2024 (1) TMI 586 - AT - Insolvency and Bankruptcy

Nature of transaction between the parties as is reflected in the Agreement - Refusal of the IRP to admit the claim as Financial Debt - seeking direction to the IRP to claim as Financial Debt - Resolution Professional rejected the claim of the Appellant as Financial Creditor and categorised the claim of the Appellant as Operational Debt - HELD THAT - It is clear that the opening part of the Agreement clearly stated that Whereas parties of the first part as well as party of the second part have entered into an agreement (White Sugar Supply Agreement) as per which the party of the second part confirms and agrees to sell and deliver to the party of the first part 5200 M.T's of white crystal sugar S-30 grade packed in P.P. bags of 50 KG's net weight at a fixed price of 3215/- per quintal inclusive of excise duty and cess (i.e. 3020 195) by and before 20.11.2016 (hereinafter referred as due date). . Thus, the transaction between the parties emanates from the White Sugar Supply Agreement. All the clauses in no manner reflect that transaction between the parties was a financial transaction and the debt due is a financial debt. Adjudicating Authority has rightly come to the conclusion that the claim which was filed by the Appellant was a claim of operational debt and the Resolution Professional has rightly treated the claim as operational debt. It is further to be noticed that the Appellant itself has filed Section 9 Application being CP No.469 of 2020 on 29.01.2020 by which time CIRP was not even commenced against the Corporate Debtor. Learned Counsel for the Appellant submits that there is no estopple against law. The factum of filing Section 9 application by the Appellant itself indicate that the Appellant itself considered it as Operational Creditor since it filed Section 9 application which got dismissed due to initiation of the CIRP against the Corporate Debtor by order dated 23.03.2023. The said conduct of the Appellant fully supports the stand taken by the Resolution Professional that the claim of the Appellant is operational debt. Thus, no error has been committed by the Adjudicating Authority in rejecting application filed by the Appellant. Appellant s claim has rightly been held to be operational debt - there are no error in the impugned order. The Appeal is dismissed.

Summary

Issues Involved:
1. Whether the claim of the Appellant qualifies as a financial debt or an operational debt.
2. Interpretation of the Agreement dated 28.07.2016 and its implications on the nature of debt.
3. Applicability of precedents set by the Supreme Court in similar cases.

Summary:

Issue 1: Nature of Debt - Financial or Operational
The primary issue in this appeal is whether the claim of the Appellant qualifies as a financial debt or an operational debt. The Adjudicating Authority (National Company Law Tribunal), Mumbai Bench-I, had rejected the Appellant's claim as a financial creditor, categorizing it instead as an operational debt. The Appellant contended that the terms and conditions of the Agreement dated 28.07.2016 indicated that it was a financial debt. The Adjudicating Authority, however, concluded that the transaction for the supply of sugar was operational in nature, falling within the definition of 'operational debt' under Section 2(21) of the Code.

Issue 2: Interpretation of Agreement Dated 28.07.2016
The Agreement dated 28.07.2016 between the Appellant and the Corporate Debtor involved the supply of 5200 M.T of sugar. The Agreement included clauses for penalties, interest on default, and security cheques. The Appellant argued that these clauses indicated a financial debt. However, the Tribunal noted that such provisions are common in supply agreements and do not change the nature of the transaction from operational to financial. The Agreement's primary purpose was the supply of sugar, and the security measures were to ensure performance, not to create a financial obligation.

Issue 3: Applicability of Supreme Court Precedents
The Appellant cited the Supreme Court's judgments in "Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited" and "Pioneer Urban Land and Infrastructure Limited and Anr. vs. Union of India and Ors." to support their claim. The Tribunal found that the cited cases did not apply to the present facts. In "Consolidated Construction Consortium Limited," the Supreme Court held that an advance payment for goods or services constitutes operational debt. The Tribunal concluded that the present case, involving an advance for sugar supply, similarly constituted operational debt. The judgment in "Pioneer Urban Land and Infrastructure Limited" was deemed irrelevant as it pertained to real estate financing arrangements, which differ from the present transaction.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision, affirming that the Appellant's claim is an operational debt. The appeal was dismissed, with the Tribunal finding no error in the impugned order. The Appellant's conduct, including the filing of a Section 9 application as an operational creditor, further supported this conclusion.