Supreme Court Upholds Rejection of Insolvency Plea Against Essar Power Gujarat

IBC Cannot Be Used for Debt Recovery: Apex Court in ₹85-Crore Dispute, Refuses to Intervene

The Supreme Court has rejected the appeal filed by an operational creditor to initiate insolvency proceedings against Essar Power Gujarat. The apex court upheld the earlier orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), which had dismissed the plea under the Insolvency and Bankruptcy Code (IBC).

Narayani Resources Pvt. had filed the insolvency petition. Ltd, which alleged that Essar Power Gujarat had failed to pay around Rs 85 crore for the coal supplied to the company. The operational creditor had filed an application under Section 9 of the IBC for the initiation of the Corporate Insolvency Resolution Process (CIRP). Essar Power Gujarat opposed the plea, arguing that the two parties had already arrived at a settlement agreement on claims of about ₹107 crore and there was still a genuine pre-existing dispute over the claimed dues.

The Bench's Key Legal Findings

The plea of the operational creditor was not maintainable in view of the nature of the dispute, the bench of Justices Nongmeikapam Kotiswar Singh and K. Vinod Chandran held.

Pre-Existing Dispute The Supreme Court concurred with the lower tribunals that the correspondence exchanged between the parties indicated a pre-existing dispute with respect to reconciliation of accounts which existed long before the statutory demand notice was served.

Not a Recovery Tool: The bench reiterated that Section 9 of the IBC is strictly meant for addressing corporate distress and cannot be used as an alternative mechanism to recover disputed commercial or contractual dues.

Commercial Remedies Not Bankruptcy

The ruling reaffirms a basic tenet of the Insolvency and Bankruptcy Code – insolvency proceedings cannot be triggered when there is a bona fide, documented dispute between the corporate debtor and the creditor prior to the receipt of a demand notice.

The Supreme Court has dismissed the appeal, and the insolvency proceedings against Essar Power Gujarat will not proceed. Now Narayani Resources will have to seek recovery of its financial claims through other legal means, such as civil suits or arbitration, under standard contract law.