2022 (8) TMI 766 - AT - Insolvency and Bankruptcy

Mobilization advance classified as Operational Debt, not Financial Debt under Insolvency and Bankruptcy Code

Athena Demwe Power Ltd. Versus Abir Infrastructure Private Limited, SREI Multiple Asset Investment Trust

The Tribunal held that the mobilization advance given by the Appellant to the Corporate Debtor did not qualify as a Financial Debt under Section 5(8) of ... Financial Debt or Operational Debt? - mobilization advance given by the Appellant to the Corporate Debtor -HELD THAT:- 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 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. The 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). Whether the mobilization advance by the Appellant to the Corporate Debtor was an Operational Debt? - HELD THAT:- In view of the law laid down by the Hon’ble Supreme Court in M/S CONSOLIDATED CONSTRUCTION CONSORTIUM LIMITED VERSUS M/S HITRO ENERGY SOLUTIONS PRIVATE LIMITED [2022 (2) TMI 254 - SUPREME COURT], 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. The 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 - appeal allowed. Issues Involved:1. 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.2. 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.Issue-Wise Detailed Analysis:1. Financial Debt under Section 5(8) of the Code:The Appellant argued that the mobilization advance of Rs. 7,48,40,06,136/- given to the Corporate Debtor qualifies as a Financial Debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (the 'Code'). The Appellant emphasized that the Corporate Debtor issued a Corporate Guarantee, making the transaction a Financial Debt as per Section 5(8)(i).The Tribunal examined the definition of Financial Debt under Section 5(8), which includes a debt disbursed against the consideration for the time value of money. The Tribunal noted that the mobilization advance was given for mobilizing material and workforce, not for the time value of money. The Corporate Guarantee provided does not transform the mobilization advance into a Financial Debt because the guarantee must relate to items in sub-clauses (a) to (h) of Section 5(8). Since the mobilization advance does not fall under these sub-clauses, the Tribunal concluded that the advance does not qualify as a Financial Debt.The Appellant cited the judgment in 'IDBI Trusteeship Services Limited vs Mr. Abhinav Mukherji & Ors.' to support their claim. However, the Tribunal clarified that while a guarantee can define a Financial Debt, it must relate to the specific items mentioned in Section 5(8)(a) to (h), which was not the case here.2. Operational Debt under Section 5(21) of the Code:The Appellant alternatively claimed that the mobilization advance should be considered an Operational Debt. The Tribunal referred to the definition of Operational Debt under Section 5(21), which includes claims in respect of the provision of goods or services. The advance was given under a contract for executing a hydroelectric project, and the amount was to be adjusted against running bills or demanded back if the project did not proceed.The Tribunal referenced the Supreme Court judgment in 'M/s. Consolidated Construction Consortium Limited vs. M/s. Hitro Energy Solutions Private Limited,' which held that advance payments for operational services could be considered Operational Debt. The Supreme Court emphasized that the term 'in respect of' in Section 5(21) should be interpreted broadly to include all forms of contracts for the supply of goods and services, regardless of whether the creditor supplied or received the goods or services.Applying this precedent, the Tribunal concluded that the mobilization advance given by the Appellant to the Corporate Debtor qualifies as an Operational Debt. The Adjudicating Authority erred in rejecting the claim as an Operational Debt.Conclusion:The Tribunal allowed the appeal, directing the Resolution Applicant to treat the Appellant's claim as an Operational Debt and make payment accordingly under the approved Resolution Plan. The Tribunal emphasized that the Resolution Plan must be implemented, considering the Appellant's claim as an Operational Creditor.