NCLT Mumbai: Non-Acceptance Of Goods By Corporate Debtor Does Not Equate To Operational Debt U/S 5(21) Of IBC

Background Facts:

Adishank Chemicals Pvt. Ltd. ('Operational Creditor') was engaged with Baerlocher India Additives Pvt. Ltd. ('Corporate Debtor') for the supply of material. The Corporate Debtor had placed an order via Purchase Order dated 23.06.2022 for the supply of goods with the payment term of 30 days credit.

The Operational Creditor repeatedly requested to send a call-up at the earliest to process the material, as a minimum period of 10 days advance call-up was agreed to between the parties. However, no response was received. On 22.08.2022 the Corporate Debtor assured the Operational Creditor that within three to four days, it will be informed of the supplies. The Operational Creditor recorded the same in writing and also informed that the Operational Creditor is incurring losses and holding costs as the Corporate Debtor is not picking up the material.

The Operational Creditor pointed out that it is incurring great losses as the Corporate Debtor has to date not made any payment nor picked up the material and claimed that a total outstanding amount of Rs.1.35 crores is due and payable as of 31.03.2023 since the material has been manufactured and is ready since the delivery date.

The Operational Creditor has filed a Corporate Insolvency Resolution Process ('CIRP') application under Section 9 of IBC against the Corporate Debtor for resolution of an unresolved Operational Debt of Rs. 1.35 crores as of 31.03.2023.

NCLT Verdict:

The NCLT Mumbai dismissed the CIRP application and held that the non-acceptance of the goods by the Corporate Debtor cannot be equated with the default in respect of an Operational debt under Section 5(21) of IBC.

The Tribunal took note of Section 5 (21) of IBC which defines the operational debt and reads out as:

Section 5(21): “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the 3 [payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

It noted that since the goods were not delivered for whatever reasons, even if attributable to the Corporate Debtor, no case of default of operational debt is made out. Further, the claim of the Petitioner cannot be covered under the definition of Operational Debt under IBC.

The NCLT highlighted that presently, the Petitioner's claim arises from breach of contract by not honoring its commitment in purchasing th goods from Petitioner as per the purchase order dated 23.06.2022. Thus, it pointed out that the appropriate remedy for the Petitioner is to sue the Corporate Debtor for damages as per breach of contractual obligations before the appropriate authority to decide the quantum of damages.

In conclusion, NCLT observed that the the claim of the Petitioner cannot be treated as Operational Debt and the CIRP application under Section 9 of IBC does not stand.

Case Title: Adishank Chemicals Pvt. Ltd. vs. Baerlocher India Additives Pvt. Ltd.

Case No.: CP(IB)/736/MB/2023

Counsel for Operational Creditor: Adv. Nausher Kohli

Counsel for Corporate Debtor: Adv. Amir Arsiwala a/w Adv. Abdullah Qureshi & Adv. Arjun Sathees

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