M/S S.S. ENGINEERS Vs. HINDUSTAN PETROLEUM CORPORATION LTD
Civil Appeal no.4583 of 2022
Facts:
(1) During 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. 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 an Evaporator Section and Pan and Crystallization Section at Sugauli Plant on a turnkey basis
(2) 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 Tenders/Purchase Orders it had to procure materials from other vendors.
(3) 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 within the stipulated period.
(4) On 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. Respondent on 07.05.2014 that it would not release any amount due to appellant.
Appellant issued demand notice under section 8 of the code on 30.08.2017 and a second demand notice dated 07.08.2018. HBL disputed the claim by letter dated 25.08.2018. Appellant then I filed application under section 9 of the code for initiation of CIRP against the respondent wholly owned subsidiary on 15.11.2018 . Certain pre existing disputes were raised by the respondent and its subsidiary which was rejected by the AA and the application was admitted by the AA.
(5) Respondent approached the NCLAT and Hon’ble NCLAT set aside the order of NCLT. Hence this present appeal against the order of NCLAT.
Issue: Whether there was any pre existing dispute?
Decision: Hon’ble SC upheld the order of NCLAT for setting the side order of the NCLT admitting application by holding that there was pre existing dispute between the parties and NCLT committed grave error in admitting the application.
Rationale:
(1) 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 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
(2) The correspondence between the parties would 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
(3) 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 HBL in respect of consumption by the appellant of spares and consumables from the warehouse of HBL; letter dated 11.04.201 from HBL to the Appellant, inter alia, contending there was no payment outstanding from HBL to the appellant
(4) 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 done, the dead line of completion of work has not been adhered to.
(5) 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 been admitted by the Adjudicating Authority
(6) 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.
(7) 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 dues of an Operational Creditor. However, if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed
