(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.= 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.” Civil Appeal No. 9597 of 2018 Page 18 of 19 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.

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
Civil Appeal No. 9597 of 2018 Page 1 of 19
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
Civil Appeal No. 9597 of 2018 Page 2 of 19
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
Civil Appeal No. 9597 of 2018 Page 3 of 19
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
Civil Appeal No. 9597 of 2018 Page 4 of 19
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
Civil Appeal No. 9597 of 2018 Page 5 of 19
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,
Civil Appeal No. 9597 of 2018 Page 6 of 19
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-cumarbitration
Court in A.C. No. 361 of 2010 even held not
barred by law, did not determine, but for remanded to redetermine
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 redetermined,
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
Civil Appeal No. 9597 of 2018 Page 7 of 19
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 subsection
(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 subsection
(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.
Civil Appeal No. 9597 of 2018 Page 9 of 19
(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
Civil Appeal No. 9597 of 2018 Page 11 of 19
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
Civil Appeal No. 9597 of 2018 Page 12 of 19
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
Civil Appeal No. 9597 of 2018 Page 13 of 19
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
Civil Appeal No. 9597 of 2018 Page 14 of 19
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 subsection
(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)].
Civil Appeal No. 9597 of 2018 Page 15 of 19
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.
xx xx xx
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 subjectmatter
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)
Civil Appeal No. 9597 of 2018 Page 16 of 19
“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.”
xx xx xx
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
Civil Appeal No. 9597 of 2018 Page 17 of 19
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)”
xx xx xx
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.”
Civil Appeal No. 9597 of 2018 Page 18 of 19
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
Civil Appeal No. 9597 of 2018 Page 19 of 19