Decree Obtained By Operational Creditors From Civil Court Does Not Mean They Cease To Be Operational Creditors: NCLAT

It further held that just because a decree has been obtained by the Operational Creditor does not mean they cease to be Operational Creditors.

Brief Facts:

Senbo Engineering Ltd. (Respondent) was awarded a contract by Delhi Metro Rail Corporation (DMRC) which was subcontracted by it to Venus Buildtech India Pvt. Ltd. (Appellant). The Appellant completed the work and demanded payment. Due to non-payment, the Appellant was compelled to file a suit before the Civil Court and the court passed a decree in favor of the Appellant.

Consequently, executing proceedings were also initiated but no payment was made. The Appellant then filed an application under section 9 of the Code which was dismissed on the ground that a decree holder is distinct from an Operational Creditor.

Contentions:

The Appellant submitted that the operational debt which was owned to the Respondent shall not be transformed merely because a decree is obtained by the Appellant from Civil Court. The Appellant was Operational Creditor and the Adjudicating Authority committed error in rejecting the Application under section 9 of the code.

Per contra, the Respondent submitted that the Appellant has put the decree an execution and has realised certain amount in the execution proceeding and even after filing the application under section 9 of the code has received certain amount.

Observations:

The Tribunal noted that the Adjudicating Authority relied on the Tripura High Court in Sri Subhankar Bhowmik v. Union of India and Anr. where it was held that Decree Holders are classified separately from financial and operational creditors under the code with no further subdivisions within this category. The Code explicitly recognises decree holders as a distinct class based on their decree but does not allow for their reclassification as either financial creditors or operational creditors.

The National Company Law Appellate Tribunal (NCLAT) in Mukul Agarwal, Ex-Director Greatech Telecom Technologies Pvt. Ltd. Vs. Royale Resinex Pvt. Ltd. and Ors. (2022) held that the mere fact that when the Corporate Debtor did not pay the amount, suit for recovery was filed in the year 2016 by the Operational Creditor, which was also Decreed on 08.09.2016, does not in any manner effect the transaction out of which the amount fell due. The fact that amount was adjudicated and a Decree was passed, in no manner take away the nature of 'operational debt'.

Similarly, the Supreme Court in Vishal Chelani v. Debashis Nanda, (2023) held that the mere facts that the Homebuyers have obtained decree from the UP RERA they shall not cease to be Financial Creditor.

Based on the above, the Tribunal held that the Adjudicating Authority committed an error in rejecting the application under section 9 of the code only on the ground that since the Appellant was a decree holder, he will not fall within the definition of the Operational Creditor.

Accordingly, the present appeal was allowed and the impugned order was set aside.

Case Title: Venus Buildtech India Pvt. Ltd. Versus Senbo Engineering Ltd.

Case Number: Company Appeal (AT) (Insolvency) No. 1317 of 2023

Order Date: 12/03/2025

For Appellant : Mr. Arjun, Mr. Rajeev Shrivastava and Mr. Shrey Shrivastava, Advocates

For Respondent :

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