Case Law Details
Rajratan Babulal Agarwal Vs Solartex India Pvt. Ltd. (Supreme Court of India)
In Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353, this Court took the view that one of the objects of the IBC in regard to operational debts is to ensure that the amount of such debts which is usually smaller than the financial debts does not enable the operational creditor to put the corporate debtor into the insolvency resolution process prematurely. It is further declared that it is for this reason that it is enough that a dispute exists between the parties. It is further the law as declared in Mobilox (supra) that Section 5(6) of the IBC excludes the expression bona fide which qualified the words suit or arbitration proceedings in Section 5(4) under the Bankruptcy Law Reforms Committee Report. All that is required is to see whether there is a plausible contention which must be investigated. This Court has gone on to declare that a ‘patently feeble’ legal argument may not be a plausible dispute. We respectfully agree. We are unable to find that in the facts of this case, that the case set up by the second respondent was a patently feeble legal argument. Again, following what this Court held in Mobilox (supra), we do not have to go to the extent of finding that the second respondent is likely to succeed. Still further, finding guidance from Mobilox (supra), the examination of the merits need not transcend the limited extent which we have undertaken which is to find that the case of the second respondent is not to be brushed aside as spurious, hypothetical or illusory. We cannot find that the dispute as projected by the appellant on behalf of the second respondent does not exist. In the teeth of the emails which we have adverted to, and the inference sought to be drawn in particular as also the Lab Reports produced, no doubt, from the second respondent’s Labs, we cannot also find that the case of the corporate debtor is wholly unsupported by evidence. As to the acceptability of these materials and the weight to be attached to them, needless to say, we have not pronounced on the same.
When we speak about evidence, we must not overlook the law laid down in Mobilox (supra) that the court need not be satisfied that the defense is likely to succeed. The standard, in other words, with reference to which a case of a pre-existing dispute under the IBC must be employed cannot be equated with even the principle of preponderance of probability which guides a civil court at the stage of finally decreeing a suit. Once this subtle distinction is not overlooked, we would think that the NCLAT has clearly erred in finding that there was no dispute within the meaning of the IBC.
On the one hand the case of the appellant appears to be that the boiler can be used by putting in large quantities of raw material (300 MT approximately) and this justified the consumption of the supplied goods over a period of a few days, and yet, justifying the complaint about the quality of the raw material and its impact on the boiler. The stand of the first respondent is that there is no material to justify such a claim. We are of the view that this would involve the court making a deeper foray into the merits and attempting to find whether the dispute is bona fide as against it being a plausible contention. We cannot be unmindful about the impact of Section 13(2). In other words, the delivery of the goods and the acceptance of the goods by use of the goods by the corporate debtor being not in dispute, the impact of Section 13(2) read with Section 59 cannot at least for the purpose of determining whether there is a preexisting dispute be ignored.
No doubt, the first respondent lays store by the purchase order requiring certificate of analysis in that in view of there being no challenge to the said certificate of analysis and there being no rejection of the goods which was contemplated under the purchase order at the ground site, it is contended that the dispute cannot be countenanced. The appellant would, on the other hand, seek to buttress his case with reference to the lab reports, no doubt, procured from the labs which the second respondent has set up. The appellant, it must not be overlooked has a definite case that, only upon use of the goods, the defect in the goods came to be discovered. No doubt, the lab reports may support the appellant. It is not the case of either party that the quality of the coal as set out in the purchase order is something which could be established on mere physical examination. As far as the contention that no debit note was raised in respect of supplied goods and that the accounts may not bear out the case of the appellant about the alleged loss, as a result of the use of the goods in question, we feel that while they may indeed have lent assurance to the case of the corporate debtor, their absence may not clenchingly rule out the existence of a ‘pre-existing dispute’ under the IBC. Here, we must not be oblivious to the limited nature of examination of the case of the corporate debtor projecting a pre-existing dispute. Overlooking the boundaries of the jurisdiction can cause a serious miscarriage of justice besides frustrating the object of the IBC. The NCLAT, has clearly erred in not appreciating the issue, bearing in mind the principles in the Act.
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