REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE JURISDICTION

CIVIL APPEAL NO. 9597 OF 2018

TRANSMISSION  CORPORATION  OF ANDHRA PRADESH LIMITED

.....APPELLANT(S)

VERSUS

EQUIPMENT  CONDUCTORS  AND CABLES LIMITED

.....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

The order of the National Company Law Appellate Tribunal,  

New Delhi (for short, ‘NCLAT) dated September 04, 2018 is the

subject matter of challenge in the present proceedings.  It  is a

short order, which is reproduced herein its entirety.

“Having heard learned counsel for the parties and being satisfied of the grounds shown, six days delay in preferring the  appeal  is  condoned.   I.A.  No.  973  of  2018  stands disposed of.

Prima facie case has been made out by the Appellant in view of the part decree awarded by the competent court under Section 34 of  the Arbitration and Conciliation Act, 1996  and  the  review  application  under  Section  37

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preferred  by  the  Respondent  having  rejected  on  29th

January, 2016.

However, taking into consideration the fact that if appeal is allowed and Corporate Insolvency Resolution Process is initiated  against  the  Respondent  –  “Transmission Corporate  of  Andhra  Pradesh  Ltd.’,  the  government undertaking may face trouble.  Therefore, by way of last chance we grant one opportunity to respondents to settle the claim with  the appellant,  failing which this  Appellate Tribunal may pass appropriate order on merit.

Post the case ‘for admission’ on 4th October, 2018.  Appeal may be disposed of at the stage of admission.”

2. Though,  in  the first  brush,  it  appears that  matter  is  still  at  the

stage of admission and the aforesaid order is an interim order, a

careful  reading thereof would clearly bring out  that  the NCLAT

perceives  that  the  appellant  herein  owes  money  to  the

respondent and for this reason a chance is given to the appellant

to settle the claim of the respondent, otherwise order would be

passed  initiating  Corporate  Insolvency  Resolution  Process  (for

short, ‘CIRP’).  According to the appellant, no amount is payable

and  the  order  in  question  is  causing  serious  prejudice  to  the

appellant  which  is  asked  to  settle  the  purported  claim,  failing

which, to face insolvency proceedings.  It may also be recorded

at this stage itself that the appeal pending before NCLAT is filed

by the respondent herein which is against the Orders dated April

09,  2018  passed  by  the  National  Company  Law Tribunal  (for

short,  ‘NCLT’),  Hyderabad.   By  the  said  order,  the  NCLT has

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dismissed  the  petition  filed  by  the  respondent  herein  under

Section  9  of  the  Insolvency  and  Bankruptcy  Code,  2016

(hereinafter referred to as the ‘IBC’). To put it briefly at this stage,

the NCLT, after detailed deliberations, has come to the conclusion

that  the  Company  Petition  filed  by  the  respondent  was  not

maintainable  as  the  claims  which  were  preferred  by  the

respondent  against  the  appellant  and  on  the  basis  of  which

respondent  asserts  that  it  has  to  receive  monies  from  the

appellant are not tenable and in any case these are not disputed

claims.  This assertion is based on the fact that these very claims

of  the  respondent  were  subject  matter  of  arbitration  and  the

award  was  passed  rejecting  these  claims  as  time  barred.

Moreover, the company petition itself suffers various fundamental

defects.  On that basis, NCLT held that there is a valid dispute,

rather no dispute as issue in question was substantially dealt with

by various courts as mentioned in the order passed by NCLT.   

3. Before going into the details of the said order passed by NCLT it

would  be  appropriate  to  refer  to  some  important  events  in

chronological order, which have a bearing on the present case.

4. The appellant is a Transmission Corporation of Andhra Pradesh

Government and is successor of Andhra Pradesh State Electricity

Board  (for  short,  ‘APSEB’)  and  is  in  the  activities  relating  to

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transmission of electricity.  It had awarded certain contracts to the

respondent  herein  for  supply  of  goods  and  services.   Some

disputes  arose  and  the  respondent  initiated  arbitration

proceedings.  As many as 82 claims were filed by the respondent

before Haryana Micro and Small Enterprises Facilitation Council

(hereinafter referred to as ‘Arbitral Council').  These proceedings

culminated into Award dated June 21,  2010.  The Arbitral Council

came to  the conclusion  that  the  claims made on the basis  of

Invoice Nos. 1-57 were barred by law of limitation and, therefore,

no amount could be awarded against the said claims.  In respect

of  Invoice Nos.  58-82, the award was passed in  favour  of  the

respondent.  In these proceedings, we are not concerned with the

award in respect of Invoice Nos. 58-82.  

5. Against the aforesaid award rejecting claims in respect of Invoice

Nos.  1-57  as  time  barred,  the  respondent  herein  filed  an

application under Section 34 of  the Arbitration and Conciliation

Act  before  the  Additional  District  Judge,  Chandigarh.   The

Additional District Judge passed the order dated August 28, 2014

in the said application thereby remanding the case back to the

Arbitral  Council  for  fresh  decision.   Against  this  order,  the

appellant filed the appeal before the High Court of Punjab and

Haryana at Chandigarh.  This appeal was allowed by the High

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Court by its order dated January 29, 2016 thereby setting aside

the direction of the Additional District Judge remanding the matter

to Arbitral Council for fresh consideration.

6. It  may be  mentioned  at  this  stage  that  when  the  appeal  was

pending before the High Court,  the respondent  had moved an

application for clarification/review of order dated August 28, 2014.

This application was, however, dismissed on August 27, 2015.  It

may also be mentioned that insofar as order dated January 29,

2016 of  the Punjab and Haryana High Court  setting aside the

order of the Additional District Judge remanding back the matter

to the Arbitral Council is concerned, the appellant herein had filed

an application for clarification of the said order under Section 151

of  the  Civil  Procedure  Code.   That  application  was,  however,

dismissed by the High Court.

7. The respondent herein filed execution petition under Order XXI

Rule 21 of the CPC for execution of judgment dated January 29,

2016 passed by the High Court of Punjab and Haryana as well as

the award dated June 21, 2010 passed by the Arbitral Council.

Insofar as award of Arbitral Council is concerned, as noted above

the  respondent’s  claim  pertaining  to  Invoice  Nos.  58-82  was

allowed and the execution thereof was sought.  The respondent,

however,  filed  another  execution  petition  seeking  execution  of

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amount in respect of Invoice Nos. 1-57 also.  This application was

entertained and both the petitions were directed to be dealt with

simultaneously vide orders dated August 17, 2016.  That order

was challenged by the appellant herein by filing Revision Petition

before  the  High  Court  of  Judicature  at  Hyderabad.   The  High

Court vide its order dated November 08, 2016 allowed the said

Revision Petition holding that there was no award in respect of

claim  towards  Invoice  Nos.  1-57  and,  therefore,  it  was  not

permissible  for  the  respondent  to  seek  the  execution.   The

relevant  portion  of  the  orders  passed  by  the  High  Court  of

Judicature at Hyderabad is reproduced hereinbelow:

“17. From the above, once there is no re-determination of the disallowed claim, much less by allowing the claim in respect  of  Item  Nos.  1  to  57  of  annexure-1  by  the Arbitration Court-cum-Additional District Judge Chandigarh under Section 34 of the Act in the Arbitration Case No. 361 of 2010 for review also ended in dismissal and appeal only set-aside to  the extent  of  remand in practically  directing instead  of  remanding  for  determination  only  by  the arbitration court.  Once it requires determination and there is  no  determination,  then  there  is  no  final  award  for execution much less to enforce under Section 36 of  the Act.

18. Once  such  is  the  case,  the  objection  filed  by APTRANSCO  before  executing  Court  for  numbering  as unsustainable  for  no  enforceable  award,  so  far  as  item Nos.  1  to  57  are  concerned  and  before  the  executing Court,  even  filed  objections  by  the  APTRANSCO,  the executing  Court  did  not  discuss  and  even  ignored  the submissions,  simply  from  the  impugned  order  referred supra perused only the execution petition and considered only  the  submissions  of  the  D.Hr,  in  passing  the  order,

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which  is  uncalled  for,  for  not  a  judicial  adjudication  in passing the order in the eye of law and thereby same is unsustainable  and  prone  to  revision  jurisdiction  of  this Court to sit against and to set-aside.

19.  It is made clear from the above, thereby that there is no enforceable award to execute under Section 36 of the Arbitration Act from the arbitration proceeding so far as the claim of Items 1 to 57 is concerned for what arbitrator held the claim as barred by law and the objecting Court-cum- arbitration Court  in  A.C.  No.  361 of  2010 even held not barred by law, did not determine, but for remanded to re- determine in tis regard and same was even questioned in review, the review petition was dismissed and other side when questioned what was held by the High Court is that remand  is  not  correct  for  lack  of  jurisdiction,  thereby practically  for  re-determination  and  once  it  is  not  re- determined, there is no award and when there is no award, there is no question of  execution and where there is no question of execution, there is not question of entertaining the unnumbered E.P. much less to number the same or even  to  pass  any  consequential  pro-order  that  are impugned in the revision."

8. When the things rested at that, the respondent approached the

NCLT by means of a Company Petition under Section 9 of IBC,

2016 read with Rule 6 of Insolvency and Bankruptcy (AAA) Rules,

2016.  In this petition, the respondent stated that it had served

demand notice dated October 14, 2017 upon the appellant under

the provisions of  the IBC,  thereby claiming the amount  of  Rs.

45,69,31,233/- which was not paid by the appellant. As mentioned

above,  this  petition was dismissed by the NCLT vide its  order

dated April 09, 2018.  Against this order, the respondent has filed

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appeal  before  the  NCLAT  in  which  impugned  orders  dated

September 04, 2018 have been passed.   

9. Section 9 provides for initiation of corporate insolvency resolution

process by operating creditor on the basis of application filed by

such  a  creditor.   It,  inter  alia,  states  that  whenever  a  notice,

demanding  the  payment  as  per  notice  or  invoice,  under  sub-

section (1) of Section 8 of IBC and the operational creditor does

not receive payment from the corporate debtor, after the expiry of

a period of 10 days from the date of delivery of such notice or

invoice  demanding  payment  operational  creditor  may  file  an

obligation  before  the  adjudicating  authority  for  initiating  CIRP.

Section  8  deals  with  insolvency  resolution.   Sub-section  (1)

thereof  stipulates  that  an  operational  creditor  may,  on  the

occurrence  of  a  default,   deliver  a  demand  notice  of  unpaid

operational debtor copy of an invoice demanding payment of the

amount involved in the default  to the corporate debtor in such

form and manner as may be prescribed.  Sub-section (2) puts an

obligation  upon  the  corporate  debtor  to  respond  to  the  said

demand notice or copy of invoice within a period of 10 days of the

receipt thereof by stating that dispute qua the said demand exists

between the parties or by repayment of unpaid operational debt

and sending proof thereof to the operational creditor.

Civil Appeal No. 9597 of 2018 Page 8 of 19

10. From the aforesaid, it follows that existence of an undisputed debt

is  sine  qua  non  of  initiating  CIRP.   It  also  follows  that  the

adjudicating  authority  shall  satisfy  itself  that  there  is  a  debt

payable and there is operational debt and the corporate debtor

has not repaid the same.  For the purpose of clarity, it would be

apt to reproduce Section 9 in its entirety.

"9.  Application  for  initiation  of  corporate  insolvency resolution process by operational creditor.—(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub- section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of  the  dispute  under  sub-section  (2)  of  section  8,  the operational  creditor  may  file  an  application  before  the Adjudicating Authority for initiating a corporate insolvency resolution process.  

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

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

(a) a copy of the invoice demanding payment or demand notice delivered by the operational  creditor  to the corporate debtor;  

(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;  

(c)  a  copy  of  the  certificate  from  the  financial institutions  maintaining  accounts  of  the  operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and  

(d) such other information as may be specified.  

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

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

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

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

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

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;  

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and  

(e)  there  is  no  disciplinary  proceeding pending  against  any  resolution  professional proposed under sub-section (4), if any;  

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

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

(b) there has been repayment of the unpaid operational debt;  

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d)  notice of  dispute has been received by the operational creditor or there is a record of dispute in the information utility; or  

Civil Appeal No. 9597 of 2018 Page 10 of 19

(e)  any  disciplinary  proceeding  is  pending against any proposed resolution professional:

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

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

11. Clause (ii) of sub-section (5) stipulates the circumstances under

which  the  application  filed  by  the  operational  creditor  can  be

rejected.  Sub-clause (d) thereof stipulates the eventuality where

there is a notice of dispute sent by the corporate debtor to the

operational creditor.  

12. Here, the matter was taken up before the Arbitral Council insofar

as claim under Invoice Nos. 1-53 is concerned, the same was

specifically rejected by the Arbitral Council on the ground that it

had become time barred.  The respondent challenged the said

part of the award of the Arbitral Council, but was not successful.

On the basis of certain observations made by the High Court of

Punjab and Haryana in its decision dated January 29, 2016, the

respondent attempted to recover the amount by filing execution

petition before the Civil Court, Hyderabad.  However, that attempt

of the respondent was also unsuccessful inasmuch as the High

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Court  of  Judicature  at  Hyderabad categorically  held  that  since

that  particular  amount  was  not  payable  under  the  award,

execution  was  not  maintainable.   After  failing  to  recover  the

amount in the aforesaid manner, the respondent issued notice to

the appellant  under  Section 8  of  the IBC treating itself  as  the

operational creditor and appellant as the corporate debtor.  The

appellant  specifically  refuted  this  claim.   In  spite   thereof,

application  under  Section  9  was  filed  before  the  NCLT,

Hyderabad which was dismissed by it vide order dated April 09,

2018.  It is in appeal against the said order, the NCLAT has now

passed the impugned order.  

13. The NCLAT has not discussed the merits of the case and also not

stated how the amount is payable to the respondent in spite of

the  aforesaid  events  which  were  noted  by  the  NCLT as  well.

Notwithstanding, it has given wielded threat to the appellant by

giving  a  one  chance,  'to  settle  the  claim  with  the  appellant

(respondent  herein),  failing  which  this  Appellate  Tribunal  may

pass appropriate orders on merit'.  It has also stated that though

the matter is posted for admission on the next date, the appeal

would be disposed of at the stage of admission itself.  There is a

clear message in the aforesaid order directing the appellant  to

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pay the amount to the respondent, failing which CIRP  shall be

initiated against the appellant.

14. The  only  argument  advanced  by  learned  counsel  for  the

respondent before this Court was that the High Court of Punjab

and Haryana while setting aside the remand order passed by the

Additional District Judge did not hold that Invoice Nos. 1-57 are

time barred.  Therefore, the respondent had a valid claim under

those invoices.  This argument cannot be countenanced.  As of

today, there is no award of the Arbitral Council  with respect to

invoices at Sl. Nos. 1-57.  There is no order of any other court as

well  qua  these  invoices.   In  fact,  Arbitral  Council  specifically

rejected the claim of the respondent as time barred.  It is pertinent

to mention that respondent had moved an application before the

Arbitral  Council  for  determination of  amount  to  be paid by the

appellant.   However, this application was specifically dismissed

by the Arbitral Council as not maintainable.   

15. In  a  recent  judgment  of  this  Court  in  Mobilox  Innovations

Private  Limited vs.  Kirusa  Software  Private  Limited1, this

Court has categorically laid down that IBC is not intended to be

substitute to a recovery forum.  It is also laid down that whenever

there is existence of real dispute, the IBC provisions cannot be

1 (2018) 1 SCC 353

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invoked.   We would like  to reproduce the following discussion

from the said judgment:

"33.   The scheme under Sections 8 and 9 of  the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e. on non-payment of a debt, any part whereof has become due and payable and has  not  been  repaid),  deliver  a  demand  notice  of  such unpaid operational debt or deliver the copy of an invoice demanding  payment  of  such  amount  to  the  corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy  (Application  to  Adjudicating  Authority)  Rules, 2016 read with Form 3 or 4, as the case may be [Section 8(1)].  Within  a  period  of  10  days  of  the receipt  of  such demand  notice  or  copy  of  invoice,  the  corporate  debtor must  bring  to  the  notice  of  the  operational  creditor  the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute [Section 8(2)(a)].  What  is  important  is  that  the  existence  of  the dispute and/or the suit  or arbitration proceeding must be pre-existing  i.e.  it  must  exist  before  the  receipt  of  the demand notice or invoice, as the case may be. In case the unpaid  operational  debt  has  been  repaid,  the  corporate debtor shall within a period of the self-same 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor  or  send  an  attested  copy  of  the  record  that  the operational creditor has encashed a cheque or otherwise received payment from the corporate debtor [Section 8(2) (b)]. It is only if, after the expiry of the period of the said 10 days,  the  operational  creditor  does  not  either  receive payment  from the  corporate  debtor  or  notice  of  dispute, that  the  operational  creditor  may  trigger  the  insolvency process  by  filing  an  application  before  the  adjudicating authority under Sections 9(1) and 9(2). This application is to be filed under Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 5,  accompanied  with  documents  and  records  that  are required  under  the  said  form.  Under  Rule  6(2),  the applicant is to dispatch by registered post or speed post, a copy  of  the  application  to  the  registered  office  of  the corporate  debtor.  Under  Section  9(3),  along  with  the application, the statutory requirement is to furnish a copy of the invoice or demand notice, an affidavit to the effect that

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there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt and a copy of the certificate  from  the  financial  institution  maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor.  Apart  from this  information,  the other  information required under Form 5 is also to be given.  Once this is done,  the  adjudicating  authority  may  either  admit  the application or reject it. If the application made under sub- section (2) is incomplete, the adjudicating authority, under the proviso to  sub-section (5),  may give a notice to  the applicant to rectify defects within 7 days of the receipt of the  notice  from  the  adjudicating  authority  to  make  the application  complete.  Once  this  is  done,  and  the adjudicating  authority  finds  that  either  there  is  no repayment of the unpaid operational debt after the invoice [Section 9(5)(i)(b)] or the invoice or notice of payment to the corporate debtor has been delivered by the operational creditor [Section 9(5)(i)(c)], or that no notice of dispute has been  received  by  the  operational  creditor  from  the corporate debtor or that there is no record of such dispute in the information utility [Section 9(5)(i)(d)], or that there is no disciplinary proceeding pending against any resolution professional proposed by the operational creditor [Section 9(5)(i)(e)],  it  shall admit the application within 14 days of the  receipt  of  the  application,  after  which  the  corporate insolvency resolution process gets triggered. On the other hand, the adjudicating authority shall, within 14 days of the receipt of an application by the operational creditor, reject such application if  the application is  incomplete and has not been completed within the period of 7 days granted by the  proviso  [Section  9(5)(ii)(a)].  It  may  also  reject  the application  where  there  has  been  repayment  of  the operational debt [Section 9(5)(ii)(b)], or the creditor has not delivered the invoice or notice for payment to the corporate debtor [Section 9(5)(ii)(c)]. It may also reject the application if  the  notice  of  dispute  has  been  received  by  the operational creditor or there is a record of dispute in the information  utility  [Section  9(5)(ii)(d)].  Section  9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any  disciplinary  proceeding  is  pending  against  any proposed resolution professional,  the application may be rejected [Section 9(5)(ii)(e)].

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34.  Therefore, the adjudicating authority, when examining an  application  under  Section  9  of  the  Act  will  have  to determine:

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

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

(iii)  Whether there is existence of  a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

If  any  one  of  the  aforesaid  conditions  is  lacking,  the application  would  have  to  be  rejected.  Apart  from  the above, the adjudicating authority must follow the mandate of  Section  9,  as  outlined  above,  and  in  particular  the mandate of Section 9(5) of the Act, and admit or reject the application,  as  the  case  may  be,  depending  upon  the factors mentioned in Section 9(5) of the Act.

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37. It is now important to construe Section 8 of the Code. The operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means  a  claim  in  respect  of  the  provision  of  goods  or services,  including  employment,  or  a  debt  in  respect  of repayment of dues arising under any law for the time being in  force  and  payable  to  the  Government  or  to  a  local authority. This has to be contrasted with financial debts that may be owed to financial creditors, which was the subject- matter  of  the judgment  delivered by this  Court  on 31-8- 2017  in  Innoventive  Industries  Ltd.  v.  ICICI Bank  (Civil Appeals Nos. 8337-38 of 2017). In this judgment, we had held that the adjudicating authority under Section 7 of the Code has to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished  by  the  financial  creditor  within  14  days.  The corporate debtor is entitled to point out to the adjudicating authority that a default has not occurred; in the sense that a debt, which may also include a disputed claim, is not due i.e. it is not payable in law or in fact. This Court then went on to state: (SCC p. 440, paras 29-30)

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“29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default,  to first deliver a demand notice of the unpaid debt to the operational debtor in the manner  provided  in  Section  8(1)  of  the  Code.  Under Section 8(2), the corporate debtor can, within a period of 10 days of  receipt  of  the demand notice or  copy of  the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing — i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code.

30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility  or  other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some  future  date.  It  is  only  when  this  is  proved  to  the satisfaction  of  the  adjudicating  authority  that  the adjudicating  authority  may  reject  an  application  and  not otherwise.”

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42. This being the case, is it not open to the adjudicating authority to then go into whether a dispute does or does not exist?

43.  It is important to notice that Section 255 read with the Eleventh Schedule of the Code has amended Section 271 of  the  Companies  Act,  2013  so  that  a  company  being unable to pay its debts is no longer a ground for winding up a  company.  The  old  law  contained  inMadhusudan  has, therefore,  disappeared  with  the  disappearance  of  this ground in Section 271 of the Companies Act.

44.  We have already noticed that in the first Insolvency and  Bankruptcy  Bill,  2015  that  was  annexed  to  the Bankruptcy Law Reforms Committee Report, Section 5(4) defined “dispute” as meaning a “bona fide suit or arbitration

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proceedings…”. In its present avatar, Section 5(6) excludes the  expression  “bona  fide”  which  is  of  significance. Therefore, it is difficult to import the expression “bona fide” into  Section  8(2)(a)  in  order  to  judge whether  a  dispute exists or not.

45.  The expression “existence” has been understood as follows:

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

(a) Reality, as opp. to appearance.

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

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

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51.  It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating  authority  must  reject  the  application  under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute  or  the  fact  that  a  suit  or  arbitration  proceeding relating  to  a  dispute  is  pending  between  the  parties. Therefore, all that the adjudicating authority is to see at this stage  is  whether  there  is  a  plausible  contention  which requires further investigation and that the “dispute” is not a patently  feeble  legal  argument  or  an  assertion  of  fact unsupported by evidence. It  is  important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or  illusory,  the  adjudicating  authority  has  to  reject  the application."

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The  aforesaid  principle  squarely  applied  to  the  present

case.

16. As a result,  we allow this  appeal  and set  aside the impugned

order dated September 04,  2018 passed by the NCLAT.  In  a

normal course, the matter should have been remanded back to

the NCLAT for deciding the appeal of the respondent herein filed

before the NCLAT, on merits.  However, as this Court has gone

into  merits  and  found  that  order  of  the  NCLT is  justified,  no

purpose  would  be  served  in  remanding  the  case  back  to  the

NCLAT.   Consequence would be to dismiss the Company Appeal

(80) (Insolvency) No. 366 of 2018 and miscellaneous applications

filed by the respondent before the NCLAT.  No order as to costs.   

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; OCTOBER 23, 2018

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