Claim Arising Out Of Partnership Business Which Is Not A Mere Claim Of Supply Of Material Is Not An “Operational Debt”: NCLT Mumbai

Background Facts

Railsys Engineers Private Limited (“Corporate Debtor”) issued a purchase order dated 02.03.2021 for supply of signaling cables and kyosan made electronic interlocking items. The good were delivered on 29.03.2021 and Manoj Stone Infra Private Limited (“Operational Creditor”) raised 2 invoices amounting to a total of Rs 2,57,26,234/- which were duly received and acknowledged by the Corporate Debtor. The Corporate Debtor made a payment of Rs.62,85,000/- but the remaining amount of Rs.1,94,41,234/- remained outstanding. It was contended that as the Corporate Debtor was not willing to release any payments, the Operational Creditor was constrained to issue a Demand Notice dated 08.02.2022.

On the contrary, it was submitted by the Corporate Debtor that the nature of the transaction between the parties is of profit/loss sharing and not of an operational debt. The real transaction is not a simple stand alone transaction of supply of goods but part of a larger transaction as a profit sharing venture and the same was admitted by the Operational Creditor vide an email dated 12.12.2021. It was submitted that the profits from the transaction were agreed to be shared mutually between the Operational Creditor and Corporate Debtor, thus the relationship between the parties was that of a partnership. It was further submitted that the Corporate Debtor (contractor) was not required to pay the Operational Creditor (sub-contractor) until the former got paid by the authority which commissioned the Corporate Debtor i.e. RITES Ltd. It was further submitted that there existed pre-existing disputes with respect to the quality of the goods due to which the payment for the same had not been released by RITES till date. Further, the Corporate Debtor has made subsequent payments which were concealed by the Operational Creditor in the “Computation of Debt”.

Findings of the Tribunal

The Tribunal relied on the emails between the parties to observe that there is partnership between the parties in which the supply of material by Operational Creditor is also one of the transactions. The Tribunal observed that the claim was arising out of a mutual business understanding of partnership and hence the debt does not fall within the definition of “Operational Debt. Reliance was placed on the NCLAT Judgment of Jain Irrigation Systems Ltd. Versus Pragyawan Technologies Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 311 of 2023 wherein it was held that disputes raised by parties arising out of the contract cannot be adjudicated in a section 9 proceedings and the forum is not for deciding and adjudicating the contractual dispute between the parties.

The Tribunal further observed that there existed a pre-existing dispute regarding the quality of goods supplied by relying on the emails between the parties.

With the aforesaid observations, the Tribunal dismissed the petition.

Case:Manoj Stone Infra Private Limited vs Railsys Engineers Private Limited

Case No. C.P. (I.B) No. 367 of 2022

Counsels for the ApplicantsAdv. Nirman Sharman

Counsel for the Respondent Adv. Akshay Petkar

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