Supreme Court Judgment On Meaning Of ‘Dispute’ Under Section 8(2)(a) Of IBC

In a recent Judgment rendered by the Hon’ble Supreme Court of India in M/s. S. S. Engineers v Hindustan Petroleum Corporation Ltd. & Ors.,[1] the Hon’ble Court had the occasion to consider and examine the meaning of the term “dispute” (as appearing in Section 8(2)(a) of the Insolvency and Bankruptcy Code, 2016 (“IBC”)).

S. S. Engineers (“Appellant” / “Operational Creditor”) had moved an application for initiation of corporate insolvency resolution process (“CIRP”) against Hindustan Biofuels Ltd. (“Corporate Debtor” / “CD”) before the National Company Law Tribunal, Kolkata (“Adjudicating Authority”) under Section 9 of the IBC. The Adjudicating Authority admitted the Appellant’s application and CIRP was initiated. The CD appealed against this judgment of the Adjudicating Authority before the National Company Law Appellate Tribunal (“NCLAT”). The NCLAT set aside the judgment of the Adjudicating Authority on the ground that there was a pre-existing dispute between the parties. The Appellant challenged this decision before the Hon’ble Supreme Court.

Relying on the judgments in Mobilox Innovations Private Limited v Kirusa Software Private Limited[2] and K. Kishan v Vijay Nirman Co. (P) Ltd.,[3] the Hon’ble Supreme Court concluded that when examining an application by an Operational Creditor under Section 9 of the IBC, what needs to be seen is whether:

1. there was an operational debt exceeding Rupees 1,00,000;
2. whether the evidence furnished with the application showed that debt exceeding Rupees 1, 00, 000 was due and payable and had not till then been paid; and
3. 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.

The Hon’ble Supreme Court also held that:

1. the test is the existence of a real dispute between the parties;
2. it is not expected of the Adjudicating Authority to make a detailed examination into the merits of the dispute;
3. only if the operational debt is undisputed and such operational debt remains unpaid, CIRP must commence.

Having concluded as aforesaid, the Hon’ble Supreme Court observed that in a case where dispute exists, the Adjudicating Authority is not bound to admit the matter and the party is at liberty to avail such other remedies as may be available in accordance with law, including arbitration, to realise its dues.

JSA Team represented the Operational Creditor in the proceedings before the NCLAT as also the Hon’ble Supreme Court.

JSA team comprised Lead Partner – Poonam Verma, Partner – Sidharth Sethi, Associate – Avinash Das, and Sakshi Kapoor.

[1] Civil Appeal No. 4583 of 2022 decided on 15 July 2022. The bench comprised Justice Indira Banerjee and Justice V. Ramasubramanian.

[2] (2018) 1 SCC 353

[3] (2018) 17 SCC 662