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of <h1>Appeal Dismissed: Operational Debt under I&B Code</h1> <h3>Madras Chemicals & Polymers Versus M/s. Vijay Aqua Pipes Pvt. Ltd.</h3> The Tribunal dismissed the appeal, ruling that the application under Section 7 of the I&B Code, 2016, was not maintainable. The debt was classified as ... CIRP - Del Credere Agent Agreement, entered into between the ‘Appellant’ and the ‘Principal' - Commercial Borrowing - Financial Debt’, due and payable by the ‘Respondent / Corporate Debtor’ or not - HELD THAT:- A perusal of the ‘Del Credere Agency Agreement’, dated 04.04.2017, entered into between ‘M/s. Chemplast Sanmar Limited’, and ‘M/s. Madras Chemicals & Polymers’ (‘Appellant / Firm’), represented by its ‘Proprietor’ Mr. Ashok Gupta (the ‘Agent’), in Clause 1, it is mentioned that the ‘Company’, hereby appoints ‘M/s. Madras Chemicals & Polymers (‘Agent’, as ‘Del Credere Agent’), to sell the said Products, manufactured by the ‘Company’, on ‘principal to principal basis’, in the City of Chennai and its Suburbs, Tamil Nadu, and Customers, nominated by ‘Chemplast’, on a ‘non-exclusive basis’. It cannot be forgotten that the true relationship of ‘Agent’ and the ‘Principal’, is to be gathered from the nature of the ‘Contract’, its ‘Terms and Conditions’, and the ‘Terminology’, used by the ‘Parties’, is ‘not decisive’ of the ‘Legal Relationship’, as per decision of the Hon’ble Supreme Court of India in Snow White Industrial Corporation, Madras v. Collector of Central Excise, Madras [1989 (4) TMI 81 - SUPREME COURT]. It is to be remembered that the ‘Proceedings’, under I & B Code, 2016, are ‘summary in nature’, and it is not a ‘Debt Enforcement Procedure’. An ‘Adjudicating Authority’ / ‘Tribunal’, is not a ‘Recovery Forum’ or ‘Court’ and it does not determine any ‘Claim’ or ‘Suit’, in ‘Summary Proceeding’. No wonder, the ‘objective’ of the ‘I & B Code’, is to ‘consolidate’, and ‘amend the laws’, relating to ‘reorganisation’ and ‘insolvency resolution’ of ‘corporate persons’, ‘partnership firms’ and ‘individuals’, in a time bound manner for ‘maximization of value of assets of such persons’, to ‘promote entrepreneurship’, ‘availability of credit’ and ‘balance the interests of all the stakeholders’, including ‘alteration in the priority of payment of government dues’, and to ‘establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto’. Going by the ‘Objective’ and ‘Scheme’ of the ‘I & B Code, 2016’, this ‘Tribunal’, on the basis of surrounding facts and circumstances of the instant case, in the teeth of Clause 15 of the ‘Del Credere Agency Agreement’, dated 04.04.2017 and keeping in mind of a prime fact that the ‘Default’, which took place, pertaining to the ‘Supply of Goods’, comes within the definition of ‘Operational Debt’, as per Section 5(21) of the I & B Code, 2016 and hence, Section 9 of the I & B Code, 2016, attracts in an ‘unambiguous manner’ - the ‘Debt’, in the present case, cannot be termed as ‘Financial Debt’, as per Section 5 (8) of the I & B Code, 2016, in the considered opinion of this ‘Tribunal’. Considering the spirit and tenor of the ‘Del Credere Agency Agreement’, dated 04.04.2017, this ‘Tribunal’, comes to a clear cut conclusion that in the instant case, the ‘Default’, arose in relation to the supply of ‘PVC Suspension Resin’ (‘Goods’), to the ‘Respondent / Corporate Debtor’, and as such, the amount ‘Claimed’, to be in ‘Default’, by the ‘Corporate Debtor’, as on 20.07.2019, amounting to Rs.1,23,14,186.94/- (vide ‘Part – IV’ of the ‘Application’, under ‘Particulars of Financial Debt’), is an ‘Operational Debt’, and for the said ‘Operational Debt’, only an ‘Application’, under Section 9 of the ‘Code’, will ‘apply’, as opined by this ‘Tribunal’. The conclusion arrived at, by the ‘Adjudicating Authority’ (‘National Company Law Tribunal’, Division Bench – I, Chennai), holding that the ‘Section 7 Application’ of ‘I & B Code, 2016’, is ‘not Maintainable’, and resultant dismissal of the same, are free from any ‘Legal Flaws’. Appeal dismissed. Issues Involved:1. Maintainability of the Application under Section 7 of the I&B Code, 2016.2. Classification of Debt as Financial or Operational.3. Role and Authority of the Del Credere Agent.4. Compliance with Procedural Requirements under the I&B Code, 2016.Summary:1. Maintainability of the Application under Section 7 of the I&B Code, 2016:The Appellant, a Del Credere Agent, challenged the impugned order dated 11.01.2021, which dismissed their application under Section 7 of the I&B Code, 2016, as not maintainable. The Adjudicating Authority observed that there was no financial contract establishing the relationship between the Financial Creditor and the Corporate Debtor, and the powers under Clause 15 of the Del Credere Agency Agreement did not automatically allow the Financial Creditor to initiate legal proceedings against the defaulting party.2. Classification of Debt as Financial or Operational:The Appellant argued that the debt should be classified as a Financial Debt under Section 5(8) of the I&B Code, 2016, due to the commercial effect of borrowing. However, the Adjudicating Authority determined that the debt arising from the supply of goods should be treated as an Operational Debt under Section 5(21) of the I&B Code, 2016. The Tribunal concurred, stating that the default related to the supply of goods, which falls within the definition of Operational Debt.3. Role and Authority of the Del Credere Agent:The Tribunal examined the Del Credere Agency Agreement, noting that the Agent could only initiate legal proceedings in the name and on behalf of the Principal Company, M/s. Chemplast Sanmar Limited, and required a specific Power of Attorney to do so. The Appellant's role was to collect payments on behalf of the Principal and was not directly owed any disbursed amount by the Corporate Debtor.4. Compliance with Procedural Requirements under the I&B Code, 2016:The Tribunal highlighted that the Appellant did not issue a Demand Notice under Section 8(1) of the I&B Code, 2016, which is a prerequisite for initiating a Corporate Insolvency Resolution Process under Section 9. The Legal Notice issued by the Appellant did not comply with the statutory requirements, further rendering the application under Section 7 not maintainable.Result:The Tribunal dismissed the appeal, affirming that the application under Section 7 of the I&B Code, 2016, was not maintainable and that the debt in question was an Operational Debt, thus requiring an application under Section 9 for resolution. The decision was free from legal flaws, and no costs were awarded.
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