- Setting aside the order passed by the National Company Law Appellate Tribunal (NCLAT), the Supreme Court (SC), in the case of Consolidated Construction Consortium Limited v Hitro Energy Solutions Private Limited,held that an operational creditor includes everyone person who provides or receives operational services from a corporate debtor, eventually leading to an operational debt.
- The appeal arose under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC), from a judgment of the National Company Law Appellate Tribunal (NCLAT). The NCLAT held that since the Appellant was a purchaser and not a supplier, he was not covered under the definition of Operational Creditor under the IBC.
- Brief facts of the case are that the Appellant entered into acontract with Hitro Energy Solution (Proprietary Concern), for supply of light fittings for Chennai Metro Rail Limited (CMRL). The Proprietary Concern was taken over by the Respondent. CMRL, paid a certain sum of money on behalf of the Appellant to the Respondent. Later, CMRL cancelled the project. However, the Respondent encashed the cheque and the Appellant has to pay CMRL.
- Analysing the definition of ‘Operational Debt’, the SC observed that the phrase ‘in respect of’ given under Section 5(21) must be given a broad and purposive interpretation and disagreed with the narrow interpretation of the NCLAT. As per NCLAT, operational debt and creditors includes on supplier of goods and services to a corporate debtor and excludes person receiving goods and services.
- In the instant case, SC held that the Appellant sought an operational service from the Proprietary Concern in relation to the contract for supply of light fittings. Encashment of the cheque despite the termination of the contract by CMRL gave rise to operational debt in favor of the Appellant. As a result, the Appellant became an operational creditor by virtue of Section 5(20) of the IBC.
- The Court also took cognizance of it’s observation in a previous judgment that IBC proceedings should not become recovery proceedings and held that the current issue before it stems entirely from dispute regarding repayment of the advance and does not deal with the quality of services provided by the Proprietary Concern.
- On the issue whether the Operational Debt of the Proprietary Concern can be realised by the Respondent, the Court held that the MOA of the Respondent was an undeniable proof that the latter had taken over the business and liabilities of the former. The Court denied the Respondent’s submission of a Board Resolution (BR) resolving not to take over the Proprietary Concern.
- In this regard, the Court observed that the conduct of the Respondent in bringing up the resolution for the first time between the NCLAT has led to an adverse inference against them and that MOA of the Respondent still stands despite the BR.
- Held, the Appellant is an Operational Creditor and can recover the adnace paid.
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