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

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 the Insolvency and Bankruptcy Code. However, the Tribunal determined that the advance should be considered an Operational Debt under Section 5(21) of the Code. Consequently, the Tribunal allowed the appeal, instructing the Resolution Applicant to treat the Appellant's claim as an Operational Debt and make payment accordingly under the approved Resolution Plan.

---

---

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.

---