The NCLAT Chennai held that the onus/liability comes back to the Corporate Debtor to ensure that amount is paid to the Operational Creditor.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice M. Venugopal, Judicial Member and Naresh Salecha, Technical Member was hearing an Appeal on Friday and held that the onus/ liability comes back to the Corporate Debtor to ensure that amounts are paid to the Operational Creditor, and as such all the claims made against the Corporate Debtor are valid.
The Present Appeal was filed against the order passed by the Adjudicating Authority, National Company Law Tribunal, Hyderabad Bench, whereby, the Adjudicating Authority dismissed the Petition filed under the Insolvency & Bankruptcy Code, 2016.
The Appellant was a Member of the Suspended Board of Directors of the Corporate Debtor (CD) who was the 2nd Respondent and had placed the Purchase Orders on the Operational Creditor/ 1st Respondent herein. On 03.11.2015, the 2nd Respondent placed 2 Purchase Orders on the 1st Respondent for the supply and installation of 20,000 AMR modems (including installation, commissioning, integration and service for 63 months) required for a project by Tamil Nadu Generation and Distribution Company. The 1st Respondent could, however, supply only 16140 modems against 20000 modems as per purchase orders. Moreover, the 1st Respondent has completed the installation of only 2945 modems as opposed to all 20000 modems which were to be installed. In addition, the 1st Respondent did not give integration and Facility Management Services as expected from them as per the contract.
It has been alleged that the supply of the modems was badly delayed in spite of the purchase order stipulating that all supplies need to be made within 60 days. Therefore, the 1st Respondent failed to perform its obligations under the purchase orders and thus allegedly not entitled to any payment and accordingly, debt was not due and the 2nd Respondent had no liability to pay any debt.
The ‘impugned order’ dated 16.09.2022 admitted the Section 9 application under I & B Code, 2016 and hence, the present appeal before this Appellate Tribunal.
The Appellate Authority heard Learned Counsel for the Appellant and the Respondents and also perused the record made available. Several issues have been raised in the Appeal which was required to be deliberated upon before coming to final conclusion:
(i) Whether there exists debt which was due and payable and has not been paid? and (ii) Whether the Corporate Debtor was liable to pay for the debts or not.
The Appellate Tribunal noted that the relevant definition of I & B Code, 2016 with reference to the Appeal were ‘Operational Debt’ and ‘Operational Creditor’ which are as under:-
“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 [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;
“5(20). ‘operational creditors’ means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.”
The Appellate Tribunal observed that these definitions made the distinction between Operational Debt and Financial Debt. As seen ‘financial debt’ is an inclusive and non-exhaustive definition given under Section 5(8) of the I & B Code to mean a debt along with interest, if any, which is disbursed against the consideration for the time value of money. Financial creditors have relationship with the entity as financial contracts, like loans or security etc. Whereas, an operational debt as defined under section 5(21) of I & B Code, 2016 signifies a claim in respect of the provisions of goods or services.
After going through the relevant provisions under I & B Code, 2016 and cited judgment as discussed in the above-mentioned paragraphs, in the present appeal, the 2nd Respondent (Corporate Debtor) has clearly acknowledged the supply of 16130 AMR modems and installation of 2945 modems that have been installed and are integrated with the servers and being used in ‘TANGEDCO’. The Appellate Tribunal further observed that the 2nd Respondent (Corporate Debtor) has also acknowledged payment already made the 40% of the cost i.e Rs. 2,50,52,800/ out of Rs.6,26,32,001/- and another Rs 22,85,641/-on installation of 2945 modems. This itself proves the existence of remaining unpaid dues. Hence, it is clear that there exists debt which was due and was not paid by the 2nd Respondent (Corporate Debtor) to the 1st Respondent (Operational Creditor).
The Appellate Tribunal noted that no concrete evidence has been brought out or documentation has been produced to establish that there existed any pre-existing disputes between the parties. The Arbitration proceedings that the 2nd Respondent was trying to portray as a pending dispute are in fact not between the 2nd Respondent (Corporate Debtor) to the 1st Respondent (Operational Creditor) and were rather between the 2nd Respondent and his principal employer for the supply services i.e. ‘TANGEDCO’.
The claim of the ‘Appellant’ that the application filed by the 1st Respondent was not maintainable since the ‘Appellant’ assigned the debt to ‘TANGEDCO’ seems erroneous. The ‘Appellant’ claims that 2nd Respondent had issued the ‘NOC’ with regard to the pending payments, therefore the claims of the 1st Respondent lie only as against ‘TANGEDCO’ since the 1st Respondent has agreed to accept performance from a third party. However, while looking into details of the appeal and from the averments made before the Appellate Tribunal, it was seen that, though a ‘NOC’ was issued by the 2nd Respondent however they did not seek prior approval from ‘TANGEDCO’ that such payments would be made by ‘TANGEDCO’. Therefore, there did not exist any valid contract between the 2nd Respondent (Corporate Debtor) and ‘TANGEDCO’ stating that payment to the 1st Respondent (Operational Creditor) would be made by ‘TANGEDCO’. Therefore, in such a scenario the onus/ liability comes back to the 2nd Respondent (Corporate Debtor) to ensure that amounts were paid to the 1st Respondent (Operational Creditor), and as such all the claims made against the ‘2nd Respondent (Corporate Debtor) were valid.
Therefore, the Appellate Tribunal was of the considered opinion that there was no error in the impugned order passed by the Adjudicating Authority. The appeal was set aside and dismissed.