NCLT Mumbai: Payment Received In Advance By Corporate Debtor For Future Supply Of Goods Is Considered Operational Debt Under IBC
Pranav B Prem
The National Company Law Tribunal (NCLT) Mumbai Bench, comprising Justice V. G. Bisht (Retd.) (Judicial Member) and Sh. Prabhat Kumar (Technical Member), has held that advance payment received by a corporate debtor for future supply of goods qualifies as an operational debt under the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal clarified that an application under Section 9 of the Code is maintainable if the operational debt exceeds the threshold prescribed under Section 4 of the IBC.
Factual Background
In the present case, Armaco Infralinks Pvt. Ltd. (Operational Creditor) had advanced a sum of ₹17,53,00,000 to B. S. Ispat Pvt. Ltd. (Corporate Debtor) between April 2021 and September 14, 2022, for the supply of coal. However, the Corporate Debtor supplied coal worth only ₹8,45,34,053, leaving an outstanding balance of ₹9,07,65,947.
The Operational Creditor, having borrowed the said amount from financial institutions and incurring financial losses due to the Corporate Debtor’s failure to supply coal, demanded a refund of the advance payment. The demand for repayment was formally raised via email on August 8, 2024, requesting a refund within seven days. When the Corporate Debtor failed to comply, the Operational Creditor issued a demand notice under Section 8 of the IBC on September 4, 2024.
Upon the Corporate Debtor’s failure to settle the dues within the statutory period of 10 days, the Operational Creditor filed a petition under Section 9 of the IBC, seeking initiation of Corporate Insolvency Resolution Process (CIRP).
Contentions of the Corporate Debtor
The Corporate Debtor raised multiple objections:
Unstamped Delivery Order - The Corporate Debtor contended that the delivery order dated September 16, 2022, was inadmissible as it was unstamped. Relying on Section 35 of the Indian Stamp Act, 1899, and Section 34 of the Maharashtra Stamp Act, 1958, the Corporate Debtor argued that unstamped instruments could not be used as evidence.
Non-Service of Application Before Filing - It was also argued that the Operational Creditor failed to serve a copy of the application to the Corporate Debtor’s registered office before filing, in violation of Rule 6(2) of the IBC Rules, 2016.
Pre-Existing Dispute - The Corporate Debtor claimed that there was a dispute regarding the supply rate, which was recorded in the National e-Governance Services Limited (NeSL) database. It argued that this indicated the existence of a dispute, thereby invalidating the claim under Section 8(2)(a) of the IBC.
Tribunal’s Observations
The NCLT dismissed the objections raised by the Corporate Debtor and ruled in favor of the Operational Creditor, making the following observations:
Admissibility of Unstamped Document - The Tribunal held that an unstamped document does not prevent proving the existence of a debt through other documentary evidence. It noted that in applications under Sections 7 and 9 of the IBC, an operational debt can be established even without a formally stamped document.
Existence of Operational Debt - The Tribunal found that the only dispute raised by the Corporate Debtor pertained to the rate of coal supply, which was not raised before the demand notice was issued. The Tribunal observed that the Corporate Debtor issued a debit note only after the demand notice, which appeared to be a manufactured dispute.
NeSL Record Does Not Bar Admission - The Tribunal clarified that mere recording of a dispute in the NeSL database does not bar the adjudication of the petition under Section 8(2) of the IBC.
Non-Service of Application is a Curable Defect - The Tribunal held that the failure to serve an advance copy of the application under Rule 6(2) of the IBC Rules, 2016, was a procedural defect that was later rectified by the Operational Creditor on October 16, 2024.
Applicability of Supreme Court Judgment - The Tribunal relied on the Supreme Court ruling in M/s Consolidated Construction Consortium Ltd. v. M/s Hitro Energy Solutions (P) Ltd. 2022 SCC OnLine SC 142., which affirmed that advance payment for future supply of goods qualifies as an operational debt under the IBC.
Threshold Limit and Admitted Debt - The Tribunal noted that the Corporate Debtor had only disputed a portion of the claim while the undisputed amount exceeded the threshold prescribed under Section 4 of the IBC. The presence of an undisputed debt and default therein justified the admission of the petition.
Verdict
After examining all the contentions, the Tribunal concluded that the Corporate Debtor had an undisputed operational debt exceeding ₹1 crore, which remained unpaid. The Tribunal held that the petition under Section 9 of the IBC was complete in all respects and, therefore, deserved to be admitted. Consequently, the Tribunal allowed the petition and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
Appearance
For the Operational Creditor: Mr. Nausher Kohli, Ld. Counsel
For the Corporate Debtor: Mr. Rahul Narichania, Ld. Counsel
Cause Title: Armaco Infralinks Pvt. Ltd. Versus B. S. Ispat Pvt. Ltd.
Case No: CP (IB) / 891 (MB) 2024
Coram: Justice V. G. Bisht (Retd.) [Member (Judicial)], Sh. Prabhat Kumar [Member (Technical)]
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