Summary
A contractor on lump-sum turnkey work for HPCL Biofuels Ltd applied under Section 9 of the IBC as an operational creditor, claiming about Rs 18.12 crore. The NCLT admitted it, working out from the corporate debtor's own provisional statement that something above Rs 1 lakh was payable despite the disputes raised. The NCLAT set the admission aside and the Supreme Court affirmed. Correspondence from 2013-14 alleging breach, poor quality, improper invoices and losses, a counter-claim of Rs 1.49 crore, and the contractor's own invocation of arbitration in July 2016, all before the demand notice, showed a genuine pre-existing dispute. Under Mobilox, once a plausible, non-spurious dispute exists the application must be rejected without adjudicating its merits. The NCLT is not a debt-collection forum, and the IBC cannot be used to penalise solvent companies over disputed dues.
Issues
- Whether the NCLT could admit an operational creditor's application under Section 9 of the IBC despite correspondence and an arbitration notice showing a dispute about the debt before the demand notice.
- Whether an adjudicating authority may analyse the corporate debtor's accounts to conclude that some amount above the threshold remains payable notwithstanding the disputes raised.
Provisions considered
- Sections 8 and 9, Insolvency and Bankruptcy Code, 2016The authority must examine whether an operational debt above Rs 1 lakh is due and unpaid and whether a dispute or pending suit or arbitration existed before the demand notice; if a plausible dispute exists the application must be rejected under Section 9(5)(ii)(d). (¶¶ 13, 16, 17, 30, 32)
- Section 8, with Rule 12(1) of the 1957 Rules, Central Sales Tax Act, 1956C-forms issued by the corporate debtor under a statutory duty do not amount to an acknowledgment of liability to pay. (¶ 11)
Held
- Under Mobilox, the authority sees only whether there is a plausible contention requiring further investigation and whether the dispute is not patently feeble or unsupported by evidence; it need not be satisfied the defence will succeed, and so long as a dispute truly exists and is not spurious, hypothetical or illusory the application must be rejected. (¶¶ 16, 17, 21)
- HBL's letters of 02.01.2014 and 11.04.2014, its debit note, its email of 07.05.2014 refusing payment for poor work, its counter-claim of Rs 1.49 crore and the contractor's own notice of 09.07.2016 invoking arbitration established a real, pre-existing dispute. The NCLT gravely erred in admitting the application after itself noting the dispute and working out a net payable figure from the debtor's provisional statement. (¶¶ 12, 15, 19, 20, 22, 29, 30)
- Issuance of C-forms under the Central Sales Tax Act and the award of further work orders do not negate the existence of a dispute. (¶¶ 11, 22)
- The NCLT under Sections 7 or 9 is not a debt-collection forum. An operational creditor can trigger CIRP only on an undisputed debt and default; where the debt is disputed the application must be dismissed, and the IBC must not be used to penalise solvent companies for non-payment of disputed dues (K. Kishan). (¶¶ 18, 31, 32)
Result
Appeal dismissed; the NCLAT's order of 10.01.2022 setting aside the admission of the Section 9 application stands. The appellant may pursue other remedies, including arbitration, to realise its dues, if any.