Advance given under EPC contract is an operational debt; resolution applicant is bound to include appellant’s claim

Case Details: Athena Demwe Power Ltd. v. Abir Infrastructure (P.) Ltd. - [2022] 143 taxmann.com 274 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson, M. Satyanarayana Murthy, Judicial Member
    & Barun Mitra, Technical Member
  • Kunal Godhwani, Adv. for the Appellant.
  • P. Ramesh Babu, Adv., Ramji Srinivasan, Sr. Adv. & R.S. Sravankumar, Adv. for the Respondent.

Facts of the Case

In the instant case, the appellant awarded a contract to the corporate debtor and advanced an amount as a mobilization advance. Meanwhile, an order was passed by the Adjudicating Authority (NCLT) initiating the CIRP against the corporate debtor and the appellant filed its claim to RP as a financial creditor.

The RP informed the appellant that its claim couldn’t be considered as operational creditor or financial creditor, however would be considered in the capacity of other creditor. Thereafter, the appellant filed its claim as other creditor reserving its right to approach the NCLT.

However, RP informed the appellant that its claim would be considered in the capacity of other creditor only when the appellant accepted that it was neither the financial creditor nor the operational creditor. The appellant filed an application before the NCLT challenging rejection of its claim.

Subsequently, the CoC approved the resolution plan, and RP filed an application for approval of the resolution plan. However, the NCLT by the impugned order approved the resolution plan and dismissed the application filed by the appellant.

Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT. The appellant contended that the mobilization advance given to the corporate debtor was financial debt.

The NCLAT observed that the mobilization advance given by the appellant to the corporate debtor did not fall in any of clauses (a) to (h) of section 5(8) of the IBC and, hence, the appellant couldn’t avail any benefit of provisions of section 5(8)(i).

NCLAT Held

The NCLAT held that the mobilization advance given by the appellant to the corporate debtor was in pursuance of an EPC contract agreement between parties, and the amount of mobilization advance given by the appellant to the corporate debtor was an operational debt.

Further, the NCLAT held that the resolution applicant was under obligation to include a claim of the appellant as an operational debt and make payment to the appellant as an operational creditor. Accordingly, the appeal was allowed.

List of Cases Reviewed

• • Order of NCLT (New Delhi) in I.A. No. 3197/ND/2020, dated 12-1-2022 (para 12) reversed
  • Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions (P.) Ltd. [2022] 135 taxmann.com 97/171 SCL 56 (SC) (para 12) followed.

List of Cases Referred to

• • IDBI Trusteeship Services Ltd. v. Abhinav Mukherji [Company Appeal (AT) (Insolvency) No. 356 of 2022, dated 12-7-2022] (para 9)
  • Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions (P.) Ltd. [2022] 135 taxmann.com 97/171 SCL 56 (SC) (para 11).