24 September 2021
Matter: Kay Bouvet Engineering Ltd. v. Overseas Infrastructure Alliance (I) Pvt. Ltd..
Order dated: 10 August 2021.
Summary:
A tripartite agreement was signed between Mashkour Sugar Company Ltd. (employer), Overseas Infrastructure Alliance (I) Pvt. Ltd. (contractor/operational creditor) and the sub-contractor (Kay Bouvet Engineering Ltd./corporate debtor). As per the agreement, the contractor was rendering services to the employer while the sub-contractor was rendering services to both the employer and the contractor, with an objective to fulfil the needs of the employer. The contractor advanced 10% (ten percent) of the contract value to the sub-contractor. However, the tripartite agreement came to be terminated and a fresh agreement was executed between the employer and sub-contractor.
An application seeking CIRP of sub-contractor was filed by the contractor claiming the amount advanced as debt. The subcontractor disputed the claimed amount stating that the advance payment was made on behalf of the employer and from the funds received by contractor from the employer. Additionally, when a new contract was entered into between employer and the subcontractor directly, the employer had directed that the advance amount be adjusted against the supplies to be made to the employer for the purpose of completing the project. The NCLT’s order rejecting the application of the contractor on the grounds of a preexisting dispute was set-aside by the NCLAT. The NCLAT’s order was then challenged before the SC
The SC held that if a dispute genuinely exists in reality and is not spurious or hypothetical or misconceived, then the NCLT must reject an application of the operational creditor seeking to initiate CIRP. The SC reiterated that if a pre-existent dispute exists between the parties, the NCLT should reject the application of the operation creditor. It was further stated that at this stage, the NCLT must not be concerned with the merits of the dispute, but merely be satisfied that a dispute exists which is not feeble or a mere contention without any supporting documents. Accordingly, the NCLAT’s order was set-aside.
