SC quashes NCLAT order directing Section 9 petition admission after corporate debtor proves genuine dispute

SC allowed appeal and quashed NCLAT order directing admission of Section 9 petition. Corporate debtor successfully raised genuine dispute regarding payment made to operational creditor. Court held that amount paid by one party to operational creditor was made on behalf of third party from funds received from that third party, not constituting debt owed by corporate debtor. NCLT correctly rejected CIRP application finding existence of dispute, while NCLAT erroneously reversed this decision. Dispute was neither spurious nor unsupported by evidence, meeting threshold for genuine dispute under IBC Section 9(5)(ii)(d).

---

---

Issues Involved:
1. Whether the claim made by the respondent constitutes an "Operational Debt" under the Insolvency and Bankruptcy Code (IBC).
2. Whether the respondent qualifies as an "Operational Creditor" under the IBC.
3. Whether there exists a dispute regarding the debt claimed by the respondent.

Issue-wise Detailed Analysis:

1. Whether the claim made by the respondent constitutes an "Operational Debt" under the Insolvency and Bankruptcy Code (IBC):

The appellant argued that the claim made by the respondent does not qualify as an "Operational Debt" as defined under subsection (21) of Section 5 of the IBC. The appellant contended that no amount is receivable by the respondent from the appellant in respect of the provisions of goods or services, including employment or a debt in respect of the payment of dues. This argument was based on the premise that the payment made to the appellant by the respondent was from the amount received by the respondent from Mashkour Sugar Company Limited (Mashkour). The respondent, on the other hand, asserted that the amount paid to the appellant was from its own funds and not from Mashkour, and thus, the claim falls under the definition of "Operational Debt."

2. Whether the respondent qualifies as an "Operational Creditor" under the IBC:

The appellant contended that the respondent does not qualify as an "Operational Creditor" under the IBC, as the claim made does not fit within the definition provided under the IBC. The respondent, however, argued that since the appellant admitted to receiving the amount from the respondent, the respondent qualifies as an "Operational Creditor" and is entitled to file proceedings under Section 9 of the IBC. The court did not find it necessary to delve deeply into this issue as the appeal could be decided on the ground of the existence of a dispute.

3. Whether there exists a dispute regarding the debt claimed by the respondent:

The court examined whether there was an "existence of dispute" as per the provisions of Sections 8 and 9 of the IBC. The appellant had clearly stated that the amount of Rs. 47,12,10,000 received was an advance payment on behalf of Mashkour and was to be adjusted against supplies to be made to Mashkour under a new agreement. The court referred to various communications and agreements, including Clause 14.1 of the Tripartite Agreement, which indicated that the payment was made by Mashkour to the respondent, who then paid the appellant. The court found that the appellant's claim of the existence of a dispute was not spurious, illusory, or unsupported by evidence. The court noted that the material on record showed that the amount was indeed paid on behalf of Mashkour and was to be adjusted against future supplies.

Conclusion:

The court concluded that the National Company Law Tribunal (NCLT) had rightly rejected the respondent's application under Section 9 of the IBC, finding that there existed a dispute between the appellant and the respondent. The National Company Law Appellate Tribunal (NCLAT) had misinterpreted the factual and legal positions and erred in reversing the NCLT's order and directing the admission of the Section 9 petition. Thus, the appeal was allowed, and the NCLAT's order dated 21st December 2018 was quashed and set aside, maintaining the NCLT's order dated 26th July 2018.

---