M/S S.S. ENGINEERSversusHINDUSTAN PETROLEUM CORPORATION LTD. & ORS.

                        [2022] 18 S.C.R. 391                            391


                      M/S S.S. ENGINEERS                                A
                                 v.
  HINDUSTAN PETROLEUM CORPORATION LTD. & ORS.
                  (Civil Appeal No. 4583 of 2022)
                                                                        B
                           JULY 15, 2022
 [INDIRA BANERJEE AND V. RAMASUBRAMANIAN, JJ.]
       Insolvency and Bankruptcy Code, 2016 – ss.7-9 – Held: NCLT,
exercising powers u/s.7 or s.9, is not a debt collection forum – IBC
tackles and/or deals with insolvency and bankruptcy – It is not the     C
object of the IBC that Corporate Insolvency Resolution Process
(CIRP) should be initiated to penalize solvent companies for non-
payment of disputed dues claimed by an operational creditor – There
are noticeable differences in the IBC between the procedure of
initiation of CIRP by a financial creditor and initiation of CIRP by    D
an operational creditor – On a reading of ss.8 and 9, it is patently
clear that an Operational Creditor can only trigger the CIRP process,
when there is an undisputed debt and a default in payment thereof
– If the claim of an operational creditor is undisputed and the
operational debt remains unpaid, CIRP must commence, for IBC
does not countenance dishonesty or deliberate failure to repay the      E
dues of an Operational Creditor – However, if the debt is disputed,
the application of the Operational Creditor for initiation of CIRP
must be dismissed – In the present case, there was a pre-existing
dispute with regard to the alleged claim of the appellant-Operational
Creditor against HPCL (respondent no.1) or its wholly owned             F
subsidiary HBL – Adjudicating Authority (NCLT) clearly fell in error
in admitting the application filed by the appellant u/s.9 as
Operational Creditor, for initiation of the CIRP against HBL – NCLAT
rightly allowed the appeal filed on behalf of HBL – No grounds to
interfere with the impugned judgment of the NCLAT.
                                                                        G
      Mobilox Innovations Private Limited v. Kirusa Software
      Private Limited (2018) 1 SCC 353 : [2017] 10 SCR
      1006; K Kishan vs. Vijay Nirman Co. (P) Ltd. (2018)
      17 SCC 662 : [2018] 10 SCR 959 – relied on.

                                                                        H
                                391
392            SUPREME COURT REPORTS                         [2022] 18 S.C.R.


A                             Case Law Reference
      [2017] 10 SCR 1006                   relied on               Para 16
      [2018] 10 SCR 959                    relied on               Para 18
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4583
B     of 2022.
            From the Judgment and Order dated 10.01.2022 of the National
      Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
      (Insolvency) No. 332 of 2020.
            Ratnanko Banerjee, Sanjeev Sen, Sr. Advs., Ms. Poonam Verma,
C     Sidharth Sethi, Ms. Sakshi Kapoor, Avinash Das, Advs. for the Appellant.
            Tushar Mehta, SG, Sanjay Kapur, Ms. Megha Karnwal, Arjun
      Bhatia, Advs. for the Respondents.
            The following Order of the Court was passed:
D                                     ORDER
             This appeal is against a judgment and order dated 10th January,
      2022 passed by the National Company Law Appellate Tribunal, Principal
      Bench, New Delhi allowing Company Appeal (AT)(Insolvency) No. 332
      of 2020 filed by the Respondent No.1 Hindustan Petroleum Corporation
E     Limited (HPCL) and setting aside the order dated 12.02.2020 passed by
      the National Company Law Tribunal (NCLT), Kolkata, admitting an
      application filed by the appellant under Section 9 of the Insolvency and
      Bankruptcy Code (IBC) as Operational Creditor, for initiation of the
      Corporate Insolvency Resolution Process (CIRP) against HPCL Biofuels
      Ltd. (HBL), a wholly owned subsidiary of HPCL. The NCLAT directed
F     the Adjudicating Authority NCLT to close the proceedings for CIRP
      initiated against HBL.
              2. On or about 15.11.2018, the appellant filed an application for
      initiation of CIRP against HBL under Section 9 of the IBC in the Kolkata
      Bench of the NCLT. On 07.03.2019, HBL filed its reply to the said
G     application made by the appellant and the appellant also filed a rejoinder
      thereto.
            3. By an order dated 12.02.2020, the Adjudicating Authority
      (NCLT) admitted the application for initiation of CIRP filed by the
      appellant, rejecting the contention raised by HBL that there were pre-
H
      M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                               393
                CORPORATION LTD. & ORS.

existing disputes between the parties in respect of the claim of the          A
appellant.
       4. From the List of Dates filed by the appellant, it appears that
between 27.06.2012 to 30.08.2012, various tenders were floated by HBL
for enhancing the capacity of the Boiling Houses of HBL at Lauryia and
Sugauli from 1750 TCD to 3500 TCD.                                            B
       5. The appellant submitted its offer pursuant to the tenders. On or
about 15.10.2012, four purchase orders were issued to the appellant in
relation to the tender work of enhancing the capacity of the Boiler Houses.
On 01.11.2012, Purchase Orders were issued by HBL for enhancing
the Juice Heater and Evaporator Section and Pan and Crystallization           C
Section at Sugauli Plant on a turnkey basis.
       6. Between 21.11.2012 to 25.03.2013, the appellant raised invoices
in respect of the purchase orders. It is not necessary for this Court to go
into the details of what transpired between 21.11.2012 when the appellant
started raising invoices of HBL and 29.12.2013.                               D
       7. Suffice it to mention that on 29.12.2013, HBL sent an email to
the appellant pointing out that the appellant had been violating the terms
of the purchase order and backing out from its commitments thereunder,
thereby causing huge losses to HBL. HBL contended that because of
the failure of the appellant to honour its commitments in terms of the        E
Tenders/Purchase Orders it had to procure materials from other vendors.
       8. On 02.01.2014, HBL sent a letter to the appellant stating that
the appellant had acted in violation of the General Terms and Conditions,
inter alia, by raising improper invoices for materials not supplied, not
renewing bank guarantees, failing to effect supplies and complete work        F
within the stipulated period. It was alleged that the service rendered
and/or materials supplied by the appellant were of poor quality.
       9. On 03.01.2014, HBL raised a debit note in respect of
consumption by the appellant of spares and consumables from the
warehouse of HBL. A series of correspondence followed. By a letter
                                                                              G
dated 11.4.2014 addressed to the appellant, HBL made allegations with
regard to the service rendered and/or goods supplied by the appellants
and contended that there was no payment outstanding from HBL to the
appellant. On the other hand, HBL claimed that an amount of Rs.1.49
crores was due from the appellant, which amount excluded consequential
losses.                                                                       H
394            SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A           10. On 07.5.2014, HBL sent an email to the appellant stating that
      HBL would not release money to the appellant as the quality of work
      done by the Appellant was poor and the Appellant had breached the
      terms and conditions of the Purchase Orders. Further correspondence
      ensued.
B            11. Between 11.03.2015 to 27.03.2018 C-forms were issued by
      HBL to the appellant under Section 8 of the Central Sales Tax Act read
      with Rules 12(1) of the Central Sales Tax (Registration and Turnover)
      Rules, 1957. The statutory duty of issuance of C-forms under the Central
      Sales Tax, do not and cannot constitute acknowledgment of any liability
      of HBL to the appellant, to make payment. On 09.7.2016, the appellant
C     sent legal notice to HBL through its advocate, demanding payment or
      alternatively reference of the disputes to arbitration.
             12. On 30.08.2017, the appellant sent a demand notice under
      Section 8 of the IBC to HBL claiming that a sum of Rs. 18,12,21,452/-
      (Rupees eighteen crores twelve lakhs, twenty one thousand four hundred
D     and fifty two) along with interest, was due from HBL to the Appellant
      from 30.12.2013. A second demand notice was sent by the appellant to
      HBL on 07.08.2018. HBL replied to the demand notice dated 25.07.2018
      received on 01.08.2018 disputing the claim. It is apparent from the records
      that there were pre-existing disputes between the parties and on
E     09.07.2016, a request had been made by the Operational Creditor to
      HBL to refer the disputes to Arbitration.
            13. Sections 8 and 9 of the IBC read :-
            “8. Insolvency resolution by operational creditor.—(1) An
            operational creditor may, on the occurrence of a default, deliver
F           a demand notice of unpaid operational debt or 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
G           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, 1[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;
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M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                                395
          CORPORATION LTD. & ORS.

   (b) the payment of unpaid operational debt—                           A
      (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
                                                                         B
      creditor has encashed a cheque issued by the corporate
      debtor.
Explanation.—For the purposes of this section, a “demand notice”
means a notice served by an operational creditor to the corporate
debtor demanding payment of the operational debt in respect of           C
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 sub-section (1) of section 8, if the             D
operational creditor does not receive 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.
                                                                         E
(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—                                                                 F
   (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;                                                                 G

   (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;
                                                                         H
396      SUPREME COURT REPORTS                        [2022] 18 S.C.R.


A        (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 any
         unpaid operational debt by the corporate debtor or such other
B        information, as may be prescribed.
      (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
C     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;
D           (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
E           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.
F        (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;
G           (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
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      M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                               397
                CORPORATION LTD. & ORS.

             (e) any disciplinary proceeding is pending4 against any          A
             proposed resolution professional:
      Provided that Adjudicating Authority, shall before rejecting an
      application under sub-clause (a) of clause (ii) give a 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             B
      Authority.
      (6) The corporate insolvency resolution process shall commence
      from the date of admission of the application under sub-section
      (5) of this section.”
       14. On 15.02.2018, the appellant filed its application under Section   C
9 of the IBC for initiation of CIRP against HBL, as stated above. By the
order dated 12.02.2020, the Adjudicating Authority (NCLT) admitted
the said application of the Appellant. The Adjudicating Authority, inter
alia, held:
      “17. As regards the pre-existing dispute, we have gone through          D
      all the facts stated by the Corporate Debtor but having regard to
      the quantum of claim in respect of supplies order, in our considered
      view, the amount of disputed claim due and payable will be more
      than Rs. One lakh in any case. Hence, such claims do not help
      the case of Corporate Debtor in substantial manner. Having said         E
      so, we would further refer to the provisional statement attached
      with the letter of the Corporate Debtor dated June 25, 2014 copy
      of which has been placed at Page 1779 of Vol.10 of the paper
      book to find as to what is the factual position as per the stand of
      Corporate Debtor on various issues. As per this provisional
      statement, the total purchase order value has been shown as             F
      Rs.3818.72 lakhs. There have been several deductions including
      for service provided by Corporate Debtor to the Operational
      Creditor in the execution of the contract, entry tax, TDS, WCD,
      payment to parties/payment to Operational Creditor by the
      Corporate Debtor/sub-vendors and subcontractors/vendors of the          G
      Operational Creditor. These are normal deductions as per business
      practice and terms of contract. However, it is noteworthy that
      Liquidated Damage @ 5% amount to Rs.190.94 lakhs,
      Performance Bank Guarantee to the tune of 673.6 lakhs, work
      claim of Rs.352.00 lakhs for boiler house extension P.O. finalization
                                                                              H
398      SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A     and additional work 71 lakh have also been considered. The net
      effect has been worked out by Corporate Debtor as Rs.500 lakhs
      receivable from the Operational Creditor. If the boiler house
      extension and additional work are ignored, the amount recoverable
      from the Operational Creditor gets reduced to 63.13 lakhs. Further,
      if the amount retained for Performance Bank Guarantee is taken
B
      into consideration, then the amount payable to Operational Creditor
      works out at Rs.610.23 lakhs (i.e. 673-63.13). As noted earlier,
      L.D. is applicable @ 5% amounting to Rs.190,94 lakhs has already
      been deducted. Further, amount of Rs.400.55 lakhs in respect of
      Purchase Orders issued at the risk and cost of the vendor have
C     also been deducted. Thus, all recoveries for non-performance/
      default has been considered and therefore, amount of
      Performance Bank Guarantee minus recovery i.e., 610.23 lakhs
      at least becomes payable by Corporate Debtor to the Operational
      Creditor. As an adjudication authority in the proceedings, we are
      not suppose to do this kind of working, but to find out the
D
      genuineness of the claim of pre-existing dispute, and amount of
      outstanding debt, it was necessary in the facts and circumstances
      of the case, hence, it has been so analysed on the basis of the
      provisional statement prepared and filed by the Corporate Debtor
      itself. At the cost of repetition, we again state that this statement
E     takes into consideration all these disputes raised by the Corporate
      Debtor, hence, the amount payable by the Corporate Debtor
      remains in positive which is more than one lakh ultimately that too
      when we have considered the project as a whole against the claim
      of Operational Creditor of undisputed dues of supply portion only.
      We have also gone through the emails which have been taken
F
      into consideration. While preparing this provisional statement.
      Hence, on the basis of material on record, it cannot be said that
      any other dispute remains to be considered. Apart from this, the
      fact which is crucial to note is that the Corporate Debtor has
      awarded new work orders to the Operational Creditor
G     subsequently which means that all the disputes relating to this
      contract had been considered/resolved and this fact has remained
      undisputed. Further, Form “C”s have been issued as late as up to
      March 2018. We further make it clear that we have analysed the
      provisional statement with limited objective of admissibility of this
      application and this analysis cannot be considered as expression
H
         M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                           399
                   CORPORATION LTD. & ORS.

         of opinion on the amount of claim in any manner which may be        A
         actually due and payable.”
      15. In our considered view, the Adjudicating Authority (NCLT)
committed a grave error of law by admitting the application of the
Operational Creditor, even though there was a pre-existing dispute as
noted by the Adjudicating Authority.                                         B
       16. When examining an application under Section 9 of the IBC,
the Adjudicating Authority would have to examine (i) whether there was
an operational debt exceeding Rupees 1,00,000/- (Rupees One Lac); (ii)
whether the evidence furnished with the application showed that debt
exceeding Rupees one lac was due and payable and had not till then           C
been paid; and (ii) whether there was existence of any dispute between
the parties or the record of pendency of a suit or arbitration proceedings
filed before the receipt of demand notice in relation to such dispute. If
any one of the aforesaid conditions was not fulfilled, the application of
the Operational Creditor would have to be rejected
                                                                             D
      17. In Mobilox Innovations Private Limited v. Kirusa Software
Private Limited1, this Court held:-
         “34. Therefore, the adjudicating authority, when examining
         an application under Section 9 of the Act will have to
         determine:                                                          E
         (i)     Whether there is an “operational debt” as defined
                 exceeding Rs 1 lakh? (See Section 4 of the Act)
         (ii)    Whether the documentary evidence furnished with the
                 application shows that the aforesaid debt is due and
                 payable and has not yet been paid? and                      F
         (iii)   Whether there is existence of a dispute between the
                 parties or the record of the pendency of a suit or
                 arbitration proceeding filed before the receipt of the
                 demand notice of the unpaid operational debt in relation
                 to such dispute?                                            G
         If any one of the aforesaid conditions is lacking, the
         application would have to be rejected. Apart from the above,
         the adjudicating authority must follow the mandate of Section

1
    (2018) 1 SCC 353                                                         H
400               SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A              9, as outlined above, and in particular the mandate of Section
               9(5) of the Act, and admit or reject the application, as the
               case may be, depending upon the factors mentioned in Section
               9(5) of the Act.
                                               ***
B                  51. It is clear, therefore, that once the operational creditor
               has filed an application, which is otherwise complete, the
               adjudicating authority must reject the application under
               Section 9(5)(2)(d) if notice of dispute has been received by
               the operational creditor or there is a record of dispute in the
C              information utility. It is clear that such notice must bring to
               the notice of the operational creditor the “existence” of a
               dispute or the fact that a suit or arbitration proceeding
               relating to a dispute is pending between the parties. Therefore,
               all that the adjudicating authority is to see at this stage is
               whether there is a plausible contention which requires further
D              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 mere bluster.
               However, in doing so, the Court does not need to be satisfied
E              that the defence is likely to succeed. The Court does not at
               this stage examine the merits of the dispute except to the extent
               indicated above. So long as a dispute truly exists in fact and
               is not spurious, hypothetical or illusory, the adjudicating
               authority has to reject the application.”

F         18. In K Kishan vs. Vijay Nirman Co. (P) Ltd.2, cited by the
      NCLAT in its impugned judgment, this Court held:-
               “22. Following this judgment, it becomes clear that operational
               creditors cannot use the Insolvency Code either prematurely or
               for extraneous considerations or as a substitute for debt
G              enforcement procedures. The alarming result of an operational
               debt contained in an arbitral award for a small amount of say, two
               lakhs of rupees, cannot possibly jeopardise an otherwise solvent
               company worth several crores of rupees. Such a company would
               be well within its rights to state that it is challenging the arbitral
      2
H         (2018) 17 SCC 662
      M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                                401
                CORPORATION LTD. & ORS.

      award passed against it, and the mere factum of challenge would          A
      be sufficient to state that it disputes the award. Such a case would
      clearly come within para 38 of Mobilox Innovations [Mobilox
      Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC
      353 : (2018) 1 SCC (Civ) 311], being a case of a pre-existing
      ongoing dispute between the parties. The Code cannot be used in
                                                                               B
      terrorem to extract this sum of money of rupees two lakhs even
      though it may not be finally payable as adjudication proceedings
      in respect thereto are still pending. We repeat that the object of
      the Code, at least insofar as operational creditors are concerned,
      is to put the insolvency process against a corporate debtor only in
      clear cases where a real dispute between the parties as to the           C
      debt owed does not exist……………………………
      27. We repeat with emphasis that under our Code, insofar as an
      operational debt is concerned, all that has to be seen is whether
      the said debt can be said to be disputed, and we have no doubt in
      stating that the filing of a Section 34 petition against an arbitral     D
      award shows that a pre-existing dispute which culminates at the
      first stage of the proceedings in an award, continues even after
      the award, at least till the final adjudicatory process under Sections
      34 and 37 has taken place.”
      19. In this Case, the correspondence between the parties would           E
show that HBL had been disputing the claims of the Appellant on the
contention that the appellant had not been adhering to the time schedules
for completion of the contract work, had been violating the terms of
Tender documents and the Purchase Orders, and backing out from its
commitments thereunder, thereby causing losses to HBL. HBL was
constrained to procure materials from other vendors incurring losses.          F

       20. The correspondence between the parties evince the existence
of real dispute, particularly the letter dated 02.01.2014 from HBL to the
appellant stating that the appellant had inter alia raised improper invoices
for materials not supplied and had failed to effect supplies and complete
work within a stipulated period; debit note dated 03.01.2014 raised by         G
HBL in respect of consumption by the appellant of spares and
consumables from the warehouse of HBL; letter dated 11.04.2014 from
HBL to the Appellant, inter alia, contending there was no payment
outstanding from HBL to the appellant and claiming that a sum of Rs.1.49
Crores was due from appellant to the HBL excluding consequential               H
402             SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A     losses; an email dated 07.05.2014 from HBL to the appellant declining
      to release money claimed by the appellant on the ground of poor quality
      of work and breaches of the terms and conditions of the Purchase Order.
             21. Going by the test of existence of a dispute, it is clear that HBL
      had raised a plausible defence. It was not for the Adjudicating Authority
B     to make a detailed examination of the respective contentions and
      adjudicate the merits of the dispute at this stage.
            22. As held by the NCLAT :-
            “The facts of the present case are being examined in the light of
            the law laid down by the Hon’ble Supreme Court, though the
C           Learned Counsel for the ‘Operational Creditor’ has strenuously
            contended that the issuance of further work orders and the Notice
            issued by the ‘Operational Creditor’ invoking Arbitration does not
            amount to Existence of a Dispute’, the nature of communication
            on record with rival contentions clarify the ‘Existence of a Dispute’
D           between the parties prior to issuance of the Demand Notice. It
            has been time and again held that ‘it is enough that a ‘dispute
            exists’ between the parties.
            The communication between the parties as noted in para 10 read
            together with the Arbitration invoked by the ‘Operational Creditor’,
E           we are of the considered view that there is an ‘Existence of a
            Dispute’ between the parties which is a genuine dispute and not a
            spurious, patently feeble legal argument or an assertion of fact
            unsupported by evidence.”
             23. The learned NCLAT rightly observed that a perusal of the
F     “Tender Enquiry dated 27.06.2012”, “Instructions to Bidders”, “General
      Conditions of Contract” and “Special Conditions of Contract”, showed
      that the tender was for ‘design, engineering, manufacture,
      procurement, supply, transportation to site, transit and storage,
      insurance storing at site, project management, civil work,
      mechanical works, electrical works, instrumentation work,
G     mechanical works, electrical works, instrumentation work, erection,
      installation interfacing, testing, commissioning, performance testing,
      putting into successful commercial operation and handing over
      additional equipment goods, and material centrifugal section
      including civil foundation for enhancing the boiling house capacity
      from 1750 TCD to 3750 TCD on Lumpsum Turnkey Basis including
H
      M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                                403
                CORPORATION LTD. & ORS.

civil foundation work’. It was also not in dispute that the appellants         A
had been issued further work on 13.06.2013 and 08.8.2013 all on Lumpsum
Turnkey Basis.
       24. The NCLAT held that the execution of the contract work
being on a lumpsum turnkey basis, the Appellant contractor was
responsible for the entire execution of the work, as per specifications        B
and to the satisfaction of HBL. On completion of the work, the Appellant
contractor was to give notice of such completion to the site in charge,
who would inspect the work and furnish the Appellant contractor with a
Completion Certificate indicating defects, if any, in the contract work
and the date of completion of the contract work.
                                                                               C
       25. Referring to the letter dated 11.08.2013 of HBL to the Appellant,
the NCLAT found that it was the case of HBL that the Appellant, as
contractor, had delayed the performance of its obligations in terms of
the contract. In the aforesaid letter, HBL enumerated the lacuna and
lapses of the Appellant in the performance of the contract and the various
                                                                               D
breaches of contract committed by the Appellant and also made a
categorical assertion that till 31.07.2013, there was no amount outstanding
from HBL to the Appellant. Rather there was a recovery from the
Appellant.
       26. In the impugned order, NCLAT set out a communication dated
                                                                               E
02.01.2014 from HBL to the Appellant giving details of the acts and
omissions of the Appellant, which tantamounted to breaches of contract
on the part of the Appellant. Several other letters were also set out in the
impugned order.
      27. The impugned order takes note of the averment in the Appellant       F
Operational Creditor’s Reply before the NCLT that despite several
requests and reminder letters from 2013 to 2017, the Corporate Debtor
HBL did not pay the amounts due, but raised baseless allegations and
disputes.
      28. The NCLAT found:                                                     G
      “13. ………. It is the case of the ‘Operational Creditor’ that there
      is no ‘Existence of Dispute’ prior to the issuance of Demand
      Notice. In their email dated 08.04.2013, in relation to the Minutes
      of the Meeting, the ‘Operational Creditor’ had clarified that work
      progress is subject to prompt payments. July 31, 2013 was decided        H
404      SUPREME COURT REPORTS                         [2022] 18 S.C.R.


A     as the commissioning date subject to immediate and prompt
      payment made by the ‘Corporate Debtor’. The ‘Operational
      Creditor’ had always shown their willingness to commission and
      perform their obligations and their senior personnel were stationed
      at the site of the ‘Corporate Debtor’ and additional staff always
      visited from time to time. It was only because of pendency of
B
      payment of the dues that the ‘Operational Creditor’ had faced
      difficulties in executing the ongoing Project. The ‘Corporate
      Debtor’ was making ad hoc payments but not as per the bills
      raised.

C     14. It is strenuously contended by the Learned Counsel that the
      conduct of the ‘Corporate Debtor’ in awarding fresh Purchase
      Order in August 2013 at the fag end of the completion of the
      previous 6 orders, while at the same time, complaining against
      their performance, is self-contradictory and goes to show the
      malafide intention of the ‘Corporate Debtor’. It is the case of the
D     ‘Operational Creditor’ that all equipment supplied was of good
      quality and all the valves which were procured were from a vendor
      mandated by the ‘Corporate Debtor’ only. If the ‘Corporate
      Debtor’ was dissatisfied with the quality of work or substandard
      material supplied, there are no substantial reasons as to why new
E     contracts were awarded at the fag end of the previous 6 contracts.
      87% of the material and services were already completed as per
      the billing breakup and therefore the question of short supply or
      purchase of additional material by the ‘Corporate Debtor’ does
      not arise. It is also vehemently contended that the ‘Operational
      Creditor’ was constrained to stop supply to the ‘Corporate Debtor’
F     only on account of failure of payments of pending principal dues
      which amounts to more than Rs.13 Crores. The ‘Corporate
      Debtor’ continued to raise various debit notes unilaterally without
      any supporting documentation, for which the ‘Operational Creditor’
      cannot be held responsible.
G     15. The ‘Operational Creditor’ vide email dated 02.02.2014 i.e.
      one month after the aforenoted letter sought for release of payment.
      Once again the ‘Corporate Debtor’ on 04.02.2014 and on
      28.02.2014 reiterated the poor performance of the ‘Operational
      Creditor’ on account of which huge losses were incurred.
H
      M/S S.S. ENGINEERS v. HINDUSTAN PETROLEUM                                405
                CORPORATION LTD. & ORS.

      16. On 29.03.2014, it is the case of the ‘Corporate Debtor’ that         A
      the ‘Operational Creditor’ had abandoned the site and therefore,
      the ‘Corporate Debtor’ had to take over the Project and make all
      the relevant payments to the vendor.
      19. It is pertinent to note that on 09.07.2016, ‘prior to the issuance
      of the Demand Notice under Section 8 of the Code’, the                   B
      ‘Operational Creditor’ invoked Arbitration pursuant to the 8 project
      orders issued by the ‘Corporate Debtor’, which itself substantiates
      the ‘Existence of a Dispute’. In the ‘Notice’ invoking Arbitration,
      the ‘Operational Creditor’ has stated that there is an outstanding
      of Rs.18,12,21,452/- and has further stated that they are ready to
      settle the disputes through Arbitration.                                 C

      22. The communication between the parties as noted in para 10
      read together with the Arbitration invoked by the ‘Operational
      Creditor’, we are of the considered view that there is an ‘Existence
      of a Dispute’ between the parties which is a genuine dispute and
      not a spurious, patently feeble legal argument or an assertion of        D
      fact unsupported by evidence”.
      29. The HBL raised serious allegations against the appellant of
breach of its contractual commitments. From the letter of HBL dated
02.01.2014, it is evident that HBL had been contending inter alia that
work of erection and commissioning of electric power had not been              E
done, the dead line of completion of the contract work had not been
adhered to and the quality of the equipment supplied and/or work done
was of poor quality.
        30. This Court finds that there was a pre-existing dispute with
regard to the alleged claim of the appellant against HPCL or its subsidiary    F
HBL. The NCLAT rightly allowed the appeal filed on behalf of HBL. It
is not for this Court to adjudicate the disputes between the parties and
determine whether, in fact, any amount was due from the appellant to
the HPCL/HBL or vice-versa. The question is, whether the application
of the Operational Creditor under Section 9 of the IBC, should have            G
been admitted by the Adjudicating Authority. The answer to the aforesaid
question has to be in the negative. The Adjudicating Authority (NCLT)
clearly fell in error in admitting the application.
      31. The NCLT, exercising powers under Section 7 or Section 9 of
IBC, is not a debt collection forum. The IBC tackles and/or deals with
                                                                               H
406              SUPREME COURT REPORTS                        [2022] 18 S.C.R.


A     insolvency and bankruptcy. It is not the object of the IBC that CIRP
      should be initiated to penalize solvent companies for non-payment of
      disputed dues claimed by an operational creditor.
             32. There are noticeable differences in the IBC between the
      procedure of initiation of CIRP by a financial creditor and initiation of
B     CIRP by an operational creditor. On a reading of Sections 8 and 9 of the
      IBC, it is patently clear that an Operational Creditor can only trigger the
      CIRP process, when there is an undisputed debt and a default in payment
      thereof. If the claim of an operational creditor is undisputed and the
      operational debt remains unpaid, CIRP must commence, for IBC does
C     not countenance dishonesty or deliberate failure to repay the dues of an
      Operational Creditor. However, if the debt is disputed, the application of
      the Operational Creditor for initiation of CIRP must be dismissed.
             33. We find no grounds to interfere with the judgment and order
      of the NCLAT impugned in this appeal.
D            34. The appeal is dismissed.
             35. Needles to mention that the appellant may avail such other
      remedies as may be available in accordance with law including arbitration
      to realise its dues, if any.
E            36. Pending applications, if any, stand disposed of accordingly.


      Divya Pandey                                                Appeal dismissed.
      (Assisted by : Roopanshi Virang, LCRA)


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