2021 (0) AIJEL-SC 67582

SUPREME COURT OF INDIA

Hon'ble Judges:Rohinton Fali Nariman and B.R.Gavai JJ.

Kay Bouvet Engineering Ltd Versus Overseas Infrastructure Alliance (India) Private Limited


CIVIL APPEAL No. 1137 of 2019 ; *J.Date :- AUGUST 10, 2021



Cases Referred To :
  1. Chadwick Industries (South Coast) Pty Ltd. V. Condensing Vaporisers Pty Ltd., 1994 13 ACSR 37
  2. Eng Mee Yong V. Letchumanan, 1980 0 AC 331
  3. Eyota Pty Ltd. V. Hanave Pty Ltd., 1994 12 ACSR 785
  4. Greenwood Manor Pty Ltd. V. Woodlock, 1994 48 FCR 229
  5. John Holland Construction And Engg. Pty Ltd. V. Kilpatrick Green Pty Ltd., 1994 12 ACLC 716
  6. Mibor Investments Pty Ltd. V. Commonwealth Bank Of Australia, 1993 11 ACSR 362
  7. Mobilox Innovations Private Limited V. Kirusa Software Private Limited, 2018 1 SCC 353 : 2017 AIR SC 4532 : 2017 (11) Scale 754 : JT 2017 (10) 25 : 2017 (7) Supreme 265
  8. Moyall Investments Services Pty Ltd. V. White, 1993 12 ACSR 320
  9. Rohalo Pharmaceutical Pty Ltd. V. Rp Scherer, 1994 15 ACSR 347
  10. Scanhill Pty Ltd. V. Century 21 Australasia Pty Ltd., 1993 12 ACSR 341
  11. South Australia V. Wall, 1980 24 SASR 189
  12. Spencer Constructions Pty Ltd. V. G & M Aldridge Pty Ltd., 1997 0 FCA 681

Equivalent Citation(s):
2021 JX(SC) 430 : 2021 AIJEL_SC 67582


JUDGMENT :-

B.R.GAVAI, J.

1 This appeal challenges the judgment and order passed by the National Company Law Appellate Tribunal (hereinafter referred to as the NCLAT ) dated 21st December 2018, thereby allowing the appeal filed by respondent herein. The respondent herein had preferred an appeal being Company Appeal (AT) (Insolvency) No. 582 of 2018, challenging the order passed by the National Company Law Tribunal (hereinafter referred to as the NCLT ) dated 26th July 2018, thereby rejecting the petition being C.P. (IB) 20(MB)/2018, filed by the respondent herein under Section 9 of the Insolvency and Bankruptcy Code (hereinafter referred to as the IBC ). By the impugned order dated 21st December 2018, the NCLAT while allowing the appeal, has remitted back the matter to the NCLT with a direction to admit the petition filed by the respondent herein under Section 9 of the IBC after giving limited notice to the appellant herein so as to enable it to settle the claim.

2 The facts in brief giving rise to the present appeal are as under:

3 On 29th March 2011, Overseas vide an e mail sent to Mashkour confirmed that under the Tripartite Agreement, Mashkour was to release payment of first tranche of LoC to Overseas and the Overseas in turn was to release payment of USD 10.62 Million to Kay Bouvet on submission of Advance Bank Guarantee and Performance Bank Guarantee by Kay Bouvet to Mashkour. Vide letter dated 21st April 2011, Exim Bank informed Overseas that an amount of Rs.46.58 Crore had been remitted to its bank account. Overseas vide letter of the same date confirmed to Mashkour about receipt of funds and further informed that it will release USD 10.62 Million to Kay Bouvet on submission of requisite bank guarantees. On 28th July 2011, Kay Bouvet informed Overseas that it had submitted necessary Guarantees to Mashkour. On the advice of Mashkour, Overseas paid an amount of Rs.47,12,10,000/- to Kay Bouvet. There were certain disputes with regard to exchange rate, on account of which, Kay Bouvet informed Mashkour that it ought to have been paid more amount in Indian Rupees.

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

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

6 On 15th June 2017, Mashkour terminated the contract with Overseas for failure on its part to perform the duties. Overseas filed a Civil Suit being No. 785 of 2017 before the High Court of Bombay seeking specific performance of contract and an order of injunction from appointing Kay Bouvet as a Contractor in the Mashkour Project. Notice of Motion No. 1314 of 2017 was also moved for injunction. Vide order dated 27th June 2017, prayer for ad interim relief made by Overseas came to be rejected by the Bombay High Court.

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

8 A Demand Notice under Section 8 of the IBC was served upon Kay Bouvet by Overseas alleging default under the Tripartite Agreement and claiming an amount of USD 10.62 Million, paid by Overseas to Kay Bouvet. Kay Bouvet vide communication dated 6th December 2017, denied the claim of Overseas. It was specifically pointed out that the amount which was paid to Kay Bouvet by Overseas, was received on behalf of Mashkour and it was only routed through Overseas and the same stands adjusted under new agreement. On 27th December 2017, Overseas claiming itself to be an Operational Creditor, filed a petition under Section 9 of the IBC before NCLT, Mumbai being CP (IB) No.20(MB)/2018. Vide order dated 26th July 2018, the NCLT dismissed the petition. Overseas carried the same in an appeal being Company Appeal (AT) (Insolvency) No. 582 of 2018 before the NCLAT. By the impugned order dated 21st December 2018, NCLAT allowed the appeal as aforesaid. Being aggrieved thereby, the appellant Kay Bouvet has approached this Court.

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

10 Shri Bhushan further submitted that as a matter of fact, the payment which was made to Kay Bouvet by Overseas, was from the amount received by it from Mashkour. He submitted that the material placed on record would clearly fortify this position. The learned Senior Counsel submitted that, in any case, perusal of Clause 14.1 of the Tripartite Agreement would clearly show that the amount so paid, was paid by Mashkour to Overseas. It is submitted that in any case, the material placed on record and specifically the Demand Notice and reply thereto, clearly showed that there was an existence of dispute and as such, the NCLT had rightly dismissed the petition. It is submitted that, however, the NCLAT has misconstrued the provisions and allowed the appeal and directed admission of Section 9 petition. It is submitted that the jurisdiction of the adjudicating authorities under IBC is limited and it can adjudicate only on the limited areas that are delineated in the Statute.

11 Shri C.A. Sundaram, learned Senior Counsel appearing for respondent Overseas, on the contrary, asserts that the amount which was paid to Kay Bouvet, was the amount paid from the funds of Overseas and not from Mashkour. He submitted that perusal of material placed on record would reveal that Kay Bouvet has admitted of receiving the amount from Overseas and once the party admits of any claim, the same would come in the definition of Operational Debt as defined under subsection (21) of Section 5 of the IBC and enable the party to whom admission is made to file the proceedings under Section 9 of the IBC being an Operational Creditor . The learned Senior Counsel therefore submitted that NCLAT rightly considered the provisions and allowed the appeal of Overseas and directed admission of Section 9 petition. He therefore submitted that the present appeal deserves to be dismissed.

12 Though, elaborate submissions have been made on behalf of both the parties, we are of the considered view that the present appeal can be decided on a short ground without going into the other aspects of the matter. It will be relevant to refer to Sections 8 and 9 of the IBC:

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

14 The issue is no more res integra. It will be relevant to refer to paragraph 38 of the judgment of this Court in the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353:

15 It could thus be seen that this Court has held that one of the objects of the IBC qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It has been held that it is for this reason that it is enough that a dispute exists between the parties.

16 It will further be apposite to refer to the following observations of this Court in Mobilox Innovations Private Limited (supra), wherein this Court has considered the terms existence , genuine dispute and genuine claim and various authorities construing the said terms:

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

We consider that the various formulations referred to above can be helpful in determining whether there is a genuine dispute in a particular case, so long as the formulation used does not become a substitute for the words of the statute.

17 It is thus clear that once the Operational Creditor has filed an application which is otherwise complete, the adjudicating authority has to reject the application under Section 9(5)(ii)(d) of IBC, if a notice has been received by Operational Creditor or if there is a record of dispute in the information utility. What is required is that the notice by the Corporate Debtor must bring to the notice of Operational Creditor the existence of a dispute or the fact that a suit or arbitration proceedings relating to a dispute is pending between the parties. All that the adjudicating authority is required 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 a mere bluster. It has been held that however, at this stage, the Court is not required to be satisfied as to whether the defence is likely to succeed or not. The Court also cannot go into the merits of the dispute except to the extent indicated hereinabove. It has been held that so long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has no other option but to reject the application.

18 In the light of the law laid down by this Court stated hereinabove, we will have to examine the facts of the present case. We clarify that though arguments have been advanced at the Bar with regard to the questions as to whether the so called claim made by Overseas would be considered to be an Operational Debt and as to whether Overseas could be considered to be an Operational Creditor , we do not find it necessary to go into said questions, inasmuch as the present appeal can be decided only on a short question as to whether Kay Bouvet has been in a position to make out the case of existence of dispute or not.

19 For considering the rival submissions, it will be appropriate to refer to the Demand Notice/Invoice dated 23rd November 2017, addressed to Kay Bouvet by Overseas:

20 It can thus be seen that the claim of Overseas is that in the reply filed to its Notice of Motion by Kay Bouvet, it has admitted that Mashkour has, as a replacement of Overseas, appointed Kay Bouvet as the Contractor. As such, the Tripartite Agreement dated 18th December 2010, stands vitiated and superseded. As such, Kay Bouvet cannot perform under the said Tripartite Agreement. According to Overseas, therefore, in view of the admission in the reply, Kay Bouvet is liable to refund the advance amount forthwith.

21 It will be relevant to refer to the Reply dated 6th December 2017, addressed by Kay Bouvet to Overseas as per the provisions of Clause (a) of sub section (2) of Section 8 of the IBC:

22 It can thus be seen that Kay Bouvet has clearly stated that the said amount of Rs.47,12,10,000/- was received as advance money on behalf of Mashkour. It has been specifically stated that in the agreement entered into between Mashkour and Kay Bouvet on 5th July 2017, the said advance payment of Rs.47,12,10,000/- has been duly considered. It is stated that the execution of the fresh contract in favour of Kay Bouvet in no manner creates an automatic liability on Kay Bouvet. As such, Kay Bouvet has pressed into service the existence of dispute for opposing the demand made by Overseas.

23 We will have to examine as to whether the claim of Kay Bouvet with regard to the existence of dispute , can be considered to be the one which is spurious, illusory or not supported by any evidence. It will be relevant to refer to Clause 14.1 of the Tripartite Agreement dated 18th December 2010, between Mashkour, Overseas and Kay Bouvet:

24 It will further be relevant to refer to the e mail dated 29th March 2011, from Overseas to Mashkour:

25 A perusal thereof would clearly reveal that Mashkour was to release payment of two invoices of Overseas for USD 10.5 Million (USD 9.00 Million + USD 1.50 Million). It will further reveal that Overseas was to release payment of USD 10.62 Million to Kay Bouvet on submission of Advance Bank Guarantee and Performance Bank Guarantee to Mashkour and its confirmation and acceptance by Mashkour.

26 It will further be relevant to refer to the communication addressed by Exim Bank to Overseas dated 21st April 2011:

27 It will further be relevant to refer to the communication addressed by Overseas of the same date to Mashkour:

28 The communication dated 28th July 2011, addressed by Mashkour to Overseas would further clarify the position which reads thus:

29 As already discussed hereinabove that Kay Bouvet had certain grievances with regard to payment of less money on account of exchange rate, the communication dated 21st September 2011, addressed by Kay Bouvet to Mashkour would clarify the said position which reads thus:

30 The last nail in the case of the Overseas would be in the nature of communication addressed by the Ambassador of Sudan to Mashkour dated 25th April 2017, which reads thus:

31 It is thus abundantly clear that the case of Kay Bouvet that the amount of Rs.47,12,10,000/- which was paid to it by Overseas, was paid on behalf of Mashkour from the funds released to Overseas by Exim Bank on behalf of Mashkour, cannot be said to be a dispute which is spurious, illusory or not supported by the evidence placed on record. The material placed on record amply clarifies that the initial payment which was made to Kay Bouvet as a sub Contractor by Overseas who was a Contractor, was made on behalf of Mashkour and from the funds received by Overseas from Mashkour. It will also be clear that when a new contract was entered into between Mashkour and Kay Bouvet directly, Mashkour had directed the said amount of Rs.47,12,10,000/- to be adjusted against the supplies to be made to Mashkour Sugar Company Ltd. for the purpose of completing the Project. On the contrary, the documents clarify that the termination of the contract with Overseas would not absolve Overseas of any liability for the balance of the LoC 1st tranche of 25 Million disbursed to them other than USD 10.62 paid to Kay Bouvet.

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

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

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