2022 (11) TMI 506 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - privity of contract - Operational Creditors - existence of debt and dispute or not - time limitation - HELD THAT - The definition defines Operational Debt as a claim in respect of the PROVISION OF GOODS AND SERVICES. The expression goods and services is preceded with the word in respect of . The materials on record does indicate that advance of Rs.60 lakhs was given by the Operational Creditor to the Corporate Debtor for availing the aviation services and with regard to which, however, no contract could be entered into between the Appellant and the Corporate Debtor. In the complaint, which has been filed before the Registrar of Companies by the Operational Creditor, details of correspondence after payment by the Operational Creditor to the Corporate Debtor has been detailed. There has been repeated correspondence as encapsulated in the complaint, which indicate that there has been correspondence and various requests from the Operational Creditor to the Corporate Debtor with regard to goods and services. Thus, the correspondence as encapsulated shows that an amount of Rs.60 lakhs was advanced for providing goods and services to the Corporate Debtor. Neither goods and services could be provided, nor any Agreement could be entered between the Appellant and the Corporate Debtor. The impugned order dated 06.01.2022 rejecting Section 9 Application on the ground that advance payment paid is not an Operational Debt deserves to be set aside and is hereby set aside - application is revived before the Adjudicating Authority to be heard and decided afresh after hearing both the parties. Appeal allowed.

Summary

Issues Involved:
1. Whether the advance payment made by the Operational Creditor to the Corporate Debtor constitutes an Operational Debt under Section 5(21) of the Insolvency and Bankruptcy Code, 2016.
2. Whether the Section 9 Application filed by the Appellant is barred by limitation.

Issue-wise Detailed Analysis:

1. Whether the advance payment made by the Operational Creditor to the Corporate Debtor constitutes an Operational Debt under Section 5(21) of the Insolvency and Bankruptcy Code, 2016:

The Appellant, an Operational Creditor, advanced Rs. 60 lakhs to the Corporate Debtor on 28.03.2016 for aviation-related services. The Corporate Debtor neither provided the services nor refunded the advance. Despite several correspondences and the amount being reflected in the Corporate Debtor's Balance Sheets as "advance received from customers," the Corporate Debtor denied the existence of an Operational Debt, claiming no privity of contract.

The Appellant argued that the advance payment falls within the definition of Operational Debt as per Section 5(21) of the Code, which includes claims in respect of the provision of goods or services. The Adjudicating Authority initially rejected the Section 9 Application, holding that the advance payment did not constitute an Operational Debt.

However, the Appellant relied on the Supreme Court judgment in Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited, which held that advance payments for goods and services are considered Operational Debts. The Tribunal found that the advance payment was indeed for aviation services, and despite the absence of a formal contract, the correspondence and Balance Sheets indicated a clear nexus with the provision of services.

The Tribunal concluded that the expression "in respect of" in Section 5(21) should be interpreted broadly, encompassing both suppliers and receivers of services. Therefore, the advance payment of Rs. 60 lakhs was deemed an Operational Debt, and the Adjudicating Authority's order was set aside.

2. Whether the Section 9 Application filed by the Appellant is barred by limitation:

The Corporate Debtor contended that the Section 9 Application was barred by limitation, as the advance payment was made on 28.03.2016, and the Application was filed after the expiry of three years. Although the Adjudicating Authority noted this submission, it did not address the limitation issue in its order.

The Tribunal revived the Section 9 Application and remanded it to the Adjudicating Authority for fresh consideration, including the limitation aspect. The Adjudicating Authority was directed to decide the Application expeditiously, preferably within six months, allowing the parties the opportunity to settle if desired.

Conclusion:

The Tribunal allowed the Appeal to the extent of setting aside the Adjudicating Authority's order, recognizing the advance payment as an Operational Debt. The Section 9 Application was revived for reconsideration, including the limitation issue, to be decided afresh by the Adjudicating Authority.