Payment Received In Advance By Corporate Debtor For Future Supply Of Goods Is Considered Operational Debt Under IBC: NCLT Mumbai
The National Company Law Tribunal (NCLT) Mumbai bench of Justice V. G. Bisht (Retd.) (Judicial Member) and Sh. Prabhat Kumar (Technical Member) has held that The payment received in advance by the Corporate Debtor for the future supply of goods constitutes an operational debt. An application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) can be admitted if...
The National Company Law Tribunal (NCLT) Mumbai bench of Justice V. G. Bisht (Retd.) (Judicial Member) and Sh. Prabhat Kumar (Technical Member) has held that The payment received in advance by the Corporate Debtor for the future supply of goods constitutes an operational debt. An application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) can be admitted if it exceeds the threshold limit prescribed under Section 4 of the Code.
Brief Facts:
Armaco Infralinks Pvt. Ltd (Operational Creditor) advanced ₹17,53,00,000 to B. S. Ispat Pvt. Ltd. (Corporate Debtor) between April 2021 and 14 September 2022 for coal supply. However, the corporate debtor supplied coal worth only ₹8,45,34,053 during this period.
Therefore, a sum of Rs. 9,07,65,947/- (Rupees Nine Crores Seven Lakhs Sixty-Five Thousand Nine Hundred and Forty Seven only) as advanced by the Operational Creditor for the supply of coal was already due and pending with the Corporate Debtor.
Having borrowed the monies advanced to the Corporate Debtor from financial institutions, and resultantly having accumulated losses on account of outstanding with the Corporate Debtor, there being no possibility of supply of coal in foreseeable future, the Operational Creditor made the demand for the refund of the advance monies from the Corporate Debtor vide its email dated 08.08.2024 and requested the Corporate Debtor to refund the said monies within 7 days from the receipt of the said email.
The Operational Creditor through its advocate issued the demand notice dated 04.09.2024 (“demand notice”) u/s 8 of the Code.
Since Corporate Debtor failed to pay the admitted operational debt within the statutory period of 10 days from the issuance of the Form 3 Demand Notice, the instant petition under section 9 of the code has been filed.
Per contra, the Corporate Debtor submitted that unstamped Delivery Order dated 16.09.2022 – being and unstamped instrument, the delivery order dated 16.09.2022 cannot be admitted in evidence in view of section 35 of Indian Stamp Act, 1899 and Section 34 of the Maharashtra Stamp Act, 1958.
It was also argued that as per Rule 6(2) of the IBC Rules, 2016, the Applicant should serve a copy of the application to the registered office of the Respondent, however, the same was served to the Respondent after filing of the application.
Lastly, it was submitted that claim disputed in the record of NeSL - in terms of Section 8(2)(a) of the Code, there is an existence of a dispute as has been duly authenticated at the National e-Governance Services Limited, the Information Utility (“NeSL”)
Observations:
The Tribunal observed that the argument of the Respondent that the DO dated 16 September 2022 is inadmissible due to being unstamped lacks merit. It is well settled that in applications under section 7 or 9 of the code, an unstamped or insufficiently stamped document does not bar proving the existence of debt through other evidence. In the present case, it is undisputed that the operation creditor made payments for coal supply by the corporate debtor and such payment is outstanding as on date.
The Tribunal further observed that the only dispute in the present case is with respect to the rate at which the coal has to be supplied. A perusal of the correspondences between the parties shows that no dispute was raised by the corporate debtor before the issuance of the demand notice. A debit note was issued by the corporate debtor after the issuance of demand notice merely to create a dispute. The date of default was registered with NeSL on 4 September 2024 that is after the issuance of demand notice.
Based on the above, it said that this leads to a conclusion that the defence of pre-existing disputes raised by the Corporate Debtor is merely a moonshine defence to cover up its failure to supply the goods against the advance, and the Operational Creditor is entitled to seek refund of such amount.
The Tribunal noted that the advance received by the Corporate Debtor against future supply of goods is an Operational Debtor as held by the Supreme Court in case of M/s Consolidated Construction Consortium Ltd. v. M/s Hitro Energy Solutions (P) Ltd. (2022).
It further observed that the claim that the Respondent Company is not “insolvent” or “bankrupt” by any standard is not relevant so long as there exists an undisputed debt and default in payment therein.
The Tribunal held that the failure to serve an advance copy of the petition under Rule 6(2) of the IBC Rules, 2016 is a curable defect which was rectified by the applicant on 16 October 2024. The corporate debtor has disputed only a portion of the claim while the admitted debt exceeds the threshold limit under section 4 of the code. Furthemore, the existence of a dispute recorded on the NeSL does not prevent adjudication under section 8(2) of the code.
The Tribunal concluded that there exists an undisputed operational debt exceeding Rs. 1.00 crores and the said debt is in default. The present Petition is complete in terms of Section 9 of the I B Code, 2016, hence deserve to be admitted.
Accordingly, the present petition was allowed.
Case Title: Armaco Infralinks Pvt. Ltd. Versus B. S. Ispat Pvt. Ltd.
Case Number: CP (IB) / 891 (MB) 2024
Order Date: 26/03/2025
For the Operational Creditor Mr. Nausher Kohli, Ld. Counsel
For the Corporate Debtor: Mr. Rahul Narichania, Ld. Counsel
