Insolvency and Bankruptcy Code, 2016: ss.5(20), 5(21), 8(1) – Operational creditor – Meaning of – Appellant was engaged by CMRL for a project – For the said project, appellant entered into a contract for supply of light fittings with a Proprietary Concern (P.C.) – CMRL, on appellant’s behalf, paid a sum of Rs 50 lakhs to P.C. as an advance – However, CMRL terminated its project with the appellant – The communication of termination was given to P.C., however P.C. encashed the cheque for Rs 50 lakhs – Appellant paid the sum of Rs 50 lakhs to CMRL and requested P.C. to make the payment – Meanwhile, respondent was incorporated and it took over P.C. – Appellant sent demand notice under s.8 of the IBC to the respondent – Respondent denied that any debt was owed by them to the appellant – Appellant filed application u/s.9 of IBC r/w r.6 IBC Rules 2016 which was admitted by NCLT and Interim Resolution professional appointed – NCLAT set aside the NCLT’s decision and dismissed the application of appellant – On appeal, held: Operational creditors are those whose debt arises from operational transactions i.e transactions involving goods or services which are considered necessary for the operational functioning of an entity – s.5(21) defines ‘operational debt’ as a “claim in respect of the provision of goods or services – The operative requirement is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver – s.8(1) of the IBC r/w r.5(1) and Form 3 of the 2016 Application Rules makes it abundantly clear that an operational creditor can issue a notice in relation to an operational debt either through a demand notice or an invoice – The presence of an invoice is not a ENERGY SOLUTIONS PVT. LTD.
sine qua non, since a demand notice can also be issued on the basis of other documents which prove the existence of the debt – A debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt – Appellant had sought an operational service from P.C. when it contracted with them for the supply of light fittings – Enchashment of cheque by P.C., even though the contract was terminated, gave rise to an operational debt in favor of the appellant – Hence, the appellant is an operational creditor under s.5(20) of the IBC.
Companies Act, 2013: Memorandum of Association (MOA) – Evidentiary value of – A company’s MOA is its charter and outlines the purpose for which the company has been created – In the instant case, the MOA of the respondent unequivocally states that one of its main objects is to take over a Proprietary Concern (P.C.) – However, the respondent has produced a resolution purportedly to not take over P.C. – s.13 of Companies Act, 2013 provides the procedure for amendment of MOA – In case of amending an object clause, it requires the Registrar to register the Special Resolution filed by the company – However, respondent provided no proof for the above amendment – MOA of the respondent still stands.
Limitation Act, 1963: Maintainability of IBC application – Limitation does not commence when the debt becomes due but only when a default occurs – Default is defined under s.3(12) of the IBC as the non-payment of the debt by the corporate debtor when it has become due – CMRL issued a cheque of Rs 50 lacs to a Proprietary Concern (P.C.) on 7 November 2013 as an advance payment for the purchase – After termination of contract, correspondence was exchanged between the appellant and P.C. – Final letter demanding payment from P.C. was addressed on 27 February 2017 which was refused by appellant on 2 March 2017 – On 1 November 2017, appellant filed an application u/s.9 of IBC which is within three years from default – Hence, application u/s.9 of IBC is not barred by limitation – Insolvency and Bankruptcy Code, 2016 – s.9.
Allowing the appeal, the Court
HELD: 1. Section 8(1) of the IBC read with Rule 5(1) and Form 3 of the 2016 Application Rules makes it abundantly clear that an operational creditor can issue a notice in relation to an operational debt either through a demand notice or an invoice. As such, the presence of an invoice (for having supplied goods or services) is not a sine qua non, since a demand notice can also be issued on the basis of other documents which prove the existence of the debt. This is made even more clear by Regulation 7(2)(b)(i) and (ii) of the CIRP Regulations 2016 which provides an operational creditor, seeking to claim an operational debt in a CIRP, an option between relying on a contract for the supply of goods and services with the corporate debtor or an invoice demanding payment for the goods and services supplied to the corporate debtor. Hence, this leaves no doubt that a debt which arises out of advance payment made to a corporate debt or for supply of goods or services would be considered as an operational debt. Similarly, in the present case, the phrase “in respect of” in Section 5(21) has to be interpreted in a broad and purposive manner in order to include all those who provide or receive operational services from the corporate debtor, which ultimately lead to an operational debt. In the present case, the appellant clearly sought an operational service from the Proprietary Concern when it contracted with them for the supply of light fittings. Further, when the contract was terminated but the Proprietary Concern nonetheless encashed the cheque for advance payment, it gave rise to an operational debt in favor of the appellant, which now remains unpaid. Hence, the appellant is an operational creditor under Section 5(20) of the IBC. [Para 43, 45][245-F-H; 246-D; 247-C-E]
2.1 It is uncontested that the appellant entered into a contract with the Proprietary Concern and continued communications with them till the very end, finally sending its notice under Section 8(1) of the IBC to the respondent. The dispute revolves around the MOA of the respondent. Section 4 of the Companies Act 2013defines an MOA. Section 4(1) provides the relevant information that an MOA shall provide, which includes, in sub-Clause (c), that it should provide “the objects ENERGY SOLUTIONS PVT. LTD.
for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof”. Section 13 provides the requirements for the alteration of an MOA. [Para 47, 49, 52][247-G; 248-C-D; 249-G]
2.2 In the present case, the MOA of the respondent unequivocally states that one of its main objects is to take over the Proprietary Concern. However, the respondent has produced a resolution dated 1 September 2014 passed by its Board of Directors, purportedly resolving to not take over the Proprietary Concern. In any case, Section 13 of CA 2013 provides for the procedure which has to be followed when the MOA is to be amended. In cases where the object clause is amended, it requires the Registrar to register the Special Resolution filed by the company. However, the respondent has provided no proof that:
(i) the purported resolution dated 1 September 2014 was a Special Resolution; (ii) it was filed before the Registrar; and (iii) that the Registrar ultimately did register it. Thus, in terms of Section 13(10) of CA 2013, the purported amendment to the MOA would not have any legal effect. Consequently, the MOA of the respondent still stands and the presumption will continue to be in favor of the appellant. Thus, it can be concluded that the respondent took over the Proprietary Concern and was liable to re-pay the debt to the appellant. Hence, the application under Section 9 of the IBC was maintainable. [Para 53, 55, 56][250-D; 251-D-F]
3. In respect of question of limitation, CMRL issued the cheque of Rs 50,00,000 to the Proprietary Concern on 7 November 2013. However, at that time, it was issued as an advance payment for the purchase order of the appellant. It was only on 2 January 2014 that CMRL terminated its project with the appellant, and it was after this that the Proprietary Concern encashed the cheque. Subsequently, correspondence was exchanged between the appellant and the Proprietary Concern in July 2016 in relation to the re-payment of the amount. Thereafter, a joint meeting was also held on 4 August 2016. Till this point in time, both the parties were in negotiation in relation to the re-payment and the minutes of meeting show that the Proprietary Concern was willing to make the re-payment if CMRL issued a letter stating that they will not pursue a claim in the future or if the appellant provided a bank guarantee for the amount. A final letter was addressed by the appellant to the Proprietary Concern on 27 February 2017, demanding the payment on or before 4 March 2017. The Proprietary Concern replied to this letter on 2 March 2017, finally refusing to make re-payment to the appellant. Consequently, the application under Section 9 will not be barred by limitation. [Para 60, 61][252-F-G; 253-A-B]
B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633:[2018] 12 SCR 794 – relied on.
Pioneer Urban Land and Infrastructure Ltd. v. Union of India (2019) 8 SCC 416:[2019] 10 SCR 381;
Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407:[2017] 8 SCR 33; Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353: [2017] 10 SCR 1006; Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd. (2021) 3 SCC 475 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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