TaxTMI 
TaxTMI 
2024 (1) TMI 586
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....llant engaged in the business of purchasing sugar from various sugar factories, corporate companies and selling said sugar to sugar brokers, consumers, confectioneries etc. The Respondent- 'M/s. Indian Sugar Manufacturing Company Limited' (Corporate Debtor) is engaged in the business of manufacturing and sale of sugar. An Agreement dated 28.07.2016 was entered between the Appellant and the Corporate Debtor for supply of 5200 M.T of sugar produced in the crop year 2016-2017. Agreement contained certain other clauses providing for penalty in event the second party refuses or fail to deliver the entire/part quantity of sugar. Agreement also contemplated giving of security cheques by the Corporate Debtor towards refund of advance amount. Appellant advanced an amount of Rs.10 Crores in the year 2016 to the Corporate Debtor. Upon failure of the Corporate Debtor to meet its obligations, Appellant issued a legal notice dated 31.01.2017 calling upon the Corporate Debtor to pay applicable interest and damages. Corporate Debtor having failed to deliver sugar as well as making payment of applicable interest, Appellant deposited the security cheques which were dishonoured. Consequently, Appella....
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....ted Construction Consortium Limited vs. Hitro Energy Solutions Private Limited- (2022) 7 SCC 164" which judgment was not applicable in the facts of the case. Since in the above case there was only advance given and clauses which are contained in the Agreement between the parties was absent in the said case, hence, the judgment of the Hon'ble Supreme Court in the above case was not applicable. It is submitted that the test laid down by the Hon'ble Supreme Court in "Pioneer Urban Land and Infrastructure Limited and Anr. vs. Union of India and Ors.- (2019) 8 SCC 416" regarding establishment of financial debt were fully proved in the facts of the present case and the Adjudicating Authority committed error in holding otherwise. Counsel for the Appellant has also referred to the judgment of this Tribunal in Company Appeal (AT) (Insolvency) No. 19 of 2019- "N.S. Rangachari vs. Consolidated Construction Consortium Ltd." which gave rise to the judgment of the Hon'ble Supreme Court in 'Consolidated Construction Consortium Limited' (supra). 4. Learned Counsel appearing for the Resolution Professional refuting the submissions of the Counsel for the Appellant contends that the transaction betw....
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....(zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;" 7. 'Operational Debt' has been defined in Section 5(21) of the Code in following words:- "5. Definitions. -(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the [payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;" 8. The definition of 'operational debt' as contained above indicates that a claim in respect of the pr....
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....ch we noticed as follows:- "2. That it is specifically agreed between the parties that in case the party of the second part refuses or fails to deliver the entire / part quantity of sugar by and before 28.02.2016 as agreed between the parties in terms of this agreement i.e. 5200 M.T's or less then the party of the first part shall be entitled to obtain a penalty @6000 Per MT for 5200 Mts which equals to an amount of Rs. 3,12,00,000/- (Three Crores Tweleve lacs only) from the party of the second part, fully or proportionately as the case may be. 4. That it is also agreed and confirmed by the second party that besides the above mentioned amount, the party of the first part shall be entitled to receive and recover the difference in price (i.e. market price of sugar minus the agreed price of this contract), if any applicable, in case the price of sugar increases from the present agreed price and the party of the second part refuses/fails to supply the sugar at such increased rates on or before the due date, on the quantity not delivered and supplied by the second party. 5. That it is also agreed between the parties that in case of default by the second party in adjustment o....
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....t made to the proprietary concern would fall within the definition of operational debt. This Appellate Tribunal has rejected the claim of operational debt holding that the IBC only includes those who supply goods or services to the Corporate Debtor. The view of the Appellate Tribunal was reversed and the Hon'ble Supreme Court held that the operational debt is a claim in respect of the provision of goods or services. In paragraphs 49, 50, 50.1, 50.2 and 50.3 are as follows:- "49. We have to now consider the "debt" in the present appeal. According to the appellant, it is the advance payment CMRL made on their behalf to the proprietary concern, which was encashed even though the project between a CMRL and the appellant was terminated. On the other hand, the respondent has attempted to urge that there was no privity of contract between the appellant and the respondent, and that CMRL had not transferred the debt to the appellant. We reject both these submissions. It is amply clear from the facts that the debt arises from purchase orders between the appellant and the proprietary concern (which is the underlying contract), regardless of whether CMRL may have made the b payment on behalf....
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....orate debtor. 50.3. Finally, the judgment of this Court in Pioneer Urban", in comparing a allottees in real estate projects to operational creditors, has noted that the latter do not receive any time value for their money as consideration but only provide it in exchange for goods or services. Indeed, the decision notes that "[examples given of advance payments being made for turnkey projects and capital goods. where customisation and uniqueness of such goods are important by reason of which advance payments are made, are wholly inapposite as examples vis-à-vis b advance payments made by allottees". Hence, this leaves no doubt that a debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt." 15. It was further held that the expression "in respect of" in Section 5(21) has to be interpreted in a broad and purposive manner. Paragraph 52 of the judgment is as follows:- "52. Similarly, in the present case, the phrase "in respect of" in Section 5(21) has to be interpreted in a broad and purposive manner in order to include all those who provide or receive operational services from the corpo....
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....y the agreement to give "something equivalent" to money back to the homebuyers. The "something equivalent" in these matters is obviously the flat/apartment. Also of importance is the expression "commercial effect". "Commercial" would generally involve transactions having profit as their main aim. Piecing the threads together, therefore, so long as an amount is "raised" under a real estate agreement, which is done with profit as the main aim. such amount would be subsumed within Section 5(8)(1) as the sale agreement between developer and home buyer would have the "commercial effect" of a borrowing, in that, money is paid in advance for temporary use so that a flat/ apartment is given back to the lender. Both parties have "commercial" interests in the same the real estate developer seeking to make a profit on the sale of the apartment, and the flat/apartment purchaser profiting by the sale of the apartment. Thus construed, there can be no difficulty in stating that the amounts raised from allottees under real estate projects would, in fact, be subsumed within Section 5(8)(1) even without adverting to the Explanation introduced by the Amendment Act." 17. The Hon'ble Supreme Court in....
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..../ part quantity of sugar by and before 28.02.2016 as agreed between the parties in terms of this agreement i.e. 5200 M.T's or less then the party of the first part shall be entitled to obtain a penalty @6000 Per MT for 5200 Mts. The penalty is envisaged in event the second party refuses or fails to deliver the entire/ part quantity. Provision providing for penalty is not uncommon in Agreement of supply and the said clause has no bearing on the claim of the Appellant that it is financial debt. Clause 4 relates to entitlement of first party to receive and recover the difference in price in event sugar is sold on the higher price. Recovery in difference of price is natural consequence of Agreement between the parties for supply of white sugar on fixed price of 6000 per MT as has been mentioned in the Agreement. Clause 5 provide that in case of default by the second party in adjustment of advance, the second party of the second part shall also pay the above mentioned amount along with interest at the rate of Rs. 30/-PMT per day till refund of the advance amount. The said clause also in the nature of penalty on account of failure of performance by the second party. Clause 7 deals wi....