Summary
A purchaser sought insolvency proceedings to recover an advance for light fittings after cancellation of the underlying project. The Court held that an operational creditor can receive, rather than supply, goods or services where the debt has the required operational nexus. The respondent company was liable as successor to the proprietary concern on the evidence and its unaltered memorandum. The application was timely. NCLAT’s dismissal was set aside, leaving the already ongoing CIRP to continue.
Issues
- Whether a purchaser claiming refund of an advance for goods could be an operational creditor.
- Whether the respondent company had taken over the proprietary concern’s liability.
- Whether limitation ran from the advance cheque or the later repayment default.
Provisions considered
- Sections 3(6), 5(20) and 5(21), Insolvency and Bankruptcy Code, 2016An operational claim requires a nexus with provision of goods or services, without restricting the creditor to their supplier; this purchaser’s advance-refund debt qualified. (¶¶ 22, 39-46, 62)
- Sections 8(1) and 9(3)(a), Insolvency and Bankruptcy Code, 2016The statutory alternative of a demand notice or invoice supported recognizing operational claims proved by documents other than a supplier’s invoice. (¶¶ 23-27, 43)
- Sections 4(1)(c), 10(1), 13(1), 13(6)(a), 13(9) and 13(10), Companies Act, 2013The memorandum’s takeover object remained effective because the asserted board resolution was not proved to satisfy the requirements for an effective alteration. (¶ 49-56)
- Schedule, Article 137, Limitation Act, 1963Limitation depended on repayment default rather than the date the advance cheque was issued; the application was timely on the facts. (¶ 57-61)
- Section 3(12), Insolvency and Bankruptcy Code, 2016Default required non-payment of a due debt; issuance of an advance cheque was not itself the repayment default. (¶¶ 23, 59-61)
Held
- The operational-debt definition does not prescribe who must supply or receive the goods or services. A purchaser’s claim to return of an advance under a goods-supply contract can therefore be operational debt. An invoice is not indispensable where other contractual documents establish the debt. (¶¶ 22-27, 42-45)
- CMRL paid the advance on the purchaser’s behalf and later recovered it from the purchaser. The debt arose from the underlying purchase orders; direct payment by CMRL did not defeat privity or require an assignment from CMRL. The dispute concerned refund following cancellation rather than quality of supplied services. (¶¶ 39-41, 45-46)
- The company’s memorandum expressly contemplated takeover of the proprietary concern. The alleged contrary resolution was not mentioned in its NCLT counter-statements, and no proof established a special resolution, filing or registration of an alteration. The unrebutted presumption from the memorandum therefore supported takeover and liability on these facts. (¶ 47-56)
- The advance cheque’s date was not the repayment-default date. Subsequent correspondence and the joint meeting showed negotiations about repayment; following the final demand, the concern refused repayment in March 2017. The November 2017 application was not time-barred. (¶ 57-61)
- The appeal was allowed and NCLAT’s judgment set aside. Since CIRP was already ongoing pursuant to the Court’s interim order, no further directions were required. (¶ 62-64)
Result
Appeal allowed; NCLAT dismissal set aside. Purchaser recognized as operational creditor, respondent liable on the takeover evidence, and application held timely. Existing CIRP continues without further directions.