CONSOLIDATED CONSTRUCTION CONSORTIUM LIMITED VS HITRO ENERGY SOLUTIONS PVT. LTD.  : CASE SUMMARY

The Supreme Court held in Consolidated Construction Consortium Ltd Vs Hitro Energy Solutions Pvt Ltd (2022) SCC Online SC 142 that Operational Creditors include all those who provide or receive operational services from the Corporate Debtor.  Advance payment made to the Corporate Debtor for supply of goods or services will be covered under definition of “Operational Debt”.

FACTS OF THE CASE

The Appellant was executing a project with Chennai Metro Rail Ltd.  An order was placed with the Appellant to supply light fitting. In turn appellant placed orders with proprietary concern through three purchase orders.  Proprietary concern requested for advance payment of Rs. 50,00,000/-. CMRL issued cheque in favour of the Respondent. In the meantime, CMRL informed the appellant that the project has been terminated. The proprietary concern deposited the cheque and withdrew the amount of Rs. 50,00,000/-.

The Respondent was incorporated as a company and took over the business of the proprietary concern. The Appellant requested the Respondent to return Rs. 50,00,000/- which was refused on one ground or another.  

The Appellant sent demand notice under Section 8 of IBC and thereafter filed application under Section 9 of the IBC.  The NCLT vide order dated 6^th December, 2018 admitted application under Section 9 of IBC. The order of NCLT was set aside by the NCLAT on the ground that the Appellant has not supplied any goods or services to the Respondent as such Appellant is not covered under definition of “operational creditor”.

FINDINGS OF THE SUPREME COURT

Section 5 (21) defines the term operational debt, which is as under:

 5 (21) . “Operational Debt” means a claim in respect of the provision of goods and services including employment or a debt in respect of the re-payment of dues arising under any law for the time being in force and payable to the Central Government, State Government or any local authority.

The Supreme Court noted that unlike other jurisdiction which differentiate between secured and unsecured creditors, the IBC is unique to the extent that it provides for two different types of creditors i.e. financial and operational creditor.

Operational creditors are those whose debt arises from operational transaction. These generally include transactions involving goods and services which are considered necessary for the operational functioning of an entity.

The Supreme Court observed that the Respondent’s submissions narrowly define Operational Creditors under IBC to only include those who supply goods and services to the Corporate Debtor and exclude those who receive goods and services from the Corporate Debtor.  

The Supreme Court rejected the submission of the Respondent. The Supreme Court observed that Section 5 (21) defines “operational debt” as a claim in respect of the provision of goods and services. The requirement is that the claim must have some nexus with a provision of goods and services, without specifying who is to be supplier or receiver.

The Supreme Court also observed that notice under Section 8 of IBC can be issued either through demand notice or an invoice. As such, presence of invoice is not sine qua non, since demand notice can also be issued on the basis of other documents which prove existence of debt.  Regulation 7 (2) (b) (i) and (ii) of CIRP makes it more clear which provides that Operational Creditor has an option between relying on a contract of supply of goods and services with the Corporate Debtor or an invoice demanding payment for goods and services supplied to the Corporate Debtor.  While the latter indicates that the Operational Creditor should have supplied goods and services to the CD, the former is broad enough to include all forms of contracts for supply of goods and services between the Operational Creditor and Corporate Debtor, including ones where the Operational Creditor may have been the receiver of goods and services from the Corporate Debtor.

The Supreme Court concluded that advance payment made to Corporate Debtor for supply of goods and services would be considered as an operational debt.

The Supreme Court also concluded that the Respondent took over the proprietary concern and was liable to repay the debt to the appellant. Application under Section 9 IBC was maintainable. The Supreme Court also held that the Application was within limitation.

The order of NCLTAT was set aside.

___________________________________________________