Sugar supplier's claim correctly classified as operational debt not financial debt under insolvency proceedings

NCLAT Principal Bench dismissed appellant's challenge to IRP's classification of claim as operational debt rather than financial debt. The dispute arose from a white sugar supply agreement where appellant sought delivery of 5200 MT sugar at fixed price. Court held the agreement clearly established a goods supply transaction, not financial transaction. Appellant's own Section 9 application filing (before CIRP commencement) demonstrated it considered itself operational creditor. Resolution Professional correctly categorized claim as operational debt. Adjudicating Authority's decision upheld, finding no error in classification. Appeal dismissed.

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Issues Involved:
1. Whether the claim of the Appellant qualifies as a financial debt or an operational debt.
2. Interpretation of the Agreement dated 28.07.2016 and its implications on the nature of debt.
3. Applicability of precedents set by the Supreme Court in similar cases.

Summary:

Issue 1: Nature of Debt - Financial or Operational
The primary issue in this appeal is whether the claim of the Appellant qualifies as a financial debt or an operational debt. The Adjudicating Authority (National Company Law Tribunal), Mumbai Bench-I, had rejected the Appellant's claim as a financial creditor, categorizing it instead as an operational debt. The Appellant contended that the terms and conditions of the Agreement dated 28.07.2016 indicated that it was a financial debt. The Adjudicating Authority, however, concluded that the transaction for the supply of sugar was operational in nature, falling within the definition of 'operational debt' under Section 2(21) of the Code.

Issue 2: Interpretation of Agreement Dated 28.07.2016
The Agreement dated 28.07.2016 between the Appellant and the Corporate Debtor involved the supply of 5200 M.T of sugar. The Agreement included clauses for penalties, interest on default, and security cheques. The Appellant argued that these clauses indicated a financial debt. However, the Tribunal noted that such provisions are common in supply agreements and do not change the nature of the transaction from operational to financial. The Agreement's primary purpose was the supply of sugar, and the security measures were to ensure performance, not to create a financial obligation.

Issue 3: Applicability of Supreme Court Precedents
The Appellant cited the Supreme Court's judgments in "Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited" and "Pioneer Urban Land and Infrastructure Limited and Anr. vs. Union of India and Ors." to support their claim. The Tribunal found that the cited cases did not apply to the present facts. In "Consolidated Construction Consortium Limited," the Supreme Court held that an advance payment for goods or services constitutes operational debt. The Tribunal concluded that the present case, involving an advance for sugar supply, similarly constituted operational debt. The judgment in "Pioneer Urban Land and Infrastructure Limited" was deemed irrelevant as it pertained to real estate financing arrangements, which differ from the present transaction.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision, affirming that the Appellant's claim is an operational debt. The appeal was dismissed, with the Tribunal finding no error in the impugned order. The Appellant's conduct, including the filing of a Section 9 application as an operational creditor, further supported this conclusion.

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