Matter: Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd.
Order date: 04 February 2022
Summary:
In the present matter, Consolidated Construction Consortium Ltd (CCCL) was awarded a contract by Chennai Metro Rail Ltd (CMRL) for light fittings. In turn, CCCL placed certain purchase orders with a proprietary concern (Proprietary Concern) for supply of the light fittings. CMRL, on behalf of CCCL, paid a certain sum, by way of a cheque to the Proprietary Concern as an advance on its order with CCCL. CMRL later cancelled the project with CCCL and this was also informed to the Proprietary Concern.
Consequently, CMRL instructed CCCL (who in turn called upon the Proprietary Concern) to return the amount encashed by the Proprietary Concern. As, the Proprietary Concern failed to remit the amount it received from CMRL, CCCL refunded the amount to CMRL and demanded the refund from the Proprietary Concern. In the meantime, one Hitro Energy Solution Private Limited (Hitro) was incorporated to take over the business of the Proprietary Concern. CCCL sent a demand notice to Hitro under the Code seeking refund payable by the Proprietary Concern. However, Hitro denied any outstanding to CCCL. CCCL filed an application initiating CIRP against Hitro in NCLT which was admitted. The order of the NCLT was reversed by the NCLAT. One of the grounds for reversing the decision was that CCCL was a ‘purchaser’, and
thus did not come under the definition of ‘operational creditor’ under the Code since it did not supply any goods or services to the Proprietary Concern. The said order of the NCLAT was appealed before the SC.
One of the issues before the SC was whether CCCL is an ‘operational creditor’ under the Code even though it was a ‘purchaser’. The SC observed that the debt arises from purchase orders between CCCL and the Proprietary Concern, which is the underlying contract, regardless of whether CMRL may have made the payment on behalf of CCCL. Therefore, the SC opined that the ultimate dispute is between CCCL and the erstwhile Proprietary Concern, and the debt arises from the underlying contract. The SC furtherobserved the following (i) under the definition of ‘operational debt’, the operative requirement is that the claim must bear some
nexus with a provision of goods or services, without specifying who is to be the supplier or receiver; (ii) an operational creditor can issue a notice in relation to an operational debt either through a demand notice ‘or’ an invoice. Therefore, the presence of an invoice for having ‘supplied’ goods or services is not essential since a demand notice can also be issued on the basis of other documents which prove the existence of the debt. Accordingly, the SC held that CCCL is an operational creditor under the Code, since an ‘operational debt’ will include a debt arising from a contract in relation to the supply of goods or services from the corporate
debtor. Therefore, the SC held that a debt arising out of advance payment made to a corporate debtor for supply of goods or services would also be considered as an operational debt. Accordingly, the appeal was allowed and the NCLT’s judgment was upheld.
