IBC is not intended to be substitute to a recovery forum & whenever there is existence of real dispute, the IBC provisions cannot be invoked- Transmission Corporation of Andhra Pradesh Ltd. Vs. Equipment Conductors & Cables Ltd.- Supreme Court

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I. Case Reference

Case Citation : [2018] ibclaw.in 33 SC
Case Name : Transmission Corporation of Andhra Pradesh Limited Vs. Equipment Conductors and Cables Limited
Appeal No. : Civil Appeal No. 9597 Of 2018
Appellant(s) : Transmission Corporation of Andhra Pradesh Limited
Respondent(s) : Equipment Conductors and Cables Limited
Date of Judgment : 23-Oct-18
Tribunal/Court : Supreme Court of India

II. Brief about the decision

Analysis of the judgment:

Facts of the case:

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 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. 

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 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.

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.

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 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. 

NCLT & NCLAT decision:

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 appeal before the NCLAT in which impugned orders dated September 04, 2018 have been passed. 

Legal provisions:

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.

Clause (ii) of sub-section (5) of section 9 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.

Before the Supreme Court:

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 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.

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 pay the amount to the respondent, failing which CIRP shall be initiated against the appellant.

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.

In a recent judgment of this Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited (2018) 1 SCC 353, 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.

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.

III. Full text of the judgment

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