The Hon’ble Supreme Court in the case of
M/s Consolidated Construction Consortium Limited v M/s Hitro Energy
Solutions Private Limited, vide its order dated 04.02.2022 has held
that operational debt under Insolvency and Bankruptcy Code, 2016 (‘IBC’)
includes payment made to a Corporate Debtor for supply of Goods or Services.
The Hon’ble Court also held that the limitation under Section 9 of the IBC does
not commence when the debt becomes due but only when a default occurs.
In the present case, there were 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 Chennai Metro Rail Limited (“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
Earlier, the NCLAT set aside the NCLT’s
decision, dismissed the application of the appellant under Section 9 of the IBC
and released the respondent from the ongoing CIRP. In support of its
conclusions, it held: (i) the appellant was a ‘purchaser’, and thus did
not come under the definition of ‘operational creditor’ under the IBC since it
did not supply any goods or services to the Proprietary Concern/respondent; and
(ii) in any case, the appellant cannot move an application under
Sections 7 or 9 of the IBC since all purchase orders were issued on 24 June
2013 and advance cheques were issued subsequently.
The Supreme Court stayed the operation
of NCLAT’s judgment and order dated 12 December 2019. The following relevant
issues arose before the Supreme Court in the appeal:
1. Whether the appellant is an operational creditor under the IBC
even though it was a ‘purchaser’?
The Court held that the operative
requirement is that the claim must bear some nexus with a provision of goods
and services, without specifying who is to be the supplier or receiver. The
court held, “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.”
The court also observed that the presence of invoice in a demand notice in not a sine qua non, since a demand notice can also be issued on the basis of other documents which prove the existence of the debt.
2. When the applications under Section 9 of the IBC are barred by
limitation?
The Supreme Court held that the Limitation
does not commence when the debt becomes due but only when the default occurs.
As noted earlier in the judgment, default is defined under section 3(12) of the
IBC as the non-payment of the debt by the corporate debtor when it has become
due.
In this case, the appellant placed
orders with the Proprietary Concern, which was the supplier of Thorn Lighting
India Private Limited through three purchase orders dated 24 June 2013. The
contention raised in this case was the date of default mentioned is 7 November
2013, when the cheque was issued by CMRL to the Proprietary Concern and
therefore the limitation of three years under Article 137 of the Limitation Act
would expire on 7 November 2016, while the application under section 9 was only
filed on 1 November 2017. The Court observed that during the period from 2016
to 2017, there were several meetings held between the parties and the
Respondent showed intent of paying the amount and therefore no default had
occurred at that point of time. The default only occurred when the Respondent
denied the payment categorically in 2017. Consequently, the application was not
barred by limitation as observed the Supreme Court.
This Article has been Compiled by Aditya Raj (Associate).
You can direct your queries or comments to the author at aditya@factumlegal.com
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