Top Stories Non-Acceptance of Goods by Corporate Debtor does not equate to Operational Debt u/s 5(21) of IBC: NCLT [Read Order] The NCLT held that non-acceptance of goods by a corporate debtor does not equate to operational debt under section 5(21) of the Insolvency Bankruptcy Code (IBC) By Yogitha S. Yogesh – On February 16, 2024 5:34 pm – 3 mins read The National Company Law Tribunal ( NCLT ) has held that the non-acceptance of the goods by the Corporate Debtor cannot be equated with default in respect of an operational debt. Section 5 (21) of the Insolvency Bankruptcy Code ( IBC ),2016 defines the operational debt as a “claim in respect of the provisions of goods and services including employment or debt in respect of payment of dues arising under any law for the time being in force payable to the Central Government, any State Government and any Local Authority.”.

The petition has been filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) by Adishank Chemicals Pvt. Ltd. ( Operational Creditor ) praying inter-alia for initiation of Corporate Insolvency Resolution Process ( CIRP ) against Baerlocher India Additives Pvt. Ltd. ( Corporate Debtor ) by invoking the provisions of Section 9 of the Insolvency and Bankruptcy Code ( the Code ) for resolution of an unresolved Operational Debt of Rs. 1,35,20,600/- as on 31.03.2023. The Operational Creditor has been carrying on business with the Corporate Debtor for years thereby supplying them with the materials and the Corporate Debtor has regularly raised the purchase orders towards the Operational Creditor towards the purchase of the materials. The goods have been duly received and consumed by the Corporate Debtor in the past, without raising any dispute in respect of the price, quality and quantity.  The Corporate Debtor placed an order on the operational Creditor for the supply of goods. As per the Purchase Order, the dispatch schedule was to be conveyed by email and the terms of payment was 30 days credit.

The Purchase Order mentions the delivery date for each Material. The date of delivery as mentioned is the last date by which the delivery is to be made. The Corporate Debtor was to give 10 days’ notice before the requirement, for dispatch. The Operational Creditor has not received any call-up from the Corporate Debtor about the Purchase Order and requested to send a call-up immediately to dispatch -the material, as a minimum period of 10 days advance call-up was agreed to between the parties. It was observed that despite the aforesaid the Corporate Debtor has to date not made any payment nor picked up the material, thereby causing great losses to the Operational Creditor.

The Operational Creditor states that against the principal outstanding amount of Rs. 1,26,49,600.00, further simple interest @ 15 % is applicable and hence a total outstanding amount of Rs.1,35,20,600 is due and payable as of 31st March 2023 by the Corporate Debtor to the Operational Creditor. The counsel for the Operational Creditor has pointed out that the Corporate Debtor placed a purchase order and for a net amount of Rs. 1.26 crores in respect of the supply of goods manufactured by the Operational Creditor. A two-member bench comprising Mr Anil Raj Chellan, Member ( Judicial ) and Mr Kuldip Kumar Kareer, Member ( Technical ) viewed that non-acceptance of the goods by the Corporate Debtor cannot be equated with the default in respect of operational debt. Section 5 (21) of IB Code, 2016 defines the operational debt as a “claim in respect of the provisions of goods and services including employment or debt in respect of payment of dues arising under any law for the time being in force payable to the Central Government, any State Government and any Local Authority.”

The goods were never supplied to the Corporate Debtor nor any invoices were raised. Further viewed that “it is not a case of an operational debt in respect of which a default has been committed by the Corporate Debtor. Since the goods were not supplied/delivered for whatever reasons, even if attributable to the Corporate Debtor, no case of default of operational debt is made out.” The Tribunal dismissed the Petition under Section 9 of the Insolvency and Bankruptcy Code. Adv. Nausher Kohli appeared for the Operational Creditor and Adv. Amir Arsiwala a/w Adv. Abdullah Qureshi & Adv. Arjun Sathees appeared for the Corporate Debtor. To Read the full text of the Order CLICK HERE