2021 (9) TMI 486 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues or not - Operational Creditors - advance paid for supply of goods can be considered as an Operational debt or not - existence of debt and dispute or not - HELD THAT - Hon'ble NCLAT in the case of SMT. ANDAL BONUMALLA W/O. VENUGOPAL SWAMI BONUMALLA VERSUS VERSUS TOMATO TRADING LLP., SMART LOGIN SOLUTIONS PVT. LTD. 2020 (8) TMI 791 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI has held that an advance amount paid for supply of goods cannot fall within the category of 'Operational Debt'. Thus, the claim of the Operational Creditor in the instant Application which is totally based on the advanced amount of ₹ 7,05,00,000/- paid towards supply of 5000MT Maize and as such, the instant claim cannot be treated as Operational Debt as per Section 5(21) of the IB Code, 2016 nor the Applicant herein be called as Operational Creditor as per Section 5(20) of the IB Code, 2016. Such being the case, the instant Application cannot be admitted U/s. 9 of the Code. Petition dismissed.

Summary

Issues:
Company Application under section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor based on non-supply of goods despite advance payment.

Analysis:
1. The Company Application was filed by the Operational Creditor seeking initiation of CIRP against the Corporate Debtor for failure to supply 5000 MT of Maize despite an advance payment of &8377; 7,05,00,000. The Operational Creditor had followed up with the Corporate Debtor, issued notices, and even received a reply without any dispute on the outstanding amount.

2. The Respondent, in its counter, argued that the Operational Creditor concealed facts, failed to make complete payment on time, and did not respond to requests for additional payment due to price increases. The Respondent claimed a right to deduct 20% for returning the advance amount and cited financial difficulties due to price hikes as reasons for non-supply.

3. The Tribunal deliberated on whether an advance payment for goods could be considered an operational debt under the Insolvency and Bankruptcy Code, 2016. Referring to a similar case, the Tribunal noted that advance payments without actual supply of goods or services did not qualify as operational debt. Citing previous judgments, the Tribunal concluded that the advance amount towards goods did not fall under the definition of operational debt.

4. Relying on the precedent set by the National Company Law Appellate Tribunal (NCLAT), the Tribunal held that the claim based on the advance amount for the supply of Maize could not be treated as operational debt under the IB Code, 2016. Consequently, the Company Application was rejected, and the request for a change of proposed IRP was also disposed of accordingly.

This detailed analysis of the judgment highlights the key arguments presented by both parties, the legal interpretation of the advance payment in relation to operational debt, and the ultimate decision of the Tribunal based on established legal principles and precedents.