SC upholds rejection of ₹85 cr insolvency plea against Essar Power Gujarat

The Supreme Court has upheld the rejection of an insolvency plea against Essar Power Gujarat, holding that a genuine pre-existing dispute barred proceedings under the IBC

The Supreme Court on Wednesday declined to overturn a National Company Law Appellate Tribunal (NCLAT) ruling that dismissed an insolvency petition filed against Essar Power Gujarat Ltd over alleged dues of Rs 85 crore, holding that the dispute between the parties predated the insolvency proceedings.

 

A Bench of Justice Nongmeikapam Kotiswar Singh and Justice K Vinod Chandran dismissed the operational creditor's appeal, reiterating that proceedings under Section 9 of the Insolvency and Bankruptcy Code (IBC) cannot be used to recover disputed dues when a bona fide pre-existing dispute exists.

 

An operational creditor, under the IBC, is any person who is owed an operational debt. This includes claims arising from goods or services supplied, employment (wages and salaries), and statutory dues payable to the government.

 

The case arose from a plea by operational creditor Narayani Resources, which alleged that Essar Power Gujarat had defaulted on payments for coal supplied and sought initiation of the corporate insolvency resolution process.

 

Essar Power Gujarat opposed the petition, relying on a January 2025 settlement under which the parties had agreed to resolve claims worth about Rs 107 crore. The company maintained that it had already made substantial payments under the settlement and that the release of the remaining amount was contingent on the operational creditor issuing a debit note, which it never did.

 

The company also claimed it had paid Rs 8 crore in advance towards interest and asserted that the amount was liable to be refunded.

 

Narayani Resources disputed the validity of the settlement and the reconciliation of accounts, arguing that outstanding dues continued to exist even under Essar Power Gujarat's version of events and that the insolvency application therefore deserved admission.

 

The National Company Law Tribunal (NCLT) had earlier rejected the insolvency plea. On appeal, the NCLAT affirmed that decision, finding that the parties had been engaged in a genuine dispute over the reconciliation of accounts and settlement terms well before the statutory demand notice under the IBC was issued.

 

The appellate tribunal concluded that the corporate debtor's defence was supported by contemporaneous correspondence and could not be dismissed as a mere afterthought, making the insolvency process unavailable as a remedy.