Sabarmati Gas Limited vs Shah Alloys Limited

Civil Appeal No. 1669 of 2020

Sabarmati Gas Limited …Appellant Versus

Shah Alloys Limited …Respondents

JUDGMENT

C.T. RAVIKUMAR, J.

1. This appeal under Section 62 of the Insolvency and

Bankruptcy Code, 2016 (IBC) is preferred by Sabarmati

Gas Limited (hereinafter referred to as the appellant)

against the final judgment dated 19.12.2019 of the

National Company Law Appellate Tribunal (NCLAT) in

Company Appeal (AT) (Insolvency) No. 820 of 2019. As

per the same the NCLAT dismissed the appeal preferred

by the appellant against order dated 27.06.2019 in CP Signature Not Verified

(IB) No. 516/9/NCLT/AHM/2018 of the National Company Digitally signed by Sanjay Kumar Date: 2023.01.04 17:05:11 IST Reason:

Law Tribunal, Ahmedabad Bench, (NCLT) dismissing the

Page 1 of 61 application filed under Section 9 of the IBC, in its capacity

as operational creditor of ‘Shah Alloys Limited’

(hereinafter referred to as the ‘respondent’).

2. In the captioned appeal mainly, twin questions of law

call for consideration id est :-

(i) Whether in computation of the period of

limitation in regard to an application filed under

Section 9, IBC the period during which the

operational creditor’s right to proceed against or

sue the corporate debtor that remain suspended

by virtue of Section 22 (1) of the Sick Industrial

Companies (Special Provisions Act, 1985) (SICA)

can be excluded, as provided under Section 22

(5) of SICA?

(ii) Whether the respondent has raised a

dispute which is describable as 'pre-existing

dispute’ between itself and the appellant

Page 2 of 61 warranting dismissal of application under Section

9 of the IBC at the threshold?

While considering the stated twin questions certain

other allied questions of relevance may also crop up for

consideration, which we will state and consider at the

appropriate time. The respondent -corporate debtor was

the petitioner in Case No. 13 of 2010 before the Board for

Industrial and Financial Re-construction (BIFR) and the

appellant herein was the applicant in Miscellaneous

Application No. 432 of 2013 in Case No. 13 of 2010.

3. Heard learned Senior Counsel for the appellant Shri

Shyam Divan and Mr. S. Guru Krishna Kumar, learned

Senior Counsel for the respondent.

4. Consideration of the questions, mentioned above

and to be mentioned hereinafter, is called for, in the

following factual background:

The respondent, for its manufacturing needs,

required commercial supply of natural gas. To facilitate

the same on 30.05.2008 the appellant and the

Page 3 of 61 respondent entered into a Gas Sales Agreement (GSA)

whereby and whereunder the appellant was having the

obligation to supply natural gas conforming to the

specifications laid down in Annexure-2, appended to GSA

and it also forms part of the contract. Going by clause

11.2 of GSA, notwithstanding any dispute in relation to

any amount invoiced, the respondent could not withhold

payment in accordance with the GSA. According to the

appellant, the respondent defaulted payment of invoices

inasmuch as it made only partial irregular payments from

November, 2011. Meanwhile, the respondent approached

BIFR to get it declared as a ‘sick unit’ and for

recommendation of a plan for its rehabilitation, in terms

of the provisions under SICA. The reference was admitted

by BIFR as case No. 13 of 2010 and as per order dated

31.08.2010 the respondent was declared as a ‘sick

company’. It is the case of the appellant that by virtue of

Section 22 of SICA there was a moratorium on the

respondent and therefore, it could not have proceeded

against the respondent for outstanding dues, thenceforth,

without obtaining the permission of the BIFR. On

Page 4 of 61 07.08.2012 the appellant stopped the gas supply and

then, intervened in the pending proceedings before the

BIFR viz., 13 of 2010. On 08.03.2013, as per

Miscellaneous Application No. 432 of 2013 the appellant

sought permission of the BIFR for initiating proceedings

against the respondent for recovery of an outstanding

dues of Rs. 4,71,56,095/-. On 09.09.2015, the BIFR

passed an order thereon. Shortly thereafter, to be

precise, w.e.f. 01.12.2016, SICA was repealed.

5. According to the appellant, BIFR became functus

officio and all proceedings pending before it, including the

case of the respondent, were abated and several sections

of IBC, including Sections 8 and 9, came into effect on

01.12.2016. Hence, after the enactment of IBC, the

appellant issued a demand notice on 01.04.2017, under

Section 8 of the IBC read with Rule 5 of the Insolvency

and Bankruptcy (Application to Adjudicating Authority),

Rules 2016, in Form No. 3 demanding payment of

operational debt of Rs. 4,71,56,094.76/-. On 10.04.2017,

the respondent gave a reply to the aforesaid demand

notice stating that there was shortfall in supply of natural

Page 5 of 61 gas and also a huge loss due to the disconnection of gas

supply. Raising such contentions, the respondent declined

the liability to pay the amount demanded. Thereafter, the

appellant filed an application under Section 9 of the IBC

before NCLT, Ahmedabad seeking initiation of Corporate

Insolvency Resolution Process (CIRP) in its capacity as

Operational Creditor of the respondent. The said

application was dismissed by the NCLT as per order dated

27.06.2019 on the grounds of being barred by limitation

and existence of a ‘pre-existing dispute’ between the

appellant and the respondent. It is the appeal

challenging the same before the NCLAT that ultimately

culminated in the impugned judgment.

6. We will firstly consider the first question of law

arising on account of dismissal of the appellant’s

application under Section 9, IBC on the ground of being

barred by limitation. In the light of the aforesaid factual

backdrop and contentions the appellant would contend

that the NCLT and NCLAT had failed to look into and

appreciate the cumulative effect of sub-sections (1) and

Page 6 of 61 (5) of Section 22 of SICA while dismissing the application

under Section 9, IBC as barred by limitation. In

elaboration of the contention, it is submitted that the

NCLT and NCLAT had failed to appreciate that the

respondent was admitted as a ‘sick company’ by the BIFR

as per its order dated 31.08.2010 and hence, by virtue of

sub-section (5) of Section 22, SICA the period of

suspension under SICA viz., from 31.08.2010 to

01.12.2016, ought to have been excluded while

calculating the period of limitation. According to the

appellant, since the application under Section 9, IBC was

filed on 20.08.2018 granting the benefit of such exclusion

would have, certainly, put the application well within the

limitation period of 3 years as provided under Article 137

of the Limitation Act. The learned counsel for the

appellant placed reliance on the decision in Paramjeet

Singh Patheja v. ICDS Ltd. 1, particularly paragraph 43

(vii) therein, to support the contention that there was a

statutory bar for laying or continuing with any legal

proceeding for realisation of a right vested by law on the

appellant.

1 (2006) 13 SCC 322

Page 7 of 61

7. Resisting the contentions of the appellant and

supporting the impugned judgment the respondent would

contend that both NCLT and NCLAT had rightly

appreciated the factual positions thereon obtained in the

case on hand and applied the provisions correctly, to

arrive at the finding that the application filed by the

appellant under Section 9, IBC was barred by limitation.

According to the respondent there is discrepancy

between the stand of the appellant in the Section 9

application and the Demand Notice under Section 8, of

the IBC as relates the quantum of alleged outstanding

dues. It is also contended that such a discrepancy also

exists with respect to the date of cause of action

inasmuch as going by Section 9 application the alleged

debt fell due on and from November, 2011 and as per the

Demand Notice the so-called debt fell due on and from

9th July, 2012 and in either case, Section 9 application

was barred by limitation as it was filed only in the year

2018. To wit, beyond 3 years from the alleged

default. The benefit of exclusion of period under Section

22(5) of the SICA is not available to the appellant for

Page 8 of 61 computing the period of limitation in respect of an

application under Section 9, IBC, it is further contended.

According to the respondent, Section 22 (1), SICA did not

accord a blanket protection against running of cause of

action and it is intended to suspend legal proceedings of

coercive nature so as to secure assets of an enterprise.

In other words, the contention is that filing application for

recovery was permissible and Section 22 (1), SICA did not

forbid the same and it interdicted only execution or

distress or the like against the properties of the industrial

company concerned in the contingencies contemplated

thereof.

8. When Sections 8 and 9, IBC came into force only

with effect from 01.12.2016, the question of initiation of

the CIRP by filing an application under Section 9 was

possible only from 01.12.2016. But the question is

whether any party, which falls under the expression

‘Operational Creditor’ under the IBC claims to have

operational debt due from an industrial company and the

cause of action for recovery of the same had accrued

much earlier than 01.12.2016, but prevented from

Page 9 of 61 enforcing the right against such company in view of

statutory prohibition under Section 22 (1), SICA, could

initiate CIRP despite the passage of three years since the

cause of action claiming the protection of exclusion of the

period of suspension by virtue of Section 22 (5), SICA?

8.1 In that context it is only apt to refer to the afore-

mentioned relevant provisions under SICA. Section 22(1),

SICA was as follows: -

“22. Suspension of legal proceedings,

contracts, etc. – (1) Where in respect of an

industrial company, an inquiry under section 16 is

pending or any scheme referred to under section

17 is under preparation or consideration or a

sanctioned scheme is under implementation or

where an appeal under section 25 relating to an

industrial company is pending, then,

notwithstanding anything contained in the

Companies Act, 1956 (1 of 1956) or any other law

or the memorandum and articles of association of

the industrial company or any other instrument

having effect under the said Act or other law, no

Page 10 of 61 proceedings for the winding up of the industrial

company or for execution, distress or the like

against any of the properties of the industrial

company or for the appointment of a receiver in

respect thereof [and no suit for the recovery of

money or for the enforcement of any security

against the industrial company or of any

guarantee in respect of any loans or advance

granted to the industrial company] shall lie or be

proceeded with further, except with the consent

of the Board or, as the case may be, the Appellate

Authority.”

8.2 Section 22(5), SICA, relied on by the appellant for

seeking exclusion of the period from 31.08.2010 to

01.12.2016 while computing the period of limitation, was

as hereunder: -

“22. Suspension of legal proceedings, contracts, etc. – (1)… (2)… (3)… (4)… (5) In computing the period of limitation for the

enforcement of any right, privilege, obligation or

Page 11 of 61 liability, the period during which it or the remedy

for the enforcement thereof remains suspended

under this section shall be excluded.”

9. Thus, Section 22 (1), SICA as extracted above, would

make it clear that there was a statutory bar to take to any

proceeding for realisation of a right referred to in the said

Section against an industrial company when once an

enquiry under Section 16, SICA is pending against it or

any scheme referred to under Section 17 thereof is under

preparation or consideration or a sanctioned scheme is

under implementation or where an appeal under Section

25 relating to an industrial company is pending, except

with the consent of the Board or the Appellate Authority,

as the case may be. As noticed earlier, SICA came to be

repealed and IBC came into force (Sections 7 to 9 and

various other Sections), on the same day viz, on

01.12.2016.

10. A two-Judge Bench decision of this Court in

Paramjeet Singh Patheja’s case (supra), more

particularly, paragraph 43 (vii), is relied on by the

Page 12 of 61 appellant to support its claim for exclusion of the period

from 31.08.2010 to 01.12.2016 while computing the

period of limitation for filing applicants under Section 9,

IBC. It, in so far as relevant reads thus: -

“43. For the foregoing discussions we hold:

(i)

(ii)

(iii)

(iv)

(v)

(vi) ………

(vii) It is a well-established rule that a provision

must be construed in a manner which would give

effect to its purpose and to cure the mischief in

the light of which it was enacted. The object of

Section 22, in protecting guarantors from legal

proceedings pending a reference to BIFR of the

principal debtor, is to ensure that a scheme for

rehabilitation would not be defeated by isolated

proceedings adopted against the guarantors of a

sick company. To achieve that purpose, it is

imperative that the expression "suit" in Section

22 be given its plain meaning, namely, any

proceedings adopted for realization of a right

Page 13 of 61 vested in a party by law. This would clearly

include arbitration proceedings.”

(Emphasis added)

11. In the light of the position settled thus, in

Paramjeet Singh Patheja’s Case (supra), it is

relevant to refer to an earlier two-Judge Bench decision of

this court in Kailash Nath Agarwal and Ors. v.

Pradeshiya Industrial & Investment Corporation of

U.P. Ltd. and Anr.2 That was also a case, involving

consideration of the question as to whether Section 22,

SICA, afford protection to guarantors of sick company or

only to the sick company. It is relevant to note in this

context that the decision in Kailash Nath Agarwal’s

Case (supra) was not brought to the notice of the later

bench while deciding Paramjeet Singh Patheja’s Case

(supra). In other words, the latter case was decided per

incuriam. In Kailash Nath Agarwal’s Case, after

considering contentions akin to those raised in

Paramjeet Singh Patheja’s Case, this court held that

the words “proceedings” and again “suit” had to be

2 (2003) 4 SCC 305

Page 14 of 61 construed differently as carrying different meanings,

since, they had been raised to denote different things. It

was concluded that Section 22 (1), SICA only prohibits

recovery against the industrial company and there would

be no protection offered to guarantors against the

recovery proceedings.

12. The above conflicting decisions need not detain us

from considering the issue further in the light of a

subsequent three-Judge Bench decision of this court in

KSL & Industries Ltd. Vs. M/s. Arihant Threads Ltd 3.

The three-judge bench, after noting the contentions

raised before and the findings of the two-judge bench in

Kailash Nath Agarwal’s case (supra), found that it did

not deal with the question regarding the scope of

protection afforded to the industrial company concerned,

under Section 22 (1) of SICA. Having observed thus,

the three-Judge Bench went on to consider the said

question. In that regard, paragraphs 32, 33 and 53 are

relevant and reads thus:

3 (2015) 1 SCC 166

Page 15 of 61 “32. As observed earlier, Sub-section (1) of

Section 22 may be divided into two parts. In one

part, it provides that “no proceedings’’ be

instituted for the winding up of the industrial

company or for execution, distress or the like

against any of the properties of such industrial

company, and in the second part it provides that

“no suit” for the recovery of money or for the

enforcement of any security against the industrial

company or of any guarantee in respect of any

loans or advances granted to the industrial

company, “shall lie or be proceeded with further,

except with the consent of the Board or, as the

case may be, the Appellate Authority.”

33. Undoubtedly, the present proceedings viz.

“application for recovery” cannot specifically be

described as proceedings for execution, distress

or the like against any of the properties, but it is

certainly a proceeding which results in and in fact

had resulted in the execution and distress against

the property of the Company and is therefore

Page 16 of 61 liable to be construed as a proceeding for the

execution, distress or the like against any of the

properties of the industrial company. We are of

the view that such a construction would be within

the intendment of Parliament wherever the

proceedings for recovery of a debt which has

been secured by a mortgage or pledge of the

property of the borrower are instituted. Surely,

there is no purpose in construing that Parliament

intended that such an application for recovery by

summary procedure should lie or be proceeded

with, but only its execution be interdicted or

inhibited especially. In this context, it may be

remembered that the proceedings by way of an

application for recovery according to a summary

procedure as provided under the RDDB Act are

not referred to in Section 22 simply because the

RDDB Act had not then been enacted.

53. Moreover, we have found nothing contrary

in the intention of the SICA to exclude a recovery

application from the purview of Section 22,

Page 17 of 61 indeed there could be no reason for such

exclusion since the purpose of the provision is to

protect the properties of a sick company, so that

they may be dealt with in the best possible way

for the purpose of its revival by the BIFR. In State

of Punjab v. The Okara Grain Buyers Syndicate

Ltd. MANU/SC/0023/1963: AIR 1964 SC 669, the

Court articulated the importance of preserving

the beneficent purpose of the statute and

observed:

14. … We shall therefore proceed to examine the

provisions of the Act on the footing that the test

for determining whether the Government is

bound by a statute is whether it is expressly

named in the provision which it is contended

binds it, or whether it “is manifest that from the

terms of the statute, that it was the intention of

the legislature that it shall be bound”, and that

the intention to bind would be clearly made out

if the beneficent purpose of the statute would be

Page 18 of 61 wholly frustrated unless the Government were

bound.”

13. Thus, it is obvious that the three-Judge Bench in KSL

& Industries Ltd. (supra) considered the question

whether a recovery application under the Recovery of

Debts Due to Banks and Financial Institutions Act, 1963

(RDDB Act) would lie or be proceeded with against a sick

company in view of the Bar contained in Section 22 (1) of

SICA. Evidently, even after finding that an ‘application for

recovery’ under RDDB Act could not specifically be

described as proceedings for execution, distress or the

like against any of the properties, it was held that it is

certainly a proceeding which may result in the execution

and distress against the property of the company and is

therefore, liable to be construed as a proceeding for the

execution, distress or the like against any of the

properties of the industrial company. Accordingly, it was

held that such a construction would be within the

intendment of the Parliament. Moreover, it was held

therein that there would be no purpose in construing the

Parliament intended that such an application for recovery

Page 19 of 61 by summary procedure should lie or be proceeded with,

but only its execution be interdicted or inhibited. That

apart the three-Judge Bench found nothing contrary in the

intention of the SICA to exclude a recovery application

from the purview of a Section 22 thereof, taking note of

the fact that the purpose of the said provision is to

protect the properties of sick company, so that they may

be dealt with in the best possible way for the purpose of

its revival by BIFR.

14. In view of the provisions under Section 22 (1) of SICA

and the decisions in Paramjeet Singh case (Supra)

and in KSL & Industries Limited (supra), it is

worthwhile to note that in the case on hand it was the

industrial company (respondent herein) that approached

the BIFR under the provisions of SICA and got it declared

as ‘sick company’ by filing Case No. 13 of 2010; that it is

thereafter that the appellant filed Miscellaneous

Application No. 432/2013 thereon praying, inter-alia, to

permit it under Section 22 of SICA to approach a Civil

Court of appropriate jurisdiction for recovery of the

above-mentioned dues along with interest; that the said

Page 20 of 61 application was disposed of only on 09.09.2015, as per

Annexure-A40 proceedings, that too, only with a direction

to the respondent company to incorporate the dues of the

applicant in the DRS and that as per Annexure-A40, Case

No.13 of 2010 and M.A. No. 292/2014 filed thereon, were

then, posted for hearing. In short, Case No. 13 of 2010

was pending before the BIFR when SICA was repealed

w.e.f. 01.12.2016 and Sections 8 and 9, IBC took its effect

from 01.12.12016. Thus, obviously, proceedings under

SICA were then pending before the BIFR when the default

from the part of the respondent allegedly occurred and by

virtue of Section 22 (1), SICA and the decisions referred

above, the appellant could not have, then, resorted to any

legal proceedings for enforcing any right which may result

in recovery from the properties of the respondent

company. For the same reasons, the contention of the

respondent that pending the proceedings before the BIFR

the appellant could have resorted to arbitration

proceedings also has to fail.

15. Now, we will have to consider the purported intent of

Section 22 (5), SICA. The intention appears to be to

Page 21 of 61 protect the interest of such a party who was prevented

from lawfully enforcing the right to seek for recovery of

dues during the operative period of the bar under Section

22 (1), SICA, if it is otherwise available even after the

conclusion of proceedings before the BIFR, to the extent

specifically mentioned therein. According to us, any other

understanding of the provisions under Section 22 (5)

would be wholly pointless and purposeless. When the

appellant being a party to BIFR in the sense, on

intervention obtained an order to the respondent

company to incorporate its dues in the Draft

Rehabilitation Scheme (DRS) in an application seeking

permission to effect recovery of the dues and such a

stage had not reached till 01.12.2016, whether there

would be any justification to hold that on the repeal of

SICA it could not claim the benefit flowing from the

provisions under Section 22 (5) of SICA, subject to the

provisions under the relevant laws governing the

appropriate forum chosen?

16. In the contextual situation, it is apropos to refer to

Section 252 of IBC which reads thus: -

Page 22 of 61

“252. The Sick Industrial Companies (Special

Provisions) Repeal Act, 2003 shall be amended in

the manner specified in the Eighth Schedule.”

16.1 The Eighth Schedule would reveal the nature and

manner of amendment specified thereunder as

substitution to sub-clause (b) of Section 4, of SICA Repeal

Act, 2003 w.e.f. 01.12.2016, as hereunder:

"(b) On such date as may be notified by the

Central Government in this behalf, any appeal

preferred to the Appellate Authority or any

reference made or inquiry pending to or before

the Board or any proceeding of whatever nature

pending before the Appellate Authority or the

Board under the Sick Industrial Companies

(Special Provisions) Act, 1985 (1 of 1986) shall

stand abated: Provided that a

company in respect of which such appeal or

reference or inquiry stands abated under this

clause may make reference to the National

Company Law Tribunal under the Insolvency and

Bankruptcy Code, 2016 within one hundred and

Page 23 of 61 eighty days from the commencement of the

Insolvency and Bankruptcy Code, 2016 in

accordance with the provisions of the Insolvency

and Bankruptcy Code, 2016:

Provided further that no fees shall be

payable for making such reference under

Insolvency and Bankruptcy Code, 2016 by a

company whose appeal or reference or inquiry

stands abated under this clause.".

(Emphasis added)

17. A perusal of the substituted sub-clause (b), as

extracted above would reveal that reference made or

inquiry pending or any proceeding of whatever nature,

before the Board under SICA would stand abated upon its

notification by the Central Government. The first proviso

to sub-clause (b) only makes reference to the time limit

applicable to the company in respect of which the appeal

or reference or enquiry or any such proceeding thus stood

abated under the said sub-clause. Going by the said

proviso, such a company may make reference to NCLT

under IBC within 180 days from the commencement of

Page 24 of 61 IBC and in accordance with the provisions thereof.

Subsequently, the stated amendment was notified by the

Central Government under S.O. 3569 (E) dated

25.11.2016. It is thus clear that on account of repeal of

SICA under Repeal Act (1 of 2003) w.e.f. 01.12.2016, any

pending proceeding or enquiry under SICA, initiated by an

industrial company would get abated and the prescription

of such period of 180 days became applicable only to

such a company. A scanning of the stated sub-clause (b)

and the provisos would not reveal or indicate prescription

of any such specific time limit as regards the opposite

parties in the abated reference, inquiry or proceeding for

proceeding with their available remedy under IBC. In the

said circumstances, if such an opposite party falls within

the expression ‘operational creditor’, under IBC, it could

only be taken that it should be governed by the provisions

under the IBC in regard to the period of limitation for

approaching the Adjudicating Authority. In this context, it

is also relevant to note that as relates the company

whose reference or inquiry or any proceeding got abated,

as mentioned, it need not pay any fee for making

Page 25 of 61 reference under IBC, in terms of the second proviso to the

substituted sub-clause (b) of Section 4 of the SICA Repeal

Act. Needless to say, that this exemption is not available

to other parties to the abated proceedings, or reference

or inquiry concerned.

18. Section 6, IBC provides that where any corporate

debtor commits a default, a financial creditor, an

operational creditor or the corporate debtor itself may

initiate CIRP in respect of such corporate debtor in the

manner provided under Chapter II of IBC. Section 8, which

falls under Chapter II, deals with insolvency resolution by

operational creditor. It provides that an operational

creditor may, on the occurrence of default, deliver a

demand notice of unpaid of operational debt or copy of an

invoice demanding payment of the amount involved in

the default to the corporate debtor in such form and

manner as may be prescribed. It is apposite to note that

a seemingly printing error had occurred in Section 8 (1),

IBC inasmuch as instead of ‘a demand notice of unpaid

operational debt’ it is printed as ‘a demand notice of

unpaid operational debtor.’ Evidently, this must have

Page 26 of 61 occurred as in the Gazette Notification also the word

‘debtor’ is following the words ‘unpaid operational’. The

word ‘debtor’ used therein has to be split into ‘debt’ and

‘or’ so as to serve the purpose and to give the intended

meaning to Section 8 (1) and this view would get support

from sub-section (2) of Section 8 itself. Sub-section 2 of

Section 8, IBC in so far as it is relevant, reads thus: -

“8. (1) ….

(2) The corporate debtor shall, within a period of

ten days of the receipt of the demand notice or

copy of the invoice mentioned in sub-section (1)

bring to the notice of the operational creditor—

(a) existence of a dispute, if any, or record of the

pendency of the suit or arbitration proceedings

filed before the receipt of such notice or invoice in

relation to such dispute;

(b) the payment of unpaid operational debt—

(Underline supplied)

19. So also, the said position is evident from Rule 5

of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 (for short ‘the

Page 27 of 61 Rules’). Going by the instruction in Form 3, in which a

Demand Notice is to be delivered to the corporate

debtor under ‘the Rules’, the said from has to be

served on the corporate debtor, ten days in advance

of filing an application under Section 9 of the Code.

This instruction can only be construed that it shall be

served on the corporate debtor not less than ten days

in advance of filing an application under Section 9 of

the Code for the simple reason that the period of

limitation for filing an application under Section 9, IBC

is governed by Section 238 A, IBC and therefore, it

could not be construed that Section 9 application

should invariably be filed on the eleventh day of

service of advance demand notice in Form 3. Section

238 A, IBC, dealing with period of limitation, has come

into force w.e.f. 06.06.2018 and it reads thus: -

“238A. Limitation. – The provisions of the

Limitation Act, 1963 (36 of 1963) shall, as far as

may be, apply to the proceedings or appeals

before the Adjudicating Authority, the National

Company Law Appellate Tribunal, the Debt

Page 28 of 61 Recovery Tribunal or the Debt Recovery Appellate

Tribunal, as the case may be.”

20. Obviously, Section 238A, IBC makes the provisions of

the Limitation Act, 1963 applicable to computation of the

period of limitation in regard to proceedings before the

Adjudicating Authority and the other forums. This

position is made explicitly clear in the decision of this

Court in B.K. Educational Services Private Limited v.

Parag Gupta and Associates4 at paragraphs 43 and 48

and they read thus: -

“43. It will be seen from a reading of Section 8 (2)

(a) that the corporate debtor shall, within a period

of 10 days of the receipt of the demand notice,

bring to the notice of the operational creditor the

existence of a “dispute”. We have seen that

“dispute” as defined in Section 5 (6) includes a

suit or arbitration proceeding relating to certain

matters. Again, under Section 8 (2) (a), the

corporate debtor may, in the alternative, disclose

the pendency of a suit or arbitration proceedings

4 (2019) 11 SCC 633

Page 29 of 61 filed before the receipt of the demand notice. It

is clear therefore, that at least in the case of an

operational creditor, “default” must be non-

payment of amounts that have become due and

payable in law. The “dispute” or pendency of a

suit or arbitration proceedings would necessarily

bring in the Limitation Act, for if a suit or

arbitration proceeding is time-barred, it would be

liable to be dismissed. This again is an important

pointer to the fact that when the expression

“due” and “due and payable” occur in Sections

3(11) and 3 (12) of the Code, they refer to a

“default” which is non-payment of a debt that is

due in law i.e. that such debt is not barred by the

law of limitation. It is well settled that where the

same word occurs in a similar context, the

draftsman of the statute intends that the word

bears the same meaning throughout the statute

(see Bhogilal Chunilal Pandya v. State of Bombay

1959 Supp (1) SCR 310, AIR 1959 SC 356, 1959

Cri LJ 389, Supp SCR at pp. 313- 14). It is thus

Page 30 of 61 clear that the expression “default” bears the

same meaning in Sections 7 and 8 of the Code,

making it clear that the corporate insolvency

resolution process against a corporate debtor can

only be initiated either by a financial or

operational creditor in relation to debts which

have not become time-barred.

48. It is thus clear that since the Limitation Act is

applicable to applications filed under Sections 7

and 9 of the Code from the inception of the Code,

Article 137 of the Limitation Act gets attracted.

“The right to sue”, therefore, accrues when a

default occurs. If the default has occurred over

three years prior to the date of filing of the

application, the application would be barred

under Article 137 of the Limitation Act, save and

except in those cases where, in the facts of the

case, Section 5 of the Limitation Act may be

applied to condone the delay in filing such

application.”

(emphasis supplied)

Page 31 of 61

21. The decision in B.K. Educational Services Private

Limited (supra) would thus reveal that Articles 137 and 5

of the Limitation Act, 1963 are applicable to applications

filed under Sections 7 and 9 of IBC. It be so, the position

is that the period of limitation is three years from the

right to apply accrues but the delay is condonable on

sufficient grounds. It is to be noted that the third column

in Article 137 of the Limitation Act posits that time runs

when the ‘right to apply accrues’. In the decision in

Babulal Vardharji Gurjar v. Veer Gurjar Aluminium

Industries Private Limited and Anr.5 this Court

considered the question as to when ‘right to apply would

accrue?’ Paragraph 32 of the said decision, in so far as it

is relevant for the purpose of this case reads thus:-

“32. When Section 238-A of the Code is read with the

above noted consistent decisions of this Court

in Innoventive Industries [Innoventive Industries

Ltd. v. ICICI Bank, (2018) 1 SCC 407], B.K. Educational

Services [B.K. Educational Services (P) Ltd. v. Paras

Gupta & Associates, (2019) 11 SCC 633], Swiss

Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, 5 (2020) 15 SCC 1

Page 32 of 61 (2019) 4 SCC 17], K. Sashidhar [K. Sashidhar v. Indian

Overseas Bank, (2019) 12 SCC 150], Jignesh

Shah [Jignesh Shah v. Union of India, (2019) 10 SCC

750], Vashdeo R. Bhojwani [Vashdeo R.

Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC

158], Gaurav Hargovindbhai Dave [Gaurav

Hargovindbhai Dave v. Asset Reconstruction Co.

(India) Ltd., (2019) 10 SCC 572] and Sagar

Sharma [Sagar Sharma v. Phoenix ARC (P) Ltd.,

(2019) 10 SCC 353] respectively, the following basics

undoubtedly come to the fore:

(a) that the Code is a beneficial legislation intended

to put the corporate debtor back on its feet and is not

a mere money recovery legislation;

(b) that CIRP is not intended to be adversarial to

the corporate debtor but is aimed at protecting the

interests of the corporate debtor;

(c) that intention of the Code is not to give a new

lease of life to debts which are time-barred;

(d) that the period of limitation for an application

seeking initiation of CIRP under Section 7 of the Code

Page 33 of 61 is governed by Article 137 of the Limitation Act and is,

therefore, three years from the date when right to

apply accrues;

(e) that the trigger for initiation of CIRP by a

financial creditor is default on the part of the

corporate debtor, that is to say, that the right to apply

under the Code accrues on the date when default

occurs;

(f) that default referred to in the Code is that of

actual non-payment by the corporate debtor when a

debt has become due and payable; and

(g) that if default had occurred over three years

prior to the date of filing of the application, the

application would be time-barred save and except in

those cases where, on facts, the delay in filing may

be condoned; and

(h) an application under Section 7 of the Code is

not for enforcement of mortgage liability and Article

62 of the Limitation Act does not apply to this

application.

Page 34 of 61

22. The following relevant recitals from paragraphs 34,

34.1, 38 and 38.1 are worthy to be noted in the above

context and they read thus:-

“34……….. As noticed, in B.K. Educational Services

[B.K. Educational Services (P) Ltd. v. Paras Gupta &

Associates, (2019) 11 SCC 633, it has clearly been

held that the limitation period for application under

Section 7 of the Code is three years as provided by

Article 137 of the Limitation Act, which commences

from the date of default and is extendable only by

application of Section 5 of the Limitation Act, if any

case for condonation of delay is made out. The

findings in para 12 in Jignesh Shah [Jignesh Shah v.

Union of India, (2019) 10 SCC 750] makes it clear that

the Court indeed applied the principles so stated in

B.K. Educational Services [B.K. Educational Services

(P) Ltd. v. Paras Gupta & Associates, (2019) 11 SCC

633], and held that the winding-up petition filed

beyond three years from the date of default was

barred by time.

Page 35 of 61

34.1. Even in the later decisions, this Court has

consistently applied the declaration of law in B.K.

Educational Services [B.K. Educational Services (P)

Ltd. v. Paras Gupta & Associates, (2019) 11 SCC 633]. As noticed, in Vashdeo R. Bhojwani [Vashdeo R.

Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC

158], this Court rejected the contention suggesting

continuing cause of action for the purpose of

application under Section 7 of the Code while holding

that the limitation started ticking from the date of

issuance of recovery certificate dated 24-12-2001. Again, in Gaurav Hargovindbhai Dave [Gaurav

Hargovindbhai Dave v. Asset Reconstruction Co.

(India) Ltd., (2019) 10 SCC 572], where the date of

default was stated in the application under Section 7

of the Code to be the date of NPA i.e. 21-7-2011, this

Court held that the limitation began to run from the

date of NPA and hence, the application filed under

Section 7 of the Code on 3-10-2017 was barred by

limitation.

Page 36 of 61

38. The question as to whether date of enforcement

of the Code (i.e. 1-12-2016) provides the starting

point of limitation for an application under Section 7

of the Code and hence, the application in question,

made in the year 2018, is within limitation, is not

even worth devoting much time. A bare look at para

21 of the impugned order [Babulal Vardhaji Gurjar v.

Veer Gurjar Aluminium Industries (P) Ltd., 2019 SCC

OnLine NCLAT 295] leaves nothing to guess that such

observations by the Appellate Tribunal had only been

assumptive in nature without any foundation and

without any basis. There is nothing in the Code to

even remotely indicate if the period of limitation for

the purpose of an application under Section 7 is to

commence from the date of commencement of the

Code itself. Similarly, nothing provided in the

Limitation Act could be taken as the basis to support

the proposition so stated by the Appellate Tribunal. In

fact, such observations had been in the teeth of law

declared by this Court in B.K. Educational Services

Page 37 of 61 [B.K. Educational Services (P) Ltd. v. Paras Gupta &

Associates, (2019) 11 SCC 633].

38.1. It appears that at the given point of time, NCLAT

had been readily adopting such a proposition in other

cases too, so as to treat similar applications within

limitation. This approach of NCLAT was specifically

disapproved by this Court in Sagar Sharma [Sagar

Sharma v. Phoenix ARC (P) Ltd., (2019) 10 SCC 353]

where, after observing that in B.K. Educational

Services [B.K. Educational Services (P) Ltd. v. Paras

Gupta & Associates, (2019) 11 SCC 633] it had

already been made clear that the date of the Code's

coming into force on 1-12-2016 was wholly irrelevant

to the triggering of any limitation period for the

purposes of the Code, this Court said : (Sagar Sharma

case [Sagar Sharma v. Phoenix ARC (P) Ltd., (2019)

10 SCC 353], SCC p. 354, para 3)

“3. Article 141 of the Constitution of India mandates

that our judgments are followed in letter and spirit.

The date of coming into force of the IB Code does not

and cannot form a trigger point of limitation for

Page 38 of 61 applications filed under the Code. Equally, since

“applications” are petitions which are filed under the

Code, it is Article 137 of the Limitation Act which will

apply to such applications.”

23. The above-mentioned positions settled with respect

to Section 7, IBC will proprio vigore apply to Section 9,

IBC. In short, as relates an application under Section 9,

IBC the date of coming into force of IBC, viz, 01.12.2016

would not form the trigger point of limitation and the

period of limitation for an application for initiating of CIRP

under Section 9, IBC would be three years from the date

when the right to apply accrues as provided by Article

137 of the Limitation Act and further that the right to

apply under the IBC would accrue on the date when

default occurs and it is extendable only by application of

Section 5 of the Limitation Act. In view of the nature of

the provision under SICA and the nature of the orders

issuable by the BIFR and the positions qua an application

for initiation of CIRP under Section 9 of IBC, referred

above, we think it absolutely unnecessary to delve into

the question of applicability or otherwise of Section 14 of

Page 39 of 61 the Limitation Act in regard to proceedings under Section

9, IBC as the same provides only for exclusion of time of

proceedings bona fide in Court without jurisdiction.

24. When the limitation period for initiating CIRP under

Section 9, IBC is to be reckoned from the date of default,

as opposed to the date of commencement of IBC and the

period prescribed therefor, is three years as provided by

Section 137 of the Limitation Act, 1963 and the same

would commence from the date of default and is

extendable only by application of Section 5 of the

Limitation Act, 1963 it is incumbent on the Adjudicating

Authority to consider the claim for condonation of the

delay when once the proceeding concerned is found filed

beyond the period of limitation.

25. As relates Section 5 of the Limitation Act showing

‘sufficient cause’ is the only criterion for condoning delay.

‘Sufficient Cause’ is the cause for which a party could not

be blamed. We have already taken note of the legal bar

for initiation of proceedings against an industrial company

by virtue of Section 22 (1), SICA and obviously, when a

party was thus legally disabled from resorting to legal

Page 40 of 61 proceeding for recovering the outstanding dues without

the permission of BIFR and even on application

permission therefor was not given the period of

suspension of legal proceedings is excludable in

computing the period of limitation for the enforcement of

such right in terms of Section 22(5), SICA. In the

absence of provisions for exclusion of such period in

respect of an application under Section 9, IBC, despite the

combined reading of Section 238A, IBC and the provisions

under the Limitation Act what is legally available to such

a party is to assign the same as a sufficient cause for

condoning the delay under Section 5 of the Limitation Act.

In such eventuality, in accordance with the factual

position obtained in any particular case viz., the period of

delay and the period covered by suspension of right

under Section 22 (1), SICA etc., the question of

condonation of delay has to be considered lest it will

result in injustice as the party was statutorily prevented

from initiating action against the industrial company

concerned. The first question formulated hereinbefore is

accordingly answered.

Page 41 of 61

26. In the case on hand, indubitably, the question

whether the delay occurred in the matter of filing of

application under Section 9, IBC is condonable or not, was

not considered. A bare perusal of the impugned order

would reveal that after taking into account the date of

default and the date of filing of the application under

Section 9, IBC the NCLAT held it as time barred. When

once it is so found we would have remanded the matter

for consideration of the question of limitation afresh, but

for the fact that the application under Section 9, IBC was

dismissed assigning reason of existence of ‘pre-existing

dispute’ as well.

27. The appellant and the respondent have cited various

decisions in support of their rival contentions on the

sustainability or otherwise of the dismissal of the stated

application on the ground of existence of ‘pre-existing

dispute(s)’ between the parties. Nonetheless, we are of

the considered view that in that regard, only the decisions

to be referred infra, require consideration. Paradoxically,

both sides relied on the decision of this Court in

Page 42 of 61 Macquarie Bank Limited v. Shilpi Cable

Technologies Limited6.

28. Macquarie Bank Limited’s case (supra) is relied

on by the appellant to drive home the point that

production of the certificate/statement from the financial

institution maintaining the accounts of the operational

creditor concerned, under Section 9 (3)(c), IBC, is not a

condition precedent to trigger CIRP and hence, its

insistence will be violative of the law laid down

thereunder. In Macquarie Bank Limited (supra), in

paragraph 16, this Court held: -

“16. When we come to clause (c) of Section

9(3), it is equally clear that a copy of the

certificate from the financial institution

maintaining accounts of the operational creditor

confirming that there is no payment of an unpaid

operational debt by the corporate debtor is

certainly not a condition precedent to triggering

the insolvency process under the Code. The

expression “confirming” makes it clear that this

is only a piece of evidence, albeit a very 6 (2018) 2 SCC 674

Page 43 of 61 important piece of evidence, which only

“confirms” that there is no payment of an unpaid

operational debt. This becomes clearer when we

go to clause (d) of Section 9(3) which requires

such other information as may be specified has

also to be furnished along with the application.”

29. This position is thus fairly settled, as above. On the

other hand, the respondent relied on the said decision to

buttress its contention that existence of ‘pre-existing

dispute’ should entail dismissal of application under

Section 9, IBC.

30. In Macquarie Bank Limited (supra), this Court

held, at paragraphs, 13 and 14 thus: -

“13. The first thing to be noticed on a conjoint

reading of Sections 8 and 9 of the Code, as

explained in Mobilox Innovations (P) Ltd. v. Kirusa

Software (P) Ltd. (2018) 1 SCC 353, decided on

21-9-2017 at paras 33 to 36, is that Section 9(1)

contains the conditions precedent for triggering

the Code insofar as an operational creditor is

Page 44 of 61 concerned. The requisite elements necessary to

trigger the Code are:

(i) occurrence of a default;

(ii) delivery of a demand notice of an unpaid

operational debt or invoice demanding payment

of the amount involved; and

(iii) the fact that the operational creditor has not

received payment from the corporate debtor

within a period of 10 days of receipt of the

demand notice or copy of invoice demanding

payment, or received a reply from the corporate

debtor which does not indicate the existence of a

pre-existing dispute or repayment of the unpaid

operational debt.

14. It is only when these conditions are met that

an application may then be filed under Section

9(2) of the Code in the prescribed manner,

Page 45 of 61 accompanied with such fee as has been

prescribed ...”

(emphasis supplied)

31. In the decision in Innoventive Industries Ltd. v.

ICICI Bank and Anr.7, at paragraph 29, this Court held

thus: -

“29. The scheme of Section 7 stands in contrast

with the scheme under Section 8 where an

operational creditor is, on the occurrence of a

default, to first deliver a demand notice of the

unpaid debt to the operational debtor in the

manner provided in Section 8(1) of the Code.

Under Section 8(2), the corporate debtor can,

within a period of 10 days of receipt of the

demand notice or copy of the invoice mentioned

in sub-section (1), bring to the notice of the

operational creditor the existence of a dispute or

the record of the pendency of a suit or arbitration

proceedings, which is pre-existing — i.e. before

such notice or invoice was received by the

7 (2018) 1 SCC 407

Page 46 of 61 corporate debtor. The moment there is existence

of such a dispute, the operational creditor gets

out of the clutches of the Code.”

32. A scanning of the decisions referred supra, would

reveal that existence of a ‘pre-existing dispute’ should

entail dismissal of an application filed under Section 9 IBC

at the threshold. Therefore, the question is whether the

respondent had raised a dispute describable as a ‘pre-

existing dispute’ so as to entail dismissal of application of

the appellant under Section 9, IBC. In Mobilox

Innovations (P) Ltd. (supra), particularly at paragraphs

33 and 51, this Court held thus: -

“33. The scheme under Sections 8 and 9 of the

Code, appears to be that an operational creditor,

as defined, may, on the occurrence of a default

(i.e. on non-payment of a debt, any part whereof

has become due and payable and has not been

repaid), deliver a demand notice of such unpaid

operational debt or deliver the copy of an invoice

demanding payment of such amount to the

corporate debtor in the form set out in Rule 5 of

Page 47 of 61 the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 read with

Form 3 or 4, as the case may be [Section 8 (1)].

Within a period of 10 days of the receipt of such

demand notice or copy of invoice, the corporate

debtor must bring to the notice of the operational

creditor the existence of a dispute and/or the

record of the pendency of a suit or arbitration

proceeding filed before the receipt of such notice

or invoice in relation to such dispute [Section 8(2)

(a)]. What is important is that the existence of the

dispute and/or the suit or arbitration proceeding

must be pre-existing i.e. it must exist before the

receipt of the demand notice or invoice, as the

case may be. […] It is only if, after the expiry of

the period of the said 10 days, the operational

creditor does not either receive payment from the

corporate debtor or notice of dispute, that the

operational creditor may trigger the insolvency

process by filing an application before the

adjudicating authority under Sections 9(1) and

Page 48 of 61 9(2). [. .. ] It may also reject the application if the

notice of dispute has been received by the

operational creditor or there is a record of dispute

in the information utility [Section 9(5)(ii)(d)}.

Section 9(5)(ii)(d) refers to the notice of an

existing dispute that has so been received, as it

must be read with Section 8(2)(a). Also, if any

disciplinary proceeding is pending against any

proposed resolution professional, the application

may be rejected [Section 9(5)(ii)(e)].

51. It is clear, therefore, that once the operational

creditor has filed an application, which is

otherwise complete, the adjudicating Authority

must reject the application under Section 9(5)(2)

(d) if notice of dispute has been received by the

operational creditor or there is a record of dispute

in the information utility. It is clear that such

notice must bring to the notice of the operational

creditor the “existence” of a dispute or the fact

that a suit or arbitration proceeding relating to a

Page 49 of 61 dispute is pending between the parties.

Therefore, all that the adjudicating Authority is to

see at this stage is whether there is a plausible

contention which requires further investigation

and that the “dispute” is not a patently feeble

legal argument or an assertion of fact

unsupported by evidence. It is important to

separate the grain from the chaff and to reject a

spurious defence which is mere bluster. However,

in doing so, the Court does not need to be

satisfied that the defence is likely to succeed. The

Court does not at this stage examine the merits

of the dispute except to the extent indicated

above. So long as a dispute truly exists in fact

and is not spurious, hypothetical or illusory, the

adjudicating Authority has to reject the

application.”

(emphasis supplied)

33. In the light of the positions thus settled by this Court

in Macquarie Bank Limited (supra) and Mobilox

Innovations (P) Ltd. (supra), we will examine the

Page 50 of 61 question whether there was a ‘pre-existing dispute’

between the parties, warranting dismissal of the

application for initiation of CIRP filed by the appellant.

34. In this context, it is relevant to note that the

Annexure A-41 demand notice under Section 8, IBC was

issued by the appellant on 01.04.2017 and the

respondent replied the same as per letter Annexure A-42

letter dated 10.04.2017 viz., within 10 days from the date

of receipt of Annexure A-41. Evidently, the respondent, in

Annexure A-42 reply raised the contentions that there

was shortfall in gas supply and that it had suffered huge

loss due to the disconnection of gas supply. True that, in

terms of the decision in Mobilox Innovations (P) Ltd.

(supra) what is to be looked into is the existence or

otherwise of a dispute and/or the suit or arbitration

proceedings prior to the receipt of demand notice or

invoice, as the case may be. In the case on hand, as

noticed earlier, the appellant had issued a demand notice

under Section 8, IBC read with the Rule 5 of 2016 Rules

on 01.04.2017. Obviously, the NCLT and NCLAT referred

to a letter dated 04.01.2013 (Annexure A-36 herein) to

Page 51 of 61 hold that existence of a pre-existing dispute between the

parties revealed from the same. The said letter dated

04.01.2013 issued by way of a reply by the respondent to

the letter from the appellant dated 03.01.2013, reads

thus:-

“Date : 04.01.2013

To, The Director, Sabarmati Gas Ltd., Gandhinagar.

Respected Sir, Ref : Your letter dated 03.01.2013

We are registered with BlFR vide Case No.

13/2010 pursuant to Section 22 of SICA no

coercive recovery can be made. Kindly note that

abrupt disconnection of Gas Supply to our Unit is

causing heavy losses on account of production.

The loss is further exaggerating on account of

non-supply of material to various parties which

includes Railway Board and other Big units.

Kindly note that you are responsible for the Direct

Loss of Production ranging from Rs. 30- Rs. 50

Page 52 of 61 Lakhs per day and also Consequential Losses that

may be incurred by us including Penalties for

Non-compliance of contract (or supplies for which

you will solely be held responsible.

In view of the above subject we agree for

payment of bills and request you to wait (or the

old bills payment till restructuring is agreed by

Honorable BIFR.

Hoping for your best co-operation

Thanking you,

For Shah Alloys Limited

Authorized Signatory”

35. The learned Senior Counsel for the appellant would

contend that last para of the said letter dated 04.01.2013

would reveal the fact that the respondent had agreed to

effect the payments or bills and requested only to wait for

the old bills payments till restructuring is agreed by BIFR

and in other words, non-existence of a dispute. That

apart, the appellant heavily relied on paragraph 2.7 and

2.10 (iv) of Annexure 40 which is the proceeding of BIFR

Page 53 of 61 in Case No.13 of 2010 dated 09.09.2015, to canvass the

position that the contention of the respondent regarding

existence of a pre-existing dispute with respect to the

dues payable to it, is bereft of any basis. The aforesaid

relevant paragraphs in Annexure A-40 are as under: -

“2.7 The Bench then took MA No. 432/2013. The

ld advocate representing the applicant

(Sabarmati Gas Ltd.) sought time to appear

prepared in the next date of hearing, since they

have been engaged recently in this case. The ld

advocate representing the company submitted

that the applicant is an unsecured creditor and he

accepted the dues of the applicant. He assured

that their reconciled dues will be taken care of in

the DRS, as unsecured creditor and they will be

paid as per the terms of DRS, as and when it

would be approved by the Board.

2.10 Having considered the submissions made

during the hearing and material on record the

Bench issued following directions:

Page 54 of 61

…

(iv) MA 432 filed by Sabarmati Gas Ltd. is

disposed off with the direction to the company to

incorporate the dues of the applicant in the DRS.”

36. True that paragraph 2.7 of Annexure 40 carries the

recording of the submissions made on behalf of the

respondent before the BIFR by the learned advocate, as

above. Citing all such aspects, the learned Senior Counsel

for the appellant contended that the contention of the

respondent regarding ‘pre-existing dispute’ is only a

patently feeble legal argument/assertion of fact

unsupported by evidence and therefore, it was to be

rejected by the Tribunals. It is further contended by the

applicant that directions at paragraph 2.10 (iv) also is

relevant in this context as it would reveal that the Misc.

Application No.432 of 2013 filed by the Appellant herein

was disposed of with the direction to the respondent

company to incorporate the position of the

appellants/applicant therein in the DRS.

37. Per contra, the learned counsel for the respondent

would submit that a scanning of paragraph 2.7 itself

Page 55 of 61 would reveal that what was assured by the counsel

appearing on behalf of the respondent before the BIFR

was not full payment of the amount as claimed by the

appellant thereunder and what was assured was that the

reconciled dues towards the appellant would be taken

care of in the DRS, as unsecured creditor and that it

would be paid as per the terms of DRS, as and when it is

approved by the Board.

38. In this context the meaning of the word

“reconciliation” is to be looked into. Going by Black’s

Law Dictionary, 10th Edition, the apt meaning suitable to

the situation in relation to accounting, reads thus: “an

adjustment of amounts so that they agree, especially by

allowing for outstanding items”. It is submitted by the

learned counsel for the respondent that such a

reconciliation had not taken place and also that

indisputably, DRS was not formulated and approved. The

aforesaid facts revealed from Annexure 40 together with

the stand taken by the respondent in the letter dated

04.01.2013 (Annexure 36) would reveal the existence of a

pre-existing dispute between the parties. In the

Page 56 of 61 contextual situation it is only apposite to be remindful of

the observation in Mobilox Innovations (P) Ltd. (supra)

that in doing the act of separating the grain from chaff

the Court need not to be satisfied that the defence is

likely to succeed. It is enough that a dispute exists

between the parties and in other words, what is to be

seen is whether there was a plausible contention

requiring investigation for the purpose of adjudication.

Taking note of the nature of the dispute of the respondent

as referred hereinbefore in respect of the claim made by

the appellant, we do not find any reason to disagree with

the concurrent findings of the Tribunals that there existed

a ‘pre-existing dispute’ between the parties before the

receipt of demand notice under Section 8, IBC. In other

words, the dismissal of the application under Section 9,

IBC on the ground of ‘pre-existing dispute’ cannot be held

to be patently illegal or perverse. We also do not find any

reason, in the facts and circumstances, to hold that the

case set up by the respondent was a patently feeble legal

argument. At any rate, we are not inclined to brush aside

the case of the respondent as spurious. We may hasten

Page 57 of 61 to add here that we shall not be understood to have held

that the dispute set by the respondent regarding the dues

is ultimately to be upheld. Certainly, when the

expression ‘pre-existing dispute’ is used it will only

indicate the existence of a dispute prior to the receipt of a

demand notice under Section 8, IBC, and the correctness

or its truthfulness is a matter of evidence. In short, the

respondent has succeeded in raising a dispute

describable as ‘pre-existing dispute’. In that view of the

matter once we find that the Tribunals have rightfully

held that there existed a ‘pre-existing dispute’ between

the parties there cannot be an order of remand of the

matter to the Tribunal for reconsideration of Section 9

application under IBC.

39. In the contextual situation, it is also relevant to refer

to the fact, rightly taken note of by the NCLT, that the

respondent herein had filed a Commercial Suit No.92 of

2017 on 28.04.2017 before the Commercial Court in

Ahmedabad, claiming damages for the loss suffered by it

due to discontinuation of gas supply. True that on

12.07.2018, the said Commercial Civil Suit was dismissed

Page 58 of 61 by the Commercial Court at Ahmedabad on the ground of

being barred by limitation. Annexure-B would reveal that

against the judgment of dismissal in the said suit, the

respondent herein had filed First Appeal No. 3841 of 2018

before the High Court of Gujarat at Ahmedabad. It was

disposed of on 11.08.2021, taking into account the joint

submission that parties be permitted to settle dispute

through arbitration process. In this context it is also to be

noted that the notice of arbitration dated 29.11.2019 has

been issued by the appellant itself. Recording the

submission, the appeal was permitted to be withdrawn

leaving the parties to proceed with arbitral process. This

fact is not disputed and in fact, it is indisputable in view of

Annexure-B, judgment dated 11.08.2021 of the High

Court of Gujarat in Misc. First Appeal No.3841 of 2018. In

Annexure-B, it is recorded thus:-

“Both the learned counsel have taken

instructions and have jointly submitted that let

the parties get their dispute settled through the

arbitration process where learned former Judge

of this Court, Justice J.C. Upadhyaya (Retired)

Page 59 of 61 has already been appointed as the arbitrator on

29.11.2019 and since then the matter is

pending here.”

In this context, it is also relevant to note that Gas

Supply Agreement (GAS) which is an agreement entered

into between the appellant and the respondent dated

30.05.2008 in regard to the supply of natural gas,

contains an arbitration clause viz., clause No.17. When

the agreement entered into between the parties carries

an arbitration clause and when the parties mutually

consented and sought to proceed with arbitration before

the High Court and further, when the arbitration

proceedings are pending, we are of the view that the

parties shall be left with the liberty to raise all contentions

Page 60 of 61 before the arbitrator, except the legal questions

discussed and decided in this judgment.

40. Subject to the above, this Appeal stands dismissed.

All the pending application (s), stand disposed of.

……………………, J.

(Ajay Rastogi)

……………………, J.

(C.T. Ravikumar) New Delhi;

January 04, 2023

Page 61 of 61