The Supreme Court has upheld the rejection of an insolvency petition filed against Essar Power Gujarat over alleged dues of Rs 85 crore, ruling that the dispute between the parties predated the insolvency proceedings and therefore could not trigger the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC).
A Bench comprising Justices Nongmeikapam Kotiswar Singh and K Vinod Chandran dismissed the appeal filed by operational creditor Narayani Resources, affirming the earlier decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The court reiterated that Section 9 of the IBC cannot be invoked as a debt recovery mechanism where a bona fide pre-existing dispute exists.
Narayani Resources had sought insolvency proceedings against Essar Power Gujarat, alleging non-payment of around Rs 85 crore for coal supplied to the company. Essar Power Gujarat, however, argued that both parties had entered into a settlement in January 2025 covering claims of about Rs 107 crore and that substantial payments had already been made. The company contended that the remaining payment depended on the issuance of a debit note by the creditor, which was never provided. It also claimed to have paid Rs 8 crore in advance towards interest, which it said was refundable.
The creditor disputed the validity of the settlement and maintained that outstanding dues remained payable despite the reconciliation process. However, both the NCLT and NCLAT concluded that the disagreement over settlement terms and account reconciliation constituted a genuine dispute that existed well before the statutory demand notice was issued.
The Supreme Court's ruling reinforces the principle that insolvency proceedings are intended to resolve corporate distress rather than settle contractual payment disputes. The judgment is expected to strengthen safeguards against the misuse of the IBC as a debt recovery tool and underscores that operational creditors must first resolve bona fide commercial disputes through appropriate legal or arbitral mechanisms before seeking insolvency proceedings. |
