Operational debt and memorandum binding force under insolvency law, with Section 9 limitation running from default.

A claim for repayment of an advance paid under a contract for supply of goods was treated as an operational debt because operational debt has a nexus with the supply of goods or services and is not confined to the supplier alone; the creditor was therefore regarded as an operational creditor under the Insolvency and Bankruptcy Code, 2016. The company's memorandum of association remained binding where it expressly contemplated takeover of the proprietary concern, and an unproved board resolution could not displace that charter. Limitation under Article 137 ran from default, and the Section 9 application was within time because the final refusal to repay occurred later after continuing correspondence.

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Issues: (i) whether a creditor who entered into a contract for supply of goods and sought repayment of advance paid for that supply is an operational creditor under the Insolvency and Bankruptcy Code, 2016; (ii) whether the respondent company, by virtue of its memorandum of association, could be treated as having taken over the proprietary concern and its liability; and (iii) whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.

Issue (i): whether a creditor who entered into a contract for supply of goods and sought repayment of advance paid for that supply is an operational creditor under the Insolvency and Bankruptcy Code, 2016

Analysis: The expression "operational debt" was construed as a claim having nexus with the provision of goods or services, without restricting it only to a creditor who is the supplier. The scheme of Sections 8 and 9, the application rules, and the insolvency regulations showed that an operational debt may be supported by a demand notice and by a contract for supply of goods and services. The legislative materials and prior decisions emphasised that operational creditors are those whose claims arise from operational transactions. On the facts, the claim arose from purchase orders for goods and an advance paid for that supply, which remained unpaid after cancellation of the underlying project.

Conclusion: The appellant was an operational creditor, and the claim constituted an operational debt.

Issue (ii): whether the respondent company, by virtue of its memorandum of association, could be treated as having taken over the proprietary concern and its liability

Analysis: The memorandum of association is the company's charter and binds the company unless altered in accordance with the Companies Act, 2013. The respondent's memorandum expressly stated that one of its main objects was to take over the existing proprietary concern. The alleged later board resolution not to give effect to that object was not shown to have been made and registered in the manner required for alteration of the memorandum, and therefore had no legal effect. The memorandum therefore remained operative, and the respondent was bound by it.

Conclusion: The respondent was treated as having taken over the proprietary concern and was liable for the debt.

Issue (iii): whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation

Analysis: Limitation under Article 137 applies to applications under Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016, and time begins to run from default, not merely when the debt first becomes due. Here, the parties continued negotiations after the project termination, and the final refusal to repay occurred only in March 2017 after the demand notice and correspondence. The application filed in November 2017 was therefore within time.

Conclusion: The application under Section 9 was not barred by limitation.

Final Conclusion: The statutory scheme was applied to hold that the appellant's claim fell within operational debt, the respondent remained bound by its unaltered memorandum, and the insolvency application was timely; the impugned appellate order was consequently set aside.

Ratio Decidendi: A claim arising from a contract for the supply of goods or services, including repayment of an advance made for that supply, can constitute operational debt even where the claimant is not the supplier, and an unamended memorandum of association remains binding in accordance with the Companies Act, 2013.

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