Athena Demwe Power Ltd Through Its ... vs Abir Infrastructure Pvt. Ltd.& Anr

1. Athena Demwe Power Ltd. Through its Resolution Professional, Mr. Umesh Garg, 1413, 14th Floor, 6, Devika Tower, Nehru Place, New Delhi - 110019 ...Appellant

Versus

1. Abir Infrastructure Private Limited, B-215-216, Somdatt Chamber -1, 5 BikhajiCama Place, New Delhi 110066 ...Respondent No. 1 2. SREI Multiple Asset Investment Trust, Through its Authorized Representative, Ms. Shilpa Modi, 83, Trinity Tower, Topsia Road (South) Office No. 6, 04th Floor, Kolkata - 700046 ...Respondent No. 2

For Appellant: Mr. Kunal Godhwani, Advocate For Respondent: Mr. P. Ramesh Babu, Advocate for R-1 (RP). Mr. Ramji Srinivasan, Sr. Advocate with Mr. R. S. Sravankumar, Advocate for R-2 (SRA).

JUDGEMENT

Ashok Bhushan, J:

1. This Appeal has been filed against the Order dated 12th January, 2022

passed by the National Company Law Tribunal, Court No. IV, New Delhi

(hereinafter referred to as "The Adjudicating Authority"). By which Order, I.A.

No. 3197/ND/2020 filed by the Appellant has been rejected.

2. Brief facts of the case necessary to be noted for deciding this Appeal

are:

-2-  On 24th December, 2010, the Appellant awarded a contract to

Corporate Debtor for execution of 1750 MW Demwe Lower

Hydroelectric Project, Arunachal Pradesh. Mobilization advance of Rs.

7,48,40,06,136/- was transferred by the Appellant to the Corporate

Debtor through the Bank Transfer. On 14.02.2011, Corporate Debtor

issued Corporate Guarantee in favour of the Appellant. The Corporate

Guarantee was extended till 23.11.2021 on 30th January, 2019.

 An Order was passed by the Adjudicating Authority initiating

Corporate Insolvency Resolution Process against the Corporate Debtor.

In the Corporate Insolvency Resolution Process, the Appellant on 26th

April, 2019 filed its claim to the Interim Resolution Professional (IRP)

for an amount of Rs. 1784,99,28,651/- as a Financial Creditor. The

Appellant received an Email from RP to attend meeting of the

Committee of Creditors on 21st June, 2019. On 25th June, 2019, the

Resolution Professional informed the Appellant that his claim does not

fall as a Financial Creditor rather it falls as an Operational Creditor.

On 24th July, 2019, the Appellant filed his claim as an Operational

Creditor. On 3rd June, 2020, the Resolution Professional informed the

Appellant that his claim does not fall under the category of Operational

Creditor. The Appellant on 05th June, 2020 filed his claim as an other

creditor reserving his right to approach the Adjudicating Authority.

The Resolution Professional informed the Appellant that his claim will

be considered in the capacity of other Creditor only when Appellant

accepts that he is neither Financial Creditor nor the Operational

Creditor.

Company Appeal (AT) (Insolvency) No. 158 of 2022 -3-

 I.A. No. 3197 of 2020 was filed by the Appellant before the

Adjudicating Authority challenging the rejection of his claim. On 20th

January, 2021, Committee of Creditors approved the Resolution Plan

submitted by Respondent No. 2. I.A. No. 3197 of 2020 filed by the

Appellant was heard on 10th August, 2021 and reserved for Orders. On

04.10.2021, the Adjudicating Authority heard the Application I.A. No.

1139 of 2021 filed by the Resolution Professional for approval of the

Resolution Plan and reserved for orders. On 28.10.2021, the

Adjudicating Authority allowed the I.A. No. 1139 of 2021 and approved

the Resolution Plan filed by the Respondent No. 2.

 A Company Appeal (AT) Ins. 1092 of 2021 was filed by the Appellant

against the Order dated 28.10.2021. On 12.01.2022, the Adjudicating

Authority passed the Impugned Order dismissing the I.A. No.

3197/ND/2020 filed by the Appellant. Aggrieved by the Order dated

12th January, 2022, this Appeal has been filed by the Appellant.

3. Learned Counsel for the Appellant submits that Appellant is a

Financial Creditor having advanced an amount of Rs. 7,48,40,06,136/- as a

mobilization advance. It is submitted that the Corporate Debtor has issued a

Corporate Guarantee in favour of the Appellant on 14.02.2011 which was

extended up to 23rd November, 2021. The amount advanced by the Appellant

was received by the Corporate Debtor by Bank Transfer which is a Financial

Debt within the meaning of sub-section 8 of Section 5 of the Code. The

Corporate Debtor having given guarantee towards the mobilization advance,

the provisions of Section 5(8)(i) is fully attracted in the present case making

the transaction as a Financial Debt, the Adjudicating Authority committed

Company Appeal (AT) (Insolvency) No. 158 of 2022 -4-

error in rejecting the claim of the Appellant as Financial Debt. The

mobilization advance was refundable any time before the adjustment of the

said advance against the running bills. The Resolution Professional has no

power to adjudicate the claim filed by the Appellant. The Resolution

Professional initially accepted the claim of the Appellant as Financial

Creditor which suo moto was subsequently rejected by the Resolution

Professional. In any view of the mater, the mobilization advance by the

Appellant was an Operational Debt and the Adjudicating Authority wrongly

rejected the claim of the Appellant as an Operational Debt also.

4. Learned Counsel appearing for the Respondent No. 1 refuting the

submissions of the Appellant submits that mobilization advance is not a

loan/borrowing raised and meant to be repaid by the Respondent.

Mobilization advance was not a Financial Debt. The transaction does not

come under Section 5(8)(i) since the Corporate Guarantee has not been

provided to support any liability falling under or within the meaning of (a) to

(h) clauses of Section 5(8) of the Code. The Appellant has not rendered any

services or delivered any goods to the Corporate Debtor hence the Appellant

is not an Operational Creditor.

5. We have considered the submissions of Learned Counsel for the

parties and perused the record.

6. The mobilization advance which was given by the Appellant to the

Corporate Debtor was in pursuance of a contract agreement between the

Appellant and the Corporate Debtor. The Corporate Debtor was to carry on

the contract work as per the contract agreement. The Contract work could

not be completed since site was never made available by the owner.

Company Appeal (AT) (Insolvency) No. 158 of 2022 -5-

7. Following are two issues which need to be considered:

(i) Whether the mobilization advance given by the Appellant

to the Corporate Debtor is a Financial Debt within the meaning

of Section 5(8) of the Code;

(ii) Whether the mobilization advance given by the Appellant

to the Corporate Debtor is an Operational Debt within the

meaning of Section 5(21) of the Code.

8. We first take up the claim of the Appellant as a Financial Debt.

Financial Debt is defined in Section 5(8) of the Code which is to the following

effect:

"(8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes--

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

Company Appeal (AT) (Insolvency) No. 158 of 2022 -6-

[Explanation. -For the purposes of this sub-

clause,-

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and

(ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]

(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;"

9. Mobilization advance which was given by the Appellant to the

Corporate Debtor was for mobilization of material and workforce on the site.

Mobilization advance was not disbursed against the consideration for the

time value of money. The submissions which has been pressed by the

Learned Counsel for the Appellant is that the Corporate Debtor having given

guarantee by the Guarantee Deed dated 14.02.2011 which was extended up

23.11.2021 transaction becomes a Financial Debt within the meaning of

Section 5(8)(i). When we look into Section 5(8)(i) it is clear that the guarantee

Company Appeal (AT) (Insolvency) No. 158 of 2022 -7-

referred to in Section 5(8)(i) relates to any of the items referred to in sub-

clauses (a) to (h) of Section 5(8) of the Code. The mobilization advance is not

covered by any of the sub-clauses (a) to (h) of sub-section 8 of Section 5 of

the Code hence the provisions of Section 5(8) (i) does not lend any support to

the Appellant. Learned Counsel for the Appellant has relied on the Judgment

of this Tribunal in Company Appeal (AT) Ins. No. 356 of 2022 in the matter

of "IDBI Trusteeship Services Limited vs Mr. Abhinav Mukherji & Ors.".

In paragraph 11, this Tribunal laid down following:

"11. At the outset, we address ourselves to the first issue raised by the Appellants that the Adjudicating Authority has erroneously relied on the Judgement of the Hon'ble Supreme Court in 'Anuj Jain' Case and held that there was no direct disbursal of amount by ECL to the 'Corporate Debtor' and hence the amount involved is not a 'Financial Debt' as defined under Section 5(8) of the Code. This Tribunal is of the considered view that ECL, being the original lender had disbursed the amount in terms of the Facility Agreement entered into and the disbursement of 'debt' is essentially to the Issuer/Borrower and not to the 'Corporate Guarantor' i.e., 'Palm Developers'. By providing Corporate Guarantee, 'Palm Developers' has agreed to incur the 'debt', if 'due and payable'. A Guarantee is included as one of the illustrations which specifies the definition of 'Financial Debt' under Section 5(8)(i) of the Code. This Tribunal in 'Ascot Realty Private Limited' (Supra) has held that for initiation of Insolvency Proceedings against the Corporate Guarantor, the element of disbursal for 'Time Value of Money' is not required. We are of the considered view that despite the fact that there was

Company Appeal (AT) (Insolvency) No. 158 of 2022 -8-

no direct disbursal of amount to the Corporate Guarantor, any amounts released to the Issuer/Principal Borrower and not to the Corporate Guarantor does constitute 'Financial Debt' as defined under Section 5(8) of the Code and it cannot be said that such amounts do not have consideration for 'Time Value of Money'. In the facts of the attendant case, it has to be only seen whether there was a 'default' and the amounts are 'due and payable' as on the date of filing of the 'Claim'."

10. There cannot be any quarrel to the preposition as laid down by this

Tribunal in "IDBI Trusteeship Services Ltd." (supra). The guarantee is

included as one of the illustrations which define Financial Debt. As noted

above, guarantee referred to in Section 5(8)(i) must relate to any of the items

referred to in sub clauses (a) to (h). The mobilization advance given by the

Appellant to the Corporate Debtor does not fall in any of the clauses (a) to (h)

hence no benefit can be availed of the Appellant of provisions of Section

5(8)(i).

11. Now we come to the submissions of Learned Counsel for the parties as

to whether the mobilization advance by the Appellant to the Corporate

Debtor was an Operational Debt. The mobilization advance was given by the

Appellant in pursuance of a contract entered between the parties i.e. EPC

Contract dated 24th December, 2010. The advance given was to be adjusted

in the running bills as per the terms and conditions of the contract or could

have been demanded back by the Appellant. The contract between the

parties could not be carried out due to non-providing of site for carrying out

the work. The contract was virtually given up and was never implemented. In

this reference, we may refer to the Judgement of the Hon'ble Supreme Court

Company Appeal (AT) (Insolvency) No. 158 of 2022 -9-

in Civil Appeal No. 2839 of 2020 in the matter of "M/s. Consolidated

Construction Consortium Limited Vs. M/s. Hitro Energy Solutions

Private Limited". In the above case, Section 9 application was filed by the

M/s. Consolidated Construction Consortium Limited against the Corporate

Debtor. The Appellant in the above case has entered into contract with the

corporate debtor for supply of 'light fittings' in a project which was being

executed by M/s. Consolidated Construction Consortium Limited with

Chennai Metro Rail Limited (CMRL). The Order was placed to the Corporate

Debtor on the request of Appellant, advance payment of Rs. 50 Lakhs was

made by Chennai Metro Rail Limited (CMRL) to the Corporate Debtor.

Subsequently, the contract was cancelled between the Appellant and the

Chennai Metro Rail Limited hence the Appellant returned the amount of Rs.

50 Lakhs given to the Corporate Debtor to the Chennai Metro Rail Limited.

Subsequently the Appellant demanded back the amount of Rs. 50 Lakhs

from the Corporate Debtor which was paid to the corporate debtor by the

Chennai Metro Rail Limited on the instructions of the Appellant. The

Adjudicating Authority had admitted Section 9 Application which Order was

set aside by this Tribunal. The Appellant filed an Appeal in the Hon'ble

Supreme Court where the Hon'ble Supreme Court had occasion to consider

the statutory provision of the Insolvency and Bankruptcy Code, 2016 with

regard to the Operational Debt. Hon'ble Supreme Court allowed the Appeal

and held that advance given to the Corporate Debtor was an Operational

Debt. After considering the earlier Judgements, the Hon'ble Supreme Court

laid down following in paragraph 41, 42, 43 and 45:

Company Appeal (AT) (Insolvency) No. 158 of 2022 -10-

"41. We have to now consider the 'debt' in the present appeal. According to the appellant, it is the advance payment CMRL made on their behalf to the Proprietary Concern, which was encashed even though the project between CMRL and the appellant was terminated. On the other hand, the respondent has attempted to urge that there was no privity of contract between the appellant and the respondent, and that CMRL had not transferred the debt to the appellant. We reject both these submissions. It is amply clear from the facts that the debt arises from purchase orders between the appellant and the Proprietary Concern (which is the underlying contract), regardless of whether CMRL may have made the payment on behalf of the appellant. Thus, the ultimate dispute still remains between the appellant and the Proprietary Concern, and the debt arises from that.

42. It is then that we come to the core of the dispute - while the appellant has argued that the debt is in the nature of an operational debt which makes them an operational creditor, the respondent has opposed this submission. The respondent's submission, which was accepted by the NCLAT, seeks to narrowly define operational debt and operational creditors under the IBC to only include those who supply goods or services to a corporate debtor and exclude those who receive goods or services from the corporate debtor. For reasons which shall follow, we reject this argument.

43. First, Section 5(21) defines 'operational debt' as a "claim in respect of the provision of goods or services". The operative requirement is that the claim

Company Appeal (AT) (Insolvency) No. 158 of 2022 -11-

must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver. Such an interpretation is also supported by the observations in the BLRC Report, which specifies that operational debt is in relation to operational requirements of an entity. Second, Section 8(1) of the IBC read with Rule 5(1) and Form 3 of the 2016 Application Rules makes it abundantly clear that an operational creditor can issue a notice in relation to an operational debt either through a demand notice or an invoice. As such, the presence of an invoice (for having supplied goods or services) is not a sine qua non, since a demand notice can also be issued on the basis of other documents which prove the existence of the debt. This is made even more clear by Regulation 7(2)(b)(i) and (ii) of the CIRP Regulations 2016 which provides an operational creditor, seeking to claim an operational debt in a CIRP, an option between relying on a contract for the supply of goods and services with the corporate debtor or an invoice demanding payment for the goods and services supplied to the corporate debtor.

While the latter indicates that the operational creditor should have supplied goods or services to the corporate debtor, the former is broad enough to include all forms of contracts for the 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 or services from the corporate debtor. Finally, the judgment of this Court in Pioneer Urban (supra), in comparing allottees in real estate projects to operational creditors, has noted that the latter do not

Company Appeal (AT) (Insolvency) No. 158 of 2022 -12-

receive any time value for their money as consideration but only provide it in exchange for goods or services. Indeed, the decision notes that "[e]xamples given of advance payments being made for turnkey projects and capital goods, where customisation and uniqueness of such goods are important by reason of which advance payments are made, are wholly inapposite as examples vis-à-vis advance payments made by allottees". Hence, this leaves no doubt that a debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt."

.................

45. Similarly, in the present case, the phrase "in respect of" in Section 5(21) has to be interpreted in a broad and purposive manner in order to include all those who provide or receive operational services from the corporate debtor, which ultimately lead to an operational debt. In the present case, the appellant clearly sought an operational service from the Proprietary Concern when it contracted with them for the supply of light fittings. Further, when the contract was terminated but the Proprietary Concern nonetheless encashed the cheque for advance payment, it gave rise to an operational debt in favor of the appellant, which now remains unpaid. Hence, the appellant is an operational creditor under Section 5(20) of the IBC."

12. The Judgement of Hon'ble Supreme Court in M/s. Consolidated

Construction Consortium Limited (supra) is fully attracted in the facts of the

present case. In the present case, the amount of mobilization advance was

Company Appeal (AT) (Insolvency) No. 158 of 2022 -13-

given by the Appellant to the Corporate Debtor whereas in the case of M/s.

Consolidated Construction Consortium Limited, the amount of Rs. 50 Lakhs

was given by the CMRL to the Corporate Debtor on instruction of the

Appellant in pursuance of Contract. Hon'ble Supreme Court held the words

"in respect of" in Section 5(21) has to be interpreted in a broad and

purposive manner, in order to include all those who provide or receive

operational services from the corporate debtor, which ultimately lead to an

operational debt. In view of the law laid down by the Hon'ble Supreme Court

in M/s. Consolidated Construction Consortium Limited, the mobilization

advance given by the Appellant to the Corporate Debtor is clearly an

Operational Debt and the Adjudicating Authority committed error in

rejecting the claim of the Appellant as an Operational Debt. As noted above,

in the present case, the Resolution Plan has already been approved by the

Adjudicating Authority on 28.10.2021. The present Appellant has also filed

an Appeal Company Appeal (AT) Ins. No. 1092 of 2021 challenging the Order

dated 28.10.2021 which Appeal stood withdrawn by the Appellant vide Order

dated 04th August, 2022. In view of the withdrawal of the Appeal filed by the

Appellant, Resolution Plan has to be implemented.

13. In view of the foregoing discussions, we are of the view that claim of

the Appellant is to be treated as an Operational Debt and the Resolution

Applicant is under obligation to include the claim of the Appellant as an

Operational Debt and make payment to the Appellant also as an Operational

Creditor. In result, this Appeal is allowed. This Appeal is allowed directing

the Resolution Applicant to treat the claim of the Appellant as an

'Operational Debt' and make payment to the Appellant as an 'Operational

Company Appeal (AT) (Insolvency) No. 158 of 2022 -14-

Creditor' as per the 'Resolution Plan' approved on 28.10.2021. Parties shall

bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Justice M. Satyanarayana Murthy] Member (Judicial)

[Mr. Barun Mitra] Member (Technical)

NEW DELHI 17th August, 2022 Basant

Company Appeal (AT) (Insolvency) No. 158 of 2022