Application u/s  9 of IBC cannot be rejected solely on ground of Decree Obtained by  Operational Creditor: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi has ruled that an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) cannot be denied based only on the fact that the operational creditor no longer qualifies as such after receiving a debt decision.

The Delhi Metro Rail Corporation (DMRC) issued a contract to Senbo Engineering Ltd., the Respondent, and Venus Buildtech India Pvt. Ltd., the Appellant, as a subcontract. After finishing the task, the appellant requested payment. The Appellant was forced to bring a claim before the Civil Court due to non-payment, and the court issued a decree in the Appellant's favor.

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As a result, execution procedures were also started, but no money was transferred. After then, the appellant filed an application under section 9 of the Code, but it was denied since a decree holder is not the same as an operational creditor. The appellant argued that just because the appellant got a decision from a civil court, it does not mean that the operational debt that belonged to the respondent will be changed. The Adjudicating Authority erred in dismissing the application under section 9 of the code, and the appellant was an operational creditor.

In contrast, the Respondent said that the Appellant had issued the decree of execution, realized a certain amount in the execution process, and obtained a certain amount even after using section 9 of the code.

The Adjudicating Authority relied on the Tripura High Court in Sri Subhankar Bhowmik v. Union of India and Anr. where it was held that Decree Holders are classified separately from financial and operational creditors under the code with no further subdivisions within this category. The Code explicitly recognizes decree holders as a distinct class based on their decree but does not allow for their reclassification as either financial creditors or operational creditors.

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The bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) ruled that an operational creditor does not automatically stop being an operational creditor merely because they have acquired a decree.

The Tribunal concluded that the Adjudicating Authority erred in dismissing the application under section 9 of the code on the sole grounds that the appellant did not qualify as an operational creditor since he was in possession of a decree. The appeal was granted by the tribunal, which negated the contested order.

To Read the full text of the Order CLICK HERE

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