SABARMATI GAS LIMITED versus SHAH ALLOYS LIMITED on 4 January 2023

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[2023] 4 S.C.R. 188

SUPREME COURT REPORTS

[2023] 4 S.C.R.

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SABARMATI GAS LIMITED

v.

SHAH ALLOYS LIMITED

(Civil Appeal No. 1669 of 2020)

BJANUARY 04, 2023

[AJAY RASTOGI AND C. T. RAVIKUMAR, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss. 6, 8, 9, 62, 238A,252 – Sick Industrial Companies (Special Provisions) Act, 1985 –ss. 16, 17, 22, 25 – Limitation Act, 1963 – s.5,14 and Art. 137 –CInsolvency and Bankruptcy (Application to Adjudicating Authority),Rules 2016 – r. 5, Form no. 3 – Appellant and respondent enteredinto a Gas Sales Agreement (GSA) whereunder the appellant washaving the obligation to supply natural gas – Thereafter, therespondent made default in the payment of the invoices – RespondentDapproached BIFR and it was declared a ‘sick unit’ – Appellant soughtthe permission of the BIFR for initiating proceedings against therespondent for recovery of outstanding dues – Shortly thereafter,the SICA was repealed w.e.f 01.12.2016 by coming into force ofIBC – Upon BIFR becoming functus officio, appellant issued demandnotice u/s.8 of IBC – Respondent declined the liability to pay theEamount demanded – Appellant filed an application u/s. 9 of the IBCbefore NCLT seeking initiation of CIRP in its capacity as operationalcreditor of the respondent – The said application was dismissed bythe NCLT on the grounds of being barred by limitation and existenceof a ‘pre-existing dispute’ between the appellant and the respondentF– The appeal against the decision of NCLT was also dismissed byNCLAT – Issues before the Supreme Court: Whether in computationof the period of limitation in regard to an application filed u/s. 9,IBC the period during which the operational creditor’s right toproceed against or sue the corporate debtor that remain suspendedby virtue of s.22 (1) of the Sick Industrial Companies (SpecialGProvisions Act, 1985) (SICA) can be excluded, as provided u/s.22(5) of SICA and Whether the respondent has raised a dispute whichis describable as ‘pre-existing dispute’ between itself and theappellant warranting dismissal of application u/s. 9 of the IBC atthe threshold – Held: When the limitation period for initiating CIRPHu/s. 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor,is three years as provided by s.137 of the Limitation Act, 1963 andthe same would commence from the date of default and is extendableonly by application of s.5 of the Limitation Act, 1963 it is incumbenton the Adjudicating Authority to consider the claim for condonationof the delay – In the absence of provisions for exclusion of periodin respect of an application u/s. 9, IBC, despite the combined readingof s.238A, IBC and the provisions under the Limitation Act what islegally available to such a party is to assign the same as a sufficientcause for condoning the delay u/s. 5 of the Limitation Act – As faras ‘pre-existing dispute is concerned’, considering the nature ofthe dispute of the respondent as referred hereinbefore in respect ofthe claim made by the appellant, there is no reason to disagree withthe concurrent findings of the Tribunals that there existed a ‘pre-existing dispute’ between the parties before the receipt of demandnotice u/s. 8, IBC – The dismissal of the application u/s. 9, IBC onthe ground of ‘pre-existing dispute’ cannot be held to be patentlyillegal or perverse.

Dismissing the appeal, the Court

Conclusion

Dismissing the appeal, the Court

HELD: 1. With respect to Section 7, IBC will proprio vigoreapply to Section 9, IBC. In short, as relates an application underSection 9, IBC the date of coming into force of IBC, viz,01.12.2016 would not form the trigger point of limitation and theperiod of limitation for an application for initiating of CIRP underSection 9, IBC would be three years from the date when the rightto apply accrues as provided by Article 137 of the Limitation Actand further that the right to apply under the IBC would accrue onthe date when default occurs and it is extendable only byapplication of Section 5 of the Limitation Act. [Para 23][209-E-F]

2. When the limitation period for initiating CIRP underSection 9, IBC is to be reckoned from the date of default, asopposed to the date of commencement of IBC and the periodprescribed therefor, is three years as provided by Section 137 ofthe Limitation Act, 1963 and the same would commence fromthe date of default and is extendable only by application of Section5 of the Limitation Act, 1963 it is incumbent on the AdjudicatingAuthority to consider the claim for condonation of the delay when AB

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Aonce the proceeding concerned is found filed beyond the periodof limitation. As relates Section 5 of the Limitation Act showing‘sufficient cause’ is the only criterion for condoning delay.‘Sufficient Cause’ is the cause for which a party could not beblamed. There is a legal bar for initiation of proceedings againstBan industrial company by virtue of Section 22 (1), SICA andobviously, when a party was thus legally disabled from resortingto legal proceeding for recovering the outstanding dues withoutthe permission of BIFR and even on application permissiontherefor was not given the period of suspension of excludable inlegal proceedings is computing the period of limitation for theCenforcement of such right in terms of Section 22(5), SICA. In theabsence of provisions for exclusion of such period in respect ofan application under Section 9, IBC, despite the combined readingof Section 238A, IBC and the provisions under the LimitationAct what is legally available to such a party is to assign the sameDas a sufficient cause for condoning the delay under Section 5 ofthe Limitation Act. In such eventuality, in accordance with thefactual position obtained in any particular case viz., the period ofdelay and the period covered by suspension of right under Section22 (1), SICA etc., the question of condonation of delay has to beconsidered lest it will result in injustice as the party was statutorilyEprevented from initiating action against the industrial companyconcerned. [Paras 24, 25][209-H; 210-A-F]

3. The existence of a ‘pre-existing dispute’ should entaildismissal of an application filed under Section 9 IBC at thethreshold. Therefore, the question is whether the respondentFhad raised a dispute describable as a ‘pre- existing dispute’ so asto entail dismissal of application of the appellant under Section 9,IBC. In the contextual situation it is only apposite to be remindfulof the observation in Mobilox Innovations (P) Ltd. that in doingthe act of separating the grain from chaff the Court need not toGbe satisfied that the defence is likely to succeed. It is enoughthat a dispute exists between the parties and in other words,what is to be seen is whether there was a plausible contentionrequiring investigation for the purpose of adjudication. Takingnote of the nature of the dispute of the respondent as referred H

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hereinbefore in respect of the claim made by the appellant, thereis no reason to disagree with the concurrent findings of theTribunals that there existed a ‘pre-existing dispute’ between theparties before the receipt of demand notice under Section 8, IBC.In other words, the dismissal of the application under Section 9,IBC on the ground of ‘pre-existing dispute’ cannot be held to bepatently illegal or perverse. [Paras 32, 38][213-A-B; 217-E-G]

Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.(2018) 1 SCC 353; B.K. Educational Services PrivateLimited v. Parag Gupta and Associates (2019) 11 SCC633 : [2018] 12 SCR 794; Babulal Vardharji Gurjar v.Veer Gurjar Aluminium Industries Private Limited andAnr. (2020) 15 SCC 1; Macquarie Bank Limited v. ShilpiCable Technologies Limited (2018) 2 SCC 674 : [2017]13 SCR 751 – relied on.

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Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC322 : [2006] 8 Suppl. SCR 178; Kailash Nath Agarwaland Ors. v. Pradeshiya Industrial & InvestmentCorporation of U.P. Ltd. and Anr. (2003) 4 SCC 305 :[2003] 1 SCR 1159; KSL & Industries Ltd. v. M/s.Arihant Threads Ltd. (2015) 1 SCC 166 : [2014] 14SCR 1097; Innoventive Industries Ltd. v. ICICI Bankand Anr. (2018) 1 SCC 407 : [2017] 8 SCR 33 –referred to.

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Case Law Reference

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ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 1669of 2020.

From the Judgment and Order dated 19.12.2019 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No. 820 of 2019.B

Shyam Divan, Sr. Adv., Piyush Joshi, Senthil Jagadeesan, Ms.Sumiti Yadava, Ms. Sonakshi Malhan, Sajal Jain, Ms. Pemya Raj, Advs.for the Appellant.

Gurukrishna Kumar, Sr. Adv., Ms. Gauri Rasgotra, Sumit Attri,CMs. Ritu Anand Vishwakarma, Satatya Anand, Ms. Ena Kapur, M/s.Cyril Amarchand Mangaldas, Advs. for the Respondent.

The Judgment of the Court was delivered by

C. T. RAVIKUMAR, J.D

1. This appeal under Section 62 of the Insolvency and BankruptcyCode, 2016 (IBC) is preferred by Sabarmati Gas Limited (hereinafterreferred to as the appellant) against the final judgment dated 19.12.2019of the National Company Law Appellate Tribunal (NCLAT) in CompanyAppeal (AT) (Insolvency) No. 820 of 2019. As per the same the NCLATEdismissed the appeal preferred by the appellant against order dated27.06.2019 in CP (IB) No. 516/9/NCLT/AHM/2018 of the NationalCompany Law Tribunal, Ahmedabad Bench, (NCLT) dismissing theapplication filed under Section 9 of the IBC, in its capacity as operationalcreditor of ‘Shah Alloys Limited’ (hereinafter referred to as the‘respondent’).F

2. In the captioned appeal mainly, twin questions of law call forconsideration id est :-

(i) Whether in computation of the period of limitation inregard to an application filed under Section 9, IBC theGperiod during which the operational creditor’s right toproceed against or sue the corporate debtor that remainsuspended by virtue of Section 22 (1) of the SickIndustrial Companies (Special Provisions Act, 1985)(SICA) can be excluded, as provided under Section 22(5) of SICA?

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(ii) Whether the respondent has raised a dispute which isdescribable as ‘pre-existing dispute’ between itself andthe appellant warranting dismissal of application underSection 9 of the IBC at the threshold?

While considering the stated twin questions certain other alliedquestions of relevance may also crop up for consideration, which wewill state and consider at the appropriate time. The respondent -corporatedebtor was the petitioner in Case No. 13 of 2010 before the Board forIndustrial and Financial Re-construction (BIFR) and the appellant hereinwas the applicant in Miscellaneous Application No. 432 of 2013 in CaseNo. 13 of 2010.

3. Heard learned Senior Counsel for the appellant Shri ShyamDivan and Mr. S. Guru Krishna Kumar, learned Senior Counsel for therespondent.

4. Consideration of the questions, mentioned above and to bementioned hereinafter, is called for, in the following factual background:

The respondent, for its manufacturing needs, required commercialsupply of natural gas. To facilitate the same on 30.05.2008 the appellantand the respondent entered into a Gas Sales Agreement (GSA) wherebyand whereunder the appellant was having the obligation to supply naturalgas conforming to the specifications laid down in Annexure-2, appendedto GSA and it also forms part of the contract. Going by clause 11.2 ofGSA, notwithstanding any dispute in relation to any amount invoiced, therespondent could not withhold payment in accordance with the GSA.According to the appellant, the respondent defaulted payment of invoicesinasmuch as it made only partial irregular payments from November,2011. Meanwhile, the respondent approached BIFR to get it declared asa ‘sick unit’ and for recommendation of a plan for its rehabilitation, interms of the provisions under SICA. The reference was admitted byBIFR as case No. 13 of 2010 and as per order dated 31.08.2010 therespondent was declared as a ‘sick company’. It is the case of theappellant that by virtue of Section 22 of SICA there was a moratoriumon the respondent and therefore, it could not have proceeded against therespondent for outstanding dues, thenceforth, without obtaining thepermission of the BIFR. On 07.08.2012 the appellant stopped the gassupply and then, intervened in the pending proceedings before the BIFRviz., 13 of 2010. On 08.03.2013, as per Miscellaneous Application No.

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A432 of 2013 the appellant sought permission of the BIFR for initiatingproceedings against the respondent for recovery of an outstanding duesof Rs. 4,71,56,095/-. On 09.09.2015, the BIFR passed an order thereon.Shortly thereafter, to be precise, w.e.f. 01.12.2016, SICA was repealed.

5. According to the appellant, BIFR became functus officio andBall proceedings pending before it, including the case of the respondent,were abated and several sections of IBC, including Sections 8 and 9,came into effect on 01.12.2016. Hence, after the enactment of IBC, theappellant issued a demand notice on 01.04.2017, under Section 8 of theIBC read with Rule 5 of the Insolvency and Bankruptcy (Application toAdjudicating Authority), Rules 2016, in Form No. 3 demanding paymentCof operational debt of Rs. 4,71,56,094.76/-. On 10.04.2017, the respondentgave a reply to the aforesaid demand notice stating that there was shortfallin supply of natural gas and also a huge loss due to the disconnection ofgas supply. Raising such contentions, the respondent declined the liabilityto pay the amount demanded. Thereafter, the appellant filed an applicationDunder Section 9 of the IBC before NCLT, Ahmedabad seeking initiationof Corporate Insolvency Resolution Process (CIRP) in its capacity asOperational Creditor of the respondent. The said application was dismissedby the NCLT as per order dated 27.06.2019 on the grounds of beingbarred by limitation and existence of a ‘pre-existing dispute’ betweenthe appellant and the respondent. It is the appeal challenging the sameEbefore the NCLAT that ultimately culminated in the impugned judgment.

6. We will firstly consider the first question of law arising onaccount of dismissal of the appellant’s application under Section 9, IBCon the ground of being barred by limitation. In the light of the aforesaidfactual backdrop and contentions the appellant would contend that theFNCLT and NCLAT had failed to look into and appreciate the cumulativeeffect of sub-sections (1) and (5) of Section 22 of SICA while dismissingthe application under Section 9, IBC as barred by limitation. In elaborationof the contention, it is submitted that the NCLT and NCLAT had failedto appreciate that the respondent was admitted as a ‘sick company’ byGthe BIFR as per its order dated 31.08.2010 and hence, by virtue of sub-section (5) of Section 22, SICA the period of suspension under SICAviz., from 31.08.2010 to 01.12.2016, ought to have been excluded whilecalculating the period of limitation. According to the appellant, since theapplication under Section 9, IBC was filed on 20.08.2018 granting thebenefit of such exclusion would have, certainly, put the application wellH

within the limitation period of 3 years as provided under Article 137 ofthe Limitation Act. The learned counsel for the appellant placed relianceon the decision in Paramjeet Singh Patheja v. ICDS Ltd.[1], particularlyparagraph 43 (vii) therein, to support the contention that there was astatutory bar for laying or continuing with any legal proceeding forrealisation of a right vested by law on the appellant.

7. Resisting the contentions of the appellant and supporting theimpugned judgment the respondent would contend that both NCLT andNCLAT had rightly appreciated the factual positions thereon obtained inthe case on hand and appliedthe provisions correctly, to arrive at thefinding that the application filed by the appellant under Section 9, IBCwas barred by limitation. According to the respondent there is discrepancybetween the stand of the appellant in the Section 9 application and theDemand Notice under Section 8, of the IBC as relates the quantum ofalleged outstanding dues. It is also contended that such a discrepancyalso exists with respect to the date of cause of action inasmuch as goingby Section 9 application the alleged debt fell due on and from November,2011 and as per the Demand Notice the so-called debt fell due on andfrom 9th July, 2012 and in either case, Section 9 application was barredby limitation as it was filed only in the year 2018. To wit, beyond 3 yearsfrom the alleged default. The benefit of exclusion of period under Section22(5) of the SICA is not available to the appellant for computing theperiod of limitation in respect of an application under Section 9, IBC, it isfurther contended. According to the respondent, Section 22 (1), SICAdid not accord a blanket protection against running of cause of actionand it is intended to suspend legal proceedings of coercive nature so asto secure assets of an enterprise. In other words, the contention is thatfiling application for recovery was permissible and Section 22 (1), SICAdid not forbid the same and it interdicted only execution or distress or thelike against the properties of the industrial company concerned in thecontingencies contemplated thereof.

8. When Sections 8 and 9, IBC came into force only with effectfrom 01.12.2016, the question of initiation of the CIRP by filing anapplication under Section 9 was possible only from 01.12.2016. But thequestion is whether any party, which falls under the expression‘Operational Creditor’ under the IBC claims to have operational debt AB

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Adue from an industrial company and the cause of action for recovery ofthe same had accrued much earlier than 01.12.2016, but prevented fromenforcing the right against such company in view of statutory prohibitionunder Section 22 (1), SICA, could initiate CIRP despite the passage ofthree years since the cause of action claiming the protection of exclusionof the period of suspension by virtue of Section 22 (5), SICA?B8.1 In that context it is only apt to refer to the afore-mentionedrelevant provisions under SICA. Section 22(1), SICA was as follows:

“22. Suspension of legal proceedings, contracts, etc. – (1)Where in respect of an industrial company, an inquiry underCsection 16 is pending or any scheme referred to under section17 is under preparation or consideration or a sanctionedscheme is under implementation or where an appeal undersection 25 relating to an industrial company is pending, then,notwithstanding anything contained in the Companies Act,1956 (1 of 1956) or any other law or the memorandum andDarticles of association of the industrial company or any otherinstrument having effect under the said Act or other law, noproceedings for the winding up of the industrial company orfor execution, distress or the like against any of the propertiesof the industrial company or for the appointment of a receiverEin respect thereof [and no suit for the recovery of money orfor the enforcement of any security against the industrialcompany or of any guarantee in respect of any loans oradvance granted to the industrial company] shall lie or beproceeded with further, except with the consent of the Boardor, as the case may be, the Appellate Authority.”F

8.2 Section 22(5), SICA, relied on by the appellant for seekingexclusion of the period from 31.08.2010 to 01.12.2016 while computingthe period of limitation, was as hereunder: - “22. Suspension of legal proceedings, contracts, etc. –

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(5) In computing the period of limitation for the enforcementof any right, privilege, obligation or liability, the period duringwhich it or the remedy for the enforcement thereof remainssuspended under this section shall be excluded.”

9. Thus, Section 22 (1), SICA as extracted above, would make itclear that there was a statutory bar to take to any proceeding forrealisation of a right referred to in the said Section against an industrialcompany when once an enquiry under Section 16, SICA is pendingagainst it or any scheme referred to under Section 17 thereof is underpreparation or consideration or a sanctioned scheme is underimplementation or where an appeal under Section 25 relating to anindustrial company is pending, except with the consent of the Board orthe Appellate Authority, as the case may be. As noticed earlier, SICAcame to be repealed and IBC came into force (Sections 7 to 9 andvarious other Sections), on the same day viz, on 01.12.2016.

10. A two-Judge Bench decision of this Court in ParamjeetSingh Patheja’s case (supra), more particularly, paragraph 43 (vii),is relied on by the appellant to support its claim for exclusion of theperiod from 31.08.2010 to 01.12.2016 while computing the period oflimitation for filing applicants under Section 9, IBC. It, in so far asrelevant reads thus: - “43. For the foregoing discussions we hold:

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(vii) It is a well-established rule that a provision must beconstrued in a manner which would give effect to its purposeand to cure the mischief in the light of which it was enacted.The object of Section 22, in protecting guarantors from legalproceedings pending a reference to BIFR of the principal A

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Adebtor, is to ensure that a scheme for rehabilitation would notbe defeated by isolated proceedings adopted against theguarantors of a sick company. To achieve that purpose,it isimperative that the expression “suit” in Section 22 be givenits plain meaning, namely, any proceedings adopted forrealization of a right vested in a party by law. This wouldBclearly include arbitration proceedings.”

(Emphasis added)

11. In the light of the position settled thus, in Paramjeet SinghPatheja’s Case (supra), it is relevant to refer to an earlier two-JudgeCBench decision of this court in Kailash Nath Agarwal and Ors. v.Pradeshiya Industrial & Investment Corporation of U.P. Ltd. andAnr.[2] That was also a case, involving consideration of the question as towhether Section 22, SICA, afford protection to guarantors of sickcompany or only to the sick company. It is relevant to note in this contextthat the decision in Kailash Nath Agarwal’s Case (supra)was notDbrought to the notice of the later bench while deciding Paramjeet SinghPatheja’s Case (supra). In other words, the latter case was decidedper incuriam. In Kailash Nath Agarwal’s Case, after consideringcontentions akin to those raised in Paramjeet Singh Patheja’s Case,this court held that the words “proceedings” and again “suit” had to beEconstrued differently as carrying different meanings, since, they hadbeen raised to denote different things. It was concluded that Section 22(1), SICA only prohibits recovery against the industrial company andthere would be no protection offered to guarantors against the recoveryproceedings.

12. The above conflicting decisions need not detain us fromFconsidering the issue further in the light of a subsequent three-JudgeBench decision of this court in KSL & Industries Ltd. Vs. M/s. ArihantThreads Ltd[3]. The three-judge bench, after noting the contentions raisedbefore and the findings of the two-judge bench in Kailash NathAgarwal’s case (supra), found that it did not deal with the questionGregarding the scope of protection afforded to the industrial companyconcerned, under Section 22 (1) of SICA. Having observed thus, thethree-Judge Bench went on to consider the said question. In that regard,paragraphs 32, 33 and 53 are relevant and reads thus:

2 (2003) 4 SCC 305H3 (2015) 1 SCC 166

“32. As observed earlier, Sub-section (1) of Section 22 maybe divided into two parts. In one part, it provides that “noproceedings’’ be instituted for the winding up of the industrialcompany or for execution, distress or the like against any ofthe properties of such industrial company, and in the secondpart it provides that “no suit” for the recovery of money orfor the enforcement of any security against the industrialcompany or of any guarantee in respect of any loans oradvances granted to the industrial company, “shall lie or beproceeded with further, except with the consent of the Boardor, as the case may be, the Appellate Authority.”

33. Undoubtedly, the present proceedings viz. “applicationfor recovery” cannot specifically be described as proceedingsfor execution, distress or the like against any of the properties,but it is certainly a proceeding which results in and in facthad resulted in the execution and distress against the propertyof the Company and is therefore liable to be construed as aproceeding for the execution, distress or the like against anyof the properties of the industrial company. We are of theview that such a construction would be within the intendmentof Parliament wherever the proceedings for recovery of a debtwhich has been secured by a mortgage or pledge of theproperty of the borrower are instituted. Surely, there is nopurpose in construing that Parliament intended that such anapplication for recovery by summary procedure should lie orbe proceeded with, but only its execution be interdicted orinhibited especially. In this context, it may be remembered thatthe proceedings by way of an application for recoveryaccording to a summary procedure as provided under theRDDB Act are not referred to in Section 22 simply becausethe RDDB Act had not then been enacted.

53. Moreover, we have found nothing contrary in the intentionof the SICA to exclude a recovery application from the purviewof Section 22, indeed there could be no reason for suchexclusion since the purpose of the provision is to protect theproperties of a sick company, so that they may be dealt within the best possible way for the purpose of its revival by theBIFR. In State of Punjab v. The Okara Grain Buyers Syndicate AB

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ALtd. MANU/SC/0023/1963: AIR 1964 SC 669, the Courtarticulated the importance of preserving the beneficentpurpose of the statute and observed:

14. … We shall therefore proceed to examine the provisionsof the Act on the footing that the test for determiningBwhether the Government is bound by a statute is whetherit is expressly named in the provision which it is contendedbinds it, or whether it “is manifest that from the terms ofthe statute, that it was the intention of the legislature that itshall be bound”, and that the intention to bind would beclearly made out if the beneficent purpose of the statuteCwould be wholly frustrated unless the Government werebound.”

13. Thus, it is obvious that the three-Judge Bench in KSL &Industries Ltd. (supra) considered the question whether a recoveryapplication under the Recovery of Debts Due to Banks and FinancialDInstitutions Act, 1963 (RDDB Act) would lie or be proceeded with againsta sick company in view of the Bar contained in Section 22 (1) of SICA.Evidently, even after finding that an ‘application for recovery’ underRDDB Act could not specifically be described as proceedings forexecution, distress or the like against any of the properties, it was heldEthat it is certainly a proceeding which may result in the execution anddistress against the property of the company and is therefore, liable tobe construed as a proceeding for the execution, distress or the like againstany of the properties of the industrial company. Accordingly, it was heldthat such a construction would be within the intendment of the Parliament.Moreover, it was held therein that there would be no purpose in construingFthe Parliament intended that such an application for recovery by summaryprocedure should lie or be proceeded with, but only its execution beinterdicted or inhibited. That apart the three-Judge Bench found nothingcontrary in the intention of the SICA to exclude a recovery applicationfrom the purview of a Section 22 thereof, taking note of the fact that theGpurpose of the said provision is to protect the properties of sick company,so that they may be dealt with in the best possible way for the purposeof its revival by BIFR.

14. In view of the provisions under Section 22 (1) of SICA andthe decisions in Paramjeet Singh case (Supra) and in KSL & IndustriesHLimited (supra), it is worthwhile to note that in the case on hand it was

the industrial company (respondent herein) that approached the BIFRunder the provisions of SICA and got it declared as ‘sick company’ byfiling Case No. 13 of 2010; that it is thereafter that the appellant filedMiscellaneous Application No. 432/2013 thereon praying, inter-alia, topermit it under Section 22 of SICA to approach a Civil Court of appropriatejurisdiction for recovery of the above-mentioned dues along with interest;that the said application was disposed of only on 09.09.2015, as perAnnexure-A40 proceedings, that too, only with a direction to therespondent company to incorporate the dues of the applicant in theDRS and that as per Annexure-A40, Case No.13 of 2010 and M.A.No. 292/2014 filed thereon, were then, posted for hearing. In short,Case No. 13 of 2010 was pending before the BIFR when SICA wasrepealed w.e.f. 01.12.2016 and Sections 8 and 9, IBC took its effectfrom 01.12.12016. Thus, obviously, proceedings under SICA were thenpending before the BIFR when the default from the part of therespondent allegedly occurred and by virtue of Section 22 (1), SICAand the decisions referred above, the appellant could not have, then,resorted to any legal proceedings for enforcing any right which mayresult in recovery from the properties of the respondent company. Forthe same reasons, the contention of the respondent that pending theproceedings before the BIFR the appellant could have resorted toarbitration proceedings also has to fail.

15. Now, we will have to consider the purported intent of Section22 (5), SICA. The intention appears to be to protect the interest of sucha party who was prevented from lawfully enforcing the right to seek forrecovery of dues during the operative period of the bar under Section 22(1), SICA, if it is otherwise available even after the conclusion ofproceedings before the BIFR, to the extent specifically mentioned therein.According to us, any other understanding of the provisions under Section22 (5) would be wholly pointless and purposeless. When the appellantbeing a party to BIFR in the sense, on intervention obtained an order tothe respondent company to incorporate its dues in the Draft RehabilitationScheme (DRS) in an application seeking permission to effect recoveryof the dues and such a stage had not reached till 01.12.2016, whetherthere would be any justification to hold that on the repeal of SICA itcould not claim the benefit flowing from the provisions under Section 22(5) of SICA, subject to the provisions under the relevant laws governingthe appropriate forum chosen?

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A16. In the contextual situation, it is apropos to refer to Section 252of IBC which reads thus: - “252. The Sick Industrial Companies (Special Provisions)Repeal Act, 2003 shall be amended in the manner specifiedin the Eighth Schedule.”

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16.1 The Eighth Schedule would reveal the nature and manner ofamendment specified thereunder as substitution to sub-clause (b) ofSection 4, of SICA Repeal Act, 2003 w.e.f. 01.12.2016, as hereunder:

“(b) On such date as may be notified by the CentralGovernment in this behalf, any appeal preferred to theCAppellate Authority or any reference made or inquiry pendingto or before the Board or any proceeding of whatever naturepending before the Appellate Authority or the Board underthe Sick Industrial Companies (Special Provisions) Act, 1985(1 of 1986) shall stand abated: Provided that a company inDrespect of which such appeal or reference or inquiry standsabated under this clause may make reference to the NationalCompany Law Tribunal under the Insolvency and BankruptcyCode, 2016 within one hundred and eighty days from thecommencement of the Insolvency and Bankruptcy Code, 2016in accordance with the provisions of the Insolvency andEBankruptcy Code, 2016:

Provided further that no fees shall be payable for makingsuch reference under Insolvency and Bankruptcy Code, 2016by a company whose appeal or reference or inquiry standsabated under this clause.”.F

(Emphasis added)

17. A perusal of the substituted sub-clause (b), as extracted abovewould reveal that reference made or inquiry pending or any proceedingof whatever nature, before the Board under SICA would stand abatedGupon its notification by the Central Government. The first proviso tosub-clause (b) only makes reference to the time limit applicable to thecompany in respect of which the appeal or reference or enquiry or anysuch proceeding thus stood abated under the said sub-clause. Going bythe said proviso, such a company may make reference to NCLT underIBC within 180 days from the commencement of IBC and in accordanceH

with the provisions thereof. Subsequently, the stated amendment wasnotified by the Central Government under S.O. 3569 (E) dated 25.11.2016.It is thus clear that on account of repeal of SICA under Repeal Act (1 of2003) w.e.f. 01.12.2016, any pending proceeding or enquiry under SICA,initiated by an industrial company would get abated and the prescriptionof such period of 180 days became applicable only to such a company. Ascanning of the stated sub-clause (b) and the provisos would not revealor indicate prescription of any such specific time limit as regards theopposite parties in the abated reference, inquiry or proceeding forproceeding with their available remedy under IBC. In the saidcircumstances, if such an opposite party falls within the expression‘operational creditor’, under IBC, it could only be taken that it should begoverned by the provisions under the IBC in regard to the period oflimitation for approaching the Adjudicating Authority. In this context, it isalso relevant to note that as relates the company whose reference orinquiry or any proceeding got abated, as mentioned, it need not pay anyfee for making reference under IBC, in terms of the second proviso tothe substituted sub-clause (b) of Section 4 of the SICA Repeal Act.Needless to say, that this exemption is not available to other parties tothe abated proceedings, or reference or inquiry concerned.

18. Section 6, IBC provides that where any corporate debtorcommits a default, a financial creditor, an operational creditor or thecorporate debtor itself may initiate CIRP in respect of such corporatedebtor in the manner provided under Chapter II of IBC. Section 8, whichfalls under Chapter II, deals with insolvency resolution by operationalcreditor. It provides that an operational creditor may, on the occurrenceof default, deliver a demand notice of unpaid of operational debt or copyof an invoice demanding payment of the amount involved in the defaultto the corporate debtor in such form and manner as may be prescribed.It is apposite to note that a seemingly printing error had occurred inSection 8 (1), IBC inasmuch as instead of ‘a demand notice of unpaidoperational debt’ it is printed as ‘a demand notice of unpaid operationaldebtor.’ Evidently, this must have occurred as in the Gazette Notificationalso the word ‘debtor’ is following the words ‘unpaid operational’. Theword ‘debtor’ used therein has to be split into ‘debt’ and ‘or’ so as toserve the purpose and to give the intended meaning to Section 8 (1) andthis view would get support from sub-section (2) of Section 8 itself. Sub-section 2 of Section 8, IBC in so far as it is relevant, reads thus: - AB

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A“8. (1) ….

(2) The corporate debtor shall, within a period of ten days ofthe receipt of the demand notice or copy of the invoicementioned in sub-section (1)bring to the notice of theoperational creditor—

B(a) existence of a dispute, if any, or record of the pendencyof the suit or arbitration proceedings filed before the receiptof such notice or invoice in relation to such dispute; —(b) the payment of unpaid operational debt (Underline supplied)

C19. So also, the said position is evident from Rule 5 of the Insolvencyand Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (forshort ‘the Rules’). Going by the instruction in Form 3, in which a DemandNotice is to be delivered to the corporate debtor under ‘the Rules’, thesaid from has to be served on the corporate debtor, ten days in advanceDof filing an application under Section 9 of the Code. This instruction canonly be construed that it shall be served on the corporate debtor not lessthan ten days in advance of filing an application under Section 9 of theCode for the simple reason that the period of limitation for filing anapplication under Section 9, IBC is governed by Section 238 A, IBC andtherefore, it could not be construed that Section 9 application shouldEinvariably be filed on the eleventh day of service of advance demandnotice in Form 3. Section 238 A, IBC, dealing with period of limitation,has come into force w.e.f. 06.06.2018 and it reads thus: - “238A. Limitation. – The provisions of the Limitation Act, 1963(36 of 1963) shall, as far as may be, apply to the proceedingsFor appeals before the Adjudicating Authority, the NationalCompany Law Appellate Tribunal, the Debt Recovery Tribunalor the Debt Recovery Appellate Tribunal, as the case may be.”

20. Obviously, Section 238A, IBC makes the provisions of theLimitation Act, 1963 applicable to computation of the period of limitationGin regard to proceedings before the Adjudicating Authority and the otherforums. This position is made explicitly clear in the decision of this Courtin B.K. Educational Services Private Limited v. Parag Gupta andAssociates[4] at paragraphs 43 and 48 and they read thus: - H4 (2019) 11 SCC 633

“43. It will be seen from a reading of Section 8 (2) (a) that thecorporate debtor shall, within a period of 10 days of thereceipt of the demand notice, bring to the notice of theoperational creditor the existence of a “dispute”. We haveseen that “dispute” as defined in Section 5 (6) includes a suitor arbitration proceeding relating to certain matters.Again,under Section 8 (2) (a), the corporate debtor may, in thealternative, disclose the pendency of a suit or arbitrationproceedings filed before the receipt of the demand notice. Itis clear therefore, that at least in the case of an operational“”creditor, default must be non-payment of amounts that havebecome due and payable in law. The “dispute” or pendencyof a suit or arbitration proceedings would necessarily bringin the Limitation Act, for if a suit or arbitration proceeding istime-barred, it would be liable to be dismissed. This again isan important pointer to the fact that when the expression“due” and “due and payable” occur in Sections 3(11) and 3(12) of the Code, they refer to a “default” which is non-payment of a debt that is due in law i.e. that such debt is notbarred by the law of limitation. It is well settled that where thesame word occurs in a similar context, the draftsman of thestatute intends that the word bears the same meaningthroughout the statute (see Bhogilal Chunilal Pandya v. Stateof Bombay 1959 Supp (1) SCR 310, AIR 1959 SC 356, 1959Cri LJ 389, Supp SCR at pp. 313- 14). It is thus clear that theexpression “default” bears the same meaning in Sections 7and 8 of the Code, making it clear that the corporate insolvencyresolution process against a corporate debtor can only beinitiated either by a financial or operational creditor inrelation to debts which have not become time-barred.

48. It is thus clear that since the Limitation Act is applicableto applications filed under Sections 7 and 9 of the Code fromthe inception of the Code, Article 137 of the Limitation Actgets attracted. “The right to sue”, therefore, accrues when adefault occurs. If the default has occurred over three yearsprior to the date of filing of the application, the applicationwould be barred under Article 137 of the Limitation Act, saveand except in those cases where, in the facts of the case, AB

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ASection 5 of the Limitation Act may be applied to condone thedelay in filing such application.”

21. The decision in B.K. Educational Services Private Limited(supra) would thus reveal that Articles 137 and 5 of the Limitation Act,B1963 are applicable to applications filed under Sections 7 and 9 of IBC.It be so, the position is that the period of limitation is three years fromthe right to apply accrues but the delay is condonable on sufficient grounds.It is to be noted that the third column in Article 137 of the Limitation Actposits that time runs when the ‘right to apply accrues’. In the decision inCBabulal Vardharji Gurjar v. Veer Gurjar Aluminium IndustriesPrivate Limited and Anr.[5] this Court considered the question as towhen ‘right to apply would accrue?’ Paragraph 32 of the said decision,in so far as it is relevant for the purpose of this case reads thus:- “32. When Section 238-A of the Code is read with the aboveDnoted consistent decisions of this Court in InnoventiveIndustries [Innoventive Industries Ltd. v. ICICI Bank, (2018)1 SCC 407], B.K. Educational Services [B.K. EducationalServices (P) Ltd. v. Paras Gupta & Associates, (2019) 11 SCC633], Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India,(2019) 4 SCC 17], K. Sashidhar [K. Sashidhar v. IndianEOverseas Bank, (2019) 12 SCC 150], Jignesh Shah [JigneshShah v. Union of India, (2019) 10 SCC 750], Vashdeo R.Bhojwani [Vashdeo R. Bhojwani v. Abhyudaya Coop. BankLtd., (2019) 9 SCC 158], Gaurav Hargovindbhai Dave [GauravHargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd.,F(2019) 10 SCC 572] and Sagar Sharma [Sagar Sharmav. Phoenix ARC (P) Ltd., (2019) 10 SCC 353] respectively, thefollowing basics undoubtedly come to the fore:

(a) that the Code is a beneficial legislation intended to putthe corporate debtor back on its feet and is not a mere moneyGrecovery legislation;(b) that CIRP is not intended to be adversarial to thecorporate debtor but is aimed at protecting the interests ofthe corporate debtor; H5 (2020) 15 SCC 1

(c) that intention of the Code is not to give a new lease oflife to debts which are time-barred; (d) that the period of limitation for an application seekinginitiation of CIRP under Section 7 of the Code is governedby Article 137 of the Limitation Act and is, therefore, threeyears from the date when right to apply accrues; (e) that the trigger for initiation of CIRP by a financialcreditor is default on the part of the corporate debtor, that isto say, that the right to apply under the Code accrues on thedate when default occurs; (f) that default referred to in the Code is that of actualnon-payment by the corporate debtor when a debt has becomedue and payable; and (g) that if default had occurred over three years prior tothe date of filing of the application, the application would betime-barred save and except in those cases where, on facts,the delay in filing may be condoned; and (h) an application under Section 7 of the Code is not forenforcement of mortgage liability and Article 62 of theLimitation Act does not apply to this application.

22. The following relevant recitals from paragraphs 34, 34.1, 38and 38.1 are worthy to be noted in the above context and they readthus:-

“34……….. As noticed, in B.K. Educational Services [B.K.Educational Services (P) Ltd. v. Paras Gupta & Associates,(2019) 11 SCC 633, it has clearly been held that the limitationperiod for application under Section 7 of the Code is threeyears as provided by Article 137 of the Limitation Act, whichcommences from the date of default and is extendable onlyby application of Section 5 of the Limitation Act, if any casefor condonation of delay is made out. The findings in para12 in Jignesh Shah [Jignesh Shah v. Union of India, (2019)10 SCC 750] makes it clear that the Court indeed applied theprinciples so stated in B.K. Educational Services [B.K.Educational Services (P) Ltd. v. Paras Gupta & Associates,(2019) 11 SCC 633], and held that the winding-up petition A

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filed beyond three years from the date of default was barredby time.

34.1. Even in the later decisions, this Court has consistentlyapplied the declaration of law in B.K. Educational Services[B.K. Educational Services (P) Ltd. v. Paras Gupta &Associates, (2019) 11 SCC 633]. As noticed, in Vashdeo R.Bhojwani [Vashdeo R. Bhojwani v. Abhyudaya Coop. BankLtd., (2019) 9 SCC 158], this Court rejected the contentionsuggesting continuing cause of action for the purpose ofapplication under Section 7 of the Code while holding thatthe limitation started ticking from the date of issuance ofrecovery certificate dated 24-12-2001. Again, in GauravHargovindbhai Dave [Gaurav Hargovindbhai Dave v. AssetReconstruction Co. (India) Ltd., (2019) 10 SCC 572], wherethe date of default was stated in the application under Section7 of the Code to be the date of NPA i.e. 21-7-2011, this Courtheld that the limitation began to run from the date of NPA andhence, the application filed under Section 7 of the Code on3-10-2017 was barred by limitation.

38. The question as to whether date of enforcement of theCode (i.e. 1-12-2016) provides the starting point of limitationfor an application under Section 7 of the Code and hence,the application in question, made in the year 2018, is withinlimitation, is not even worth devoting much time. A bare lookat para 21 of the impugned order [Babulal Vardhaji Gurjarv. Veer Gurjar Aluminium Industries (P) Ltd., 2019 SCCOnLine NCLAT 295] leaves nothing to guess that suchobservations by the Appellate Tribunal had only beenassumptive in nature without any foundation and without anybasis. There is nothing in the Code to even remotely indicateif the period of limitation for the purpose of an applicationunder Section 7 is to commence from the date of commencementof the Code itself. Similarly, nothing provided in the LimitationAct could be taken as the basis to support the proposition sostated by the Appellate Tribunal. In fact, such observationshad been in the teeth of law declared by this Court in B.K.Educational Services [B.K. Educational Services (P) Ltd. v.Paras Gupta & Associates, (2019) 11 SCC 633].

38.1. It appears that at the given point of time, NCLAT hadbeen readily adopting such a proposition in other cases too,so as to treat similar applications within limitation. Thisapproach of NCLAT was specifically disapproved by this Courtin Sagar Sharma [Sagar Sharma v. Phoenix ARC (P) Ltd.,(2019) 10 SCC 353] where, after observing that in B.K.Educational Services [B.K. Educational Services (P) Ltd. v.Paras Gupta & Associates, (2019) 11 SCC 633] it had alreadybeen made clear that the date of the Code’s coming into forceon 1-12-2016 was wholly irrelevant to the triggering of anylimitation period for the purposes of the Code, this Courtsaid : (Sagar Sharma case [Sagar Sharma v. Phoenix ARC(P) Ltd., (2019) 10 SCC 353], SCC p. 354, para 3)

“3. Article 141 of the Constitution of India mandates that ourjudgments are followed in letter and spirit. The date of cominginto force of the IB Code does not and cannot form a triggerpoint of limitation for applications filed under the Code.Equally, since “applications” are petitions which are filedunder the Code, it is Article 137 of the Limitation Act whichwill apply to such applications.”

23. The above-mentioned positions settled with respect to Section7, IBC will proprio vigore apply to Section 9, IBC. In short, as relatesan application under Section 9, IBC the date of coming into force ofIBC, viz, 01.12.2016 would not form the trigger point of limitation andthe period of limitation for an application for initiating of CIRP underSection 9, IBC would be three years from the date when the right toapply accrues as provided by Article 137 of the Limitation Act and furtherthat the right to apply under the IBC would accrue on the date whendefault occurs and it is extendable only by application of Section 5 of theLimitation Act. In view of the nature of the provision under SICA andthe nature of the orders issuable by the BIFR and the positions qua anapplication for initiation of CIRP under Section 9 of IBC, referred above,we think it absolutely unnecessary to delve into the question of applicabilityor otherwise of Section 14 of the Limitation Act in regard to proceedingsunder Section 9, IBC as the same provides only for exclusion of time ofproceedings bona fide in Court without jurisdiction.

24. When the limitation period for initiating CIRP under Section 9,IBC is to be reckoned from the date of default, as opposed to the date of ABC

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Acommencement of IBC and the period prescribed therefor, is three yearsas provided by Section 137 of the Limitation Act, 1963 and the samewould commence from the date of default and is extendable only byapplication of Section 5 of the Limitation Act, 1963 it is incumbent on theAdjudicating Authority to consider the claim for condonation of the delaywhen once the proceeding concerned is found filed beyond the period ofBlimitation.

25. As relates Section 5 of the Limitation Act showing ‘sufficientcause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is thecause for which a party could not be blamed. We have already takennote of the legal bar for initiation of proceedings against an industrialCcompany by virtue of Section 22 (1), SICA and obviously, when a partywas thus legally disabled from resorting to legal proceeding for recoveringthe outstanding dues without the permission of BIFR and even onapplication permission therefor was not given the period of suspensionof legal proceedings is excludable in computing the period of limitationDfor the enforcement of such right in terms of Section 22(5), SICA. Inthe absence of provisions for exclusion of such period in respect of anapplication under Section 9, IBC, despite the combined reading of Section238A, IBC and the provisions under the Limitation Act what is legallyavailable to such a party is to assign the same as a sufficient cause forcondoning the delay under Section 5 of the Limitation Act. In suchEeventuality, in accordance with the factual position obtained in anyparticular case viz., the period of delay and the period covered bysuspension of right under Section 22 (1), SICA etc., the question ofcondonation of delay has to be considered lest it will result in injustice asthe party was statutorily prevented from initiating action against theFindustrial company concerned. The first question formulated hereinbeforeis accordingly answered.

26. In the case on hand, indubitably, the question whether thedelay occurred in the matter of filing of application under Section 9, IBCis condonable or not, was not considered. A bare perusal of the impugnedGorder would reveal that after taking into account the date of default andthe date of filing of the application under Section 9, IBC the NCLATheld it as time barred. When once it is so found we would have remandedthe matter for consideration of the question of limitation afresh, but forthe fact that the application under Section 9, IBC was dismissed assigningreason of existence of ‘pre-existing dispute’ as well.H

27. The appellant and the respondent have cited various decisionsin support of their rival contentions on the sustainability or otherwise ofthe dismissal of the stated application on the ground of existence of‘pre-existing dispute(s)’ between the parties. Nonetheless, we are ofthe considered view that in that regard, only the decisions to be referredinfra, require consideration. Paradoxically, both sides relied on the decisionof this Court in Macquarie Bank Limited v. Shilpi Cable TechnologiesLimited[6].

28. Macquarie Bank Limited’s case (supra) is relied on by theappellant to drive home the point that production of the certificate/statement from the financial institution maintaining the accounts of theoperational creditor concerned, under Section 9 (3)(c), IBC, is not acondition precedent to trigger CIRP and hence, its insistence will beviolative of the law laid down thereunder. In Macquarie Bank Limited(supra), in paragraph 16, this Court held: - “16. When we come to clause (c) of Section 9(3), it is equallyclear that a copy of the certificate from the financial institutionmaintaining accounts of the operational creditor confirmingthat there is no payment of an unpaid operational debt by thecorporate debtor is certainly not a condition precedent totriggering the insolvency process under the Code. Theexpression “confirming” makes it clear that this is only a pieceof evidence, albeit a very important piece of evidence, whichonly “confirms” that there is no payment of an unpaidoperational debt. This becomes clearer when we go to clause(d) of Section 9(3) which requires such other information asmay be specified has also to be furnished along with theapplication.”

29. This position is thus fairly settled, as above. On the otherhand, the respondent relied on the said decision to buttress its contentionthat existence of ‘pre-existing dispute’ should entail dismissal ofapplication under Section 9, IBC.

30. In Macquarie Bank Limited (supra), this Court held, atparagraphs, 13 and 14 thus: - “13.The first thing to be noticed on a conjoint reading ofSections 8 and 9 of the Code, as explained in Mobilox A

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AInnovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC353, decided on 21-9-2017 at paras 33 to 36, is that Section9(1) contains the conditions precedent for triggering the Codeinsofar as an operational creditor is concerned. The requisiteelements necessary to trigger the Code are:

B(i) occurrence of a default;

(ii) delivery of a demand notice of an unpaid operationaldebt or invoice demanding payment of the amount involved;and

(iii) the fact that the operational creditor has not receivedCpayment from the corporate debtor within a period of 10 daysof receipt of the demand notice or copy of invoice demandingpayment, or received a reply from the corporate debtor whichdoes not indicate the existence of a pre-existing dispute orrepayment of the unpaid operational debt.

D14.It is only when these conditions are met that an applicationmay then be filed under Section 9(2) of the Code in theprescribed manner, accompanied with such fee as has beenprescribed ...”

E31. In the decision in Innoventive Industries Ltd. v. ICICI Bankand Anr.[7], at paragraph 29, this Court held thus: -

“29. The scheme of Section 7 stands in contrast with thescheme under Section 8 where an operational creditor is, onthe occurrence of a default, to first deliver a demand noticeFof the unpaid debt to the operational debtor in the mannerprovided in Section 8(1) of the Code. Under Section 8(2), thecorporate debtor can, within a period of 10 days of receiptof the demand notice or copy of the invoice mentioned insub-section (1), bring to the notice of the operational creditorGthe existence of a dispute or the record of the pendency of asuit or arbitration proceedings, which is pre-existing — i.e.before such notice or invoice was received by the corporatedebtor. The moment there is existence of such a dispute, theoperational creditor gets out of the clutches of the Code.”

H7 (2018) 1 SCC 407

32. A scanning of the decisions referred supra, would reveal thatexistence of a ‘pre-existing dispute’ should entail dismissal of anapplication filed under Section 9 IBC at the threshold. Therefore, thequestion is whether the respondent had raised a dispute describable as a‘pre-existing dispute’ so as to entail dismissal of application of the appellantunder Section 9, IBC. In Mobilox Innovations (P) Ltd. (supra),particularly at paragraphs 33 and 51, this Court held thus: - “33.The scheme under Sections 8 and 9 of the Code, appearsto be that an operational creditor, as defined, may, on theoccurrence of a default (i.e. on non-payment of a debt, anypart whereof has become due and payable and has not beenrepaid), deliver a demand notice of such unpaid operationaldebt or deliver the copy of an invoice demanding payment ofsuch amount to the corporate debtor in the form set out inRule 5 of the Insolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016 read with Form 3 or 4,as the case may be [Section 8 (1)]. Within a period of 10 daysof the receipt of such demand notice or copy of invoice, thecorporate debtor must bring to the notice of the operationalcreditor the existence of a dispute and/or the record of thependency of a suit or arbitration proceeding filed before thereceipt of such notice or invoice in relation to such dispute[Section 8(2)(a)]. What is important is that the existence ofthe dispute and/or the suit or arbitration proceeding must bepre-existing i.e. it must exist before the receipt of the demandnotice or invoice, as the case may be. […] It is only if, afterthe expiry of the period of the said 10 days, the operationalcreditor does not either receive payment from the corporatedebtor or notice of dispute, that the operational creditor maytrigger the insolvency process by filing an application beforethe adjudicating authority under Sections 9(1) and 9(2). [. ..] It may also reject the application if the notice of dispute hasbeen received by the operational creditor or there is a recordof dispute in the information utility [Section 9(5)(ii)(d)}.Section 9(5)(ii)(d) refers to the notice of an existing disputethat has so been received, as it must be read with Section8(2)(a). Also, if any disciplinary proceeding is pending againstany proposed resolution professional, the application maybe rejected [Section 9(5)(ii)(e)].

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A51. 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 theBinformation 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 furtherC“”investigation 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 satisfiedDthat 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.”

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33. In the light of the positions thus settled by this Court inMacquarie Bank Limited (supra) and Mobilox Innovations (P) Ltd.(supra), we will examine the question whether there was a ‘pre-existingdispute’ between the parties, warranting dismissal of the application forFinitiation of CIRP filed by the appellant.

34. In this context, it is relevant to note that the Annexure A-41demand notice under Section 8, IBC was issued by the appellant on01.04.2017 and the respondent replied the same as per letter AnnexureA-42 letter dated 10.04.2017 viz., within 10 days from the date of receiptGof Annexure A-41. Evidently, the respondent, in Annexure A-42 replyraised the contentions that there was shortfall in gas supply and that ithad suffered huge loss due to the disconnection of gas supply. True that,in terms of the decision in Mobilox Innovations (P) Ltd. (supra) whatis to be looked into is the existence or otherwise of a dispute and/or thesuit or arbitration proceedings prior to the receipt of demand notice orH

invoice, as the case may be. In the case on hand, as noticed earlier, theappellant had issued a demand notice under Section 8, IBC read withthe Rule 5 of 2016 Rules on 01.04.2017. Obviously, the NCLT and NCLATreferred to a letter dated 04.01.2013 (Annexure A-36 herein) to holdthat existence of a pre-existing dispute between the parties revealedfrom the same. The said letter dated 04.01.2013 issued by way of areply by the respondent to the letter from the appellant dated 03.01.2013,reads thus:- “Date : 04.01.2013

To,The Director,Sabarmati Gas Ltd.,Gandhinagar.

Respected Sir,Ref : Your letter dated 03.01.2013

We are registered with BlFR vide Case No. 13/2010 pursuantto Section 22 of SICA no coercive recovery can be made.Kindly note that abrupt disconnection of Gas Supply to ourUnit is causing heavy losses on account of production. Theloss is further exaggerating on account of non-supply ofmaterial to various parties which includes Railway Board andother Big units.

Kindly note that you are responsible for the Direct Loss ofProduction ranging from Rs. 30- Rs. 50 Lakhs per day andalso Consequential Losses that may be incurred by usincluding Penalties for Non-compliance of contract (orsupplies for which you will solely be held responsible.

In view of the above subject we agree for payment of billsand request you to wait (or the old bills payment tillrestructuring is agreed by Honorable BIFR.

Hoping for your best co-operation

Thanking you,For Shah Alloys LimitedAuthorized Signatory”

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A35. The learned Senior Counsel for the appellant would contendthat last para of the said letter dated 04.01.2013 would reveal the factthat the respondent had agreed to effect the payments or bills andrequested only to wait for the old bills payments till restructuring is agreedby BIFR and in other words, non-existence of a dispute. That apart, theappellant heavily relied on paragraph 2.7 and 2.10 (iv) of Annexure 40Bwhich is the proceeding of BIFR in Case No.13 of 2010 dated 09.09.2015,to canvass the position that the contention of the respondent regardingexistence of a pre-existing dispute with respect to the dues payable to it,is bereft of any basis. The aforesaid relevant paragraphs in AnnexureA-40 are as under: -C“

“2.7 The Bench then took MA No. 432/2013. The ld advocaterepresenting the applicant (Sabarmati Gas Ltd.) sought timeto appear prepared in the next date of hearing, since theyhave been engaged recently in this case. The ld advocaterepresenting the company submitted that the applicant is anDunsecured creditor and he accepted the dues of the applicant.He assured that their reconciled dues will be taken care of inthe DRS, as unsecured creditor and they will be paid as perthe terms of DRS, as and when it would be approved by theBoard.

E2.10 Having considered the submissions made during thehearing and material on record the Bench issued followingdirections:

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(iv) MA 432 filed by Sabarmati Gas Ltd. is disposed off withFthe direction to the company to incorporate the dues of theapplicant in the DRS.”

36. True that paragraph 2.7 of Annexure 40 carries the recordingof the submissions made on behalf of the respondent before the BIFRby the learned advocate, as above. Citing all such aspects, the learnedGSenior Counsel for the appellant contended that the contention of therespondent regarding ‘pre-existing dispute’ is only a patently feeble legalargument/assertion of fact unsupported by evidence and therefore, itwas to be rejected by the Tribunals. It is further contended by the applicantthat directions at paragraph 2.10 (iv) also is relevant in this context as itwould reveal that the Misc. Application No.432 of 2013 filed by theH

Appellant herein was disposed of with the direction to the respondentcompany to incorporate the position of the appellants/applicant thereinin the DRS.

37. Per contra, the learned counsel for the respondent wouldsubmit that a scanning of paragraph 2.7 itself would reveal that whatwas assured by the counsel appearing on behalf of the respondent beforethe BIFR was not full payment of the amountas claimed by the appellantthereunder and what was assured was that the reconciled dues towardsthe appellant would be taken care of in the DRS, as unsecured creditorand that it would be paid as per the terms of DRS, as and when it isapproved by the Board.

38. In this context the meaning of the word “reconciliation” is tobe looked into. Going by Black’s Law Dictionary, 10[th] Edition, the aptmeaning suitable to the situation in relation to accounting, reads thus: “anadjustment of amounts so that they agree, especially by allowing foroutstanding items”. It is submitted by the learned counsel for therespondent that such a reconciliation had not taken place and also thatindisputably, DRS was not formulated and approved. The aforesaid factsrevealed from Annexure 40 together with the stand taken by therespondent in the letter dated 04.01.2013 (Annexure 36) would revealthe existence of a pre-existing dispute between the parties. In thecontextual situation it is only apposite to be remindful of the observationin Mobilox Innovations (P) Ltd. (supra) that in doing the act ofseparating the grain from chaff the Court need not to be satisfied thatthe defence is likely to succeed. It is enough that a dispute exists betweenthe parties and in other words, what is to be seen is whether there wasa plausible contention requiring investigation for the purpose ofadjudication. Taking note of the nature of the dispute of the respondentas referred hereinbefore in respect of the claim made by the appellant,we do not find any reason to disagree with the concurrent findings of theTribunals that there existed a ‘pre-existing dispute’ between the partiesbefore the receipt of demand notice under Section 8, IBC. In other words,the dismissal of the application under Section 9, IBC on the ground of‘pre-existing dispute’ cannot be held to be patently illegal or perverse.We also do not find any reason, in the facts and circumstances, to holdthat the case set up by the respondent was a patently feeble legalargument. At any rate, we are not inclined to brush aside the case of therespondent as spurious. We may hasten to add here that we shall not be AB

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Aunderstood to have held that the dispute set by the respondent regardingthe dues is ultimately to be upheld. Certainly, when the expression ‘pre-existing dispute’ is used it will only indicate the existence of a disputeprior to the receipt of a demand notice under Section 8, IBC, and thecorrectness or its truthfulness is a matter of evidence. In short, therespondent has succeeded in raising a dispute describable as ‘pre-existingBdispute’. In that view of the matter once we find that the Tribunals haverightfully held that there existed a ‘pre-existing dispute’ between theparties there cannot be an order of remand of the matter to the Tribunalfor reconsideration of Section 9 application under IBC.

39. In the contextual situation, it is also relevant to refer to theCfact, rightly taken note of by the NCLT, that the respondent herein hadfiled a Commercial Suit No.92 of 2017 on 28.04.2017 before theCommercial Court in Ahmedabad, claiming damages for the loss sufferedby it due to discontinuation of gas supply. True that on 12.07.2018, thesaid Commercial Civil Suit was dismissed by the Commercial Court atDAhmedabad on the ground of being barred by limitation. Annexure-Bwould reveal that against the judgment of dismissal in the said suit, therespondent herein had filed First Appeal No. 3841 of 2018 before theHigh Court of Gujarat at Ahmedabad. It was disposed of on 11.08.2021,taking into account the joint submission that parties be permitted to settledispute through arbitration process. In this context it is also to be notedEthat the notice of arbitration dated 29.11.2019 has been issued by theappellant itself. Recording the submission, the appeal was permitted tobe withdrawn leaving the parties to proceed with arbitral process. Thisfact is not disputed and in fact, it is indisputable in view of Annexure-B,judgment dated 11.08.2021 of the High Court of Gujarat in Misc. FirstFAppeal No.3841 of 2018. In Annexure-B, it is recorded thus:- “Both the learned counsel have taken instructions and havejointly submitted that let the parties get their dispute settledthrough the arbitration process where learned former Judgeof this Court, Justice J.C. Upadhyaya (Retired) has alreadyGbeen appointed as the arbitrator on 29.11.2019 and sincethen the matter is pending here.”

In this context, it is also relevant to note that Gas Supply Agreement(GAS) which is an agreement entered into between the appellant andthe respondent dated 30.05.2008 in regard to the supply of natural gas,Hcontains an arbitration clause viz., clause No.17. When the agreement entered into between the parties carries an arbitration clause and whenthe parties mutually consented and sought to proceed with arbitrationbefore the High Court and further, when the arbitration proceedings arepending, we are of the view that the parties shall be left with the libertyto raise all contentions before the arbitrator, except the legal questionsdiscussed and decided in this judgment.

40. Subject to the above, this Appeal stands dismissed. All thepending application (s), stand disposed of.

Ankit Gyan(Assisted by : Jahanvi Taneja and Mahendra Yadav, LCRAs)

Appeal dismissed.

A

B

C

D

E

F

G

H