Advance payment for future supply constitutes Operational Debt under IBC: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench, has ruled that an advance payment received by the Corporate Debtor for the future supply of goods constitutes an operational debt under the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal further held that an application under Section 9 of the IBC can be admitted if the debt exceeds the ₹1 crore threshold prescribed under Section 4 of the Code.

M/s Armaco Infralinks Pvt. Ltd. (Operational Creditor) advanced ₹17.53 crore to M/s B. S. Ispat Pvt. Ltd. (Corporate Debtor) between April 2021 and September 2022 for the supply of coal. However, the Corporate Debtor only supplied coal worth ₹8.45 crore during this period, leaving an outstanding sum of ₹9.07 crore. Due to the non-supply of the remaining coal and the accumulated financial losses, the Operational Creditor demanded a refund of the advance payments via an email dated 08.08.2024, requesting payment within seven days. Subsequently, a demand notice under Section 8 of the IBC was issued on 04.09.2024.

The Corporate Debtor contested the claim, arguing that the delivery order dated 16.09.2022 was unstamped, thus inadmissible under the Indian Stamp Act, 1899. Additionally, the Corporate Debtor claimed that the application under Section 9 was not properly served in accordance with Rule 6(2) of the IBC Rules, 2016. It also argued that a dispute had been recorded in the National e-Governance Services Limited (NeSL) records, implying a pre-existing dispute.

The Tribunal observed that the Corporate Debtor’s argument regarding the unstamped delivery order was without merit, stating that in applications under Sections 7 or 9 of the IBC, an unstamped document does not bar the existence of debt if proven by other means. It further noted that the dispute raised by the Corporate Debtor regarding the coal supply rate was not legitimate, as it was only raised after the demand notice was issued. The Tribunal concluded that the defense of pre-existing disputes was an attempt to delay payment, with no substantial basis.

The Tribunal also emphasized that advance payments made for future goods are to be considered as operational debts, citing the Supreme Court’s ruling in M/s Consolidated Construction Consortium Ltd. v. M/s Hitro Energy Solutions (P) Ltd. (2022). It dismissed the Corporate Debtor’s claim of insolvency and emphasized that the existence of an undisputed debt exceeding ₹1 crore was sufficient for admission under Section 9.

Ultimately, the Tribunal held that the petition met all the requirements of Section 9 of the IBC and that the debt was undisputed and in default. As a result, the petition was admitted, and the Corporate Debtor was directed to settle the outstanding dues.

Armaco Infralinks Pvt. Ltd. v. B. S. Ispat Pvt. Ltd.

CP (IB) / 891 (MB) 2024