Case Note & Summary
The appeal arose from a dispute under the Insolvency and Bankruptcy Code, 2016, concerning a sugar project in Sudan financed through a Line of Credit from the Government of India. The appellant, Kay Bouvet Engineering Ltd., was a subcontractor, and the respondent, Overseas Infrastructure Alliance (India) Private Limited, was the main contractor. Overseas paid an amount to Kay Bouvet from funds received from Mashkour Sugar Company Limited, the project owner, under a tripartite agreement. After Mashkour terminated its contract with Overseas and directly appointed Kay Bouvet, Overseas served a demand notice under Section 8 of the IBC, claiming the amount paid as an operational debt, and filed a petition under Section 9 before the National Company Law Tribunal (NCLT). The NCLT dismissed the petition, but the National Company Law Appellate Tribunal (NCLAT) allowed Overseas's appeal and directed admission of the petition. Kay Bouvet appealed to the Supreme Court. The core legal issue was whether Overseas's claim constituted an 'operational debt' under Section 5(21) of the IBC, making Overseas an 'operational creditor' entitled to invoke Section 9. Kay Bouvet argued that the payment was from Mashkour's funds, routed through Overseas, and did not relate to goods or services provided by Kay Bouvet to Overseas, thus not fitting the definition. Overseas contended that Kay Bouvet admitted receiving the amount, which should qualify as an operational debt. The Supreme Court analyzed the definitions under the IBC and found that the payment was made by Overseas from Mashkour's funds for subcontracting work, not for any provision of goods or services by Kay Bouvet to Overseas. The Court held that the claim did not meet the statutory definition of operational debt, as it was not in respect of goods or services supplied by the corporate debtor to the operational creditor. Consequently, Overseas could not be considered an operational creditor under Section 9. The Court emphasized the limited jurisdiction of adjudicating authorities under the IBC and set aside the NCLAT's order, restoring the NCLT's dismissal of the petition. The appeal was allowed, quashing the insolvency proceedings.
Headnote
A) Insolvency Law - Operational Debt Definition - Section 5(21) Insolvency and Bankruptcy Code, 2016 - The Supreme Court examined whether the payment made by the respondent to the appellant constituted an operational debt under the IBC. The Court found that the amount was paid by the respondent from funds received from Mashkour, not from its own resources, and was for subcontracting work, not for provision of goods or services by the appellant to the respondent. Held that the claim did not fit the definition of operational debt as it was not in respect of goods or services provided by the appellant to the respondent, thus the respondent could not be an operational creditor under Section 9 (Paras 9-12). B) Insolvency Law - Jurisdiction of Adjudicating Authorities - Sections 8, 9 Insolvency and Bankruptcy Code, 2016 - The Court emphasized that the jurisdiction of NCLT and NCLAT under the IBC is limited to the areas delineated in the statute. Since the claim did not qualify as an operational debt, the NCLAT erred in allowing the appeal and directing admission of the Section 9 petition. The Court set aside the NCLAT order and restored the NCLT's dismissal, highlighting that adjudicating authorities must strictly adhere to statutory definitions (Paras 10-12).
Issue of Consideration
Whether the claim made by the respondent constitutes an 'operational debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, enabling it to file a petition under Section 9 of the IBC as an operational creditor
Final Decision
Supreme Court allowed the appeal, set aside the NCLAT order dated 21st December 2018, and restored the NCLT order dated 26th July 2018 dismissing the petition under Section 9 of IBC
Law Points
- Definition of operational debt under Section 5(21) of the Insolvency and Bankruptcy Code
- 2016
- Requirement of existence of operational debt for filing petition under Section 9 of IBC
- Jurisdiction of NCLT and NCLAT under IBC limited to statutory provisions
- Admission of claim does not automatically create operational debt if not falling under statutory definition
