M/S S.S. ENGINEERS versus HINDUSTAN PETROLEUM CORPORATION LTD. & ORS. on 15 July 2022

[2022] 18 S.C.R. 391

M/S S.S. ENGINEERS

v.

HINDUSTAN PETROLEUM CORPORATION LTD. & ORS.

(Civil Appeal No. 4583 of 2022)

JULY 15, 2022

[INDIRA BANERJEE AND V. RAMASUBRAMANIAN, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss.7-9 – Held: NCLT,exercising powers u/s.7 or s.9, is not a debt collection forum – IBCtackles and/or deals with insolvency and bankruptcy – It is not theobject of the IBC that Corporate Insolvency Resolution Process(CIRP) should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor – Thereare noticeable differences in the IBC between the procedure ofinitiation of CIRP by a financial creditor and initiation of CIRP byan operational creditor – On a reading of ss.8 and 9, it is patentlyclear that an Operational Creditor can only trigger the CIRP process,when there is an undisputed debt and a default in payment thereof– If the claim of an operational creditor is undisputed and theoperational debt remains unpaid, CIRP must commence, for IBCdoes not countenance dishonesty or deliberate failure to repay thedues of an Operational Creditor – However, if the debt is disputed,the application of the Operational Creditor for initiation of CIRPmust be dismissed – In the present case, there was a pre-existingdispute with regard to the alleged claim of the appellant-OperationalCreditor against HPCL (respondent no.1) or its wholly ownedsubsidiary HBL – Adjudicating Authority (NCLT) clearly fell in errorin admitting the application filed by the appellant u/s.9 asOperational Creditor, for initiation of the CIRP against HBL – NCLATrightly allowed the appeal filed on behalf of HBL – No grounds tointerfere with the impugned judgment of the NCLAT.

Mobilox Innovations Private Limited v. Kirusa SoftwarePrivate Limited (2018) 1 SCC 353 : [2017] 10 SCR1006; K Kishan vs. Vijay Nirman Co. (P) Ltd. (2018)17 SCC 662 : [2018] 10 SCR 959 – relied on.

391

A

B

C

D

E

F

G

H

ACase Law Reference

[2017] 10 SCR 1006relied onPara 16[2018] 10 SCR 959relied onPara 18

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4583Bof 2022.

From the Judgment and Order dated 10.01.2022 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No. 332 of 2020.

Ratnanko Banerjee, Sanjeev Sen, Sr. Advs., Ms. Poonam Verma,CSidharth Sethi, Ms. Sakshi Kapoor, Avinash Das, Advs. for the Appellant.

Tushar Mehta, SG, Sanjay Kapur, Ms. Megha Karnwal, ArjunBhatia, Advs. for the Respondents.

The following Order of the Court was passed:

DORDER

This appeal is against a judgment and order dated 10[th] January,2022 passed by the National Company Law Appellate Tribunal, PrincipalBench, New Delhi allowing Company Appeal (AT)(Insolvency) No. 332of 2020 filed by the Respondent No.1 Hindustan Petroleum CorporationELimited (HPCL) and setting aside the order dated 12.02.2020 passed bythe National Company Law Tribunal (NCLT), Kolkata, admitting anapplication filed by the appellant under Section 9 of the Insolvency andBankruptcy Code (IBC) as Operational Creditor, for initiation of theCorporate Insolvency Resolution Process (CIRP) against HPCL BiofuelsLtd. (HBL), a wholly owned subsidiary of HPCL. The NCLAT directedFthe Adjudicating Authority NCLT to close the proceedings for CIRPinitiated against HBL.

2. On or about 15.11.2018, the appellant filed an application forinitiation of CIRP against HBL under Section 9 of the IBC in the KolkataBench of the NCLT. On 07.03.2019, HBL filed its reply to the saidGapplication made by the appellant and the appellant also filed a rejoinderthereto.

3. By an order dated 12.02.2020, the Adjudicating Authority(NCLT) admitted the application for initiation of CIRP filed by theappellant, rejecting the contention raised by HBL that there were pre- H

existing disputes between the parties in respect of the claim of theappellant.

4. From the List of Dates filed by the appellant, it appears thatbetween 27.06.2012 to 30.08.2012, various tenders were floated by HBLfor enhancing the capacity of the Boiling Houses of HBL at Lauryia andSugauli from 1750 TCD to 3500 TCD.

5. The appellant submitted its offer pursuant to the tenders. On orabout 15.10.2012, four purchase orders were issued to the appellant inrelation to the tender work of enhancing the capacity of the Boiler Houses.On 01.11.2012, Purchase Orders were issued by HBL for enhancingthe Juice Heater and Evaporator Section and Pan and CrystallizationSection at Sugauli Plant on a turnkey basis.

6. Between 21.11.2012 to 25.03.2013, the appellant raised invoicesin respect of the purchase orders. It is not necessary for this Court to gointo the details of what transpired between 21.11.2012 when the appellantstarted raising invoices of HBL and 29.12.2013.

7. Suffice it to mention that on 29.12.2013, HBL sent an email tothe appellant pointing out that the appellant had been violating the termsof the purchase order and backing out from its commitments thereunder,thereby causing huge losses to HBL. HBL contended that because ofthe failure of the appellant to honour its commitments in terms of theTenders/Purchase Orders it had to procure materials from other vendors.

8. On 02.01.2014, HBL sent a letter to the appellant stating thatthe appellant had acted in violation of the General Terms and Conditions,inter alia, by raising improper invoices for materials not supplied, notrenewing bank guarantees, failing to effect supplies and complete workwithin the stipulated period. It was alleged that the service renderedand/or materials supplied by the appellant were of poor quality.

9. On 03.01.2014, HBL raised a debit note in respect ofconsumption by the appellant of spares and consumables from thewarehouse of HBL. A series of correspondence followed. By a letterdated 11.4.2014 addressed to the appellant, HBL made allegations withregard to the service rendered and/or goods supplied by the appellantsand contended that there was no payment outstanding from HBL to theappellant. On the other hand, HBL claimed that an amount of Rs.1.49crores was due from the appellant, which amount excluded consequentiallosses.

A

B

C

D

E

F

G

H

A10. On 07.5.2014, HBL sent an email to the appellant stating thatHBL would not release money to the appellant as the quality of workdone by the Appellant was poor and the Appellant had breached theterms and conditions of the Purchase Orders. Further correspondenceensued.B11. Between 11.03.2015 to 27.03.2018 C-forms were issued byHBL to the appellant under Section 8 of the Central Sales Tax Act readwith Rules 12(1) of the Central Sales Tax (Registration and Turnover)Rules, 1957. The statutory duty of issuance of C-forms under the CentralSales Tax, do not and cannot constitute acknowledgment of any liabilityof HBL to the appellant, to make payment. On 09.7.2016, the appellantCsent legal notice to HBL through its advocate, demanding payment oralternatively reference of the disputes to arbitration.

A

12. On 30.08.2017, the appellant sent a demand notice underSection 8 of the IBC to HBL claiming that a sum of Rs. 18,12,21,452/-(Rupees eighteen crores twelve lakhs, twenty one thousand four hundredDand fifty two) along with interest, was due from HBL to the Appellantfrom 30.12.2013. A second demand notice was sent by the appellant toHBL on 07.08.2018. HBL replied to the demand notice dated 25.07.2018received on 01.08.2018 disputing the claim. It is apparent from the recordsthat there were pre-existing disputes between the parties and onE09.07.2016, a request had been made by the Operational Creditor toHBL to refer the disputes to Arbitration.

13. Sections 8 and 9 of the IBC read :-

13. Sections 8 and 9 of the IBC read :-

“8. Insolvency resolution by operational creditor.—(1) Anoperational creditormay, on the occurrence of a default, deliverFa demand notice of unpaid operational debt or copy of an invoicedemanding payment of the amount involved in the defaulttothe corporate debtor in such form and manner as may beprescribed.

(2) The corporate debtor shall, within a period of ten days of theGreceipt 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,[1][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; H

(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.

Explanation.—For the purposes of this section, a “demand notice”means a notice served by an operational creditor to the corporatedebtor demanding payment of the operational debt in respect ofwhich the default has occurred.

9. Application for initiation of corporate insolvency resolutionprocess by operational creditor.—(1) After the expiry of the periodof ten days from the date of delivery of the notice or invoicedemanding payment under sub-section (1) of section 8, if theoperational creditordoes not receive payment from the corporatedebtoror notice of the disputeunder sub-section (2) of section 8,the operational creditor may file an application before theAdjudicating Authority for initiating a corporate insolvencyresolution 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 demand noticedelivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by thecorporate debtor relating to a dispute of the unpaid operationaldebt;

(c) a copy of the certificate from the financial institutionsmaintaining accounts of the operational creditor confirming thatthere is no payment of an unpaid operational debt by thecorporate debtor, if available; A

B

C

D

E

F

G

H

(d) a copy of any record with information utility confirmingthat there is no payment of an unpaid operational debt by thecorporate debtor, if available; and A

(e) any other proof confirming that there is no payment of anyunpaid operational debt by the corporate debtor or such otherBinformation, 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 of theCreceipt of the application under sub-section (2), by an order—

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

(a) the application made under sub-section (2) is complete; D

(b) there is no payment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtorhas been delivered by the operational creditor; (d) no notice of dispute has been received by the operationalcreditor or there is no record of dispute in the informationutility; and E

(e) there is no disciplinary proceeding pending against anyresolution professional proposed under sub-section (4), ifany.

F

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

(a) the application made under sub-section (2) is incomplete; (b) there has been payment of the unpaid operational debt; G

(c) the creditor has not delivered the invoice or notice forpayment 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 H

(e) any disciplinary proceeding is pending[4] against anyproposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting anapplication under sub-clause (a) of clause (ii) give a notice to theapplicant to rectify the defect in his application within seven daysof the date of receipt of such notice from the adjudicatingAuthority.

(6) The corporate insolvency resolution process shall commencefrom the date of admission of the application under sub-section(5) of this section.”

14. On 15.02.2018, the appellant filed its application under Section9 of the IBC for initiation of CIRP against HBL, as stated above. By theorder dated 12.02.2020, the Adjudicating Authority (NCLT) admittedthe said application of the Appellant. The Adjudicating Authority, interalia, held:

“17. As regards the pre-existing dispute, we have gone throughall the facts stated by the Corporate Debtor but having regard tothe quantum of claim in respect of supplies order, in our consideredview, the amount of disputed claim due and payable will be morethan Rs. One lakh in any case. Hence, such claims do not helpthe case of Corporate Debtor in substantial manner. Having saidso, we would further refer to the provisional statement attachedwith the letter of the Corporate Debtor dated June 25, 2014 copyof which has been placed at Page 1779 of Vol.10 of the paperbook to find as to what is the factual position as per the stand ofCorporate Debtor on various issues. As per this provisionalstatement, the total purchase order value has been shown asRs.3818.72 lakhs. There have been several deductions includingfor service provided by Corporate Debtor to the OperationalCreditor in the execution of the contract, entry tax, TDS, WCD,payment to parties/payment to Operational Creditor by theCorporate Debtor/sub-vendors and subcontractors/vendors of theOperational Creditor. These are normal deductions as per businesspractice and terms of contract. However, it is noteworthy thatLiquidated Damage @ 5% amount to Rs.190.94 lakhs,Performance Bank Guarantee to the tune of 673.6 lakhs, workclaim of Rs.352.00 lakhs for boiler house extension P.O. finalization AB

C

D

EF

G

H

AB

C

D

EF

G

H

Aand additional work 71 lakh have also been considered. The neteffect has been worked out by Corporate Debtor as Rs.500 lakhsreceivable from the Operational Creditor. If the boiler houseextension and additional work are ignored, the amount recoverablefrom the Operational Creditor gets reduced to 63.13 lakhs. Further,if the amount retained for Performance Bank Guarantee is takenBinto consideration, then the amount payable to Operational Creditorworks out at Rs.610.23 lakhs (i.e. 673-63.13). As noted earlier,L.D. is applicable @ 5% amounting to Rs.190,94 lakhs has alreadybeen deducted. Further, amount of Rs.400.55 lakhs in respect ofPurchase Orders issued at the risk and cost of the vendor haveCalso been deducted. Thus, all recoveries for non-performance/default has been considered and therefore, amount ofPerformance Bank Guarantee minus recovery i.e., 610.23 lakhsat least becomes payable by Corporate Debtor to the OperationalCreditor. As an adjudication authority in the proceedings, we arenot suppose to do this kind of working, but to find out theDgenuineness of the claim of pre-existing dispute, and amount ofoutstanding debt, it was necessary in the facts and circumstancesof the case, hence, it has been so analysed on the basis of theprovisional statement prepared and filed by the Corporate Debtoritself. At the cost of repetition, we again state that this statementEtakes into consideration all these disputes raised by the CorporateDebtor, hence, the amount payable by the Corporate Debtorremains in positive which is more than one lakh ultimately that toowhen we have considered the project as a whole against the claimof Operational Creditor of undisputed dues of supply portion only.We have also gone through the emails which have been takenFinto consideration. While preparing this provisional statement.Hence, on the basis of material on record, it cannot be said thatany other dispute remains to be considered. Apart from this, thefact which is crucial to note is that the Corporate Debtor hasawarded new work orders to the Operational CreditorGsubsequently which means that all the disputes relating to thiscontract had been considered/resolved and this fact has remainedundisputed. Further, Form “C”s have been issued as late as up toMarch 2018. We further make it clear that we have analysed theprovisional statement with limited objective of admissibility of thisapplication and this analysis cannot be considered as expression A

B

C

D

E

G

H

of opinion on the amount of claim in any manner which may beactually due and payable.”

15. In our considered view, the Adjudicating Authority (NCLT)committed a grave error of law by admitting the application of theOperational Creditor, even though there was a pre-existing dispute asnoted by the Adjudicating Authority.

16. When examining an application under Section 9 of the IBC,the Adjudicating Authority would have to examine (i) whether there wasan operational debt exceeding Rupees 1,00,000/- (Rupees One Lac); (ii)whether the evidence furnished with the application showed that debtexceeding Rupees one lac was due and payable and had not till thenbeen paid; and (ii) whether there was existence of any dispute betweenthe parties or the record of pendency of a suit or arbitration proceedingsfiled before the receipt of demand notice in relation to such dispute. Ifany one of the aforesaid conditions was not fulfilled, the application ofthe Operational Creditor would have to be rejected

17. In Mobilox Innovations Private Limited v. Kirusa SoftwarePrivate Limited1, this Court held:- “34. Therefore, the adjudicating authority, when examiningan application under Section 9 of the Act will have todetermine:

(i) Whether there is an “operational debt” as definedexceeding Rs 1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with theapplication shows that the aforesaid debt is due andpayable and has not yet been paid? and

(iii) Whether there is existence of a dispute between theparties or the record of the pendency of a suit orarbitration proceeding filed before the receipt of thedemand notice of the unpaid operational debt in relationto such dispute?

If any one of the aforesaid conditions is lacking, theapplication would have to be rejected. Apart from the above,the adjudicating authority must follow the mandate of Section A

B

C

D

E

F

G

9, as outlined above, and in particular the mandate of Section9(5) of the Act, and admit or reject the application, as thecase may be, depending upon the factors mentioned in Section9(5) of the Act.

A

***

B

51. It is clear, therefore, that once the operational creditorhas filed an application, which is otherwise complete, theadjudicating authority must reject the application underSection 9(5)(2)(d) if notice of dispute has been received bythe operational creditor or there is a record of dispute in theCinformation utility. It is clear that such notice must bring tothe notice of the operational creditor the “existence” of adispute or the fact that a suit or arbitration proceedingrelating to a dispute is pending between the parties. Therefore,all that the adjudicating authority is to see at this stage iswhether there is a plausible contention which requires furtherDinvestigation and that the “dispute” is not a patently feeblelegal argument or an assertion of fact unsupported byevidence. It is important to separate the grain from the chaffand to reject a spurious defence which is mere bluster.However, in doing so, the Court does not need to be satisfiedEthat the defence is likely to succeed. The Court does not atthis stage examine the merits of the dispute except to the extentindicated above. So long as a dispute truly exists in fact andis not spurious, hypothetical or illusory, the adjudicatingauthority has to reject the application.”

C

D

F18. In K Kishan vs. Vijay Nirman Co. (P) Ltd.2, cited by theNCLAT in its impugned judgment, this Court held:- “22. Following this judgment, it becomes clear that operationalcreditors cannot use the Insolvency Code either prematurely orfor extraneous considerations or as a substitute for debtenforcement procedures. The alarming result of an operationaldebt contained in an arbitral award for a small amount of say, twolakhs of rupees, cannot possibly jeopardise an otherwise solventcompany worth several crores of rupees. Such a company wouldbe well within its rights to state that it is challenging the arbitral G

H2 (2018) 17 SCC 662

award passed against it, and the mere factum of challenge wouldbe sufficient to state that it disputes the award. Such a case wouldclearly come within para 38 of Mobilox Innovations [MobiloxInnovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC353 : (2018) 1 SCC (Civ) 311], being a case of a pre-existingongoing dispute between the parties. The Code cannot be used interrorem to extract this sum of money of rupees two lakhs eventhough it may not be finally payable as adjudication proceedingsin respect thereto are still pending. We repeat that the object ofthe Code, at least insofar as operational creditors are concerned,is to put the insolvency process against a corporate debtor only inclear cases where a real dispute between the parties as to thedebt owed does not exist……………………………

27. We repeat with emphasis that under our Code, insofar as anoperational debt is concerned, all that has to be seen is whetherthe said debt can be said to be disputed, and we have no doubt instating that the filing of a Section 34 petition against an arbitralaward shows that a pre-existing dispute which culminates at thefirst stage of the proceedings in an award, continues even afterthe award, at least till the final adjudicatory process under Sections34 and 37 has taken place.”

19. In this Case, the correspondence between the parties wouldshow that HBL had been disputing the claims of the Appellant on thecontention that the appellant had not been adhering to the time schedulesfor completion of the contract work, had been violating the terms ofTender documents and the Purchase Orders, and backing out from itscommitments thereunder, thereby causing losses to HBL. HBL wasconstrained to procure materials from other vendors incurring losses.

20. The correspondence between the parties evince the existenceof real dispute, particularly the letter dated 02.01.2014 from HBL to theappellant stating that the appellant had inter alia raised improper invoicesfor materials not supplied and had failed to effect supplies and completework within a stipulated period; debit note dated 03.01.2014 raised byHBL in respect of consumption by the appellant of spares andconsumables from the warehouse of HBL; letter dated 11.04.2014 fromHBL to the Appellant, inter alia, contending there was no paymentoutstanding from HBL to the appellant and claiming that a sum of Rs.1.49Crores was due from appellant to the HBL excluding consequential AB

C

D

EF

G

H

Alosses; an email dated 07.05.2014 from HBL to the appellant decliningto release money claimed by the appellant on the ground of poor qualityof work and breaches of the terms and conditions of the Purchase Order.

21. Going by the test of existence of a dispute, it is clear that HBLhad raised a plausible defence. It was not for the Adjudicating AuthorityBto make a detailed examination of the respective contentions andadjudicate the merits of the dispute at this stage.

22. As held by the NCLAT :-

“The facts of the present case are being examined in the light ofthe law laid down by the Hon’ble Supreme Court, though theCLearned Counsel for the ‘Operational Creditor’ has strenuouslycontended that the issuance of further work orders and the Noticeissued by the ‘Operational Creditor’ invoking Arbitration does notamount to Existence of a Dispute’, the nature of communicationon record with rival contentions clarify the ‘Existence of a Dispute’Dbetween the parties prior to issuance of the Demand Notice. Ithas been time and again held that ‘it is enough that a ‘disputeexists’ between the parties.

The communication between the parties as noted in para 10 readtogether with the Arbitration invoked by the ‘Operational Creditor’,we are of the considered view that there is an ‘Existence of aEDispute’ between the parties which is a genuine dispute and not aspurious, patently feeble legal argument or an assertion of factunsupported by evidence.”

23. The learned NCLAT rightly observed that a perusal of theF“Tender Enquiry dated 27.06.2012”, “Instructions to Bidders”, “GeneralConditions of Contract” and “Special Conditions of Contract”, showedthat the tender was for ‘design, engineering, manufacture,procurement, supply, transportation to site, transit and storage,insurance storing at site, project management, civil work,mechanical works, electrical works, instrumentation work,Gmechanical works, electrical works, instrumentation work, erection,installation interfacing, testing, commissioning, performance testing,putting into successful commercial operation and handing overadditional equipment goods, and material centrifugal sectionincluding civil foundation for enhancing the boiling house capacityfrom 1750 TCD to 3750 TCD on Lumpsum Turnkey Basis includingH

civil foundation work’. It was also not in dispute that the appellantshad been issued further work on 13.06.2013 and 08.8.2013 all on LumpsumTurnkey Basis.

24. The NCLAT held that the execution of the contract workbeing on a lumpsum turnkey basis, the Appellant contractor wasresponsible for the entire execution of the work, as per specificationsand to the satisfaction of HBL. On completion of the work, the Appellantcontractor was to give notice of such completion to the site in charge,who would inspect the work and furnish the Appellant contractor with aCompletion Certificate indicating defects, if any, in the contract workand the date of completion of the contract work.

25. Referring to the letter dated 11.08.2013 of HBL to the Appellant,the NCLAT found that it was the case of HBL that the Appellant, ascontractor, had delayed the performance of its obligations in terms ofthe contract. In the aforesaid letter, HBL enumerated the lacuna andlapses of the Appellant in the performance of the contract and the variousbreaches of contract committed by the Appellant and also made acategorical assertion that till 31.07.2013, there was no amount outstandingfrom HBL to the Appellant. Rather there was a recovery from theAppellant.

26. In the impugned order, NCLAT set out a communication dated02.01.2014 from HBL to the Appellant giving details of the acts andomissions of the Appellant, which tantamounted to breaches of contracton the part of the Appellant. Several other letters were also set out in theimpugned order.

27. The impugned order takes note of the averment in the AppellantOperational Creditor’s Reply before the NCLT that despite severalrequests and reminder letters from 2013 to 2017, the Corporate DebtorHBL did not pay the amounts due, but raised baseless allegations anddisputes.

28. The NCLAT found:

“13. ………. It is the case of the ‘Operational Creditor’ that thereis no ‘Existence of Dispute’ prior to the issuance of DemandNotice. In their email dated 08.04.2013, in relation to the Minutesof the Meeting, the ‘Operational Creditor’ had clarified that workprogress is subject to prompt payments. July 31, 2013 was decided A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

as the commissioning date subject to immediate and promptpayment made by the ‘Corporate Debtor’. The ‘OperationalCreditor’ had always shown their willingness to commission andperform their obligations and their senior personnel were stationedat the site of the ‘Corporate Debtor’ and additional staff alwaysvisited from time to time. It was only because of pendency ofpayment of the dues that the ‘Operational Creditor’ had faceddifficulties in executing the ongoing Project. The ‘CorporateDebtor’ was making ad hoc payments but not as per the billsraised.

14. It is strenuously contended by the Learned Counsel that theconduct of the ‘Corporate Debtor’ in awarding fresh PurchaseOrder in August 2013 at the fag end of the completion of theprevious 6 orders, while at the same time, complaining againsttheir performance, is self-contradictory and goes to show themalafide intention of the ‘Corporate Debtor’. It is the case of the‘Operational Creditor’ that all equipment supplied was of goodquality and all the valves which were procured were from a vendormandated by the ‘Corporate Debtor’ only. If the ‘CorporateDebtor’ was dissatisfied with the quality of work or substandardmaterial supplied, there are no substantial reasons as to why newcontracts were awarded at the fag end of the previous 6 contracts.87% of the material and services were already completed as perthe billing breakup and therefore the question of short supply orpurchase of additional material by the ‘Corporate Debtor’ doesnot arise. It is also vehemently contended that the ‘OperationalCreditor’ was constrained to stop supply to the ‘Corporate Debtor’only on account of failure of payments of pending principal dueswhich amounts to more than Rs.13 Crores. The ‘CorporateDebtor’ continued to raise various debit notes unilaterally withoutany supporting documentation, for which the ‘Operational Creditor’cannot be held responsible.

15. The ‘Operational Creditor’ vide email dated 02.02.2014 i.e.one month after the aforenoted letter sought for release of payment.Once again the ‘Corporate Debtor’ on 04.02.2014 and on28.02.2014 reiterated the poor performance of the ‘OperationalCreditor’ on account of which huge losses were incurred.

16. On 29.03.2014, it is the case of the ‘Corporate Debtor’ thatthe ‘Operational Creditor’ had abandoned the site and therefore,the ‘Corporate Debtor’ had to take over the Project and make allthe relevant payments to the vendor.

19. It is pertinent to note that on 09.07.2016, ‘prior to the issuanceof the Demand Notice under Section 8 of the Code’, the‘Operational Creditor’ invoked Arbitration pursuant to the 8 projectorders issued by the ‘Corporate Debtor’, which itself substantiatesthe ‘Existence of a Dispute’. In the ‘Notice’ invoking Arbitration,the ‘Operational Creditor’ has stated that there is an outstandingof Rs.18,12,21,452/- and has further stated that they are ready tosettle the disputes through Arbitration.

22. The communication between the parties as noted in para 10read together with the Arbitration invoked by the ‘OperationalCreditor’, we are of the considered view that there is an ‘Existenceof a Dispute’ between the parties which is a genuine dispute andnot a spurious, patently feeble legal argument or an assertion offact unsupported by evidence”.

29. The HBL raised serious allegations against the appellant ofbreach of its contractual commitments. From the letter of HBL dated02.01.2014, it is evident that HBL had been contending inter alia thatwork of erection and commissioning of electric power had not beendone, the dead line of completion of the contract work had not beenadhered to and the quality of the equipment supplied and/or work donewas of poor quality.

30. This Court finds that there was a pre-existing dispute withregard to the alleged claim of the appellant against HPCL or its subsidiaryHBL. The NCLAT rightly allowed the appeal filed on behalf of HBL. Itis not for this Court to adjudicate the disputes between the parties anddetermine whether, in fact, any amount was due from the appellant tothe HPCL/HBL or vice-versa. The question is, whether the applicationof the Operational Creditor under Section 9 of the IBC, should havebeen admitted by the Adjudicating Authority. The answer to the aforesaidquestion has to be in the negative. The Adjudicating Authority (NCLT)clearly fell in error in admitting the application.

31. The NCLT, exercising powers under Section 7 or Section 9 ofIBC, is not a debt collection forum. The IBC tackles and/or deals with A

BC

D

E

F

G

H

Ainsolvency and bankruptcy. It is not the object of the IBC that CIRPshould be initiated to penalize solvent companies for non-payment ofdisputed dues claimed by an operational creditor.

32. There are noticeable differences in the IBC between theprocedure of initiation of CIRP by a financial creditor and initiation ofBCIRP by an operational creditor. On a reading of Sections 8 and 9 of theIBC, it is patently clear that an Operational Creditor can only trigger theCIRP process, when there is an undisputed debt and a default in paymentthereof. If the claim of an operational creditor is undisputed and theoperational debt remains unpaid, CIRP must commence, for IBC doesCnot countenance dishonesty or deliberate failure to repay the dues of anOperational Creditor. However, if the debt is disputed, the application ofthe Operational Creditor for initiation of CIRP must be dismissed.

33. We find no grounds to interfere with the judgment and orderof the NCLAT impugned in this appeal.

D34. The appeal is dismissed.

35. Needles to mention that the appellant may avail such otherremedies as may be available in accordance with law including arbitrationto realise its dues, if any.

E36. Pending applications, if any, stand disposed of accordingly.

Divya Pandey(Assisted by : Roopanshi Virang, LCRA)

Appeal dismissed.

F

G

H