2018 (10) TMI 1337 - SC - IBC

Supreme Court sets aside NCLAT order emphasizing undisputed debt requirement for Corporate Insolvency Resolution Process initiation

The SC allowed the appeal and set aside the NCLAT order dated September 04, 2018. The Court held that existence of undisputed debt is sine qua non for ... Corporate Insolvency Resolution Process - NCLT held that there is a valid dispute - claim under Invoice Nos. 1-53 was specifically rejected by the Arbitral Council on the ground that it had become time barred - 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 - Held 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. Argument advanced by he respondent before this Court 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 and the respondent had a valid claim under those invoices 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. In a recent judgment of this Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited [2017 (9) TMI 1270 - SUPREME COURT], 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 invoked. We allow this appeal and set aside the impugned order dated September 04, 2018 passed by the NCLAT. Issues Involved:1. Delay in filing the appeal.2. Prima facie case under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996.3. Initiation of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).4. Validity of claims under Invoice Nos. 1-57 and their enforceability.5. Application of the Mobilox Innovations Private Limited vs. Kirusa Software Private Limited judgment.Issue-wise Detailed Analysis:1. Delay in filing the appeal:The National Company Law Appellate Tribunal (NCLAT) condoned a six-day delay in filing the appeal, stating, 'Having heard learned counsel for the parties and being satisfied of the grounds shown, six days delay in preferring the appeal is condoned.'2. Prima facie case under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996:The NCLAT observed that a prima facie case was made out by the appellant due to a part decree awarded under Section 34 of the Arbitration and Conciliation Act, 1996, and the rejection of the review application under Section 37 on January 29, 2016. This indicated that the respondent's claims were not tenable.3. Initiation of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC):The NCLAT expressed concern that initiating CIRP against the appellant, a government undertaking, could cause trouble. Therefore, it granted the respondent one last opportunity to settle the claim with the appellant. The NCLAT's order suggested that if the settlement failed, CIRP would be initiated. The Supreme Court noted that the NCLAT's order implied a threat to the appellant to settle the claim or face insolvency proceedings, which caused serious prejudice to the appellant.4. Validity of claims under Invoice Nos. 1-57 and their enforceability:The claims under Invoice Nos. 1-57 were rejected by the Arbitral Council as time-barred. The Additional District Judge's order remanding the case to the Arbitral Council was set aside by the High Court of Punjab and Haryana. The High Court of Judicature at Hyderabad held that there was no enforceable award for Invoice Nos. 1-57, making the execution petition unsustainable. The Supreme Court reiterated that there was no award or court order validating the claims under these invoices.5. Application of the Mobilox Innovations Private Limited vs. Kirusa Software Private Limited judgment:The Supreme Court referenced the Mobilox judgment, which clarified that the IBC is not a substitute for a recovery forum and that the existence of a real dispute precludes the invocation of IBC provisions. The Court emphasized that an operational creditor must prove the existence of an undisputed debt to initiate CIRP. In this case, the appellant had refuted the respondent's claims, and the claims under Invoice Nos. 1-57 were time-barred, indicating a real dispute.Conclusion:The Supreme Court allowed the appeal, set aside the NCLAT's order dated September 04, 2018, and dismissed the respondent's appeal and miscellaneous applications before the NCLAT. The Court found the NCLT's order justified and concluded that no purpose would be served in remanding the case back to the NCLAT. No order as to costs was made.