TRANSMISSION CORPORATION OF ANDHRA PRADESH LTD V/EQUIPMENT

CONDUCTORS AND CABLES LTD

CITATION:

Civil Appeal No. 9597 of 2018

MATERIAL FACTS AND PROCEDURAL HISTORY:

1. APSEB awarded contracts to the Respondent for supply of goods and services. Some
disputes arose and the Respondent initiated arbitration proceedings before the Arbitral
Council. The Arbitral Council came to the conclusion that the claims made were barred by
law of limitation and, therefore, no amount could be awarded against the said claims.
2. 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 seeking
initiation of corporate insolvency resolution process by operating creditor on the basis of
application filed by such a creditor. This petition was dismissed by the NCLT.
3. Against this order, the Respondent filed an appeal before the NCLAT.
4. The NCLAT order did not discuss merits of the case but contained a veiled threat directing
the Appellant to pay the disputed amount failing which CIRP proceedings would be
initiated against the Appellant. The impugned order was challenged before the SC.

ISSUE(S)

Applications under Sec 9 in respect of disputed claims.

ANALYSIS

1. The SC held that the existence of an undisputed debt is sine qua non of initiating CIRP.
It also follows that the adjudicating authority shall satisfy itself that there is a debt
payable and there is operational debt and the corporate debtor has not repaid the same.1

1
Paragraph 10
 2. The Judgment heavily relied on Mobilox Innovations Pvt Ltd v/s Kirusa Software Pvt
Ltd2 wherein the SC held that in case of existence of real dispute, IBC provisions cannot
be invoked. The adjudicating authority, when examining an application under Section 9
of the Act will have to determine3:
a. Whether there is an "operational debt" as defined exceeding Rs. 1 lakh?
b. Whether the documentary evidence furnished with the application
shows that the aforesaid debt is due and payable and has not yet been
paid? And
c. 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?

If any one of the aforesaid conditions is lacking, the application would have to be rejected

3. The court reiterated the Mobilux judgement,( at p.51), which held once the operational
creditor has filed an application, the adjudicating authority must reject the application if
notice of dispute has been received by the operational creditor or there is a record of
dispute in the information utility.4 So long as a dispute truly exists in fact and is not
spurious, hypothetical or illusory, the adjudicating authority has to reject the application.
4. The above principles were found to squarely apply to the case.
CONCLUSION
As per the normal course, the matter should have been remanded to NCLAT. However, as the SC
had examined the merits of the case and found the orders of NCLT Hyderabad justified, it
dismissed the insolvency case and miscellaneous applications before NCLAT

2
Mobilox Innovations Pvt Ltd v. Kirusa Software Pvt Ltd. (2018) SCC 383.
3
Paragraph 15
4
Paragraph 15