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Advance Paid Towards Service Is Operational Debt

Cause Title : Chipsan Aviation Private Limited vs Punj Llyod Aviation Limited, Company Appeal (AT) (Insolvency) No. 261 of 2022, National Company Law Appellate Tribunal, Principal Bench, New Delhi

Date of Judgment/Order : 10th November, 2022

Corum : Justice Ashok Bhushan Chairperson, Barun Mitra] Member (Technical)

Citied: Construction Consortium Limited vs. Hitro Energy Solutions Private Limited – (2022) SCC OnLine SC 142

Background

An application under Section 9 of the Insolvency Code was filed against the Corporate Debtor (Respondent) alleging an advanced of Rs. 60 lakhs was provided to the Respondent – Corporate Debtor for aviation related services, which services were not provided by the Corporate Debtor nor the advance paid by the Appellant was refunded. The advance payment was reflected in the Balance Sheets of the Corporate Debtor as as advance received from the customers under the head current liabilities. 

The Respondent refuted the claim stating that there was no privity of contract between the Appellant and the Corporate Debtor and there is no Operational Debt in existence.

The Adjudicating Authority rejected the Section 9 Application holding that advance payment made by Operational Creditor to the Corporate Debtor does not fall within the four corners of the Operational Debt. The appeal was filed against said order.

Judgment

The NCLAT referring to the judgment in Construction Consortium Limited (supra) observed that it was held that advance payment is covered within the definition of Operational Debt. Section 5(21) defines “operational debt” as a “claim in respect of the provision of goods or services”. 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 corporate debtor, which ultimately lead to an operational debt. The NCLAT thus set aside the order of NCLT.

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