Retention money as operational debt: Tribunal dismisses appeal, admits application under Section 9 of IBC

The tribunal held that retention money constitutes operational debt under the Insolvency and Bankruptcy Code. It found no pre-existing dispute and ruled the application was within the limitation period. The respondent was deemed an operational creditor owed a payable debt, leading to the dismissal of the appeal and the admission of the application under Section 9 of the IBC.

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Issues Involved:
1. Definition of Retention Money as Operational Debt.
2. Pre-existence of Dispute.
3. Limitation Period for Filing the Application.
4. Status of Operational Creditor.

Issue-wise Detailed Analysis:

1. Definition of Retention Money as Operational Debt:
The appellant contended that the retention money does not fall within the definition of "Operational Debt" as defined in Section 5(21) of the Insolvency and Bankruptcy Code (IBC). They argued that retention money should be raised only after the successful completion of work. However, the tribunal held that the retention money is part of the main payment and is retained as per the terms of the work order. The tribunal concluded that the retention money is indeed an operational debt, as it is a claim in respect of the provision of services rendered by the operational creditor to the corporate debtor.

2. Pre-existence of Dispute:
The appellant claimed that there was a pre-existing dispute regarding the quality and completion of work. However, the tribunal found no substantial evidence of any dispute raised by the corporate debtor before the issuance of the demand notice. The tribunal noted that the corporate debtor's communications, including emails, acknowledged the completion of work and requested additional services as a special case, which were outside the original contract. Therefore, the tribunal concluded that there was no pre-existing dispute.

3. Limitation Period for Filing the Application:
The appellant argued that the application was barred by limitation, citing the Supreme Court's judgment in "B.K. Educational Services Pvt. Ltd. vs. Parag Gupta & Associates," which held that the Limitation Act applies to applications under Sections 7 and 9 of the IBC. The right to sue accrues when a default occurs, and if the default occurred over three years prior to the application, it would be barred by limitation. The tribunal, however, determined that the right to recover retention money accrued on 27.07.2015, when the corporate debtor acknowledged the completion of work and requested additional services. Thus, the application filed on 27.04.2018 was within the limitation period.

4. Status of Operational Creditor:
The appellant contended that the respondent does not fall within the definition of "Operational Creditor" as defined in Section 5(20) of IBC. The tribunal, however, held that the respondent, being owed retention money as part of the main bill, falls within the definition of an operational creditor. The tribunal emphasized that the operational creditor had rendered services, and there was no dispute regarding these services.

Conclusion:
The tribunal concluded that the respondent falls under the category of an operational creditor, and the debt in question is an operational debt as per law, which is due and payable. The tribunal found no pre-existing dispute and determined that the application was not barred by limitation. The retention money was deemed part of the main bill, constituting an operational debt. Consequently, the tribunal upheld the order of the adjudicating authority, admitting the application under Section 9 of the IBC, and dismissed the appeal.

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