NCLAT Delhi: Advance Paid Towards Service Is Operational Debt

The National Company Law Appellate Tribunal (“NCLAT”), in the case Chipsan Aviation Private Limited v Punj Llyod Aviation Limited, the principal bench comprising of Chairperson, Justice Ashok Bhushan and the Technical Member, Mr. Barun Mitra observed while adjudicating an appeal filed and has held that an advance paid towards a service fall within definition of operational debt, even if there was no privity of contract between the Parties.

Facts of the Case:
The Appellant/ Operational Creditor, Chipsan Aviation Pvt. Ltd was engaged in a business with Respondent/Corporate Debtor, Punj Llyod Aviation Limited for charter services of aeroplanes and helicopter, hired on long term basis from non-scheduled operators/owners. The operational creditor had advanced an amount of Rs.60 lakhs to the Corporate Debtor for aviation related services on 28.03.2016. Moreover, the Corporate Debtor dis not provided the services nor the advance amount was refunded. Therefore, the advance payment made by the Operational Creditor to the Corporate Debtor reflected in the Balance Sheets of the Corporate Debtor as on 31.03.2016 under the head current liabilities. Since, the amount of Rs.60 lakhs was continuously shown as advance received from the customers during financial years 2015-2016, 2016-2017 and 2017-2018.
The Operational Creditor issued a Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) on 19.09.2019 to the Corporate Debtor demanding refund of the advance amount. A petition was filled by the Operational Creditor under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor over a default of Rs.97,40,055/-, inclusive of interest, when no refund was received.
However, the Corporate Debtor in its Reply to Section 9 petition contended that there was no privity of contract between the Parties and no Operational Debt exists under Section 5(21) of IBC. The contract dated 01.04.2016 of the Operational Creditor was with M/s Buildarch Aviation. The plea filled was bar by limitation as the advance payment was made on 28.03.2016 and the petition was filed after expiry of the three years.
The plea filled under Section 9 was rejected by the Adjudicating Authority vide an order dated 06.01.2022., the bench while holding that advance payment made by Operational Creditor to the Corporate Debtor does not fall within the definition of an Operational Debt. An appeal before the NCLAT has been filled by the Operational Creditor against the order dated 06.01.2022.

NCLAT Decision:
It was observed that the bench placed reliance on the Supreme Court judgment in the case Construction Consortium Limited v Hitro Energy Solutions Pvt. Ltd, wherein it was held that the expression ‘in respect of’ in Section 5(21) has to be interpreted in a broad and purposive manner and advance payment for goods and services is an Operational Debt.
Further, the bench observed that though there being no privity of contract between the Parties, the Bench yet opined that the advance payment of Rs. 60 lakhs were clearly an Operational Debt. An error has been committed by the Adjudicating Authority in rejecting Section 9 petition and thus Order dated 06.01.2022 was set aside. The bench revived the Section 9 petition.

The post NCLAT Delhi: Advance Paid Towards Service Is Operational Debt appeared first on The Daily Guardian.