KAY BOUVET ENGINEERING LTD VS OVERSEAS INFRASTUCTURE PVT. LTD. : CASE SUMMARY
The Supreme Court in Kay Bouvet Engineering Ltd. Vs. Overseas Infrastructure Alliance (India ) Pvt. Ltd. (2021) 10 SCC 483 reiterated that Section 9 IBC Application has to be rejected in case dispute exists in fact and is not spurious, hypothetical or illusory.
FACTS OF THE CASE
The Government of India extended Dollar Line of Credit of USD 150 Million to the Republic of Sudan through Exim Bank of India for carrying out Mashkour Sugar Project in Sudan. This was in two tranches of USD 25 Million and USD 125 million. Mashkour Sugar Company Ltd, Sudan entered into an agreement with the Respondent for USD 149,975,000 to be financed by Exim Bank. As per the said agreement, Mashkour was to nominate a sub-contractor. A subsequent agreement was entered into Mashkour and the Respondent for payment of USD 25 Million to Respondent towards “design and engineering package and plant civil package including site mobilization”.
The Appellant submitted its bid as a sub-contractor for supply, erection and completion of sugar plant at Sudan which was accepted by Mashkour. On 18th December, 2010 a MoU was entered into Mashkour, Respondent , and Appellant at Khartoum Sudan. A Tripartite Agreement was also executed between all the parties whereby Appellant was appointed as 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.
Mashkour was to release payment of first tranche of LoC to Respondent and the Respondent in turn was to release payment of USD 10.62 Million to Appellant on submission of Advance Bank Guarantee and Performance Bank Guarantee by Appellant to Mashkour. Vide letter dated 21st April , 2011 Exim Bank informed that Respondent that an amount of Rs. 46.58 Crore had been remitted to its bank account. The Respondent paid to appellant Rs. 47,12,10,000/-.
After execution of the second tranche, on 30 the October, 2014 , Respondent informed Exim Bank to transfer partial amount of USD 95,580,000 in favour of Appellant.
On 15th June 2017 mashkour terminated the contract with Respondent for failure on its part to perform the duties.
Mashkour informed Appellant about the developments and termination of contract and further informed that advance payment of Rs. 47,12,10,000/- received by Appellant from Respondent was to be adjusted against supplies to be made to Mashkour for completion of the project. It was further informed that Respondent will not claim back the said amount from Appellant. An agreement to that effect was executed between Mashkour and Appellant.
A demand notice was issued by the Respondent under Section 8 IBC claiming default of the tri-partite agreement and claiming an amount of USD 10.62 million. The Appellant denied the claim. It was pointed out by the Appellant that amount which was paid by the Respondent was only routed through the Respondent. The Respondent filed Application under Section 9 IBC before NCLT which was dismissed. An appeal was filed before NCLAT , which allowed the appeal.
FINDINGS OF THE SUPREME COURT
The Supreme Court relied on Mobilox Innovations Private Ltd Vs Kirusa Software private Ltd (2018) 1 SCC 353 wherein it has been held that one of the objects of 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 is enough that a dispute exists between the parties.
The Adjudicating Authority has to reject the application of the Operational Creditor under Section 9 , if a notice has been received by the Operational Creditor or if there is a record of dispute in the information utility. 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 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 defense which is a mere bluster. Court is not required to be satisfied as to whether the defense is likely to succeed or not. So long as a dispute truly exists in fact is not spurious, hypothetical or illusory, the adjudicating authority has no other option but to reject the application.
The Court noted that It has been clearly stated by the Appellant that the amount of Rs. 47,12,10,000/- was received as advance money on behalf of Mashkour. Execution of fresh contract in favour of Appellant in no manner creates an automatic liability on Appellant.
The Supreme Court noted that Respondent was to release payment of USD 10.62 Million to the Appellant on submission of Advance Bank Guarantee and Performance Bank Guaranteee to Mashkour and its confirmation and acceptance by Mashkour.
The Appellant vide communication dated 21st September, 2011 has requested Mashkour to advise the Respondent to release amount of Rs. 1,99,98,012 /- .
Thus, the case of the Appellant that the amount of Rs. 47,12,10,000/- which was paid to it by the Respondent , was paid on behalf of the Mashkour from the funds released to Respondent from Exim Bank on behalf of Mashkour cannot be said to be a dispute which is spurious, illusory or not supported by evidence placed on record.
The Supreme Court concluded that NCLT has rightly rejected the application of Respondent after finding that there existed dispute between Appellant and the Respondent , as order under Section 9 cannot be passed.
The Supreme Court quashed and set aside order of the NCLAT and maintained order passed by NCLT.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.