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Kay Bouvet Engineering Ltd. v. Overseas Infrastructure Alliance (India) Private Limited

Civil Appeal · 2021 INSC 394Decided 10 Aug 2021
Civil Appeal No. 1137 of 2019
Justice Rohinton Fali Nariman · Justice B.R. Gavai

Background

A Sudanese sugar project was financed through an Indian government credit line, with Overseas Infrastructure Alliance acting as the main contractor and Kay Bouvet Engineering as a sub-contractor. After the Sudanese project owner terminated its contract with Overseas and signed a fresh direct contract with Kay Bouvet, Overseas claimed that an earlier advance payment of about Rs. 47 crore it had routed to Kay Bouvet was now a debt owed back to it, and filed an insolvency petition against Kay Bouvet as an "operational creditor." The National Company Law Tribunal (NCLT) rejected the insolvency petition, but the National Company Law Appellate Tribunal (NCLAT) reversed that and ordered the petition to be admitted, prompting Kay Bouvet to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that an insolvency petition under Section 9 of the IBC must be rejected if a genuine, non-spurious "dispute" exists between the parties, as laid down in its earlier ruling in Mobilox Innovations. Examining the correspondence and agreements, the Court found that the disputed amount had actually been paid on Mashkour's (the Sudanese company's) behalf and from its funds, and that Mashkour itself had directed the amount be adjusted against future supplies rather than refunded, showing Kay Bouvet's defense was real and evidence-backed, not a sham. Since a genuine dispute existed, the insolvency process could not be used to settle what was really a commercial dispute. The Court restored the NCLT's order rejecting the insolvency petition and set aside the NCLAT's order.

Lesson Learnt

The insolvency process (IBC) is not meant to be used as a debt-recovery shortcut: if a company facing an insolvency claim can show a genuine, evidence-backed dispute over the amount claimed, the insolvency application must be rejected and the dispute resolved through ordinary civil remedies instead.

Official source (sci.gov.in)View Judgment (PDF)

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