated thatthe said amount of Rs.47,12,10,000/- was received as advance moneyon behalf of Mashkour. It has been specifically stated that in theagreement entered into between Mashkour and Kay Bouvet on 5[th] July2017, the said advance payment of Rs.47,12,10,000/- has been dulyconsidered. It is stated that the execution of the fresh contract in favourof Kay Bouvet in no manner creates an automatic liability on Kay Bouvet.As such, Kay Bouvet has pressed into service the “existence of dispute”for opposing the demand made by Overseas.

23. We will have to examine as to whether the claim of KayBouvet with regard to the “existence of dispute”, can be considered tobe the one which is spurious, illusory or not supported by any evidence.It will be relevant to refer to Clause 14.1 of the Tripartite Agreementdated 18[th] December 2010, between Mashkour, Overseas and KayBouvet:- “1. 10% of the sub contract Price as interest free advance paymentby way of telegraphic transfer directly to the bank account of theSub-Contractor against submission of invoice and AdvancePayment Bank Guarantee for 10% of the sub contract Price, fromany Indian public sector bank acceptable to Mashkour upon receipt A

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Aof amounts from EXIM Bank. The Advance Payment BankGuarantee shall be as per format attached herewith (UniformRules for Demand guarantees, Publication No.758, InternationalChamber of Commerce) and its value may be reduced in proportionto the value of amounts invoiced as evidenced by shippingdocuments and receipt of payment from EXIM Bank.”B24. It will further be relevant to refer to the e-mail dated 29[th]March 2011, from Overseas to Mashkour:- “1. Mashkour Sugar Company will release payment of two invoicesto OIA against factory DDE for USD 10.5 Million (USD 9.00 MC+ USD 1.50M).

2. OIA will release payment of USD 10.62 Million to Kay Bouveton submission of Advance Bank Guarantee and Performance BankGuarantee to Mashkour and its confirmation and acceptance byMashkour and discharge of OIA Bank Guarantee of USD 7.5Millions.D

3. Mashkour will release Second payment of two Invoices of USD4.375 Million (USD 3.50M + USD 0.875M) … civil work to OIA.

4. OIA will release advance payment of USD 1.113 Million toCivil Contractor after signing of contract between OIA and civilEcontractor and on confirmation from Mashkour regardingacceptance or ABG/PBG of the Civil Contractor as per Contract.

You are requested to please accept this proposal and sendauthorization letters to EXIM.”

25. A perusal thereof would clearly reveal that Mashkour was toFrelease payment of two invoices of Overseas for USD 10.5 Million (USD9.00 Million + USD 1.50 Million). It will further reveal that Overseaswas to release payment of USD 10.62 Million to Kay Bouvet onsubmission of Advance Bank Guarantee and Performance BankGuarantee to Mashkour and its confirmation and acceptance byGMashkour.

26. It will further be relevant to refer to the communicationaddressed by Exim Bank to Overseas dated 21[st] April 2011:- “GOI supported Exim Bank’s Line of Credit for USD 25 Millionto Government of Sudan Approval No. Exim/GOILOC-82/H1.Disbursement advice:3.

KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTUREALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]

We advise that an amount of Rs.46,58,75,853/- has beenremitted to India Overseas Bank, Nehru Place, New Delhi throughRTGS Code – IOBA0000543 to the credit of account ofOverseas Infrastructure Alliance (India) Private Limited. Thedisbursement is made against the contract between MashkourSugar Company, Sudan and Overseas Infrastructure Alliance(India) Private Limited. Details of the disbursement are asunder:- A

B

Amt. in USD

Disbursement Invoice Value Eligible Value Net RemittedValue No. (CIF) 100% 100% Date C2 15,000,000.00 10,500,000.00 10,476,781.85 April 18, 2011 2. The breakup of the disbursement made as follows:-USDDEligible Value 10,500,000.00 465,911,250.00 Less 23,218.15 10,30,247.00 Negotiation Charges (Service Tax)ECurrency Conversion Chg. 110.00 And Service Tax Net Remittance 10,476,781.85 46,48,80,893.00 F

3. Please confirm receipt of the credit.”

27. It will further be relevant to refer to the communicationaddressed by Overseas of the same date to Mashkour:- G

“We have been paid the advance amount to 10.05 millionUSD in INR by Exim Bank because of Stringent Sanctionentrancement by the United State Office of Foreign assetControl (OFAC) as per the letter enclosed herewith. Theamount has been delivered to us @ Rs.44.37 per disbursementadvice of the Exim bank attached herewith.

H

AFurther OIA will release payment of USD 10.62 Million toKay Bouvet on Submission of Advance Bank Guarantee andPerformance Bank Guarantee to Mashkour Sugar Companyand its confirmation and acceptance by Mashkour SugarCompany and discharge of OIA Bank Guarantee of USD 7.5Million (As per mail dated 29.03.2011) of Mr. Ghodgankar.”B

[emphasis supplied]

28. The communication dated 28[th] July 2011, addressed byMashkour to Overseas would further clarify the position which readsthus:- C“We are please to inform you that nominated sub-contractormessres Kay Bouvet Engineering Private Limited hassubmitted Advance Payment Bank Guarantee as well asPerformance Bank Guarantee to us as per the sub-contractagreement and we are satisfied with the same.

DIn the light of the above we request your good self to releasethe 10% of the Sub-contract value as per letter dated21.04.2011 addressed to Mashkour.

The payment to be released as under:-

E

F

+ amount of Rs.47,12,10,000/- (Rupees Forty Seven Crores TwelveLakhs Ten Thousand only)

G

As soon as we get confirmation from your side regarding releaseof payment we shall release your Bank Guarantee USD 7.5Million.

H

As I discussed today with Mr. Suresh I will be in India with originaldischarge bank Guarantee in the beginning of last week.”

29. As already discussed hereinabove that Kay Bouvet had certaingrievances with regard to payment of less money on account of exchangerate, the communication dated 21[st] September 2011, addressed by KayBouvet to Mashkour would clarify the said position which reads thus:- “We have been paid Rs.47,12,10,000/- by M/s. OverseasInfrastructure Alliance (India) Ltd. On 30[th] August 2011 equivalentto USD 10.62 Million converted 1 USD @ Rs.44.37/-, whereason that day the conversion rate as per the attached list was1 USD – Rs.46.26/-, so the amount would have beenRs.49,12,08,012/-, so they have underpaid a sum ofRs.1,99,98,012/-.

So you are requested to advise OIA to release amount ofRs.1,99,98,012/- to us without any delay.”

30. The last nail in the case of the Overseas would be in thenature of communication addressed by the Ambassador of Sudan toMashkour dated 25[th] April 2017, which reads thus:- “With reference to the earlier correspondence, we have receivedthe DO No. 1425/Secy(ER)/2017 dated 18[th] April, 2017 fromMr. Amar Sinha, Secretary (Economic Relations) Ministry ofExternal Affairs, Government of India, New Delhi, India expeditingthe termination of the agreement with Overseas InfrastructureAlliance (India) Private Limited (OIA) and that an agreement besigned with Kay Bouvet Engineering Ltd. (KBEL) as a directcontractor for the unutilized portion of the GOI’s Line of Creditfor US Dollars 150,000,000 for the Mashkour Sugar Project.

It is on the record that a sum of Rs.47,12,10,000/- (US $10.62 Million) was paid by OIA to Kay Bouvet EngineeringLtd. “KBEL” on behalf of Mashkour Sugar Company fromthe funds released to OIA by Exim Bank from the 1[st] disbursedtranche of US $ 25 Million.

Kindly make a note, while signing the revised contract withKBEL that the above mentioned amount of US Dollars 10.62shall be adjusted by Kay Bouvet Engineering Ltd. against the A

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Asupplies to be made to Mashkour Sugar Company Ltd. forthe purpose of completing the project.

Naturally, it should be borne in mind that the termination of OIAcontract with Mashkour should not absolve them of any liabilityfor the balance of the LoC 1[st] tranche of 25 Million disbursed tothem, other than the US Dollars 10.62 already paid to KBEL andBwhich will be adjusted when a contract is signed with KBEL as amain contractor.”

31. It is thus abundantly clear that the case of Kay Bouvet thatthe amount of Rs.47,12,10,000/- which was paid to it by Overseas, wasCpaid on behalf of Mashkour from the funds released to Overseas byExim Bank on behalf of Mashkour, cannot be said to be a dispute whichis spurious, illusory or not supported by the evidence placed on record.The material placed on record amply clarifies that the initial paymentwhich was made to Kay Bouvet as a sub-Contractor by Overseas whoDwas a Contractor, was made on behalf of Mashkour and from the fundsreceived by Overseas from Mashkour. It will also be clear that when anew contract was entered into between Mashkour and Kay Bouvetdirectly, Mashkour had directed the said amount of Rs.47,12,10,000/- tobe adjusted against the supplies to be made to Mashkour Sugar CompanyLtd. for the purpose of completing the Project. On the contrary, theEdocuments clarify that the termination of the contract with Overseaswould not absolve Overseas of any liability for the balance of the LoC1[st] tranche of 25 Million disbursed to them other than USD 10.62 paid toKay Bouvet.

32. In these circumstances, we find that NCLT had rightly rejectedFthe application of Overseas after finding that there existed a disputebetween Kay Bouvet and Overseas and as such, an order under Section9 of the IBC would not have been passed. We find that NCLAT haspatently misinterpreted the factual as well as legal position and erred inreversing the order of NCLT and directing admission of Section 9 petition.

33. Resultantly, this appeal is allowed and the impugned orderGdated 21[st] December 2018, passed by NCLAT is quashed and set aside.The order passed by NCLT dated 26[th] July 2018, is maintained.

34. In view of the above, all the pending IAs shall stand disposed of.

HNidhi Jain