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2020 (8) TMI 791 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - service of demand notice - advance amount for supply of goods - Operational Debt or not - Corporate Debtor resisted the Application mainly on the ground that there is no contractual relationship between them as Operational Creditor and Corporate Debtor. Whether the Adjudicating Authority can admit the Application under Section 9 of I B Code when the demand notice has not been served as prescribed under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016? - HELD THAT - There are four Annexures with the demand notice (A) a copy of Agreement dated 04.01.2017, (B) a copy of invoice dated 08.02.2017, (C) a copy of Bank Statement, (D) a copy of particulars of claim. The Corporate Debtor has not filed the copy of Annexures to the demand notice and according to the Operational Creditor annexure (D) copy of particulars of claim is a notice in prescribed format. Therefore, we are unable to appreciate the objection raised by the Appellant (Corporate Debtor). This objection is not raised before Adjudicating Authority. Therefore, there is no finding of Adjudicating Authority on this issue. Whether an advance amount for supply of goods can be considered as an Operational Debt under Section 5(20) of the I B Code? - HELD THAT - The Respondent No. 1 has not supplied any goods or provided any services to Respondent No. 2, but paid an advance amount to Respondent No. 2 for suppling Sugar. However, the Respondent No. 2 failed to supply the Sugar to Respondent No. 1. Thus, the advance amount in the hand of Respondent No. 2 cannot termed as Operational Debt. Consequently, the Respondent No. 1 does not come within the definition under Section 5(20) of I B Code, the Operational Creditor. The Respondent No. 2 (Corporate Debtor) is released from the rigour of CIRP and the action taken by IRP/RP and Committee of Creditors, if any, in view of the impugned order is set aside. IRP/RP will hand back the records and management of the Corporate Debtor to the Promotors/Directors of the Corporate Debtor - Appeal allowed.
Issues Involved:
1. Admissibility of Application under Section 9 of I&B Code without prescribed demand notice. 2. Classification of advance amount for goods as Operational Debt under Section 5(20) of I&B Code. Analysis: Issue 1: The Appellant challenged the admission of the Application under Section 9 of the I&B Code, citing non-compliance with the prescribed format for the demand notice. The Appellant relied on previous judgments to support this argument. However, the Respondent contended that the notice was in the prescribed format and the objection was not raised earlier. The Tribunal noted the Annexures attached to the demand notice and found no merit in the Appellant's objection. The Adjudicating Authority had not addressed this issue, leading to the dismissal of this ground of appeal. Issue 2: Regarding the classification of the advance amount for goods as Operational Debt, it was established that the Corporate Debtor failed to supply the agreed-upon goods despite receiving the advance payment. The Tribunal analyzed relevant provisions and previous judgments to conclude that the advance amount did not constitute Operational Debt under Section 5(20) of the I&B Code. The Tribunal highlighted precedents where similar situations were considered, emphasizing that payment for goods not supplied does not fall under Operational Debt. Consequently, the Application was deemed erroneously admitted, leading to the allowance of the Appeal and setting aside of the impugned order. The Tribunal released the Corporate Debtor from the CIRP, directing the return of management to the Promoters/Directors. The matter was remitted to the Adjudicating Authority for determining the fees and costs of the CIRP, to be borne by the Respondent. The Appeal was allowed without costs.
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