Tribunal upholds Sub-Distribution Agreement as operational debt under Insolvency and Bankruptcy Code

The tribunal upheld the validity of the Sub-Distribution Agreement between the Operational Creditor and Corporate Debtor, determining the debt as operational. The dispute raised by the Corporate Debtor was deemed baseless, and the application under Section 9 of the Insolvency and Bankruptcy Code was found timely. The tribunal dismissed the appeal against the NCLT's order, with no costs awarded.

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Issues Involved:
1. Validity of the Sub-Distribution Agreement (SDA) between the Operational Creditor and Corporate Debtor.
2. Determination of whether the debt in question is an operational debt.
3. Existence of any dispute regarding the operational debt.
4. Timeliness of the application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Validity of the Sub-Distribution Agreement (SDA):
The Sub-Distribution Agreement (SDA) was signed between the Operational Creditor and the Corporate Debtor on 15.4.2015. The agreement detailed the terms for the supply and distribution of mobile phones and accessories. Clause 5 of the SDA outlines the obligations towards the sub-distributor, including the introduction of sales-boosting schemes and the responsibility for liabilities arising from non-serviceability or unsatisfactory performance of products. Clause 4 specifies that the sub-distributor purchases products from the distributor according to the applicable price list and terms of sale. The agreement does not place any obligations on the mobile handset manufacturing company, Syntech (HK) Technology Limited. Therefore, the relationship between M/s. PP Telecell Marketing Pvt. Ltd. (Corporate Debtor) and M/s. Park Network Pvt. Ltd. (Operational Creditor) is valid under the SDA.

2. Determination of Operational Debt:
The definition of 'operational debt' under Sections 3(11) and 5(21) of the IBC, 2016, includes claims in respect of the provision of goods or services. The transactions between the distributor (Corporate Debtor) and the sub-distributor (Operational Creditor) involve the sale and purchase of mobile handsets and accessories. The ledger account attached to the email sent by the Corporate Debtor on 5.1.2019 confirms an amount of Rs. 20,02,872/- due to the Operational Creditor. The Corporate Debtor's mention of a settlement offer by Syntech (HK) Technology Limited does not alter the nature of the debt. The debt of Rs. 20,02,872/- is thus inferred to be an operational debt, and it is more than the threshold amount specified for admission under Section 9 of the IBC, 2016.

3. Existence of Dispute Regarding Operational Debt:
Section 8(1) of the IBC, 2016, requires the Operational Creditor to deliver a demand notice to the Corporate Debtor on the occurrence of default. The Corporate Debtor's reply to the demand notice dated 2.5.2019, sent through an advocate on 21.5.2019, claimed that the demand was illegal and that there was no direct transaction between the parties. However, the Sub-Distribution Agreement establishes a valid relationship between the parties, making the Corporate Debtor's dispute imaginary and not as defined under Section 8(2)(a) of the IBC, 2016. Therefore, the dispute raised by the Corporate Debtor does not hold any ground.

4. Timeliness of the Application Under Section 9 of IBC, 2016:
The application under Section 9 of the IBC, 2016, was filed by the Operational Creditor on 18.7.2019 before the Hon’ble NCLT (Adjudicating Authority). The date of default was mentioned as 5.1.2019, and the amount of debt in default was Rs. 20,02,872/-. The application was thus filed within the limitation period.

Conclusion:
After detailed examination, the tribunal found no reason to interfere with the impugned order dated 27.5.2020 of the Hon’ble NCLT, New Delhi (Adjudicating Authority). The appeal was dismissed, and there was no order as to costs.

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