Supreme Court Upholds Rejection Of Operational Creditor's Insolvency Plea Against Essar Power Gujarat

The Supreme Court on Wednesday (July 8) refused to interfere with the National Company Law Appellate Tribunal (NCLAT) order rejecting an ₹85-crore insolvency petition against Essar Power Gujarat Ltd. on the ground that a pre-existing dispute exists between the parties.

A partial court working days bench of Justice Nongmeikapam Kotiswar Singh and Justice K. Vinod Chandran dismissed the appeal against the NCLAT judgment, stressing that insolvency proceedings by an operational creditor under the Insolvency and Bankruptcy Code (IBC) cannot be invoked as a debt recovery mechanism where a genuine pre-existing dispute exists between the parties.

The Appellant-operational creditor claimed that Essar Power Gujarat owed it approximately ₹85 crore towards the supply of coal and initiated corporate insolvency resolution proceedings under Section 9 of the Insolvency and Bankruptcy Code.

Respondent-Essar Power Gujarat resisted the insolvency plea, contending that the parties had already entered into a settlement in January 2025 for approximately ₹107 crore. According to the company, substantial payments had been made pursuant to the settlement, while the balance amount depended upon the issuance of a debit note by the Appellant-Narayani Resources, which was never furnished.

The Respondent further asserted that it had already paid ₹8 crore in advance towards interest and claimed that the amount was refundable.

Disputing the settlement and reconciliation of accounts, Appellant argued that even on Respondent's own case, outstanding dues remained payable and, therefore, the insolvency application ought to have been admitted.

Initially, the NCLT dismissed the Appellant's plea, leading to an appeal before the NCLAT.

Dismissing the appeal against the NCLT order, the NCLAT held that the correspondence exchanged between the parties demonstrated an ongoing dispute regarding the reconciliation of accounts and the settlement of claims long before the statutory demand notice under the IBC was issued.

The NCLAT observed:

"The dispute between the parties regarding reconciliation and settlement is very much apparent from reply to demand notice and the rejoinder. Thus, the above dispute clearly exists much before issuance of demand notice. Thus, the defence which was raised by the corporate debtor in its reply to demand notice was not feeble contention unsupported by evidence."

Cause Title: NARAYANI RESOURCES PVT LTD Versus ESSAR POWER GUJARAT LTD.