Case: KAY BOUVET ENGINEERING LTD Vs. OVERSEAS INFRASTRUCTURE  ALLIANCE (INDIA) PRIVATE LIMITED

2. The facts in brief giving rise to the present appeal are as under:-The Government of India extended Dollar Line of Credit (hereinafter referred to as the LoC) of USD 150 Million to the Republic of Sudan through Exim Bank of India (hereinafter referred to 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 Sugar Project. On 11th October 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 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 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 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 Overseas in turn was to release payment of USD 10.62 Million to Kay Bouvet on submission of Advance Bank Guarantee and Performance Bank Guarantee by Kay Bouvet to Mashkour. Vide letter dated 21st 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 28th 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 agreement was executed between Mashkour and Overseas on 9th February 2014, for balance amount of USD 124,975,000 for financing the final part of the Sugar Factory Project. On 30th 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, 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 Contractor. 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 GoIs 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. 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 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 further 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 11th 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 6th December 2017, denied the claim of Overseas. It was specifically pointed out that the amount which was paid to Kay Bouvet by Overseas, was received on behalf of Mashkour and it was only routed through Overseas and the same stands adjusted under new agreement. On 27th December 2017, Overseas claiming itself to be an Operational Creditor, filed a petition under Section 9 of the IBC before NCLT, Mumbai being CP (IB) No.20(MB)/2018. Vide order dated 26th July 2018, the NCLT dismissed the petition. Overseas carried the same in an appeal being 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.

Court's reasoning:
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 sub-section (1) of Section 8 and if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute under sub-section (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. 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 Limited (2018) 1 SCC 353  :-38. It is, thus, clear that so far as an operational creditor 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 operational 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 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 to 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 that 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 for extraneous considerations. It has been held that it is for this reason that it is enough that a dispute exists between the parties.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 parties. 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 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 so-called 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 question as to whether Kay Bouvet has been in a position to make out the case of existence of dispute or not.22. It can thus be seen that Kay Bouvet has clearly stated that the said amount of Rs.47,12,10,000/- was received as advance money on behalf of Mashkour. It has been specifically stated 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.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 Bouvet on submission of Advance Bank Guarantee and Performance Bank Guarantee to Mashkour and its confirmation and acceptance by Mashkour.31. It is thus abundantly clear that the case of Kay Bouvet that 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 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 sub-Contractor by Overseas 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 Bouvet 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 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.32. In these circumstances, we find that NCLT had rightly rejected the application of Overseas after finding that there existed 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.