Khushi Doshi
Published On: February 05, 2022 at 15:43 IST
The Supreme Court Bench comprising of Justices DY Chandrachud, Surya Kant and Vikram Nath stated that a Debt is to be considered as an Operation Debt when it arises due to the advance payment made to a Corporate Debtor for supply of goods or services.
In this case, the National Company Law Appellate Tribunal (NCLAT) dismissed the Application under Section 9 of the Insolvency and Bankruptcy Code 2016 (IBC), holding that the Applicant was a buyer and thus did not meet the definition of ‘Operational Creditor’ under the IBC because it did not provide any goods or services to the Proprietary Concern.
The question before the Apex Court was whether the Appellant was an Operational Creditor under the IBC despite being a ‘purchaser.’ Other issues included (i) whether the Respondent took over the Debt from the Proprietary Concern and (ii) whether the Application under Section 9 of the IBC is barred by limitation.
The term “Operational Debt” is defined in Section 5(21) as “a claim for the provision of goods or services, including employment, or a Debt for the re-payment of dues arising under any Law in force at the time and payable to the Central Government, any State Government, or any local Authority.” The person to whom an Operational Debt is owed, as well as any person to whom such Debt has been Legally assigned or transferred, is referred to as an “Operational Creditor.”
“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 Operational Debt in favour of the Appellant, which now remains unpaid. Hence, the Appellant is an Operational Creditor under Section 5(20) of the IBC.”Court stated.
The Court also stated that the disagreement in this case is not about the quality of services provided by the Proprietary Concern, but about the repayment of the advance amount paid to them following the withdrawal of the underlying project.
The Bench allowed the appeals by setting aside the NCLAT Judgement, answering other issues in Favour of the Appellant.
Also Read: What is National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT)?