Kay Bouvet Engineering Ltd. v. Overseas Infrastructure Alliance (india) Private Limited
B. R. GAVAI, J.
1. This appeal challenges the judgment and order passed by the
National Company Law Appellate Tribunal (hereinafter referr ed 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 20 18,
challenging the order passed by the National Company Law Tri bunal
(hereinafter referred to as the “NCLT”) dated 26 th 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 Bankru ptcy Code
(hereinafter referred to as the “IBC”). By the impugned orde r 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:-
The Government of India extended Dollar Line of Cre dit
(hereinafter referred to as the “LoC”) of USD 150 Million to the Republic
of Sudan through Exim Bank of India (hereinafter referred t o as the
“Exim Bank”) for carrying out Mashkour Sugar Project in Sudan. This
was in two tranches of USD 25 Million and USD 125 Million. On 26th
January 2009, the first tranche of USD 25 Million was executed between
Republic of Sudan and Exim Bank for financing the Mashkour Suga r
Project. On 11th October 2009, Mashkour Sugar Company Limited, Sudan
(hereinafter referred to as the “Mashkour”) entered into an ag reement
with the respondent-Overseas Infrastructure Alliance (India) Private
Limited (hereinafter referred to as the “Overseas”) for USD 149,975,000
to be financed by Exim Bank. As per the said agreement, Mashko ur
was to nominate a sub-contractor. A subsequent agreement was entered
into on 14th April 2010, between Mashkour and Overseas for payment
of USD 25 Million to Overseas towards “design and engineering package
and plant civil package including site mobilization”. In response to the
invitation by Mashkour, the appellant-Kay Bouvet Engineering Limited
(hereinafter referred to as the “Kay Bouvet”) submitted its bid as a sub-
contractor for supply, erection and completion of the Sugar Plant at Sudan,
which was accepted by Mashkour. On 18 th December 2010, a
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED
Memorandum of Understanding (hereinafter referred to as the “MoU”)
was entered into between Mashkour, Overseas and Kay Bou vet at
Khartoum, Sudan. The said MoU provided that the contract has to be
governed by the laws of Sudan. The same MoU also defined roles and
responsibilities of each of the parties. On the same date, a Tripartite
Agreement was also executed between all the three parties vide which,
Kay Bouvet was appointed as a sub-contractor for executing the whole
work of designing, engineering, supply, installation, erection, testing and
completion of Factory Plant for Mashkour Sugar Company for an amount
of USD 106.200 Million.
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 Over seas in turn
was to release payment of USD 10.62 Million to Kay B ouvet on
submission of Advance Bank Guarantee and Performanc e Bank
Guarantee by Kay Bouvet to Mashkour. Vide letter dated 21 st 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 28 th 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 agre ement
was executed between Mashkour and Overseas on 9 th February 2014,
for balance amount of USD 124,975,000 for financing the final part of
the Sugar Factory Project. On 30 th 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,
115
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 Contract or. 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. Over seas filed a
Civil Suit being No. 785 of 2017 before the High Court of Bombay seeking
specific performance of contract and an order of in junction 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 f urther
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 11 th 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 6 th December 2017,
denied the claim of Overseas. It was specifically pointed out that the
amount which was paid to Kay Bouvet by Overseas, was recei ved on
behalf of Mashkour and it was only routed through Overseas and t he
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
same stands adjusted under new agreement. On 27 th December 2017,
Overseas claiming itself to be an Operational Creditor, filed a petition
under Section 9 of the IBC before NCLT, Mumbai being C P (IB)
No.20(MB)/2018. Vide order dated 26th July 2018, the NCLT dismissed
the petition. Overseas carried the same in an appeal be ing 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 Cr editor”,
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 Couns el
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 definiti on 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 mat erial
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 cas e, 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.
117
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 sub-section
(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 IB C 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 ther efore
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:-
“8. Insolvency resolution by operational creditor .—(1) 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.
(2) The corporate debtor shall, within a period of ten days of the
receipt of the demand notice or copy of the invoice mentioned in
sub-section (1) bring to the notice of the operational creditor—
(a) existence of a dispute, [if any, or] record of the pendency
of the suit or arbitration proceedings filed before the receipt of
such notice or invoice in relation to such dispute;
(b) the [payment] of unpaid operational debt—
(i) by sending an attested copy of the record of electronic
transfer of the unpaid amount from the bank account of the
corporate debtor; or
(ii) by sending an attested copy of record that the operational
creditor has encashed a cheque issued by the corporate
debtor.
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
Explanation.—For the purposes of this section, a “demand
notice” means a notice served by an operational creditor t o
the corporate debtor demanding [payment] of the operational
debt in respect of which the default has occurred.
9. Application for initiation of corporate insolven cy
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 recei ve
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, if available;]
[(d) a copy of any record with information utility confirming
that there is no payment of an unpaid operational debt by
the corporate debtor, if available; and]
[(e) any other proof confirming that there is no payment of
an unpaid operational debt by the corporate debtor or such
other information, as may be prescribed.]
119
(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 [payment] 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 [payment] 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
(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
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
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 shal l
commence from the date of admission of the application
under sub-section (5) of this section.”
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 i nvoice, 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 p rescribed.
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 a nd if the
“Operational Creditor” does not receive payment from the “Corporate
Debtor” or notice of the dispute under sub-section (2) of S ection 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 Li mited1:-
“38. It is, thus, clear that so far as an operational credit or is
concerned, a demand notice of an unpaid operational debt or copy
of an invoice demanding payment of the amount involved must be
delivered in the prescribed form. The corporate debtor is then
given a period of 10 days from the receipt of the demand notice
or copy of the invoice to bring to the notice of the oper ational
creditor the existence of a dispute, if any. We have also seen the
notes on clauses annexed to the Insolvency and Bankruptcy Bill
of 2015, in which “the existence of a dispute” alone is mentioned.
Even otherwise, the word “and” occurring in Section 8(2)(a) must
1 (2018) 1 SCC 353
121
be read as “or” keeping in mind the legislative intent and the fact
that an anomalous situation would arise if it is not read as “or”. If
read as “and”, disputes would only stave off the bankruptcy process
if they are already pending in a suit or arbitration proceedings and
not otherwise. This would lead to great hardship; in that a dispute
may arise a few days before triggering of the insolvency process,
in which case, though a dispute may exist, there is no time to
approach either an Arbitral Tribunal or a court. Further, given the
fact that long limitation periods are allowed, where disputes may
arise and do not reach an Arbitral Tribunal or a court for up t o
three years, such persons would be outside the purview of Section
8(2) leading to bankruptcy proceedings commencing against them.
Such an anomaly cannot possibly have been intended by the
legislature nor has it so been intended. We have also seen tha t
one of the objects of the Code 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 is for this
reason that it is enough that a dispute exists between the parties.”
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 f or 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:-
“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 bei ng.
Continued being as a living creature, life, esp. under adverse
conditions.
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
Something that exists; an entity, a being. All that exists. (P.
894, Oxford English Dictionary )”
46. Two extremely instructive judgments, one of the Australian
High Court, and the other of the Chancery Division in the UK,
throw a great deal of light on the expression “existenc e of a
dispute” contained in Section 8(2)(a) of the Code. The Australian
judgment is reported as Spencer Constructions Pty Ltd. v. G &
M Aldridge Pty Ltd. [Spencer Constructions Pty Ltd. v. G &
M Aldridge Pty Ltd., 1997 FCA 681 (Aust)] The Australian High
Court had to construe Section 459-H of the Corporations Law,
which read as under:
“(1)***
(a) that there is a genuine dispute between the company
and the respondent about the existence or amount of a debt
to which the demand relates;
(b)***”
47. The expression “genuine dispute” was then held to mean the
following:
“Finn, J. was content to adopt the explanation of “genuine
dispute” given by McLelland, C.J. in Eq in Eyota Pty
Ltd. v. Hanave Pty Ltd. [Eyota Pty Ltd. v. Hanave Pty Ltd. ,
(1994) 12 ACSR 785 (Aust)] ACSR at p. 787 where his Honour
said:
‘In my opinion [the] expression connotes a plausibl e
contention requiring investigation, and raises much the same
sort of considerations as the “serious question to be tried”
criterion which arises on an application for an interlocutory
injunction or for the extension or removal of a caveat. This
does not mean that the court must accept uncritically as
giving rise to a genuine dispute, every statement in an
affidavit ‘however equivocal, lacking in precision,
inconsistent with undisputed contemporary documents or
other statements by the same deponent, or inherently and
probable in itself, it may be not having ‘sufficient prima
facie plausibility to merit further investigation as to [its] truth’
(cf Eng Mee Yong v. Letchumanan [Eng Mee Yong v.
123
Letchumanan, 1980 AC 331 : (1979) 3 WLR 373 (PC)]
AC at p. 341G), or ‘a patently feeble legal argument or an
assertion of facts unsupported by evidence’: cf South
Australia v. Wall [South Australia v. Wall, (1980) 24
SASR 189 (Aust)] SASR at p. 194.’
His Honour also referred to the judgment of Lindgren, J.
in Rohalo Pharmaceutical Pty Ltd. [Rohalo Pharmaceutical
Pty Ltd. v. RP Scherer, (1994) 15 ACSR 347 (Aust)] where,
at p. 353, his Honour said:
‘The provisions [of Sections 459-H(1) and (5)] assume that
the dispute and offsetting claim have an “objective ”
existence the genuineness of which is capable of being
assessed. The word “genuine” is included [in “genuine
dispute”] to sound a note of warning that the propounding
of serious disputes and claims is to be expected but must
be excluded from consideration.’
There have been numerous decisions of Single Judges in this
Court and in State Supreme Courts which have analysed, in
different ways, the approach a court should take in determining
whether there is “a genuine dispute” for the purposes of Section
459-H of the Corporations Law. What is clear is tha t in
considering applications to set aside a statutory demand, a court
will not determine contested issues of fact or law which have
a significant or substantial basis. One finds formulations such
as:
‘… at least in most cases, it is not expected that the court
will embark upon any extended enquiry in order to determine
whether there is a genuine dispute between the parties and
certainly will not attempt to weigh the merits of that dispute.
All that the legislation requires is that the court conc lude
that there is a dispute and that it is a genuine dispute.’
See Mibor Investments Pty Ltd. v. Commonwealth Bank of
Australia [Mibor Investments Pty Ltd. v. Commonwealth
Bank of Australia, (1993) 11 ACSR 362 (Aust)] ACSR at pp.
366-67, followed by Ryan, J. in Moyall Investments Services
Pty Ltd. v. White [Moyall Investments Services Pty
Ltd. v. White, (1993) 12 ACSR 320 (Aust)] ACSR at p. 324.
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
Another formulation has been expressed as follows:
‘It is clear that what is required in all cases is some thing
between mere assertion and the proof that would be
necessary in a court of law. Something more than mere
assertion is required because if that were not so then anyone
could merely say it did not owe a debt.…’
See John Holland Construction and Engg. Pty
Ltd. v. Kilpatrick Green Pty Ltd. [John Holland
Construction and Engg. Pty Ltd. v. Kilpatrick Green Pty
Ltd., (1994) 12 ACLC 716 (Aust)] ACLC at p. 718, followed
by Northrop, J. in Aquatown Pty Ltd. v. Holder Stroud Pty
Ltd. [Aquatown Pty Ltd. v. Holder Stroud Pty Ltd. , Federal
Court of Australia, 25-6-1996, Unreported]
In Morris Catering (Australia) Pty Ltd. [Morris Catering
(Australia) Pty Ltd., In re , (1993) 11 ACSR 601 (Aust)]
ACSR at p. 605, Thomas, J. said:
‘There is little doubt that Div 3 is intended to be a
complete code which prescribes a formula that requires
the court to assess the position between the parties, and
preserve demands where it can be seen that there is no
genuine dispute and no sufficient genuine offsetting
claim. That is not to say that the court will examine the
merits or settle the dispute. The specified limits of the
court’s examination are the ascertainment of whether
there is a “genuine dispute” and whether there is a
“genuine claim”.
It is often possible to discern the spurious, and to identify
mere bluster or assertion. But beyond a perception of
genuineness (or the lack of it) the court has no function.
It is not helpful to perceive that one party is more likely
than the other to succeed, or that the eventual state of
the account between the parties is more likely to be one
result than another.
The essential task is relatively simple — to identify the
genuine level of a claim (not the likely result of it) and to
identify the genuine level of an offsetting claim (not the
likely result of it).’
125
In Scanhill Pty Ltd. v. Century 21 Australasia Pty
Ltd. [Scanhill Pty Ltd. v. Century 21 Australasia Pty Ltd. ,
(1993) 12 ACSR 341 (Aust)] ACSR at p. 357 Beazley, J. said:
‘… the test to be applied for the purposes of Section 459-H
is whether the court is satisfied that there is a ser ious
question to be tried that the applicant has an offsetting claim.’
In Chadwick Industries (South Coast) Pty
Ltd. v. Condensing Vaporisers Pty Ltd. [Chadwick
Industries (South Coast) Pty Ltd. v. Condensing Vaporisers
Pty Ltd., (1994) 13 ACSR 37 (Aust)] ACSR at p. 39, Lockhart,
J. said:
‘… what appears clearly enough from all the judgments is
that a standard of satisfaction which a court requires is not
a particularly high one. I am for present purposes content
to adopt any of the standards that are referred to in the
cases…. The highest of the thresholds is probably the test
enunciated by Beazley, J., though for myself I discern no
inconsistency between that test and the statements in the
other cases to which I have referred. However, the
application of Beazley, J.’s test will vary according to the
circumstances of the case.
Certainly the court will not examine the merits of the dispute
other than to see if there is in fact a genuine dispute. T he
notion of a “genuine dispute” in this context suggests to me
that the court must be satisfied that there is a dispute that is
not plainly vexatious or frivolous. It must be satisfied that
there is a claim that may have some substance.’
In Greenwood Manor Pty Ltd. v. Woodlock [Greenwood
Manor Pty Ltd. v. Woodlock, (1994) 48 FCR 229 (Aust)]
Northrop, J. referred to the formulations of Thomas , J.
in Morris Catering (Australia) Pty Ltd., In re [Morris
Catering (Australia) Pty Ltd., In re , (1993) 11 ACSR 601
(Aust)] ACLC at p. 922 and Hayne, J. in Mibor Investments
Pty Ltd. v. Commonwealth Bank of Australia [Mibor
Investments Pty Ltd. v. Commonwealth Bank of Australia ,
(1993) 11 ACSR 362 (Aust)], where he noted the dictionary
definition of “genuine” as being in this context “not spurious
… real or true” and concluded (at p. 234):
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
‘Although it is true that the Court, on an application under
Sections 459-G and 459-H is not entitled to decide a question
as to whether a claim will succeed or not, it must be satisfied
that there is a genuine dispute between the company and
the respondent about the existence of the debt. If it can be
shown that the argument in support of the existence of a
genuine dispute can have no possible basis whatsoever, in
my view, it cannot be said that there is a genuine dispute.
This does not involve, in itself, a determination of whether
the claim will succeed or not, but it does go to the reality of
the dispute, to show that it is real or true and not merely
spurious’.
In our view a “genuine” dispute requires that:
(i) the dispute be bona fide and truly exist in fact;
(ii) the grounds for alleging the existence of a dispute
are real and not spurious, hypothetical, illusory o r
misconceived.
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 partie s. 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 asse rtion 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 blust er. It has
been held that however, at this stage, the Court is not requi red to be
satisfied as to whether the defence is likely to succeed or not. The Court
127
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 wheth er
Overseas could be considered to be an “Operational Creditor”, w e 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 23 rd November 2017,
addressed to Kay Bouvet by Overseas:-
“7. Due to termination of the EPC contract by Mashkour, the
tripartite sub-contract also came to an automatic end by virtue of
the clause 15.2 of the Particular Conditions of the said sub-contract.
8. On or about 14 th July 2017, the Corporate Debtor filed its
affidavit dated 14 th July 2017 in the Notice of Motion (L) No.
1314 of 2017 in Suit (1) No. 382 of 2017 in reply to the said
Notice of Motion (hereinafter referred to as the “said Reply” ).
In the said reply, the Corporate Debtor has categorically stated
and admitted that Mashkour has now, in replacement of the
Operational Creditor, appointed the Corporate Debtor itself as its
EPC Contractor for the said Project under and the EPC Contract
dated 5th July 2017. Consequently the tri-partite contract dated
18th April 2010 between Mashkour, the Corporate Debtor and the
Operational Creditor stands vitiated and superseded by the fresh
Contract executed between Mashkour and Corporate Debtor. In
view thereof the Corporate Debtor can no longer perform under
the said tri-partite contract dated 18 th April 2010 between
Mashkour, the Corporate Debtor and the Operational Creditor as
the same stands superseded by the fresh contract dated 5 th July
2017 executed between Mashkour and the Corporate Debtor.
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
9. The Operational Creditor therefore states that in the light of
the Corporate Debtors admission in the said reply, the Corporate
Debtor is liable to refund the said Advance Amount forthwith to
the Operatinal Creditor. The Operational Creditor further stat es
that the said Advance Amount became due and payable as and
by way of refund to the Operational Creditor by the Corporate
Debtor on or about 5 th July 2017 i.e. the date on which the
Corporate Debtor was appointed as an EPC Contractor by
Mashkour.
10. The Corporate Debtor has, therefore, defaulted in refunding
the said Advance Amount”
20. It can thus be seen that the claim of Overseas is th at 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 c annot
perform under the said Tripartite Agreement. According to Ov erseas,
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 6 th December
2017, addressed by Kay Bouvet to Overseas as per the provisi ons of
Clause (a) of sub-section (2) of Section 8 of the IBC:-
“3. We state that Key Bouvet expressly denied the claim of 10.62
million of equivalent to Rs.47,12,10,000/- (Rupees 47 Crores
Twelve Lakhs Ten Thousand Only). We state that Key Bouvet
had received advance monies on behalf of Mashkour Suga r
Company Limited (hereinafter Mashkour) as per the Agreement
executed between the parties. We state that thereafter Mashkour
has terminated an agreement with you vide their letter da ted
17.05.2017 and therefore Kay Bouvet has monetary liabili ty
towards OIA.
4. We state that on 05.07.2017 Mashkour has entered into a fresh
contract with Key Bouvet. In the said Agreement Mashkour has
considered the earlier Advance Payment of USD 10.62 Mill ion
equivalent to Rs.47,12,10,000/- (Rupees 47 Crores Twelve Lakhs
Ten Thousand Only) made to Key Bouvet from Mashkour. The
execution of the fresh contract in favour of Kay Bouvet in no
129
manner creates an automatic liability on Kay Bouvet to ref und
any amount. There is no such legal and contractual monetary
liability between the OIA and Kay Bouvet. The very peru sal
of the definition of “debt” and “operational Creditors” w ould
establish that termination of contract by Mashkour with yo u
does not create any debt due from Key Bouvet towards OIA .
It expressly denied that Kay Bouvet is an Operational Creditor
towards OIA.
5. We state that, as per the pleadings in the Suit (L) No. 382 of
2017, you have sought a relief of release of the amount of USD
10,745,000/- under the letter of agreement of 2th March 2014.
Thereafter there is an existence of dispute of the e xistence of
such amount of debt claimed by you. In such event your demand
notice is erroneous, illegal and bad in law considering provisions
of Insolvency and Bankruptcy Code, 2016 and more particularly
Section 5(6), Section 9(5)(i)(d) and Section 9(5)(ii)(d).”
[emphasis supplied]
22. It can thus be seen that Kay Bouvet has clearly state d that
the said amount of Rs.47,12,10,000/- was received as advance money
on behalf of Mashkour. It has been specifically stat ed 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 Tripa rtite Agreement
dated 18 th December 2010, between Mashkour, Overseas and Kay
Bouvet:-
“1. 10% of the sub contract Price as interest free advance payment
by way of telegraphic transfer directly to the bank account of the
Sub-Contractor against submission of invoice and Adv ance
Payment Bank Guarantee for 10% of the sub contract Price, from
any Indian public sector bank acceptable to Mashkour upon receipt
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
of amounts from EXIM Bank. The Advance Payment Bank
Guarantee shall be as per format attached herewith (Uni form
Rules for Demand guarantees, Publication No.758, International
Chamber of Commerce) and its value may be reduced in proportion
to the value of amounts invoiced as evidenced by sh ipping
documents and receipt of payment from EXIM Bank.”
24. It will further be relevant to refer to the e-mail dated 29 th
March 2011, from Overseas to Mashkour:-
“1. Mashkour Sugar Company will release payment of two invoices
to OIA against factory DDE for USD 10.5 Million (USD 9.00 M
+ USD 1.50M).
2. OIA will 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 and discharge of OIA Bank Guarantee of USD 7.5
Millions.
3. Mashkour will release Second payment of two Invoices of USD
4.375 Million (USD 3.50M + USD 0.875M) … civil work to OIA.
4. OIA will release advance payment of USD 1.113 Million t o
Civil Contractor after signing of contract between OIA and civil
contractor and on confirmation from Mashkour regard ing
acceptance or ABG/PBG of the Civil Contractor as per Contract.
You are requested to please accept this proposal an d send
authorization letters to EXIM.”
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 B ouvet on
submission of Advance Bank Guarantee and Performanc e Bank
Guarantee to Mashkour and its confirmation and accep tance by
Mashkour.
26. It will further be relevant to refer to the commu nication
addressed by Exim Bank to Overseas dated 21st April 2011:-
“GOI supported Exim Bank’s Line of Credit for USD 25 Million
to Government of Sudan Approval No. Exim/GOILOC-82/
1.Disbursement advice:3.
131
We advise that an amount of Rs.46,58,75,853/- has been
remitted to India Overseas Bank, Nehru Place, New Delhi through
RTGS Code – IOBA0000543 to the credit of account of
Overseas Infrastructure Alliance (India) Private Limited. The
disbursement is made against the contract between Mashkour
Sugar Company, Sudan and Overseas Infrastructure Alliance
(India) Private Limited. Details of the disbursement are as
under:-
Amt. in USD
Disbursement
No.
Invoice Value
(CIF) 100%
Eligible Value
100%
Net Remitted Value
Date
2 15,000,000.00 10,500,000.00 10,476,781.85 April
18,
2011
2. The breakup of the disbursement made as follows:-
USD
Eligible Value 10,500,000.00 465,911,250.00
Less
Negotiation Charges
(Service Tax)
23,218.15 10,30,247.00
Currency Conversion Chg.
And Service Tax
110.00
Net Remittance 10,476,781.85 46,48,80,893.00
3. Please confirm receipt of the credit.”
[emphasis supplied]
27. It will further be relevant to refer to the commu nication
addressed by Overseas of the same date to Mashkour:-
“We have been paid the advance amount to 10.05 milli on
USD in INR by Exim Bank because of Stringent Sanctio n
entrancement by the United State Office of Foreign asset
Control (OFAC) as per the letter enclosed herewith. The
amount has been delivered to us @ Rs.44.37 per disbursement
advice of the Exim bank attached herewith.
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
Further OIA will release payment of USD 10.62 Million to
Kay Bouvet on Submission of Advance Bank Guarantee and
Performance Bank Guarantee to Mashkour Sugar Company
and its confirmation and acceptance by Mashkour Sug ar
Company and discharge of OIA Bank Guarantee of USD 7.5
Million (As per mail dated 29.03.2011) of Mr. Ghodgankar .”
[emphasis supplied]
28. The communication dated 28 th July 2011, addressed by
Mashkour to Overseas would further clarify the position whi ch reads
thus:-
“We are please to inform you that nominated sub-contractor
messres Kay Bouvet Engineering Private Limited has
submitted Advance Payment Bank Guarantee as well as
Performance Bank Guarantee to us as per the sub-contract
agreement and we are satisfied with the same.
In the light of the above we request your good self to rele ase
the 10% of the Sub-contract value as per letter dat ed
21.04.2011 addressed to Mashkour.
The payment to be released as under:-
Name of the Beneficiary : M/s Kay Bouvet
Engineering Private Ltd.
Name of Bank : M/s Bank of
Maharashtra, Satara,
City Branch
IFSC Code : MAH80000134
Account No. : 60018168457
Mode of Payment : RTGS
+ amount of Rs.47,12,10,000/- (Rupees Forty Seven Crores Twelve
Lakhs Ten Thousand only)
As soon as we get confirmation from your side regarding release
of payment we shall release your Bank Guarantee USD 7. 5
Million.
133
As I discussed today with Mr. Suresh I will be in India with original
discharge bank Guarantee in the beginning of last week.”
[emphasis supplied]
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:-
“We have been paid Rs.47,12,10,000/- by M/s. Overse as
Infrastructure Alliance (India) Ltd. On 30th August 2011 equivalent
to USD 10.62 Million converted 1 USD @ Rs.44.37/-, whereas
on that day the conversion rate as per the attached list was
1 USD – Rs.46.26/-, so the amount would have been
Rs.49,12,08,012/-, so they have underpaid a sum of
Rs.1,99,98,012/-.
So you are requested to advise OIA to release amoun t of
Rs.1,99,98,012/- to us without any delay.”
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:-
“With reference to the earlier correspondence, we have received
the DO No. 1425/Secy(ER)/2017 dated 18 th April, 2017 from
Mr. Amar Sinha, Secretary (Economic Relations) Ministry of
External Affairs, Government of India, New Delhi, India expediting
the termination of the agreement with Overseas Infrastructu re
Alliance (India) Private Limited (OIA) and that an agreement be
signed with Kay Bouvet Engineering Ltd. (KBEL) as a direct
contractor for the unutilized portion of the GOI’s Line of Credit
for US Dollars 150,000,000 for the Mashkour Sugar Project.
It is on the record that a sum of Rs.47,12,10,000/- (US $
10.62 Million) was paid by OIA to Kay Bouvet Engineering
Ltd. “KBEL” on behalf of Mashkour Sugar Company from
the funds released to OIA by Exim Bank from the 1st disbursed
tranche of US $ 25 Million.
Kindly make a note, while signing the revised contract wi th
KBEL that the above mentioned amount of US Dollars 10.62
shall be adjusted by Kay Bouvet Engineering Ltd. against the
KAY BOUVET ENGINEERING LTD. v. OVERSEAS INFRASTRUCTURE
ALLIANCE (INDIA) PRIVATE LIMITED [B. R. GAVAI, J.]
supplies to be made to Mashkour Sugar Company Ltd. for
the purpose of completing the project.
Naturally, it should be borne in mind that the termination of OIA
contract with Mashkour should not absolve them of any liability
for the balance of the LoC 1st tranche of 25 Million disbursed to
them, other than the US Dollars 10.62 already paid to KBEL and
which will be adjusted when a contract is signed with KBEL as a
main contractor.”
[emphasis supplied]
31. It is thus abundantly clear that the case of Kay Bouvet tha t
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 Oversea s 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 ini tial payment
which was made to Kay Bouvet as a sub-Contractor by Overs eas 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 Bouve t
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 contrar y, the
documents clarify that the termination of the contract wi th 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 existe d 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.
Nidhi Jain Appeal allowed.