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TMI Blog2024 (1) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 138 of the Negotiable Instruments Act, 1881 against the Corporate Debtor. Appellant filed a Company Petition No. 469 of 2020 against the Corporate Debtor under Section 9 of the Code seeking initiation of the CIRP of the Corporate Debtor. In Company Petition No. 469 of 2020, notices were issued on 06.02.2020 by the Adjudicating Authority. Appellant also filed Commercial Suit No.474 of 2019 against the Corporate Debtor seeking grant of money decree of an admitted amount of Rs.19,55,30,723/-. A summary judgment was awarded on 12.01.2023 for an amount of Rs.3,75,35,765/-. On an application filed under Section 7 by Saisidha Sugar Equipments and Engineering Company Pvt. Ltd. , CIRP against the Corporate Debtor was initiated by the order dated 23.03.2023 of the Adjudicating Authority. Appellant on 01.06.2023 submitted claim in Form C to the IRP classifying its debt of Rs.34,65,36,490/- as a Financial Debt. Resolution Professional on 05.06.2023 by e-mail rejected the claim of the Appellant as Financial Creditor and categorised the claim of the Appellant as Operational Debt. Aggrieved by the refusal of the IRP to admit the claim as Financial Debt, Appellant filed an IA No.2909 of 2023 befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for supply of sugar and the debt arising out of such transaction is clearly as operational debt within the definition of operational debt under Section 2(21) of the Code. It is submitted that the Appellant himself has filed Section 9 application claiming its operational debt which application being CP No.469 of 2020 was dismissed on 28.08.2023 as infructuous. It is submitted that the Appellant cannot be allowed to change his stand and contend that the debt is a financial debt. It is submitted that the terms and conditions of the Agreement between the parties clearly indicate that the nature of transaction was transaction for supply of goods and services. The provision in the Agreement to give security is not uncommon even in cases of supply of goods and services, merely because security has been given by the Corporate Debtor it does not lead the transaction to a financial transaction. 5. We have considered the submissions of the Counsel for the parties and perused the record. 6. Financial Debt is defined in Section 5(8) of the Code, which is as follows:- 5. Definitions. (8) financial debt means a debt alongwith interest, if any, which is disbursed against the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the provision of goods or services is operational debt. Thus, any claim in respect of the provision of goods or services falls within the definition of operational debt. 9. The moot question to be answered in this Appeal is the nature of transaction between the parties as is reflected in the Agreement dated 28.07.2016. The Agreement contained a heading Supply Agreement/Loan Agreement-1 . The Agreement mentions that in the Agreement, the Appellant is first party and the Corporate Debtor is second party. We may notice following statement in the Agreement describing both the parties which is at Page 69 of the Appeal:- Whereas the Party of the First Part is engaged in the business of purchasing sugar from various sugar factories, corporate companies and sale said sugar to sugar brokers, consumers, confectioneries, retail market, domestic market, Government supplies, export through Road transport as well as Railway wagons/Rakes as per the requirement of the clients. AND WHERAS the Party of Second Part is engaged in the business of Manufacturing and sale of sugar in the domestic market as well as for exports. And WHEREAS the Party of second part has approa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of default by the second party in adjustment of advance, the second party of the second part shall also pay the above mentioned amount along with interest at the rate of Rs. 30/-PMT per day till refund of the advance amount from the date of this agreement up to 28.02.2017. The payment of interest remains independent and in addition of the second party commitment to supply agreed quantities of sugar at the agreed prices as mentioned above. 7. That it is further agreed between the parties that the party of the second part have issued towards security, the undated two cheques for Rs.5 each towards the refund of advance amount along with 3.12 cores discount as security for the supply of 5200 MT of sugar. Further second part has issued the cheque of Rs 17835480.00 as delay/interest @ Rs 33.33 per MT per day from 15.11.2016 to 28.02.2017. The cheques details are more specifically described in annexure -2 of this agreement. 11. That as a collateral security, the second party shall also pledge 10% of its equity share capital with the first party vide a separate agreement and in case the second party defaults on any provisions of this agreement, the first shall automatically b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing contract), regardless of whether CMRL may have made the b payment on behalf of the appellant. Thus, the ultimate dispute still remains between the appellant and the proprietary concern, and the debt arises from that. 50. It is then that we come to the core of the dispute while the appellant has argued that the debt is in the nature of an operational debt which makes them an operational creditor, the respondent has opposed this submission. The respondent's submission, which was accepted by NCLAT, seeks to narrowly define operational debt and operational creditors under the IBC to only include those who supply goods or services to a corporate debtor and exclude those who receive goods or services from the corporate debtor. For reasons which shall follow, we reject this argument: 50.1. First, Section 5(21) defines operational debt as a claim in respect of the provision of goods or services . The operative requirement is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver. Such an interpretation is also supported by the observations in the BLRC Report, which specifies that operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to include all those who provide or receive operational services from the corporate debtor. which ultimately lead to an operational debt. In the present case, the appellant clearly sought an operational service from the proprietary concern when it contracted with them for the supply of light fittings. Further, when the contract a was terminated but the proprietary concern nonetheless encashed the cheque for advance payment, it gave rise to an operational debt in favour of the appellant, which now remains unpaid. Hence, the appellant is an operational creditor under Section 5(20) IBC. 16. We may also notice the judgment of the Hon ble Supreme Court in Pioneer Urban Land and Infrastructure Limited and Anr. (supra) where the definition of financial debt has been considered and explained. Reliance has been placed by the Appellant on paragraphs 75 and 77 which are as follows:- 5. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is catch all in nature. This is clear from the words any amount and any other transaction which means that amounts that are raised under transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout adverting to the Explanation introduced by the Amendment Act. 17. The Hon ble Supreme Court in the said judgment has held that the expression any other transaction would include an arrangement in writing for the transfer of fund to the Corporate Debtor and would thus, clearly include the kind of financing arrangement by allottees to real estate developers. It is to be noted that the challenge in the above case was challenge to various provisions including Section 5(8)(f) expression as inserted by IBC Second Amendment Act, 2018 and the said observation was made in the above context. The above judgment does not help the Appellant in the present case. 18. Counsel for the Appellant has further submitted that the judgment of the Hon ble Supreme Court in Consolidated Construction Consortium Limited (supra) arose out of proceedings where conditions as are now contained in the Agreement in question were not present and the said case was only case for advance. Hon ble Supreme Court in Consolidated Construction Consortium Limited (supra) had occasion to interpret Section 5(21) of the Code which interpretation is fully attracted in the facts of the present case. The case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause also in the nature of penalty on account of failure of performance by the second party. Clause 7 deals with security under which the second party has given security cheque of Rs.5 Crore each towards the refund of advance amount. Security of refund of advance amount cannot change the nature of transaction for supply of sugar into financial debt. Security for advance in supply of goods is also an accepted mode and manner for protecting the advance but the said clause has no bearing on nature of transaction. Clause 11 deal with the collateral security where the second party shall also pledge 10% of its equity share capital with the first party vide a separate agreement and in case the second party defaults on any provisions of this agreement, the first shall automatically be entitled for a right to sell the pledged shares to such person at such price and such terms and condition as it may deem fit without any obligation for prior information to the second party. It is not shown any separate agreement for pledging of share was entered. Furthermore, the pledge of share is at best the security measures to protect the advance and to ensure that the obligation of second party is per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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