TMI Blog2021 (8) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... judicating 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 assertion 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 bluster. It is abundantly clear that the case of Kay Bouvet that the amount of ₹ 47,12,10,000/which was paid to it by Overseas, was paid on behalf of Mashkour from the funds released to Overseas 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 initial payment which was made to Kay Bouvet as a subContractor by Overseas who was a Contractor, was made on behalf of Mashkour and from the funds received by Overseas from Mashkour - On the contrary, the documents clarify that the termination of the contract with 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. NCLT had right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctober 2009, Mashkour Sugar Company Limited, Sudan (hereinafter referred to as the Mashkour ) entered into an agreement 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, Mashkour was to nominate a subcontractor. 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 subcontractor for supply, erection and completion of the Sugar Plant at Sudan, which was accepted by Mashkour. On 18th December 2010, a Memorandum of Understanding (hereinafter referred to as the MoU ) was entered into between Mashkour, Overseas and Kay Bouvet 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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. Overseas filed a Civil Suit being No. 785 of 2017 before the High Court of Bombay seeking specific performance of contract and an order of injunction 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 Bouve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fit in the definition of Operational Debt as provided under subsection (21) of Section 5 of the IBC. The learned Senior Counsel submitted that by the same analogy, Overseas would also not fall under the definition 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 material 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 case, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanding [payment] of the operational debt in respect of which the default has occurred. 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 subsection (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 subsection (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 accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the application under subsection (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 invoice, 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 prescribed. 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 subsection (1) of Section 8 and if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute under subsection (2) of Section 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 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 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) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 459H of the Corporations Law. What is clear is that 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 conclude 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. 36667, followed by Ryan, J. in Moyall Investments Services Pty Ltd. v. White [Moyall Investments Services Pty Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (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. The 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires 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 a mere bluster. It has been held that however, at this stage, the Court is not required to be satisfied as to whether the defence is likely to succeed or not. The Court 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 socalled claim made by Overseas would be considered to be an Operational Debt and as to whether Overseas could be considered to be an Operational Creditor , we do not find it necessary to go into said questions, inasmuch as the present appeal can be decided only on a short que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tite Agreement dated 18th December 2010, stands vitiated and superseded. As such, Kay Bouvet cannot perform under the said Tripartite Agreement. According to Overseas, 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 6th December 2017, addressed by Kay Bouvet to Overseas as per the provisions of Clause (a) of subsection (2) of Section 8 of the IBC: 3. We state that Key Bouvet expressly denied the claim of 10.62 million of equivalent to ₹ 47,12,10,000/( ₹ 47 Crores Twelve Lakhs Ten Thousand Only). We state that Key Bouvet had received advance monies on behalf of Mashkour Sugar 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 dated 17.05.2017 and therefore Kay Bouvet has monetary liability 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 Million equivalent to ₹ 47,12,10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of amounts from EXIM Bank. The Advance Payment Bank Guarantee shall be as per format attached herewith (Uniform 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 shipping documents and receipt of payment from EXIM Bank. 24. It will further be relevant to refer to the email dated 29th 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 to Civil Contractor after signing of contract between OIA and civil contractor and on confirmation from Mashkour regarding acceptance or ABG/PBG of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tringent Sanction entrancement by the United State Office of Foreign asset Control (OFAC) as per the letter enclosed herewith. The amount has been delivered to us @ ₹ 44.37 per disbursement advice of the Exim bank attached herewith. 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 Sugar 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 28th July 2011, addressed by Mashkour to Overseas would further clarify the position which reads thus: We are please to inform you that nominated subcontractor messres Kay Bouvet Engineering Private Limited has submitted Advance Payment Bank Guarantee as well as Performance Bank Guarantee to us as per the subcontract agreement and we are satisfied with the same. In the light of the above we request your good self to release the 10% of the Subcontract value as per letter dated 21.04.2011 addressed to Mashkour. The payment to be released as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lion. Kindly make a note, while signing the revised contract with KBEL that the above mentioned amount of US Dollars 10.62 shall be adjusted by Kay Bouvet Engineering Ltd. against the 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 that the amount of ₹ 47,12,10,000/which was paid to it by Overseas, was paid on behalf of Mashkour from the funds released to Overseas 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 initial payment which was made to Kay Bouvet as a subContractor by Overseas who was a Contractor, was made on behalf of Mashkour and fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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