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TMI Blog2024 (5) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be treated as Operational Creditor in the instant case. Whether there has been a breach of terms and conditions of the contract leading to pre-existing dispute? - HELD THAT:- It is clear from all the documents on record that the delivery was to be made Ex-plant Rajkot and not at Hong Kong as submitted by the appellant before the Adjudicating Authority. The appellant had tried to mislead both the forums regarding the same - All the events reflect clearly that there was a pre-existing contractual dispute between both the parties, which the appellant is trying to settle through IBC mechanism. In this regard reliance placed on Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. [ 2017 (9) TMI 1270 - SUPREME COURT] , where the Hon ble Supreme Court explained the process for an operational creditor initiating CIRP in respect of a corporate debtor. The Court held ' Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged Operational Creditor, that the goods are ready at his warehouse and the applicant can lift the goods at any time. In her oral submissions Ms. Zalak, Ld. Counsel states that the goods were supposed to be delivered at Hongkong. There is no evidence annexed with the application to show that the goods were to be delivered at Hongkong. The so-called purchase order given at Annexure-1 page No.8 of the application only has Bank details and there are no terms and conditions of the purchase or delivery. In the absence of any other terms and conditions of purchase and delivery, we have no option but to rely on the terms of delivery and payment stated in the revised Proforma Invoice dated 12.03.2020 annexed at page No. 9 of the application, which were supply of goods at ex-plant Rajkot . The Corporate Debtor was willing to supply goods at ex-plant Rajkot . On our specific query. the Ld. Counsel was not able to show any documents wherein the respondent had agreed to deliver the goods at Honkong. Even otherwise, the applicant had not provided any goods and services to the corporate debtor and had only given an advance, and therefore is not covered by the definition of operational debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The Appellant has assailed the impugned order of the Adjudicating Authority on the following grounds: (i) The Adjudicating Authority wrongly held that Operational Debt does not cover advance paid. (ii) It was not the petitioner s duty to lift the goods. (iii) Respondent raised no dispute by virtue of a reply under Section 8 (2) to the demand notices under Section 8 (1) of the IBC. (iv) The Adjudicating Authority overlooked the fact that the goods were not ready by 19.03.2020 as per the contract. (v) The order of the Adjudicating Authority violates the principle of natural justice. (vi) Appeal is not banned by limitation due to excluded period of Covid-19 as granted by Hon ble Supreme Court. 11. The Counsel for the appellant has submitted that the finding of the Adjudicating Authority regarding the aforesaid advance not being treated as operational debt under Section 5 (21) of the IBC is erroneous. In this regard has cited the Judgment of Hon ble Supreme Court in Consolidated Construction Consortium Ltd. Vs. Hitro Energy Solutions Pvt. Ltd. [(2022) 7 SCC 164] which clarifies that the definition of Operational Debt encompasses amount paid in advance for the purchase of goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of goods will be ascertained as per the Seller's place of manufacture in Rajkot. d. KTEX had confirmed that they would arrange the English Stickers and that the Appellants would provide the Chinese Stickers. Thus, showing that they knew the consignment was to be shipped to China. 13. It is further stated that pursuant to the above, the purchase order was executed between the parties on 16.03.2020 and the appellant remitted USD 200,000 to the respondent for delivery of 10 tonnes of Non-Woven white fabric. It is further mentioned that the mode of delivery was by Air. The appellant submits that a conjoint reading of email and the PO dated 16.03.2020 makes it evident that the appellant was to receive the goods from the Respondent. 14. In this verbal submission the counsel for the appellant submitted that the goods were to be delivered at Hong Kong by the respondent. The same plea was also made before the Adjudicating Authority. 15. Appellant has admitted that he inadvertently did not submit the complete PO before the Adjudicating Authority. 16. The Appellant further submits that the Respondent did not raise any dispute by virtue of a reply under Section 8 (2) to the Demand not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on these points are given in subsequent paras. 22. The respondent has stated that: i. In accordance with the Purchase Order, the Respondent issued a Proforma Invoice dated 12.03.2020 with the total agreed amount being USD 2,00,000, date of shipment being 19/03/2020, and terms of delivery as Ex-works Rajkot. It is prima facie evident that the Respondent was required to prepare and keep the goods ready for it to be collected by the Appellant from their warehouse. ii. As per the terms of the Purchase Order, the Respondent manufactured the goods and accordingly prepared the consignment, and thereby informed the Respondent about the same. This further establishes their willingness and bonafide in having completed their part of the order. iii. It is pertinent to mention here that the Appellant had successfully collected the goods of the second consignment after the Covid-19 ban was lifted, but intentionally failed to pick the first lot. This reflects the wilful failure on the part of the Appellant in carrying out the terms of the contract and fulfilling their contractual obligations. 23. It is submitted that the Respondent was under the bonafide belief that the Appellant would collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract from Chennai Metro Rail Corporation (CMRL) and for completing the said work he has placed an order with respondent. On behalf of the appellant, CMRL had paid a sum of Rs. 50 lakhs to the Respondent as an advance for fulfilling the supply of fittings. 30. The relevant paragraphs of M/s Consolidated Construction Consortium Ltd. (supra) are: D Whether the appellant is an Operational Creditor 21. The primary submission of the respondent, which was accepted by the NCLAT, is that the appellant is not an Operational Creditor within the ambit of the IBC, and therefore its application under Section 9 of the IBC was not maintainable. 39. In the present case, there are few undisputed facts: (i) the appellant and the Proprietary Concern entered into a contract for supply of light fittings, since the appellant had been engaged for a project by CMRL; (ii) CMRL, on the appellant s behalf, paid a sum of Rs 50 lakhs to the Proprietary Concern as an advance on its order with the appellant; (iii) CMRL cancelled its project with the appellant; (iv) the Proprietary Concern encashed the cheque for Rs 50 lakhs anyways; and (v) the appellant paid the sum of Rs 50 lakhs to CMRL. 42. It is then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not receive any time value for their money as consideration but only provide it in exchange for goods or services. Indeed, the decision notes that [e]xamples given of advance payments being made for turnkey projects and capital goods, where customisation and uniqueness of such goods are important by reason of which advance payments are made, are wholly inapposite as examples vis- -vis advance payments made by allottees . Hence, this leaves no doubt that a debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt. 45. Similarly, in the present case, the phrase in respect of in Section 5(21) has to be interpreted in a broad and purposive manner 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 was terminated but the Proprietary Concern nonetheless encashed the cheque for advance payment, it gave rise to an operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 12.03.2020 relied on by appellant mentioned place for supply of goods as Ex-Plant Rajkot, India . The Appellant could not produce any document before the Adjudicating Authority that the Respondent had agreed to deliver the goods at Hong Kong. 36. While making his submission before us, the appellant submitted that the goods were to delivered at Hong Kong. He relied on the purchase order which was filed with the appeal but not before the Adjudicating Authority. This purchase order also shows terms of delivery Ex-Works Rajkot. The mode of transport is mentioned as by Air. 37. It is clear from all the documents on record that the delivery was to be made Ex-plant Rajkot and not at Hong Kong as submitted by the appellant before the Adjudicating Authority and before us. The appellant had tried to mislead both the forums regarding the same. 38. The respondent on the other hand has stated that material was ready and lying his warehouse but the same was not picked up by the appellant. The respondent vide their email dated 18.04.2023 requested the appellant s to pick up, the lot of said goods from their warehouse, after the ban was lifted. There has been exchange of email between both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the parties. 41. The final observation of the Hon ble Supreme Court in Mobilox Innovations (supra) has also been reiterated by Hon ble Supreme Court in the case of Kay Bouvet Engg. Ltd. v. Overseas Infrastructure Alliance (India) (P) Ltd. [(2021) 10 SCC 483], where the Hon ble Supreme Court observed: 19. It could thus be seen that this Court has held that one of the objects of IBC qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It has been held that it is for this reason that it is enough that a dispute exists between the parties. 42. In the instant case, there was a pre-existing dispute between the parties regarding contractual conditions relating to place of delivery and obligation of parties for transport of goods and therefore the application for CIRP against Corporate Debtor cannot be allowed. The matter has been correctly decided by the Adjudicating Authority in this regard. 43. Accordingly, with regard to the two issues framed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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