Advance Payments made by Receiver of Goods is also an Operational Creditor: NCLT [Read Order]

The National Company Law Tribunal (NCLT), Chandigarh bench held that the receiver of goods who has made advance payments for the goods purchased is also an Operational Creditor.

Operating under the brand name "Zepto," Kiranakart Technologies Pvt. Ltd. is an Operational Creditor that deals in business-to-business (B2B) consumer products trading. Alternatively, Hyretail Technologies Pvt. Ltd., Corporate Debtor, is involved in grocery and dairy product distribution, wholesale supply, warehousing, and logistics.

In order to acquire fresh milk stock and other dairy products including curd, yogurts, and paneer, the Operational Creditor and the Corporate Debtor reached an arrangement through the issuance of multiple Purchase Orders. However, the Operational Creditor withdrew its business from the Corporate Debtor and wanted the money back because the Corporate Debtor's supply was less than the Advance Payments provided by the Operational Creditor through Purchase Orders.

CSR Is More Than Just Compliance! Discover its real impact - Click Here

The Operational Creditor stopped returning the Operational Creditor's calls and correspondence and failed to pay its operational obligation on time. Accordingly, the Operational Creditor sent the Corporate Debtor a demand notice under Section 8 of the Code, but the Corporate Debtor did not respond. Then, citing an unpaid operational debt of Rs. 7,57,60,073/-, the operational creditor filed a Section 9 petition to initiate insolvency proceedings against the corporate debtor.

Liberty Granted to File Fresh Application does not Permit Alteration of Default Date in Application u/s 7 of IBC: NCLAT [Read Order]

The Corporate Debtor argued that it had not accepted money for goods supplied, but rather for business expansion, from the operational creditor. As a result, the funds cannot be classified as loans because they were obtained from other sources in order to expand the business.

The Corporate Debtor said that while its operations were initially restricted to Faridabad, both parties decided to extend their operations into Gurgaon, including logistics and warehousing. But following its growth, the Operational Creditor ceased doing business with the Corporate Debtor. According to the statement, WhatsApp conversations demonstrate that the Operational Creditor recognized their efforts to grow their firm.

CSR Is More Than Just Compliance! Discover its real impact - Click Here

The Operational Creditor continued business transactions until 31.07.2023 but then suddenly stopped payments, despite committing to Rs. 50 lakhs for continued operations. The Corporate Debtor allegedly incurred Rs. 1.5 crore as additional expenses on business operations based on false commitments.

In addition, the corporate debtor argued that there were inconsistencies in the ledgers because, although purchase orders were raised under the name "Kiranakart," payments were obtained from other organizations. According to the Corporate Debtor, the Operational Creditor has withheld important information from the Tribunal and owes them Rs. 7 crore.

The bench discovered that the Corporate Debtor had raised bills for the provision of fresh milk and other dairy goods to the Operational Creditor after the Operational Creditor had paid the Corporate Debtor in advance for these items.

Adjudicating Authority cannot Reject Plan Based on Valuation Report When No Objections were Raised by Stakeholders: NCLAT[Read Order]

For the Operational Creditor's business expansion, the Corporate Debtor claimed to have received ₹4.20 crore from Nehat Tech Solutions and ₹12.50 crore from Interropac Private Limited. The tribunal noted that the corporate debtor had not submitted a balance sheet that would have indicated whether this transaction was an equity investment or a loan. Therefore, the Corporate Debtor's argument that the aforementioned sum was needed for business expansion is without merit.

CSR Is More Than Just Compliance! Discover its real impact - Click Here

Numerous reconciliation statements found in the records demonstrate that the Operational Creditor paid the Corporate Debtor more than Rs. 1 crore, which the Corporate Debtor has yet to return, even though the Operational Creditor stopped doing business with the Corporate Debtor.

The division bench of Shri Harnam Singh Thakur (Judicial Member) and Shri Ashish Verma (Technical Member) that the Corporate Debtor from time to time has admitted to have received funds from the Operational Creditor in advance against the supply of products and amount in excess of Rs.1 crore are still lying with the Corporate Debtor even after all the reconciliation as available on the records are taken into account.

The Tribunal admitted the section 9 petition holding that the amount admitted to be paid by the Corporate Debtor to the Operational Creditor meets the threshold limit for initiating insolvency proceedings.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates